New York Attorney General Is Taking a Look at Foreclosure Threats

First Horizon Home Loan Corp., a subsidiary of the nationally chartered bank, First Tennessee National Corp., has offered to absorb loan payments and reimburse a Rensselaer County, N.Y., homeowner who alleges the bank illegally threatened to foreclose on his home. The move comes after attorney general Eliot Spitzer filed a lawsuit on behalf of the consumer, Richard Hall, of East Greenbush, N.Y.

"It's great, but I think it's unfortunate that it had to get to this point," said Donna Heinrichs, the consumer's attorney.

Mr. Spitzer filed the lawsuit in New York State Supreme Court here as a direct challenge to the Office of the Comptroller of the Currency, which maintains that it has the sole right to regulate nationally chartered banks. "The bank's actions in this case are preposterous," Mr. Spitzer said in a press release. "The consumer paid off his mortgage, but the bank continued to bill him for years, and now threatens to foreclose.

"The case also underscores the misguided policies of OCC, which has directed national banks to ignore state regulators attempting to enforce long-standing consumer protection laws."

The lawsuit argues that in 1974, Richard Hall took out a 25-year, $27,000 mortgage from Mechanics Exchange Savings Bank. The terms of the loan included an 8.5% interest rate and a monthly payment of $201.31. The loan was assigned several times, and since 1995 has been held by First Horizon Home Loan Corp.

Since 1995, the consumer made payments to First Horizon by automatic debit from his checking account. Despite the fact that the final payment was made in October 1999, First Horizon continued to debit $201.31 each month from his account.

In May 2003, First Horizon notified the consumer that because of an alleged error by Mechanics Savings in 1974, he should have been paying $16 more per month.

The bank said it was extending the maturity date of his mortgage to March 2010, thus requiring him to pay an additional $25,163.75. Mr. Hall, who had already paid $9,461.57 over the amount required under the mortgage, stopped the automatic debits. The bank responded by threatening to foreclose if he did not pay $12,320.49 within 30 days.

Once alerted to the problem, OCC ordered First Tennessee to stop foreclosure proceedings, according to comptroller John Hawke Jr. OCC also sent examiners to the bank to review their internal controls and practices. Terry Lee, senior vice president of corporate communications at First Tennessee, said the case in question is an isolated incident involving a miscalculation of a mortgage payout. Mr. Lee said the bank admits that the mistake resulted in the customer paying less than what was actually owed.

"As soon as were contacted by the OCC, senior First Horizon managers responded quickly, saying that although the loan had not been paid off, the mistake was not the customer's and First Horizon would absorb the remaining balance and reimburse the customer for any payments he had made after he thought the loan had been paid off."

Ms. Henrichs said she chose to contact the attorney general when she realized how much costly it would be for her client to pursue the matter through private litigation.

"In my opinion, the bank was using foreclosure as a way to attain more money than was rightfully owed," she said.

"Eliot Spitzer is the best thing that happened to consumers in New York. The only time we got their [the bank's] attention was through the AG. We need people like him, otherwise big, powerful banks will run rough-shot over consumers. Banks look at the individual consumer. You're kind of powerless unless you have someone like this to back you up."

Christine Pritchard, spokesperson for the attorney general said the office has filed a temporary restraining order to keep the bank from foreclosing on Mr. Hall's home.

"Just because the mortgage was taken out with a local lending institution, which was traded and is now an affiliate of a national bank, doesn't mean they can threaten to foreclose," she said.

As of last Thursday, the case was still pending with the attorney general's office and no settlement had been reached.

"If it is shown that a financial institution, regardless of their charter has violated the law, this office is going to show that illegal debt collection occurred. We will provide relief for the consumer and pursue this case very aggressively."

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