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FALLOUT FROM AMERICAN HOME MORTGAGE BANKRUPTCY

WHAT HAPPENS WHEN A MORTGAGE COMPANY USES TRUST MONEY FOR OPERATING FUNDS?

Heard on the news today. About a dozen home owners in Frederick County, MD have
been noticed by the Frederick County Office of the Treasurer, that their real estate taxes have not been paid.

These are home owners with American Home Mortgage and their real estate taxes and hazard insurance
was collected and held in their escrow acount as a condition of their mortgage loan. Taxes are due every
6 months in Maryland and were due July 1, 2007.

Many mortgage companies require taxes and hazard insurance to be escrowed and if the buyer wants to make payments outside their mortgage payment, the mortgage companies charge a .025% higher interest. I've had several do so. I'll bet more home buyers will be wanting to do so in the future.

According to the Frederick County tax office, the checks from American Home Mortgage, which is in
bankruptcy, have bounced. The county tax office has noticed the home owners that their taxes have not
been paid. American Home Mortgage "assures" the county that the taxes will be paid.

Payment of the real estate taxes is the responsibility of the home owner and they are the ones who will
have to make sure that the taxes are paid. It is the home owner that will lose if their taxes are not paid.
They have probably already incurred late fees since the taxes are past due.

This is very interesting because the tax money or any trust money should be held in an account
designated for the purpose of paying the real estate taxes and insurance, not used for operating funds.

American Home Mortgage (AHM) filed for bankruptcy August 6, 2007. However, Fannie Mae has agreed to permit AHM to continue to service a portfolio of $5.200,000,000 in government-backed mortgage loans. AHM will continue to service 36,700 loans, about 15% of it's total loan value. AHM has until October 31, 2007 to sell the servicing unit.

American Home Mortgage is in Chapter 11 bankruptcy so is the "debtor in charge" and can make their own budget decisions and will file a report with the U.S. Trustee's Office monthly. One question is, did they violate the trust accounts prior to filing for protection? In that case, if someone alerts the trustee, US Attorney under the Department of Justice, it could be trouble for the Officers of a public company that authorized using the trust money for operating funds.

Who knows, we might see a "Perp-Walk" yet.

Courtesy: Homefinders.com

Posted by Lenn Harley, Broker, Maryland and Virginia on 09/12/2007 01:51 PM

Comments (29)

mortgage fraud

29 Comments on FALLOUT FROM AMERICAN HOME MORTGAGE BANKRUPTCY

SEP

2007

That is extremely disturbing that a check from a trust account bounced. Someone should be in big trouble.

Lenn,

Very interesting. Since a mortgage is also a 'deed of trust', I wonder where the invester and/or the servicer stand in regard to all this. Presumably homeowners are making payments currently to someone. Interesting!!! Thanks, Fran

Oh gosh, Lenn, what else can happen ? This is terrible, why would they be using their clients taxes to fund other loans. I have heard it all now. Hopefully, some lender here on AR will pipe up. I didn't know they could do this ?

WOW... these people should go to jail!

I have had a check returned to me from an attorney's trust account......they screamed oh, no, it was a mistake, please redeposit.....

Uh oh! Someone is in trouble here. This is not right.

Oh my, this is bad news. I can't imagine using money from an escrow account. That money isn't theirs!!! Unfortunately things like this give consumers a bad taste in their mouths for all of real estate as a profession, not just the lenders!

I want to know more too!

Lenn,

I've been saying: get out the dominoes. The sub prime nonsense was a mere smokescreen. Thanks, Fran

Not a good thing. Thanks for posting this information.

Trust money for operations.

YIKES! This is not good...I need to check on ours...the mortgage company is/was AHM....just what I need is my property taxes in arrears!

Randy. Let's hope someone is in big trouble. It would be about time.

Fran. Read again. I just added some info. It appears that American Home Mortgage will continue to service many of their loans.

Missy. They can't.

David. Want to take odds??

Julie. Never, never, never redeposit any check. Have the writer deliver Cashier Check and then look carefully and make sure it's not a phony. I'm speaking from experience. That happened to one of my agents last year.

Sally. Sure isn't. We can only hope someone is in trouble and that it's more than the poor homeowners.

