Last year at this time, Big Island resident Nelson Ho and his wife were happily anticipating a more prosperous new year after deciding to refinance their existing mortgage.
Ho, a longtime community and environmental activist, said it was a mailing during the holidays from their lender, Bank of America, that finally led to their decision.
“They had been sending us flyers, saying we were good customers and could qualify for a re-fi,” Ho said.
And when a Christmas mailing said refinancing could cut their loan’s interest rate and monthly mortgage payments nearly in half, they were hooked.
“It sounded like a good deal,” he said.
On Feb. 28, 2014, they signed the papers and their new loan closed.
In the first month, their mortgage payment dropped from about $900 to just $470, just as the bank had promised.
“We were happy,” Ho recalled. “I’m still unemployed, and the lower payments would really help us.”
But within a month, the dream of lower payments and reduced stress evaporated as Ho was drawn deep into a nightmare which he says involved inept banking representatives, unethical and unfair treatment, broken promises, mistaken demands, unjustified charges, and layer upon layer of corporate run-around.
“We were trapped in a whole shell game they played,” Ho said in a telephone interview Monday.
Unable to resolve their dispute with the bank, Ho filed suit. The case has been set for trial in Hilo’s District Court of the Third Circuit beginning April 15, 2015.
Patricia McHenry, a partner in the Cades Schutte law firm in Honolulu that is representing Bank of America in the case, could not be reached for comment Tuesday.
However, in court filings, Bank of America says it did nothing wrong and that Ho’s claims are without merit. The bank is asking that Ho be required to reimburse its legal fees and costs.
Since the depths of the foreclosure crisis back in 2010, the nation’s major banks have responded to allegations of widespread mortgage fraud and deceptive banking practices by reforming their mortgage processing systems.
Bank of America alone has racked up $91 billion in legal settlements, judgments and fines by government regulators since the beginning of the financial crisis, according to an accounting by the financial website, The Motley Fool.
But Ho’s experience suggests the banking industry’s problems continue in new but familiar forms.
On March 20, 2014, less than a month after the refinanced loan went into effect, Ho said he received a notice from Bank of America warning that the family’s insurance for damage from high winds, lightning, and hail had lapsed.
At first, it seemed like a simple mistake.
Ho’s own records, and those of his insurance company, showed the policies had been continually in force both before and after the refinancing.
“It was the same policy we had had for this mortgage on this home under the earlier BOA loan,” Ho said.
But convincing Bank of America turned out to be an unexpectedly difficult task.
Ho called the toll-free number provided by the bank. Initially it appeared the problem was going to be easily resolved by providing their documentation. But then a second letter arrived in April, warning that the bank intended to purchase the necessary insurance and pass the charges on to the Ho family.
The kicker was that the bank-arranged policy would cost six times as much as a similar policy Ho could buy on the local insurance market.
They again telephoned Bank of America and began a series of conversations with customer service representatives that eventually stretched over several months.
A bank representative was eventually able to access the Hos’ insurance policy on her computer and confirm that the coverage was in place, he said. This was again confirmed in early June by yet another bank representative, who said the bank-imposed insurance would be cancelled.
“I will make sure this is done,” she told Ho, according to him.
After these assurances from two bank representatives that their insurance was all in order, Ho relaxed. That was a mistake.
The next letter from the bank arrived in July, telling Ho that he needed to obtain “subsidence insurance,” or else it would be purchased by the bank, with the premium of $6,852.30 to be charged back to him. The letter provided a grace period, giving Ho until September to have the policy in place.
This is a practice referred to as lender-placed or force-placed insurance. When a homeowner doesn’t have required insurance, has inadequate coverage, or fails to provide proof of insurance, a mortgage lender can arrange for the necessary insurance at the borrower’s expense. It’s a practice that has come under increasing criticism nationally because the costs are often far above those of generally available policies, and there have been charges of improper coziness and even kickbacks between the banks and their carefully selected insurance partners.
In April 2014, Bank of America and an insurance partner agreed to pay $228 million to settle a lawsuit alleging it had systematically overcharged for insurance coverage it purchased when homeowners’ policies had lapsed. The suit alleged that the high cost insurance fees included kickbacks paid to the bank. In the same month, BOA agreed to pay $31 million to settle a similar case in Los Angeles involving force-placed flood insurance.
After repeated attempts to clarify the insurance requirement, Ho said he was told verbally that “subsidence” meant “hurricane.”
Ho says he was confused by the bank’s sudden flip-flop. “Subsidence is a geologic event, a hurricane is a meteorological event,” he said, wondering exactly what new insurance he was supposed to obtain. He felt he was being harassed.
When he sought clarification from the last bank representative he had dealt with, he was told the man was on vacation.
Unsure what to do next, Ho filed a complaint with the federal Consumer Financial Protection Bureau. This prompted another bank official to call and say it was now insisting on new hurricane insurance coverage. At this point, Ho says he went out and bought hurricane coverage through Allstate at a fraction of the cost being quoted by the bank.
Despite having added the hurricane insurance, Ho said he received a bill for thousands of dollars for retroactive force-placed hurricane coverage going back to the February date when the refinanced loan had closed.
Ho hired an attorney and filed suit.
Hilo attorney Steve Strauss, who represents Ho and his wife, said the main issues are Bank of America’s unfair and deceptive trade practices, which Strauss said violate Hawaii’s consumer protection laws.
Strauss said lenders have tried to protect themselves by claiming they are exempt from Hawaii’s unfair trade practices law, but that defense has been undercut by a 2014 9th Circuit Court decision that lowered the barriers for lawsuits charging lenders with unfair and deceptive practices.
“Hawaii has some of the best consumer protection statutes in the country,” Strauss said. “The threshold is clear and simple to meet, but not too many cases are brought because the amount of money may not be that big, or the issue may not have gone on for that long a period of time.”
“It is deceptive to essentially tell someone something, then later tell them something else, and to then say any costs resulting from the misinformation are on you as the consumer,” Strauss said.
“When BOA refinanced the Hos’ loan, it notified them their insurance has lapsed,” Strauss said. “It took three months going back and forth to convince the lender it had not lapsed. And the bank’s representatives informed them, ‘okay, you have adequate insurance and we’ll reverse these charges.’ But then, three months later, after abandoning the position that the insurance had lapsed, the bank suddenly says ‘your insurance is inadequate,’ although it was the same insurance that had been in effect previously with the same lender.”
“So they really had no notice the policy was being claimed to be inadequate,” Strauss said.
The lawsuit is seeking to recover all of Ho’s out-of-pocket costs, and also seeks triple damages as provided by the state’s consumer protection law.
A tentative settlement fell apart after lawyers representing Bank of America insisted on a confidentiality agreement that would not only prevent disclosure of the terms of the settlement, but also provided for “nondisclosure of material facts,” Strauss said.
“If we signed that, we couldn’t even tell you that the case was about force-placed insurance,” Ho said. “They want me to shut up. I’m not going to do that.”
“I’d rather be off hiking,” Ho said, “but we need a good public discussion about this kind of predatory practice.”