Many Lives Affected By Wrongful Foreclosure
Over the last several years, most especially during the post-housing bubble burst, many people have struggled through the difficult experience of a foreclosure. While there are instances where foreclosures were correctly processed under both federal and state laws, there have been other foreclosures that were completely off the mark.
Sadly, these wrongful foreclosures have not been just a handful of isolated incidents. If you do a web search on "wrongful foreclosure", you'll see many articles show up in the results; many of these are dated in the time frame of 2009-2013. During this time frame a slew of wrongful foreclosure incidents were exposed in the media. Fortunately, not so many new instances appear to be reported this year, but chances are if one digs deep enough, there are probably some cropping up.
Fast forward to today and a number of these earlier reported on cases have been settled. Others are still going through the courts to find resolution and/or restitution. Other recent reports illustrate, even now there are lenders still scrambling and trying to hide or undo the damage they created.
Mistakes in foreclosures can happen for a number of reasons, including but not limited, to simple clerical errors, careless record keeping on the lender's part, unethical practices or even the poor judgment of an employee or representative. This article looks at how these errors can and have happened.
Clerical Errors / Careless Record Keeping
There have been numerous instances of the wrong houses being foreclosed upon by banks. Unfortunately, for these homeowners, the result was disastrous. People have come home to find their locks have been changed or their possessions removed — either sold, given away or thrown out. In some cases, destruction was done to the property.2
A number of these foreclosures were attributed to clerical errors or simply poor record keeping. A typo in an address, neglectful in recording a mortgage holder selling the house or not updating records to show a mortgage was paid off are some types of errors that have been made on the part of banks and lenders.
[Lenders had been] "unable to efficiently handle the volume of distressed assets that are coming through," Rick Sharga, of California-based foreclosure tracking firm RealtyTrac said, according to ABC News in a 2010 report.1 "We also are seeing the results of what had been less-than-rigorous paperwork and documentation management over the last decade or so as loans became commodities that were packaged, sold, repackaged and resold."
Sharga also indicated issues tend to arise if "tight control" isn't kept on transactions and record keeping.
Many homeowners who struggled to pay their mortgages tried to work out an agreement with the bank. However, in the midst of working out mortgage modifications, lenders often went ahead and foreclosed anyway. Sometimes this was due to a lack of due diligence or a deficiency in streamlining their departments to keep records and/or communications up to date. Either way, not the fault of the homeowner.
Some mortgage servicers were accused of unethical practices. For instance, some told homeowners seeking loan modifications they needed to fall behind in payments before they could be eligible, according to ProPublica.3 The borrowers then suddenly found themselves in a foreclosure situation where they were not in one before getting that bad advice. Next thing they know, their homes were being auctioned off.
While typos may be forgivable as long as they are corrected and no harm is done (mistakes happen) what about poor judgment? For instance, in 2013, an Ohio woman came home from vacation to learn her house had been repossessed during the time she was away.4 Her locks had been changed, her possessions were gone and the bank subsequently refused to take responsibility and pay her for damages.
Why did this happen? Pure poor judgement. The lender had actually intended to foreclose upon a house located across the street, but the GPS led the representatives to the woman's home instead. The individuals observed the yard's grass had become overgrown and, rather than checking the address to ensure it was correct before taking action, they assumed they had the right property and took action.
While many excuses and reasons have been giving for wrongful foreclosure, this may possibly be the first time a GPS fail was blamed. Excusable? Hardly.
And the Issue Continues . . .
According to an April 2013 Huffington Post report, about 30 percent (1.2 million borrowers) of people foreclosed upon in 2009 and 2010 had struggled to battle banks for wrongly foreclosing on their homes, many of which had never actually defaulted on their loans.5
While this data is older, media reports that tell tales of people being locked out, possessions taken and struggling for compensation illustrates banks foreclosing on the wrong houses is still a very real problem. Sadly, in one case it resulted in death. In Dec. 2013, a 62-year-old man was so stressed out by a bank holding him responsible for his neighbor's tax defaults that eventually, he collapsed in court after continuing to battle the bank.7 He had battled the bank for a few years. His estate alleged he died of heart disease brought on by the wrongful foreclosure.
There are numerous documented cases of lenders claiming the wrong houses. Reports are still emerging that some lenders allegedly are still not acting ethically and/or trying to cover their tracks. An October 2014 report says one of the largest mortgage servicing companies in America continues to "backdate paperwork in order to justify illegitimate foreclosures." 6 Additionally, a major bank in the United States was put in the spotlight in March 2014 after an internal memo was leaked indicating it had a procedure to fabricate foreclosure papers on demand.8
While other lenders have apologized and/or tried to set things right financially, many end up in court. Whatever the reason for the wrongful foreclosure, the bottom line is that a number of these should never have happened in the first place. Foreclosures are a serious procedure with harsh consequences for those involved. That being the case, any foreclosure should be double -- and triple -- checked to ensure no errors or lack of communication has been made before taking such drastic action, or essentially destroying everything a person owns.
Update June 2015: In 2011 fourteen banks in the United States that had been accused of wrongful foreclosure agreed to "make dozens of changes" to the procedures they use to issue and service mortgages. On June 17, 2015, the New York Times reported six major banks had still not completed these modifications. Originally, these changes were supposed to be made within 120 days, then some extensions were granted. Yet, fast-forward to 2015 and, despite the fact extensions were given, external reviews were ordered and money was paid out, some of these banks still have not made many of the agreed upon changes (there were 98 changes in total according to the report). It appears some progress has been made on many of those 98 changes, but since they did not complete the agreement, these six banks will now face new restrictions says the Office of the Comptroller of the Currency.