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Committee on Financial Services

United States House of Representatives

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My name is Christine Harris. I, along with my husband Charles Harris, own a home in Norwood, Pennsylvania. I am a waitress and my husband is an airline ground employee. We came here today to try and get some attention to a terrible problem that happened to us and to many other homeowners like ourselves. Numerous lenders, like Green Tree Financial have developed and promoted deceptive marketing schemes in which they recruited home improvement contractors to act as dealers to obtain high-interest rate secondary mortgage loan contracts from average homeowners like us. They use false and misleading advertisements to convince homeowners like me that they were in some way connected or working with the federal government and were trying to provide government money to hard working people so they could fix up their homes.

In order to perpetuate the fraud, numerous lenders, like Green Tree conducted demonstrations and "educational" presentations to teach its dealer-contractors on how to market themselves as "FHA-approved" dealers and, in turn, generate loan contracts to be subsequently purchased by and assigned to the lender. To arm its dealer-contractors for the scheme, Green Tree furnished them with Green Tree generated loan forms, marketing kits, discount schedules and loan product information, all purportedly designed to help the dealer-contractors "increase customer sales." In part, as a result of these deceptive marketing practices, Green Tree's volume of home improvement loan originations have grown exponentially since 1990, with a 35% increase from 1994 to $627 million in 1995 and an astounding 138 % increase from 1995 to $1.5 billion in 1996. Despite numerous failures of performance by Green Tree's dealer-contractors and persistent consumer complaints regarding the same, Green Tree boasted in its 1995 Annual Report on SEC Form 10-K, filed on February 29, 1996, and continues to boast in its 1996 Annual Report on SEC Form 10-K filed on March 14, 1997, that it reviews the financial condition, business experience and qualifications of the Dealer-Contractors with which it conducts business. Green Tree specifically stated, "The Company has a contractor approval process pursuant to which the financial condition, business experience and qualifications of the contractor are reviewed prior to his or her approval to sell contracts to the Company." As my story will show, Green Tree failed to do any check of the contractors with which it worked.


My personal horror story with this on-going fraud started in 1996. In early 1996 my husband and I decided that our home needed some improvement work. We wanted to do several things to our home, including making our attic into a bedroom for my sons. Unfortunately, our commercial bank turned us down for a home improvement loan. Shortly after that we saw a notice in a March 1996 issue of our local paper, the Delaware County Times. The Notice stated:


A Title 1 (Federal Housing Authority) government insurance program may make loans available through approved lenders for home improvements up to $25,000, installed by lender approved contractors. It is now possible for millions of families to make major improvements to their homes. The federal Government wants to help you repair and remodel your house. You may be eligible no matter how long you own your house, ethnic background, vocation, condition, income, age and material (sic) status.

It is the propose (sic) of their program to encourage energy conservation and neighborhood preservation. Improvements may include lifetime energy efficient siding, energy efficient windows and insulation. Other improvements are available: roofing, bath and kitchen remodeling, carpeting, etc., provided that they become permanent fixtures inside the home.

Zero down and no equity required on loans $15,000 and under O.A.C. The Builder is a Title 1 lender approved contractor/dealer.

CALL NOW! 1-800-443-5788 (Emphasis added).

After reading this notice, and genuinely believing that the government had some program for hard working people like us to help fix up our home, we called the number to find out more information. At that time we did not know exactly who we were calling with the toll free number but because of the notice we believed we were calling someone connected to the federal government . On the original call we were told that a representative from T&F Builders would stop by our house to explain the details of the government program. During the telephone call, we were told that the project would be financed through a government sponsored Title 1 loan. We believed that they were part of a government program and therefore, they must be more responsible because they are with the government. We set up a meeting for someone to come to our home.

On May 15, 1996, "Uncle Lenny" of T & F, came to our home and told us that T & F would do numerous home improvement work for us and we were entitled to a government sponsored loan. Both my husband and I, along with "Uncle Lenny" for T&F, signed a work order. The work order identified what work T&F would do for us and the amount it would cost. Uncle Lenny told us he would arrange the government loan papers for us.

The next day, Frederick Thorpe, also from T & F, informed us that "Uncle Lenny" liked us so much that he promised us too much work. Mr. Thorpe told us that we could not obtain the construction for the price quoted by "Uncle Lenny". After some cajoling by Mr. Thorpe, we agreed to do some of the additional construction ourselves. At that time we received another work order form and were once again told that T&F would handle the government loan papers.