Virginia. I agree completely. It's just one more nail under the fingernails of everyone in the real estate industry, that includes us.

Fran. I believe you are correct.

Sam. That is the worst thing that any company with trust acount can do. These guys are not stupid. They know better.

Mary. By all means check it.

Oh my God. Those poor people. I can't imagine the hardship that many people will face having to somehow come up with the extra money to make property tax payments. And insurance? Will they have had insurance lapse? This makes me sick.

Kris.

You're right. It's very serious. Taxes in Frederick County have gotten pretty high too. So has hazard insurance. This is really surprising. This is probably the worse fallout from American Home Mortgage that I've seen.

These are not families that got bad loans or with adjusting arms. These are families that had money stolen from them.

Why isn't anyone from the former mess at AHM speaking up on this post (or on AR, for that matter), with what they're hearing from other displaced employees and loan officers? This is only the harbinger of worse things to come down the road, I'm afraid.

I'm afraid Fran is right...there is more to come. Will you let us know if prosecutions result?

SEP

2007

Leigh. It's beginning to take on the specter of Enron. I see the same thing coming for Countrywide too. Is anyone writing new loans with Countrywide???

Joan. I'll try. The media does little to no follow-up. But, I'll try to follow the local news better. This is a job for a good investigative reporter.

OMG...how did I miss this thanks Lenn.

Hi Lenn - what a shame for all those sellers everywhere that this is happening to. This is deliberate theft, and surely this will begin to make the news at some point. Just think, if it's a dozen or so in your area that you know of, how many others all across the country is this impacting?

Those losers should end up in jail - those who were part of this and those who knew about this going on. Someone somewhere gave the okay for this to take place....... I iwsh I knew an investigative reporter......

Ann

SEP

2007

Dominoe Effect Lenn - As if the current status of foreclosures weren't enough, now this. There needs to be an investigation, instead the media will continue it's coverage of real estate as it has, with it's own agenda.

Once the dominoes start falling, it's hard to stop. What next?

Bob. Very interesting and sort of "below the fold" in the news.

Ann. I agree completely. We need some "Perp Walks" for theft of trust money.

Paula. You're absolutely right. This should be front page news all over.

SEP

2007

My wife and I just found about this horrible fiasco, and we actually have a mortgage with them. Despite being up to date on all our payments (we thought!) it sounds like we may actually somehow be in jeaopardy of losing our home. Can that even be possible?

Please, I've seen story after story about this issue, but not one sugestion for what homeowners in this situation need to do to protect themselves from losing their homes. Please, what should my wife and I be doing and/or speaking to?

Scott. First thing to do is check with the county treasurer to see if your taxes were paid. Many mortgage servicing companies don't pay the tax due until September 30, even though it's due June 30. But, you definately need to know where you stand.

I would start with http://www.oag.state.md.us/Consumer/index.htm

Give them a call and find out who controls trust money in Maryland. I believe it would be the Commissioner of Financial Regulation. http://www.dllr.state.md.us/finance/

Also see.

http://www.dllr.state.md.us/finance/advisories/advisory09-07.htm

Save your money. Ultimately, the home owner is responsible for their tax payment.

Thank you for the help. Does any of that change if we live in Washington instead? (I understand the company is in Maryland, but we aren't, if that matters.)

Also, do we just keep sending our mortgage payment to them, and I guess minus the escrow? Some part of me knows they're going to try and charge me a late fee for not sending the "whole" amount. (Our past experience with AHM customer service has been terrible, and that's being generous.)

Scott. Washington DC or Washington State?

Washington state

SEP

2007

Scott. The reason I assumed that you were in Maryland is because the article I wrote above was for Frederick County, Maryland.

You need to contact your tax office for the county in which you own a home. Check to see if the last tax payment was made by AHM from your escrow account.

SEP

2007

I am a Mortgage Broker and am very concerned for the home owners. They make the payments like they are supposed to and the lender servicer doesn't pay the taxes. There is a chance of losing their home. Ultimately the home owner will be liable for the taxes and could have their home auctioned off on a tax sale worse case scenario. Just stay informed. This goes for some of the other servicers that filed for Bankruptcy this year including: New Century, American Home Mortgage Investment, Corp., etc.

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