Homeowners in Chicago cheated by a mortgage fraud scheme are seeking to form a committee to protect their interests in the bankruptcy of Ditech Holding Corp., the company that owns their loans.
The Investor Protection Center at the Northwestern Pritzker School of Law filed a request for the creation of a committee of consumer creditors to represent borrowers who were victims of the scheme. The fraud targeted elderly African-American homeowners and coerced them into reverse mortgages with no benefits that left some in foreclosure, the filing states.
Ditech, the mortgage lender and servicer led by Tom Marano, filed for bankruptcy in February and has proposed a plan to restructure its debt that would release it from liabilities such as lawsuits filed by consumer borrowers. J. Samuel Tenenbaum, a professor of law at Northwestern, said the homeowners he helps represent will be harmed by such a release of liabilities.
The center's clients "are elderly, disabled, and lack the financial means to obtain representation, are the most vulnerable and at risk of harm in Ditech bankruptcy matters," Tenenbaum, who is the director of the Northwestern's Complex Civil Litigation and Investor Protection Center, wrote in the filing Friday.
Representatives for Ditech declined to comment.
Another issue that jeopardizes consumer rights is that Ditech alleges foreclosures should not be halted by the automatic stay ordered by bankruptcy court, according to the filing. Two of the homeowners who Tenenbaum represents are currently in litigation with the Ditech unit, Reverse Mortgage Solutions Inc., after the company foreclosed on them, the filing states.
Federal prosecutors charged Chicago businessman Mark Steven Diamond in 2017 in a $7 million reverse mortgage scheme that targeted elderly homeowners. Reverse Mortgage Solutions was a lender or a servicer on some of the loans made in the alleged fraud, Tenenbaum said.
"These are elderly African-American people who did it right, they saved up, owned their home, brought stability to their neighborhood," Tenenbaum said over the phone. "This guy stripped away their equity. It's really sad. It's really heartbreaking."
