In lawsuit, Coakley says feds undermine anti-foreclosure law

Andy Metzger, State House News Service
Jun. 3, 2014

In a new lawsuit filed in Suffolk Superior Court, Attorney General Martha Coakley alleges two major lenders and federal regulators violated the state’s 2012 foreclosure prevention law, asserting that their "refusal to engage in foreclosure buyback programs is unfairly and illegally causing Massachusetts families to lose their homes." The suit stems from a case involving a Dorchester family.

The lawsuit against the Federal Housing Finance Agency and Fannie Mae and Freddie Mac claims that Boston Community Capital had been blocked from buying foreclosed homes and selling or renting them to the homeowners who missed mortgage payments.

The state court lawsuit pits state law against the policy of two federally chartered private corporations that purchase and repackage mortgages. The two own or guarantee about half the residential mortgage loans in the United States, according to the suit.

According to the AG’s spokesman Christopher Loh, the lawsuit is the first time Coakley has sued Fannie and Freddie, two home-lending mammoths that were heavily involved in the 2008 market collapse.

The suit claims Fannie and Freddie “engaged in unfair or deceptive acts” and seeks penalties of up to $5,000 for each unfair or deceptive act, attorneys’ fees and an injunction compelling Fannie and Freddie to comply with the foreclosure buyback program.

The lawsuit highlights the case of Ramon Suero and his family. Suero’s Dorchester condominium was foreclosed on in 2010 by Ocwen Loan Servicing LLC on behalf of Freddie Mac. Freddie refused to sell to Boston Community Capital at the fair-market value, allegedly demanding more from the non-profit than it would have required from other buyers. The Sueros sued in 2013, according to the AG. Freddie allegedly doubled the price of a Worcester home when BCC sought to buy it.

Freddie Mac declined to comment as did The Federal Housing Financing Agency, the conservator and regulator of Fannie Mae and Freddie Mac. FHFA took the lenders into conservatorship in September 2008 during the Great Recession market plummet that watchers have blamed on an overheated housing market, irresponsible lending, borrowing, re-selling and a lack of oversight.

The AG contends that Fannie and Freddie require that parties purchasing a foreclosed home “must attest ‘that there are no agreements, understandings or contracts’ that the borrower will remain in the property as a tenant or ‘later obtain title or ownership’ of the property.”

“Under the so-called ‘Non-profit Buyback Provision,’ a creditor cannot refuse to sell a property in Massachusetts to such an entity simply because that entity intends to thereafter sell (or rent) the property back to the homeowner,” read the lawsuit filed by assistant attorney general Claire Masinton.

In a letter Coakley wrote in May, she said Freddie Mac has refused to participate in BCC’s buyback program in Uphams Corner.

“Specifically, we believe that buyback programs implemented by credible not-for-profit institutions, and loan modification programs that permit principal reductions for distressed borrowers, are key to helping homeowners recover from this foreclosure crisis and restoring a healthy economy,” Coakley wrote in a May 14 letter to FHFA Director Melvin Watt.

Coakley said BCC’s stabilizing urban neighborhoods initiative has allowed nearly 500 families to remain in their homes with lower mortgage payments and the program’s rate of default is below the national average.

Editor's Note: US Senator Elizabeth Warren highlighted this issue in a June 2013 op-ed piece in the Dorchester Reporter.