Shortly after this meeting, we received a call from Mr. Thorpe telling us that our government loan was approved and we needed to fill out some paper work to finalize the deal.

On May 21, 1996 Mr. Thorpe came to our home with a stack of papers for us to sign. He told us that this was not normally his job, but whoever normally came out with the papers was unavailable. He also said that even he had no idea what the papers were. He assured us that the papers were just a mere formality, that we were receiving a government loan and instructed us to sign the papers which were marked with sticky notes. Mr. Thorpe said we needed to sign the papers quickly and he pressured us to sign. We did not have the time or the ability to completely read and understand the very complicated and fine print papers. Mr. Thorpe never discussed the specific terms of all of the documents and we did not even notice the print on the reverse side until after Mr. Thorpe had us sign. On May 21, 1996 we signed the papers believing that the project was sponsored by the government and were unaware of all of the differences between the work order we originally signed and agreed to, and what the fine print on the new forms provided.

The papers we signed were titled "Retail Installment Contract and Security Agreement". The contract specifically stated "You have submitted a written application for a federally related mortgage". The contract identified T&F as seller, but included an assignment clause to Green Tree, also dated May 21, 1996. Mr. Thorpe told us that all work would be completed in six weeks.

On May 30, 1996, we received a call from Mr. Thorpe informing us that we would be receiving our loan disbursement checks the next day. As Mr. Thorpe stated, on May 31, 1996 we received three checks from Green Tree in our name and T & F jointly. Mr. Thorpe called us and arranged to come to our home to have us sign over the checks to him. Based on Mr. Thorpe's assurances that this was normal procedure we signed two checks over to T&F. We held onto the third check.

At this time no one told us that we would have to continue to pay the monthly payments if T & F did not complete the work on our house or that we agreed to give up our right to go to court if we had any complaints before the work would be started. No one told us that Green Tree or T & F Builders could sue us in court, but that we could not sue them in court if we were not satisfied with the work performed on our home.

After T & F failed to begin construction on time, my husband went to T & F's office seeking a refund of our money. Mr. Thorpe stated T & F could not return the money and assured my husband that construction would begin within one week. Then, after additional delay, various subcontractors began work on our home. A section of an exterior wall, including the aluminum siding was removed from the rear of our home during the initial construction of the addition. The subcontractors also did some work to our roof.

After the work had started, the subcontractors abruptly walked off the job prior to completion because they said that T & F failed to pay them. Then we learned that on September 26, 1996, T & F filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. Then on November 18, 1996, one of the subcontractors hired by T & F, filed a Mechanics' Lien Claim for $5,900.00 against our home.

Our home has been deteriorating since the construction was halted substantially prior to completion. Neither T & F nor Green Tree nor anyone else provided the home repairs that were promised to us and that we thought the government was involved with. The work was not completed. In addition, the vinyl siding has not been completely replaced, several windows, which were damaged even before they were installed, have not been capped, french doors were not installed in the kitchen and only a piece of plywood is covering the gaping six foot by six foot, seven inch (6' x 6'7'') hole, and no siding has been installed where the side of our home meets the roof.

Heavy rain, snow and ice storms have caused, and continue to cause, a great deal of water damage to our home. The frame of our home, which is not properly covered, is beginning to rot from the continued exposure to the heavy rains and snow. There is also extensive water damage to the walls of the master bedroom, the walls of the bedroom in the attic, the kitchen walls, and the floor of the addition. In addition, the roof was not properly constructed and water has leaked between the new roof and the existing roof causing extensive damage. As a result, the entire roof may son need to be replaced.

On Monday, December 17, 1996, we called Green Tree to report the magnitude of water damage to our home. Sandra Bixby, a representative of Green Tree informed us that Tom Medsford of Green Tree and a local contractor would inspect our house on Tuesday, December 18, 1996. In keeping with Green Tree's pattern of poor business practices, no representative arrived on that day as promised. On Wednesday, December 19, 1996, the local contractor inspected our property. The contractor acknowledged that our home had suffered a large amount of water damage due to the heavy rainfall and that he would talk to someone at Green Tree about the problems.

