The New York Department of Financial Services is already reportedly looking into how Caliber Home Loans and its parent company, Lone Star Funds, after receiving complaints from consumers about how the companies handle foreclosures.
But now, the companies have another fight on their hands over their foreclosure practices, and it comes from an unlikely source – one of their own vendors.
Chronos Solutions, formerly known as Matt Martin Real Estate Management, is suing Caliber Home Loans and Lone Star Funds, accusing the companies of failing to pay approximately $2.9 million in expenses to Chronos for work done on foreclosures owned by Lone Star Funds.
The lawsuit, filed in Dallas County and obtained by HousingWire, states that Caliber contracted Chronos in May 2014 to help with the repair and sale of foreclosed properties.
Over the last few years, Lone Star Funds has become one of the housing industry’s biggest buyers of non-performing loans from Fannie Mae and Freddie Mac through its trust, LSF9 Mortgage Holdings.
In just over the last year, LSF9 Mortgage Holdings purchased more than $3 billion in non-performing loans from Fannie Mae and Freddie Mac, chronicled here.
Lone Star Funds also purchases non-performing loans from the Department of Housing and Urban Development, a practice that’s rankled several community organizations and even some prominent members of Congress, including Sen. Elizabeth Warren, D-Mass.
After purchasing the distressed mortgages, Lone Star engages Caliber Home Loans, its wholly owned subsidiary, to service the mortgages and in some cases, foreclose on the mortgage.
According to Chronos’ lawsuit, Caliber will foreclose on the non-performing loans “when it is in Lone Star Funds’ financial interest.”
Chronos’ lawsuit states that after foreclosing on a property, Lone Star Funds uses Caliber to sell the property for the highest price possible, which is often done by repairing and making other improvements to the properties.
That’s where Chronos comes in.
According to the lawsuit, Caliber used Chronos for a variety of services, including obtaining an estimated sales price for a foreclosed property either “as is” or “with repairs.”
Chronos would then present these estimates to Caliber, which would then decide whether to follow Chronos’ recommendation and then whether to obtain bids for the suggested repairs or not.
According to the lawsuit, Caliber had the “ultimate decision-making authority” as to whether a property would be repaired or sold in its current condition. Chronos states that it did not have authority to make expenditures without Caliber’s approval.
If instructed by Caliber to do so, Chronos would obtain bids for the suggested repairs and provide the bids to Caliber, the lawsuit states. Caliber again then decided whether to proceed with the suggested repairs or to sell the property as is.
Then, if Caliber told Chronos to move forward with the repairs and capital improvements, Chronos would hire contractors and pay them from Chronos’ own funds.
Under the terms of the agreement between Chronos and Caliber, Caliber was supposed to reimburse Chronos’ out-of-pocket expenses for making the repairs.
But that’s not what happened, according to Chronos. Chronos’ lawsuit states that Caliber required the use of an electronic platform to request reimbursement from Caliber.
According to Chronos, the platform did not perform as intended, which led to more than $820,000 in reimbursement requests that were either improperly denied by the system or were stuck in the system and therefore never received by Caliber.
Additionally, Chronos said that because of the problems with Caliber’s chosen system and its related issues, more than $2 million in of Chronos’ additional out-of-pocket costs were never formally submitted or processed.
Chronos’ lawsuit states the Caliber is aware of all the costs Chronos incurred on each subject property.
“In fact, after the repairs were performed by contractors, evidence of completion was provided to Caliber and Caliber then instructed Chronos to pay the contractors,” the lawsuit states.
The lawsuit provides one example of an email exchange between employees at Caliber and Chronos where the costs of repairs ($24,000 in this instance) is discussed and then approved by Caliber.
“This property is just one of numerous examples in which Caliber instructed Chronos to order repairs; Caliber was provided with evidence of completion of the repairs; Caliber instructed Chronos to pay for the repairs; and now Caliber refuses to reimburse Chronos its out- of-pocket costs incurred in paying for the repairs,” the lawsuit states.
Caliber also set the sale price for each property, and Chronos did not have authority to lower it without Caliber’s approval. Chronos also did not have the authority to accept any offers on the properties, even if the offer was above list price, without communicating it to Caliber.
According to Chronos, nothing happened on any of the subject properties, no matter how small the request was, without Caliber’s approval.
“In sum, Caliber instructed Chronos to pay for the repairs that Caliber requested and approved; Caliber accepted the repairs and reaped the benefit of the repairs (along with the Lone Star Funds) by receiving higher sales prices for the repaired properties; Caliber knew that Chronos rightfully expected to be reimbursed by Caliber for the payments Chronos advanced on Caliber’s behalf; and yet despite receiving several written demands for payment of the nearly $2.9 million in out-of- pocket expenses incurred by Chronos on Caliber’s behalf, including being provided with the supporting invoices, Caliber refuses to reimburse Chronos for these expenses,” Chronos states in the lawsuit.
And now Chronos wants its money.
HousingWire contacted both Chronos and Caliber for responses to the claims laid out in the lawsuit.
A representative from Caliber said the company will not be commenting on the lawsuit at this time.
Chronos, on the other hand, did comment on the lawsuit.
“Chronos Solutions provided contracted repair services to homes owned or serviced by Lone Star and Caliber respectively,” Chronos Solutions CEO Matt Martin said.
“Unfortunately, Caliber hasn’t reimbursed us for millions of dollars that we advanced on their behalf to contractors and other vendors,” Martin continued. “It is a shame that Caliber and Lone Star refuse to reimburse our hard earned funds that they received the benefit of. We have filed suit and will pursue all available remedies to recoup our money.”
