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Fighting foreclosure: Bill and Georgianne Crabill say they were victims of predatory lending.

Photo: Alicia Soslman

For Sale, by Lender

As foreclosures in the subprime market increase, many rally for fixes to what they say is a broken system

By Nicole Klaas


Bill and Georgianne Crabill were at work on April 27, 2004, the day they say a subsidiary of the largest financial group the world began formal proceedings to steal their home. So the papers to foreclose on the couple’s property—a two-story Cape Cod that they built in Voorheesville shortly before their marriage in 1976—were served to their son, Bill Crabill Jr., who was shooting hoops in the driveway outside the place he had called home for his entire 24 years.

By the time the foreclosure papers were served, the Crabills, per the advice of their attorney, hadn’t opened their checkbook to CitiFinancial Mortgage Company for nearly one year. Despite repeated phone calls and letters threatening foreclosure, they refused to pay one cent of the more than $20,000 of outstanding balance CFMC reported they still owed on their home-equity loan, contending that the figures were falsifications, the product of an unusual series of problems caused, at least in part, by misleading lending terms and corporate maneuvering.

“You’ve got this bank with a trillion dollars in assets and then you have two people who have trouble finding 50 bucks,” says Warren Redlich, the Crabills’ attorney. “The largest banking group in the world tried to steal their house. It’s kind of one of those things where they [CFMC] have 1,000 little machines walking along, and there’s one guy watching them. One of the machines kind of bubbles a little, and that guy’s too busy. He doesn’t notice. It’s like they’ve created this monster that they can’t even control that eats people like the Crabills.”

By most definitions, the Crabills’ loan with CFMC falls into a category known as subprime—a type of loan that’s characterized by higher-than-average interest rates and typically is offered to applicants who may not otherwise qualify for a standard loan. According to Redlich, the Crabills’ loan also falls into a subset of the subprime market known as predatory lending—generally defined as loans that involve deceptive practices or contain unfair terms and conditions.

The terms incorporated into the Crabills loan are so complex that when Georgianne and Bill began seeking legal counsel to help them resolve the disputed loan balance, several attorneys turned them away, calling the case too complex or time-consuming for their office to handle. Another suggested that the Crabills file for bankruptcy.

“We said, ‘No, no, no,’ ” Georgianne says. “We don’t do bankruptcies. We’re honest people. We pay our bills. We don’t try to get out of things by doing something like that.”

When the Crabills approached Redlich, he agreed to take the case, in part because his practice was young and he needed work. He quickly realized, however, that the complexities of the loan were above his head as well, and he hired Calvin Bradford, an expert in issues of housing, insurance and credit, to make sense of the matter.

“I don’t recall seeing more complicated or misleading loan conditions in my 30 years of work in this field,” Bradford writes. His testimony cites several ways in which the Crabills’ loan violates federal lending laws or at least engages in what at one point he calls “legal gymnastics.”

Within the financial industry and as a matter of public opinion, there is broad-based consensus that predatory lending is a deceptive and harmful practice that should be curtailed. The problem is that there’s simply little agreement about where to draw the line between subprime and predatory, and financial institutions aren’t about to voluntarily point out which of their loan agreements fall into the inferior category.

“It’s more of an interpretation than truth in fact,” says Jonathan Pinard, president of the Empire State Mortgage Bankers Association. “If it was truth and fact, then it’d be really easy for people to go to court and get the loan null and void because it was predatory.”

Even in cases where the line is less hazy, the demographics of borrowers who are most susceptible to subprime and predatory loans means borrowers have limited options when seeking recourse.

“The thing about predatory lenders is that the people they deal with do not generally have the resources, the education, the background, the money to hire lawyers to deal with it when they get screwed,” Redlich says. “So [the lenders] consistently find ways to steal money from the people that are their customers.”

If not for the dispute about the outstanding balance on their CFMC loan, the Crabills likely never would have realized there was anything questionable about the terms of their loan. While they were aware that they were paying more in interest and fees than borrowers with better credit, that was expected, says Georgianne. The possibility that CFMC may be cheating them out of money by finagling complex loan terms was not.

During the late 1990s and early 2000s, there were many borrowers like the Crabills. A national environment of low interest rates helped fuel a housing boom, and consumer demand for home loans soared. In response, lenders began relaxing their guidelines in order to accommodate borrowers who, because of their credit ratings, otherwise wouldn’t qualify. The subprime market emerged, and began gaining national attention.

In addition to the surge of new mortgages, low interest rates encouraged many homeowners to refinance. Some borrowers with prime loans were even enticed to refinance into the subprime category, lured by cash-out options—loans created for more than the old loan so that borrowers receive the difference in cash.

