Friday, September 24, 2010

More Problems with Foreclosure System

In recent years, foreclosures across the nation have garnered much attention due to the "sub-prime" loan crisis and the slow economy. For example, according to data provided by the Jefferson County, Kentucky, Master Commissioner's office, foreclosure sales in that county increased from 554 in 1997 to an estimated 5200 in 2010. While the concern over people losing their homes is great, the methods which many national lenders are using in their foreclosures may be even more concerning.

I have had several clients come in with horror stories in dealing with national lenders when they have gotten behind on their loan. Most deal with the supposed modification programs that lenders now offer. Clients send in the modification requests and wait months for responses, while interest is still accumulating, only to be told that the applications are deficient and they have to start over or that they never really qualified anyway. Even some clients have found private buyers for their properties, but the contracts will not be accepted because they did not use a realtor, despite the fact that the commission saved will be a financial benefit to the lender.

Two other cases that have been recently arisen have been much worse. One client negotiated a reaffirmation agreement with her lender through her bankruptcy. The lender initially demanded a lump sum payment to get the client caught up, but the lump sum was beyond the financial means of the client. The client informed the lender that the lump sum would be impossible. A reaffirmation agreement was then sent with modified terms, but no lump sum. It was signed by the client and by the lender and filed with the bankruptcy court. The client began making payments, which were accepted at first, but then returned because the lump sum was not paid. The lender then proceeded to have a judicial sale of the client's home rescheduled, without notice to the client. We found this out the day before the sale, and had it stopped. The bankruptcy court has said that that was improper and that the lump sum was not enforceable since it was not in the agreement. Even though the client has continued to send her payments under the agreement monthly, the lender continues to fight this issue in court.

A second case that has recently arisen is even more alarming. In representing an estate, the personal representative of the estate calls and says that a company has placed locks on the doors prohibiting her from entering the residence of the decedent. When the company is contacted, they say they effectively have repossessed the home for a national lender since the loan is in default and to contact the lender. Even though no suit has been filed and this repossession is illegal in the first place, the problem for the company and the lender is that they have no mortgage on the property they have seized. There is even some suspicion that the company has removed personal property from the residence. When the lender was contacted, the automated phone system effectively prohibited the client from speaking with someone to fix the problem because no one could tell her which department was responsible for the mix-up.

I cannot find a link to the article, but I recently read that this "wrongful" foreclosure is a growing trend nationally. Lenders are foreclosing on loans that are not actually in default due to poor record keeping or misreading files. There are other reports, similar to the client above, where the lender foreclosed on an home for which they had no lien. In jurisdictions where the repossession without foreclosure or eviction is permitted, this wrongful foreclosure has led to extensive property damage, which has led several property owners being left homeless through no fault of their own.

I have attached two links to this post that show that the problems now seem to go from merely negligent to intentional and fraudulent. Forged documents and improper reviews of accounts to determine their deficiency have now come to light.

With all of this in mind, we have to be very careful in how we advise our clients in a situations involving loans. Even though foreclosures have gotten more common, the more problems render them far less routine. It has gotten to the point that I tell clients to ignore the advertising of cheaper rates and only go with local lenders. It is much easier to walk into a branch office to talk to someone you know if you are having financial problems that to speak with someone in another state that will transfer you to someone in another department in some other state that has no idea what the client is dealing with. With this level of personal service, I feel that lender are more likely to review the client's situation carefully and clients are less likely to have the problems that I have describe above.

ABA JOURNAL: Foreclosure System Is Riddled with Faked Documents

ABA JOURNAL: "Robo-Signer" Halting Foreclosures

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