In July 2009, Roy and Sheila Bowers refinanced the mortgage on their suburban ranch home in Topeka, Kansas. The couple wanted to take advantage of the low interest rates that were all the rage at the time. Roy, a truck driver, and Sheila, a former hotel housekeeping supervisor, knew their new loan from Wells Fargo would enable them to save $198.86 a month, a nice chunk to help with gas and groceries.
But what the Bowers never imagined was that their old loan, the one Wells Fargo told them was paid off, would resurrect itself, trashing their credit report, scotching their son's student loans and throwing the whole family into foreclosure. All, they say, even though they didn't miss a single mortgage payment.
The Bowers are not alone. More homeowners are saying that mortgages they thought were dead and buried are springing back to life, sometimes haunting them all the way into foreclosure. "It's the most egregious manifestation of an industry that's seriously broken," said Ira Rheingold, a lawyer who is executive director of the National Association of Consumer Advocates.
Diane Thompson, an attorney with the National Consumer Law Center, says she’s defended hundreds of foreclosure cases, and in nearly all of them, the homeowner was not in default. "The problems grew from a lot of sloppy recordkeeping that began during the housing boom, when Wall Street built a quick-and-dirty back-office operation to process mortgages quickly so lenders could sell as many loans as possible. As the loans were later sold to investors, and then resold around the world, the back office system sidestepped crucial legal procedures.
Banks hired hair stylists, fast-food kids and Wal-Mart floor workers, to pose as bank vice presidents, assistant secretaries and corporate attorneys.
Now it's becoming clear just how dysfunctional and, according to several state attorneys general, how fraudulent the whole system was. Depositions from "affidavit slaves" depict a surreal, assembly-line world in which the banks and their partner firms hired hair stylists, fast-food kids and Wal-Mart floor workers, paying them $10 an hour to pose as bank vice presidents, assistant secretaries and corporate attorneys.
These "robo-signers" became a national sensation in the fall of 2010 when it was revealed that they faked titles, forged documents and backdated affidavits so they could make up for the bypassed procedures and foreclose on properties. They passed around notary stamps as if they were salt. They did all of this, they testified, without verifying a single word in any of the documents, as is required by law. And it was all done, they say, to foreclose on as many homeowners as fast as possible.
No one collects statistics on wrongful foreclosures, or how many people are facing the phantom mortgage debts. But as the industry enters its fifth year of unwinding its mortgage morass, consumer groups, homeowner attorneys and foreclosure-fraud investigators say they are seeing more cases where people who don't owe the banks a dime are getting ensnared in the same hell as those who have missed payments. They add that such problems are likely to intensify. Former industry employees have testified that they knowingly pushed through foreclosures on the wrong people.
It all casts a pall over a housing market in worse condition than it was during the Great Depression. By some estimates, 12.5 percent of U.S. homes with mortgages are either in foreclosure or the loans are at least 30 days past due – about $1 trillion in value. "This is an epic problem the economy hasn't even begun to digest," said Florida foreclosure analyst Lisa Epstein.
In some cases, mortgages that were supposed to die off in a refinancing are popping back up, while in others, the loans were paid in full. Homeowners who pay off their houses through bankruptcy programs are also falling prey. So are homeowners who never had a mortgage to begin with.
omeowners say the banks' repo men sometimes show up at work. Banks also hector them with threatening letters and phone calls. "It scared the hell out of him," said a Houston lawyer whose client was targeted. "He was absolutely spooked," lawyer Barry Brown said.
Sued for Foreclosure on a House She Didn’t Own
So was Shantell Curtis of Utah. She showed up at her accountant's office last year only to learn that she had been sued for foreclosure on a house she had sold years before. Bank of America reported the delinquency to credit bureaus, tarring Curtis's credit. It turned out the entire saga stemmed from a bank coding error. The amount the bank falsely alleged Curtis still owed on her mortgage? One dollar.
Vietnam vet Dwight Gaines fell behind on his payments on his Birmingham, Alabama, home. Gaines paid off his entire mortgage, plus all the fees and expenses he owed the bank in March 2010, as a part of a Chapter 13 bankruptcy plan. But Bank of America kept sending Gaines notices that he still owed $6,842.37. Nearly two years later, Gaines is still fighting in court. "In my experience, if I had not sued Bank of America, they would have placed Mr. Gaines in foreclosure although he had completely paid his mortgage," said Gaines' lawyer, Wesley Phillips.