The boom in refinancing lasted through the early 2000s, with large percentages of mortgage and home-equity borrowers, including the Crabills, weighing refinancing options.

During May 2003, Georgianne was at work when she re - ceived a cold call from Paula Stitt, a representative of CitiFinancial. “She said, ‘We’re doing a customer-appreciation campaign. We decided to start doing that because the only time we ever contact our customers is if they’re not paying their bills, and we never reward the people who do have a good payment record,’ ” Georgianne recalls.

Stitt offered the Crabills an option through CitiFinancial—also a subsidiary of Citigroup but separate from CFMC—that would allow the couple to refinance their current home-equity loan at a lower interest rate. Even more attractive was the fact that the Crabills could refinance for more than the CFMC loan amount and use the excess to pay off other bills.

A closing was scheduled for July 8, 2003. Georgianne says Stitt asked them to come with the balance-due amounts for any private bills while Stitt would obtain the payoff figure from the CFMC loan because it was a sister company. After three days—a right-of-rescission waiting period required by the federal Truth in Lending Act—the Crabills returned to sign the checks.

“[Stitt] told us that she got our mortgage payoff as $121,000, but she made the check out for $122,500 to cover any per diems or interest that was being added on in the meantime after she got the payoff amount,” Georgianne says. “She said you’ll probably get $1,000 or more back after they receive this check.”

Two weeks later, July 21, Georgianne was taking a two-day vacation from work and was home when Stitt delivered unexpected news. “She called me at home and said, ‘Georgianne, I have to talk to you. I haven’t been able to mail this mortgage-payment check.’ I said, ‘Why?’ and she said, ‘Because they’re telling me that you still owe $2,600.’ I said, ‘What? Wait a minute, Paula, we did this closing on July 8. This is a done deal. How can you come back and say that we still owe?’ ”

During the following weeks, Georgianne says that she and Stitt both placed multiple calls to CFMC representatives to inquire about the final payoff amount, but they were regularly cited conflicting amounts that ranged from $113,000 to more than $124,000.

“That’s when [Stitt] started saying, ‘I don’t know what they’re doing,’ ” Georgianne says. “ ‘Georgianne, let me tell you,’ she said, ‘they’re screwing you. Get an attorney.’ That’s what she said to me.”

Homeownership 101: Minnie Rahman leads homeownership workshops at the Affordable Housing Partnership.

Photo: Alicia Soslman

After weeks of confusion, Stitt finally mailed a payoff check for a little more than $114,000. Later that month, the Crabills received an August statement from CFMC that showed a $0 balance. They didn’t receive a statement the following month.

Then, in October, another statement arrived in their mailbox, displaying a balance of $20,526.65.

Based on her private calculations, Georgianne says the lower payoff figures she was quoted by CFMC representatives seemed more accurate than those on the higher end. For this reason, and because they’d already made a closing in good faith, Georgianne says she wasn’t about to give CFMC any more money unless they could provide a breakdown of what the Crabills still owed and why. Despite her requests for full documentation, Georgianne and Stitt continued to receive documents insisting that the higher amount was correct, but without a complete breakdown.

“We had no intentions of dragging it this far,” Georgianne says as she thinks back about the events of the past few years. “All we wanted them to do was look at [the situation] and see what happened and fix it. I said that if we owed them money, we would pay it, but I’m not paying them something that they can’t prove to us that we owe them.”

As the housing market cooled and interest rates rose, the potential long-term ramifications of the new subprime market began to emerge, especially since the beginning of this year. Some borrowers are finding they can no longer afford the loan—typically sold as an adjustable-rate mortgage—that seemed so promising a few years earlier.

Tracy Petersen is a program coordinator at the Affordable Housing Partnership in Albany, which provides free homeowner counseling to Capital Region residents, including prepurchase services and assistance for those who fall behind with mortgage payments. “I’m getting more calls for mortgage-default counseling than we’ve ever gotten in the last seven years I’ve been at this agency,” she says.

At a conference last fall, Petersen says that she was told to expect an increase in mortgage foreclosures—and therefore in her workload—as borrowers, faced with the possibility of losing their home, seek out assistance. “They were so right,” she says. “I’m not sure where in the country it started, but it hit here.”

Nationally, the percentage of homeowners with subprime loans who are behind in their payments or in foreclosure has jumped by full percentage points within a matter of months, causing some lawmakers and civil-rights groups to sound the alarm.

Several organizations are calling for an immediate six-month moratorium on foreclosures on subprime loans, while state and federal lawmakers float ideas of their own. Both New York senators have released statements in recent months that note problems with the subprime market and call for urgent action.

During March, Sen. Hillary Clinton (D-N.Y.) reintroduced the 21st Century Housing Act, designed to modernize the Federal Housing Administration and enable the agency to provide more homeowners with alternatives to the subprime market. She joined other federal lawmakers in supporting initiatives to expand access to prepurchase counseling and to strengthen the Truth in Lending Act.

