In the Sub-Prime of Life

The case involved a married couple who filed for bankruptcy and disputed an additional $30,000 that Litton said they owed. The appellate court's ruling included statements from the trial judge, who repeatedly asked Litton's lawyers to provide clear itemized statements, and, apparently unsatisfied with what the lawyers presented, finally said, “Well, I don't get it,” and ruled in favor of the borrowers.

When Litton appealed, the appellate court was similarly puzzled over the mysterious $30,000.

“We agree with the trial court that what Litton provided was gibberish,” the opinion states. Elsewhere in the ruling, the judges state that, in addition to being “gibberish,” Litton's paperwork might also be classified as “sketchy.”

When asked about that description, Larry Jr. said, “Number one, we do not use gibberish. I would completely disagree with that characterization.” He said the majority of judges involved in Litton litigation have no problem understanding the company's itemized statements.

A few months before the Seattle judges were scratching their heads over the unexplained $30,000, a judge in a federal district court in Philadelphia was trying to get his arms around a seemingly spontaneous $40,000 that popped up on another borrower's bill. The only clue to the riddle was Litton's description of the sum as “other fees due.”

When that amount appeared on her bill, according to the adjudicator's decision, the borrower asked her lawyer to write to Litton, seeking an explanation. Litton's response was to send a letter directly to the borrower saying her lawyer was not authorized to represent her. (Naturally, since Litton did not believe the woman's lawyer was allowed to represent her, the lawyer did not receive a copy of that letter.)

The adjudicator found that Litton violated state and federal laws mandating that borrowers receive accurate statements and answers to questions about their bills. He ordered Litton to pay the borrower $31,000, the bulk of which was for “suffering.” The decision was later dismissed and the parties settled out of court.

It's not surprising that these problems were revealed after the borrower filed for bankruptcy, which is often the only chance a person has to save his home from foreclosure. Between January 2002 and April 2007, more than 5,000 Litton customers in Texas have filed for bankruptcy.

When Litton fired Murray, the company offered her a $6,000 severance package if she signed an agreement stating she would not sue or otherwise complain to a third party. Since Litton claims to spend about $50,000 on a typical foreclosure, the company was prepared to spend upwards of $56,000 to fire a borrower who owed $4,000. (Murray declined the severance package).

Larry Jr. said he could not discuss Murray's case, and when he was asked if it was company policy to fire employees who were also serviced by Litton, he said, “Do you want employees...who are having their own difficulties counseling consumers that have difficulties...?” (Technically, Murray did not counsel consumers; she was a researcher.)

However, Larry Jr. said he understands that Litton employees often deal with borrowers experiencing a crisis, and the employees are sensitive to that.

“There's no excuse for bad service,” he says. “We don't have an obligation to give [borrowers] an answer they like every time. But we have an obligation to listen to the problem, try to develop a solution to the problem that's reasonable and then try to execute that.”

Yet there are bound to be borrowers who just won't budge.

“Sometimes people aren't interested in keeping their homes, or people have unreasonable expectations,” he says. “Unfortunately, we're not always able to accommodate those expectations.”

In her detailed complaint to the Better Business Bureau of Greater Houston, Murray says her supervisor was anything but sensitive. Over several private meetings, she wrote, her supervisor told her to “shut up” and, in one instance, asked Murray, “How did you get the house?” If that is to be believed, it would appear that a Litton superior has no understanding of the predatory loans that critics and federal agencies have said make up a significant amount of loans serviced by his very own company.

According to Larry Jr., there are just plain bitter borrowers who blame Litton for their own irresponsibility. Ostensibly, these are the kind of borrowers attempting the class action suit filed in California in 2005. The suit alleges violations of the Real Estate Settlement Procedures Act and unjust enrichment, among others.

The suit alleges that “Litton has engaged in a scheme by which it fails to accurately service its borrowers' loans and then falsely claims that the borrower is in default and collects unwarranted fees from its customers.”

Specifically, the alleged scheme includes misapplying or failing to apply payments, prematurely referring accounts to collection, and forcing insurance policies on homes that are already insured. (The attorneys who filed the suit did not return multiple Press calls seeking examples of evidence the attorneys had to support these claims. The attorneys haven't said how many plaintiffs they have, and the judge in the case hasn't yet ruled on if there are enough for a class action.)

In an unrelated action, the Federal Trade Commission and HUD accused Salt Lake City-based servicer Fairbanks Capital Corp. of similar actions in 2003. Without admitting any wrongdoing, Fairbanks agreed to pay $40 million into a trust for borrowers that the government agencies said were victims of fraud. Fairbanks' founder and CEO also agreed to pay $400,000. Fairbanks now conducts business as Select Portfolio Servicing.