Green Tree's idea of resolving our problem was to make us go away by offering, on a take it or leave it basis, a proposal that would require us to sign away our rights and would not require Green Tree to live up to the original contract. We did not sign this because it was unfair to us and did not resolve everybody else's problems. By this time we had met many other people who were cheated just like we were. Many of the people were elderly and did not know what to do and were very fearful of losing their home. To date, Green Tree has failed to repair the damage and complete the home improvements. Because of our two mortgages, we are not able to make the necessary major repairs to prevent further deterioration and make our home livable.

Despite the fact that the repairs have not been completed and our home is deteriorating we are liable for the full loan amount even though Green Tree "locked" the final check and never disbursed the funds to us.

After realizing that we were ripped-off, we began to do some investigation on our own. We found many other families like ourselves who were also misled by the false advertisements placed in the local papers and in circulars sent directly to people's homes. We all answered the false advertisements and we all thought the federal government was overseeing the lenders and contractors. If we had known that these men and their companies were either not being properly supervised by the government, or not even part of a government sponsored program and were not going to complete the work as promised, we would never have gone through with the home improvement project.

We have contacted and complained to many different agencies. We contacted our local district attorney, the district attorney's office in Philadelphia and HUD. We also filed a complaint with the Pennsylvania Office of Attorney General. After not receiving help from any government agency, we retained Jeffrey L. Kodroff of the law firm of Spector & Roseman, P.C. to help us.

Based on our attorneys' investigation, we filed a class action lawsuit on behalf of ourselves and all others who were deceived like we were. We believe that numerous lenders, like Green Tree are using a deceptive marketing scheme to mislead homeowners into entering into home improvement loans by creating the false impression that the home improvement program and financing were directed, sponsored, promoted or funded by the government. The lenders used Dealer-Contractors to solicit people with advertisements in local papers, in home fliers deceptively labeled "Public Notice" or would present business cards with confusing business names such as "Neighborhood Updating Necessity Construction," As what happened with us, during the in-home sales presentations, the Dealer-Contractors told the homeowner that government funds had been made available for necessary home repairs or remodeling; that the work would be performed at an affordable cost; that all construction would be guaranteed; and that no payment would be required until the customer was completely satisfied.

After homeowners agree to have the work performed, the Dealer-Contractor then presented a confusing array of loan papers including a secondary mortgage contract generated by lenders like Green Tree, that the homeowner was told had to be signed for the work to begin or to be completed. The abbreviated description of the work contained in the standard form contract, however, differed materially from the work the Dealer-Contractor had originally agreed to. Nonetheless, the standard form contract purportedly gave the Dealer-Contractor a "secondary" mortgage on the homeowner's property even when the homeowners did not have a primary mortgage on their homes. The loan and mortgage were then immediately sold and assigned by the Dealer-Contractor at a discounted price to lenders like Green Tree. In some instances, the assignment clause would even be pre-signed by the Dealer-Contractor. Afterwards, the Dealer-Contractor would not perform the construction work that was promised or would perform the work in such an unsatisfactory and shoddy manner that virtually nothing of value was received by the homeowner or would perform work valued significantly below the value of the loan. Having been deceived and taken advantage of, many homeowners received nothing of value but were left with a sizeable debt secured by a mortgage on their homes. Due to fear, lack of knowledge, the absence of funds and the misleading limitations on remedies contained in the standard form contracts, many homeowners have been forced to continue paying on these contracts, or to forgo other remedies, rather than risking the loss of their home.

We chose to file a class action, rather than an individual action because we found many others who were also deceived by the same dishonest practices, but who do not know how to take action and believe that there is nothing one small person can do against a large company like Green Tree. In our law suit, Green Tree and the contractors have claimed that we must go to arbitration, rather than court, to settle this matter. District Judge John P. Fullam, Jr. of the Eastern District of Pennsylvania refused to enforce arbitration because he found the arbitration clause unconscionable and lacked mutuality. Defendants are currently appealing this decision to the Third Circuit Court of Appeals. I believe they want to go to arbitration in order to avoid a class action which would require Green Tree to make amends to all people rather than the few, like ourselves, who seek an attorney's advice.

I thank you for your patience and the opportunity to appear before this distinguished committee. I hope that you will take immediate steps to prevent this type of fraud from happening to anybody else. My hope is that you will be able to prevent other families from going through the years of anguish that I and my family have already gone through, and unfortunately are still going through. Thank you.


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