One thing NC readers may have become attuned to, either via personal experience or some of the discussions we have had here, is how often a considerable portion of the value of a deal lies in releases (waivers of liability) or other provisions that might not seem all that important to the party signing away its rights.
Bloomberg reports that the state of Arizona has told the court that Bank of American is undermining the state’s investigation of its loan modification practices. The probe comes out of a 2010 lawsuit which alleged that Countrywide misled customers about its loan modification policies. So what did Bank of America do? It apparently gave mortgage mods to some (many?) of the people who had complained to state officials and had them sign an agreement not to say anything about the deal or disparage Bank of America. Per Bloomberg:
One 2011 accord involving a borrower facing foreclosure who defaulted on a $253,142 mortgage included a $5,000 payment, plus $7,500 for legal fees, and the defaulted payments were waived and the loan was modified to a 40-year term with a 2 percent interest rate, court documents show….
The borrower “will remove and delete any online statements regarding this dispute, including, without limitation, postings on Facebook, Twitter and similar websites,” and not make any statements “that defame, disparage or in any way criticize” the bank’s reputation, practices or conduct, according to documents filed in state court in Phoenix….
“These agreements have completely silenced even the most communicative consumers,” Matthews said in the filing. “The settlement agreement purposefully makes it impossible, legally and practically, for a consumer signing it to come forward, voluntarily and promptly, to provide evidence in this case.”
She asked a state judge to order Bank of America to notify borrowers who signed the agreements that they don’t have to adhere to the confidentiality and non-disparagement provisions.
This is all very entertaining. Remember, first, that it is not uncommon for parties to put provisions in contracts that are not enforceable in the hope they can snooker the unsophisticated into thinking they have to respect them. For instance, some landlords will try putting a “no roommates” clause in their rental contracts when New York city rent regulations allow tenants to take roommates. In addition, many confidentiality agreements contemplate that the parties might be compelled by judicial order to break the agreement; they contain clauses requiring the party subpoenaed to inform the other party to give them the chance to try to block the order. But there was apparently no language like that in these provisions that would clue presumably unsophisticated borrowers into the idea that these agreements could be superceded by court action.
Bank of America has amusingly adopted contradictory responses to being caught out. On the one hand, its formal response argues that these gag orders are “plain vanilla” that it uses “on an every day basis to resolve disputes”. In other words, this sort of language is perfectly routine and BofA use it all the time. Yet it ALSO said it uses it on a “limited” basis to settle disagreements and forestall costly lawsuits. Similarly, Bloomberg reports:
“We look at each situation on a case-by-case basis and decide what to do based on the specific situation,” Shirley Norton, a Bank of America spokeswoman, said in an e-mail.
Huh? First, they can’t have it both ways. Either they use this provision normally in mortgage mods or not. They seem to be muddying the water by bringing in ALL disputes the bank enters into. Yes, in a bank as big as Bank of America, I’d suspect they are just about never creating new legal language for a customer disagreement, so by definition any language could be characterized as “routine”. But the germane question is not how often it is used across the bank, but whether this is standard practice in mortgage mods. If not, it would confirm the Arizona AG’s allegations regarding intent.
In addition, how would this sort of gag order help BofA avoid costly lawsuits? Only if borrowers broadcast the info: “Heh, BofA told me incorrectly I had to default to get a HAMP mod, and they started to foreclose when they didn’t get a permanent mod, and I was talking to the AG’s office and they were super interested. And funny, BofA changed their tune and gave me really nice mod like X.” And that still isn’t a lawsuit (readers are welcome to tell me what scenario IN THIS CASE they think I’ve missed).
The point here is the AG has a point: despite BofA’s pleading, it looks like it was doing what it could (which may not have been all that much, given how badly organized most servicers are) to make its little bad servicing problem go away before the AG got to unhappy borrowers. If I were the judge, I’d have a lot of trouble with BofA’s wounded tone. Most of them are smart enough to see through pretenses of wounded innocence.