For more than a decade after her husband died, Laura Coleman Biggs paid her mortgage to a Bank of America subsidiary. She was never told, even as she was weeks from losing her home, that her husband had actually protected her against foreclosure.
George “Kenny” Mitchell had taken out a special lender-pushed insurance policy to pay off most of his loan if he died.
But when he passed away on April 26, 2003, the subsidiary of Charlotte-based Bank of America did not arrange a payoff of the $100,000 policy and continued to charge his widow an insurance premium every month along with her mortgage payment.
Now Bank of America, Select Portfolio Servicing – a company that collects mortgage payments – and a Florida insurer all face a federal lawsuit in California seeking compensatory and punitive damages, alleging negligence and fraud for their treatment of Biggs.
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Her lawyers hope it will pull others out of the shadows nationwide who’ve faced similar problems with the nation’s big banks, already forced to pay regulators billions over the housing bust. The plight of the former nurse speaks to how much dysfunction remains in the housing finance system, which nearly toppled the U.S. economy seven years ago.
Biggs was the subject of a story by McClatchy in December 2013 that documented how she was about to lose her home days before Christmas. Bank of America’s bill collector was telling her the home was not her husband’s primary residence. It couldn’t be: He was dead. Mitchell did reside on the premises – in an urn.
The McClatchy report helped stall the foreclosure. In the months that followed, Bank of America’s subsidiary offered Biggs a mortgage modification that added more than $30,000 in miscellaneous fees and legal fees and charges to the loan. That would have sucked out the equity she’d built up in the home. Her pro bono lawyer demanded a list of specifics on the fees.
One stood out to George Bosch, a legal administrator who worked on her case for the Los Angeles law firm of Edward Lopez. It was passed off as a fee but didn’t seem normal. Was it an insurance premium, he asked?
“Silence on the other end of the phone. They didn’t want to answer the question,” said Bosch.
A few days later, the answer came. Yes, it was an insurance premium, for a policy underwritten by Miami-based American Bankers Life Assurance Co. of Florida.
Her late husband had taken out a $100,000 policy with the original mortgage with NationsCredit Financial Services Corp., the subsidiary of Bank of America that specialized in lending to poor borrowers. He owed about $120,000 on the home when he died. That should have left his widow – now sole owner of the house – with little problem in paying off, over time, the remainder of the loan.
Instead, when she fell on hard times in 2011, Select Portfolio Servicing began a two-year move on behalf of the lender to take her home – even as they continued to collect the premiums on the insurance policy.
“I didn’t know that the insurance policy existed ... but I had told them about my husband passing,” Biggs told McClatchy in an interview. “They had several opportunities to tell me that there was a life insurance policy, and they just didn’t.”
The law appears murky on notification requirements, but lawyers for Biggs argue that she should have been afforded the basic contractual obligations of good faith and fair dealing.
New rules proposed
A spokesman for the Consumer Financial Protection Bureau said there were no hard numbers for how many complaints the bureau had received from surviving family members like Biggs about such insurance issues. But the treatment of mortgages and surviving family members is a big enough concern that the bureau established new protections that took effect in January 2014. Last November, the bureau proposed additional rules to make it harder for lenders and their bill collectors to foreclose on properties that have passed to surviving spouses or children.
“It shows the importance of the CFPB adopting rules that protect successors in interests, who are often widows with a mortgage, because there are a lot of problems in the transition” after a spouse dies, said Michael Calhoun, president of the Center for Responsible Lending, a housing advocacy group in Durham. “This is an example of one of them.”
In their Feb. 12 filing in U.S. District Court for the Central District of California, Eastern Division, attorneys for Biggs seek an unspecified amount of damages, alleging that Bank of America, its mortgage servicer and the insurer acted together and maliciously to ignore the insurance policy designed to keep her in the home. The lawyers don’t think her case is isolated.
McClatchy sought comment from Select Portfolio Servicing, but it has no public corporate number listed in Salt Lake City, nor does it provide one on its website. A loan specialist on its toll-free number took down McClatchy’s request to pass to corporate headquarters, but, as was the case with the 2013 story, there was no return call. Calls were made to the Miami-based insurer, with the same result.
Bank of America spokesman Richard G. Simon declined to discuss specifics, citing the lawsuit brought on Biggs’ behalf.
“This is an extremely unusual case that has been confounded by multiple situations, among them Ms. Biggs’ name not being on the loan; assertion of aliases used by Ms. Biggs’ deceased husband, George Mitchell, also known as Kenneth Walter Biggs; and by Ms. Biggs’ own lack of knowledge of an insurance policy associated with the mortgage,” the bank said in a statement, adding that “Bank of America did not service this loan for most of the time period pertinent to the allegations in the complaint.”
The statement noted that Bank of America’s partners had made good on what Biggs was owed.
Actually, she was sent a check for $24,512.65 last May 6 – far from the full amount owed – and another for $2,707.49, a 1 percent rate of interest on the amount. After protests from Bosch, the insurer sent another check on May 20, for the remaining $75,487.35, plus one for $8,360.92 in interest.
“I think there are hundreds, or thousands, of Mrs. Biggses out there,” said Peter J. McNulty, whose McNulty Law Firm sued on her behalf. “She’s the 1 percent who had the good fortune to find someone who gave her good legal advice.”
Internal controls questioned
Bank of America and its partners lacked, and may still lack, sufficient internal controls, the Los Angeles lawyer alleged.
“The bank knows everybody that has a death policy. There should be a way to automate that, whether they do that by a phone call or a letter ... they’d catch all the rest of the iceberg,” said McNulty.
Bosch’s firm had advised Biggs to file for bankruptcy to halt the foreclosure proceedings, a “nuclear” option that she started but later refrained from pursuing. Filing was enough for credit card companies to immediately cut her off.
“The next day, Bank of America closed my credit card account,” Biggs said.
Without credit cards, it’s been difficult for Biggs to pay for a needed new heat-and-air conditioning unit.
“The only heat I have in the house is the fireplace and the stove,” she said.
Her effort to stave off foreclosure on a property that had an insurance policy to prevent foreclosure ruined her credit and her life, she said.
“If anything goes wrong with my house, I don’t have the cash flow. I am just up the creek,” said Biggs, 67, a retired nurse with a bad back.
Something did go wrong shortly after the foreclosure threat lifted. Her roof was damaged and the homeowner’s insurance policy acquired through Select Portfolio Servicing covered $19,000 of a repair claim. The money was sent to Select Portfolio Servicing in January 2014, Bosch and Biggs said, but it wasn’t until that April 3, after prodding from Bosch, that Biggs got the money.
“Everything we came up with they turned away. The only thing they wanted was to take the house. I had a lot of equity in it,” said Biggs, who lives on a fixed income.
Select Portfolio Servicing, based in Salt Lake City, is owned by Credit Suisse, a global Swiss bank.
Last year, Credit Suisse agreed to pay U.S. regulators $885 million for what government lawyers said were shoddy practices that helped trigger the housing and financial crisis in 2008.
Bank of America agreed to pay $16 billion in the same settlement.