KIYC: Sandy survivors told they owe thousands in back interest on 'interest-free' forbearances
Thousands of homeowners who survived Superstorm Sandy took advantage of the state’s forbearance program, which state officials said would give them interest-free extensions.
But five years later, a Kane In Your Corner investigation finds some of those homeowners are being charged tens of thousands of dollars in back interest and the state isn’t supporting them.
Yadira Saraceno’s home in Sayreville was badly flooded during the storm.
“We tore everything out and had to start from scratch, from the bare bones,” she says.
Yadira and her husband, Jorge, are nearly done rebuilding 10 years later. But now they have a new problem. Their mortgage company, Freedom Mortgage, is demanding they sign a mortgage modification. The company says they owe more than $40,000 in back interest.
The family tried to assert their rights under the law, but the bank replied, “We understand you believe interest that accrued during the forbearance should be waived or ‘reduced to zero’ (but) as we’ve stated previously, this amount will NOT be waived.”
When the Saracenos complained to the New Jersey Department of Banking and Insurance, the agency sent them a letter saying Freedom Mortgage was doing nothing wrong. According to Assistant Director Jill Ross, “the Sandy Forbearance Program did not eliminate the charging of interest” after all, it merely “deferred the payments.”
But this is the exact opposite of what the state said when the forbearance program began. In 2017, the New Jersey Department of Community Affairs wrote letters to every mortgage lender, notifying them that interest should not be charged during the forbearance period. The letter, obtained by Kane In Your Corner, states, “It is the Department’s position that interest does not accrue during a period of mortgage forbearance” and that the law “would be undermined if interest was continuing to accrue.”
“The fact that the state has failed us is the most disappointing part of it all,” Saraceno says.
Amanda Devecka Rinear, executive director of the New Jersey Organizing Project, says the Saracenos aren’t alone. The NJOP says it has received complaints from numerous families who say their banks are now trying to collect back interest. Some said their banks had previously agreed to provide interest-free forbearances.
“I have to follow the law. You have to follow the law. I don't know why the banks don't think they have to follow the law” Devecka Rinear says.
The problem is that the law is not completely clear on whether interest can accrue during the forbearance. It states that, “During the time of the forbearance and during the period constituting an extension of the mortgage, all terms and conditions of the original mortgage, except with regard to default and delinquency during forbearance, shall continue without modification, and there shall be no fees assessed for the forbearance, or penalty for early repayment.”
To advocates like Devecka Rinear, the intent of that statement is obvious: no fees mean no back interest. Besides, she says, the state already told banks what the law meant. “I think our state should be standing up for storm survivors and working with them to get the banks to comply," she says.
A state official tells Kane In Your Corner that NJDCA is interpreting the law the same way. Unfortunately for the homeowners, that agency doesn’t have final enforcement authority, the Department of Banking and Insurance does. For now, NJDOBI is siding with the banks.
This isn’t the first time Kane In Your Corner has exposed problems with the Sandy mortgage forbearance program. In 2017, homeowners like Jim and Carol Ferraoli of Middletown and Angel Eguarra of Atlantic City were told they were not entitled to forbearances. The banks backed down after Kane In Your Corner got involved. Ironically, Eguarra is now one of the homeowners being told, after the fact, that he owes back interest.
Freedom Mortgage and NJDOBI declined to comment on how they believed interest on Sandy forbearances should be handled or why. Both said they could not comment on individual homeowners due to confidentiality concerns. Kane In Your Corner will follow up on this story.
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