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Is Bank of America muzzling borrowers?

COMMENTARY As a condition for offering mortgage relief to Arizona homeowners, Bank of America (BAC) is allegedly requiring them to refrain from criticizing the company, according to Bloomberg BusinessWeek. That includes making borrowers delete any negative comments they may have made about the banking giant online.

Arizona legal officials say such agreements are hindering their ongoing investigation into B of A's loan-modification practices. In one 2011 case, legal documents show that B of A appeared to condition modifying the mortgage of a borrower facing foreclosure on the person pledging not to disparage the company. One portion of the modification agreement read:

The borrower "will remove and delete any online statements regarding this dispute, including, without limitation, postings on Facebook, Twitter and similar websites," and not make any statements "that defame, disparage or in any way criticize" the bank's reputation, practices or conduct, according to documents filed in state court in Phoenix.

B of A denies that borrowers must promise not to criticize the company to get a modification. But Bloomberg Businessweek cites Arizona's assistant attorney general as saying that such modification agreements, which also require borrowers to keep them secret, "have completely silenced" homeowners who might be able to shed light on B of A's modification practices. The state is asking a state judge to order the company to inform people who have signed the accords that they aren't legally bound by their non-disparagement and secrecy terms. 

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Arizona Attorney General Thomas Horne is looking into B of A as part of the state's 2010 lawsuit against the company, which charges the bank's Countrywide mortgage unit with having wrongly denied modifications and foreclosed on homeowners whose applications for mortgage relief were pending. That would violate a 2009 legal settlement with Arizona resolving allegations that Countrywide had defrauded borrowers in the state.

If these allegations are true, B of A's intent is clear: It wants to muzzle borrowers, especially those who are unaware that no court in the land would respect what amounts to a legally unenforceable -- and outrageous -- gag order. Writes financial pundit Yves Smith:
Remember, first, that it is not uncommon for parties to put provisions in contracts that are not enforceable in the hope they can snooker the unsophisticated into thinking they have to respect them. For instance, some landlords will try putting a "no roommates" clause in their rental contracts when New York city rent regulations allow tenants to take roommates....

But there was apparently no language like that in these provisions that would clue presumably unsophisticated borrowers into the idea that these agreements could be superseded by court action.

Financial industry lobbyists may soon prove me wrong, but for now, taking out a mortgage doesn't mean signing away your Constitutional rights to disparage anyone, including your lender.
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