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Distressed homeowners oppose bills narrowing liability of banks in mortgage disputes

helenair.com | March 15, 2015

By Mike Dennison

Lincoln homeowner Pat Freeland told a House committee Thursday that when Bank of America officials said they were modifying her mortgage to avoid foreclosure, they lied -- and that lawmakers shouldn’t vote for a pair of bills protecting the banks from liability.

“I’m telling you right now, as long as our hometown banks are selling these loans to megabanks, we are at risk as homeowners,” she said. “What we had was not free-flowing communication with our banker, but free-flowing lies.”

Freeland joined several homeowners and attorneys testifying against Senate bills 280 and 281, which would narrow the liability of banks for their lending practices and forbid the award of punitive damages in consumer-protection lawsuits.

They said if the two bills had been in effect, many Montana homeowners who sued Bank of America and other lenders for misleading them on the status of their distressed mortgage would have had no legal claim.

“I believe voting for these bills will take the voices and power away from common Montanans and protect these banks from their own fraudulent behavior,” said homeowner Theresa Bybee of Billings.

Lobbyists for Montana banks, however, argued Thursday for passage of the bills, which they said are needed to allow local banks to talk to their customers about redoing problem loans, without fear of getting sued.

SB280 addresses a 2014 Montana Supreme Court opinion, which said oral discussions between a bank and its customers are admissible in court to prove fraud, said the bill’s sponsor, Sen. Eric Moore, R-Miles City.

The bill would change the law to say a suit alleging contract fraud can be filed against a lender only for a violation that’s in writing.

Moore said banks need to be able to talk directly with borrowers about fixing distressed loans, without worried about getting sued for what they say.

“This is just a common-sense bill,” he told the House Business and Labor Committee. “In the real world in which we live in, we get things in writing. This bill is going to protect both consumers and banks from useless litigation.”

Bank officials and their attorneys said Montana banks now are being advised not to talk to customers about modifying a loan, because those conversations could be used in a lawsuit.

“Based on the (court) decision, it is going to be very difficult for our banks … to negotiate with borrowers who are in trouble,” said Jim Brown, an attorney representing the Montana Independent Bankers Association. “This (bill) gives us some certainty that we won’t be sued for any discussions on modifications for a loan.”

The House panel took no action Thursday on the bills, which passed the Senate late last month on mostly party-line votes, with Republicans in favor.

Attorneys for the banks said the bills sponsored by Moore don’t take away the right of anyone to sue banks over alleged fraud in lending activities or affect any ongoing litigation.

But lawyers for the homeowners said if the two bills had been in place before now, successful lawsuits against Bank of America or other lenders who misled homeowners would have failed, and the Supreme Court decision holding them liable for false statements wouldn’t have happened.

Al Smith, executive director of the Montana Trial Lawyers Association, said while Montana banks say the bills are aimed at helping them, the big banks who buy mortgages from local lenders are the ones who will be protected.

“Montana bankers are doing the right thing,” Smith said. “The problem with Senate Bill 280 is that it protects not just the bankers who are doing the right thing; it protects those bankers who are doing the wrong thing. And that is absolutely the wrong thing that this Legislature should be doing.”

Freeland and her husband Richard said they spent several years trying to get a modification of their home mortgage, after the recession hit their contracting business, but that Bank of America consistently misled them and eventually foreclosed on their home.

The Freelands sued Bank of America and settled the case after the Supreme Court decision, and still have their home.

 

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