“The subprime problems are now creating massive issues on Wall Street,” Clinton says. “It is a serious problem affecting our housing market and millions of hard-working families buying a home, many of them for the first time. The market is clearly broken, and if we don’t fix it, it could threaten our entire housing market.”

If the upward trend in foreclosures continues, the trickle-down effect will have broad implications for communities across the country and in the Capital Region, agrees Petersen. If area residents begin losing their homes in foreclosure, she worries that homes could stay empty for long periods of time due to sluggish growth in the region’s real-estate market.

“Something needs to be done in the system fast, because if you get homes defaulting, it results in a change in the value of the remaining homes in the neighborhood,” Petersen says. “The truth is if you’ve got three homes in the neighborhood that nobody is living in because the homeowners couldn’t afford it and it hasn’t been sold, those homes are usually boarded up. If you think that’s not going to affect the value of your home, you’re crazy.”

Before the emergence of the subprime market, it was nearly impossible for applicants with low credit scores—generally considered to be less than 620—to obtain home loans. Today, as talk of late payments and foreclosures dominate media attention, the new type of lending known as the subprime market has taken a beating in news reports and the court of public opinion.

“I think that there’s been a lot of negative [press] because it’s easy to say things negative, but there are a lot of positives that are being ignored,” Pinard says. Among borrowers with subprime loans, only about 10 percent currently are delinquent with their payments. “If 90 percent of them are paying on time at any given month, it’s really hard to say the whole system is flawed.”

He says he knows that there are people who are taken advantage of in the subprime market through loans that may be considered predatory or otherwise contain suspect terms and conditions. Acting too quickly, or implementing policies that are too broad, however, could do more damage than good by undercutting the possibility of homeownership for many Americans with low credit.

“If we never gave them a mortgage, they wouldn’t be in foreclosure,” Pinard says, “and we forget the fact that the same individual never would have had the opportunity to own a home.”

“There is a loan out there for anybody,” Petersen adds.

She tells of clients with poor credit with whom she has met for prepurchase counseling. “We talk about credit and what they need to do to fix it, but instead of taking the time to fix the credit issues, they decide, ‘I gotta have a house now. I just gotta.’ There is a lender that will meet that need. They don’t care if you’ve never met a bill. They’ll just charge you 11 percent interest and make that rate adjustable because you’re very, very risky.”

It has been exactly three years since the younger Bill Crabill was served with papers to foreclose on his family’s home. Bill and Georgianne say that they’re still waiting for an explanation and some form of resolution.

“One of the things that bothers me about this process is that CitiFinancial Mortgage Company has never explained what they did,” Redlich says.

After CFMC filed the foreclosure action, Redlich responded with a counterclaim against the company for intentional infliction of emotional distress. “It’s not a very common claim,” Redlich says. “It’s a very hard claim to make because you have to show extreme and outrageous conduct, but most of the people I talk to consider filing a frivolous foreclosure action to be extreme and outrageous conduct.”

If a jury agrees that CFMC’s actions were so bad as to warrant a finding of intentional infliction of emotional distress, the jury also can choose to award damages to the Crabills for their pain and suffering.

“We never would have taken them to court if they had only tried to fix this,” Georgianne says. “We didn’t want to have three years of our life disrupted.” She describes how, for two years, she suffered from anxiety attacks caused by the stress of the threatening phone calls, letters and, ultimately, the foreclosure action.

“A couple of times I almost had him take me to the hospital because I thought I was having a heart attack, and it turned out to be anxiety attacks,” she says. “I’d wake up. I’d have to sit on the edge of the bed, and I couldn’t get my breath, and my heart’s racing. It felt like my heart was going to pound right out of my chest. And then I couldn’t sleep because I was afraid I wasn’t going to wake up in the morning.”

Georgianne began taking anxiety medication, and her prescription for high blood pressure also was adjusted.

Even though CFMC later withdrew the foreclosure action, the case still is pending in Albany County Supreme Court because of the Crabills’ countersuit. Assuming the case makes it to trial, in addition to the possibility for damage payments for the Crabills, the jury could decide to charge the company in punitive damages as well.

“They’re called predatory lenders because they’re preying on their customers and they steal money from them, and the vast majority of people who they do it to have no way of fighting back,” Redlich says. “Usually when a lawyer steps up and says, ‘Hey, you guys screwed up. Now fix it,’ usually predatory lenders back down and pay off and try to quiet everything down because they don’t want everything to blow up in their face. And for some reason we don’t understand, they’re idiots and they didn’t recognize, ‘Wow, we screwed this thing up, we had better step down.’ ”

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