Bankrupt mortgage servicer Ditech Holding Corp. cleared the way for the $1.8 billion sales of its businesses by agreeing on Tuesday to preserve some homeowner claims like the right to fix mistakes on their loans.
The accord ends a dispute over the sales, allowing Ditech to pay creditors and exit bankruptcy. A group of consumer creditors as well as attorneys general from about a dozen states objected to a previous plan to offload the assets in “free and clear” transactions. Those arrangements would have stripped homeowners of rights, including those that could help them save their homes from wrongful foreclosures, the New York attorney general’s office wrote in its objection to the sales.
Late last month the federal judge overseeing the case sided with consumers and state authorities and rejected the sales. The bankruptcy court still needs to approve the new deal as part of Ditech’s bankruptcy plan. A hearing is slated for Sept. 25.
“It’s an improvement over the prior plan and that’s good and maybe it’s the best that can be done under the circumstances,” said Seton Hall University professor Stephen Lubben. “My concern is still that people would have a hard time getting their mortgage statements corrected.”
After negotiations this month, Ditech and the consumer creditor group reached an agreement that creates a $10 million fund for claims holders and requires the appointment of a special master to hear consumer claims, Ditech lawyer Ray Schrock said in court. The sale doesn’t ratify mistakes in mortgage accounts and both Ditech and the new buyers have committed to investigate account misstatements and correct them.
“If your account is overstated, the sale will not prevent the consumer borrowers from challenging the amounts due,” consumer creditor group lawyer Victor Noskov said in court.
Ditech has signed agreements to sell its mortgage servicing rights to New Residential Investment Corp. — which is managed by Fortress Investment Group — for just over $1 billion and its reverse mortgage business to Mortgage Assets Management, which is affiliated with Waterfall Asset Management, for about $762 million, according to a court filing.
More than 4,000 homeowners have filed complaints to federal agencies regarding Ditech over the past year, including allegations that it failed to properly credit payments and wrongly foreclosed on their homes. Ditech lawyers argued in court last month that the buyers would only complete the transactions if they were unencumbered by consumer claims.
Homeowners alleging they were wronged by the company include a Staten Island man who says Ditech refused to apply a 2017 mortgage payment and an elderly woman in Long Island who claims the company began foreclosure proceedings for failure to pay property taxes even though it knew she had a repayment plan with her town to catch up, according to the New York attorney general’s objection.
Ditech filed for bankruptcy in February with a plan to cut more than $800 million in debt and continue operations as it sought options that included a sale of the company.