Spencer sues servicer

Aug. 18--Add Spencer Savings Bank to the legions who have accused Bank of America of shoddy mortgage servicing.

The Elmwood Park-based bank says in a federal lawsuit that the megabank's "abject lack of diligence" in servicing 42 problem loans that the community bank acquired about nine years ago from Countrywide Home Loans Inc. has resulted in "increased foreclosure expense" with "mounting real estate taxes, property maintenance ... and legal fees."

According to the lawsuit filed in May and moved last month from state Superiour Court in Hackensack to federal court in Newark, Bank of America took over a servicing agreement with Spencer when it acquired Countrywide in 2008, and assumed massive liabilities from what was then the country's largest mortgage lender.

Spencer terminated the loan servicing agreement in June 2012, and "after an exhaustive review of the loan files" Spencer demanded in March that Bank of America buy back the problem loans, which have a total outstanding balance of $10.8 million.

According to Spencer, the servicer did not respond, hence the lawsuit.

Bank of America, which declined to comment on the suit, this week filed a motion to dismiss the suit, which does not address the merits of the complaint, according to Red Bank lawyer Helen Davis Chaitman, who is representing Spencer Savings.

Spencer's complaint alleges that some of the properties that back the problem loans have been abandoned, leaving the community bank responsible for keeping up with property taxes, insurance premiums and maintenance to protect the value of the homes until they can be sold.

Bank of America and several other big lenders suspended most of their home repossession activity in New Jersey for part of 2011 while their mortgage servicing and foreclosure practices were being investigated.

In 2012, the Charlotte, N.C.-based bank joined JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc., and Ally Financial Inc. in a $25 billion settlement with state attorneys general and federal agencies to address mortgage loan servicing and foreclosure abuses and fraud.

In November 2012, Parsippany-based mortgage company American Financial Resources Inc. sued Bank of America in federal court in New Jersey, alleging breaches of a mortgage servicing contract on $2 billion in loans acquired from Countrywide in 2008. The case is still pending.

According to Spencer's complaint, 99 of 130 loans acquired from Countrywide are still active and 42 are, or have been, "in collection."

Under the original arrangement, Countrywide, and later Bank of America, continued servicing the loans, collecting monthly payments from the borrowers and forwarding them to Spencer after deducting servicing fees. The servicing contract also obligated Countrywide to start foreclosures or take other actions if borrowers did not pay.

Spencer, which is seeking compensatory damages and attorneys fees, also accuses the loan servicer of failing to make reasonable efforts to file liens against borrowers' properties, initiate foreclosures, and appoint rent receivers to ease what the Bergen County lender says are continuing losses on the problem loans.

The bank said the servicer failed to appoint rent receivers for at least seven loans. More than $384,000 in rent has been paid to delinquent borrowers by their tenants, money that could have been used to defray Spencer's elevated carrying costs, the complaint said.

One borrower who owes $346,000 had not made a payment since filing for bankruptcy five years ago, but has pocketed $66,150 in rent, the lawsuit alleges.

During that time Spencer alleges it's been charged nearly $90,000 for taxes, insurance, legal expenses and property management fees on that account.

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