There have been many stories of improper foreclosure proceedings through which people who had not missed any house payments found their homes sold at auction. They were told that since it was a legal sale, they could do nothing about it. Even more people, guided through a loan modification process and assured by a bank that the modification is forthcoming, have awoken one day to discover that their homes will be sold at auction anyway. This does not even take into account the foreclosures completed by banks and servicers who have not produced any proof of their right to foreclose on the home.
In the meantime, millions more homeowners are facing foreclosure in the coming year. A loan modification solution needs to be available soon so that these foreclosures will not continue to drive people from their homes and further undermine and harm the housing market. Yet fairness requires that those whose homes have been fraudulently foreclosed have recourse to recover their home and investment. A just solution must take all of this into account.
Problem: Because of entrenched problems and long-standing fraudulent practices, many families who should have received a loan modification have already been harmed, including the loss of their homes.
There are two basic categories of homeowners who have been harmed by servicers' malfeasance: (1) those who have lost their homes; and (2) those who are still in their homes, but have been denied a loan modification, pushed into default, or merely had improper fees tacked onto their account.Solution:
• Remedies for Those Still in Process
For homeowners who have not yet lost their home in a foreclosure sale, servicers should institute a supervised, full review of every file marked in default. This review must include a review of the payment history, including the timing and application of payments and the validity of fees charged.
- Homeowners found not to be in default should be removed from foreclosure, corrections of credit reporting status must be provided to the credit bureaus, and accounts should be fully corrected.
- All pending foreclosures should be halted while this review takes place, and dual track processing must be stopped on all loans so that the modification review can be completed.
- Fees should be rolled back and limited to reasonable and necessary ones.
- Recalculation of principal balances should be done to account for improperly assessed fees or overcharged interest.
• Remedies for Those Whose Foreclosures Have Been Completed
The servicers should also be required to undertake a review of all completed foreclosures to identify any cases where the foreclosure was executed on the wrong home, where the homeowner was not in default, and where the foreclosure was completed without completing the loan modification review process, providing a written denial to the homeowner, or failing to offer a qualifying homeowner an appropriate modification.
- If the home has not yet been sold to bona fide third party, the servicer should offer to restore the mortgage, with a reduction of the principal balance to account for all assessed foreclosure fees, as well as any improper fees. If the homeowner cannot afford the current mortgage payments, they should be assessed properly for a loan modification under the procedures established above. Servicers must further provide corrected credit reporting to the credit bureaus to mitigate the negative credit reporting. A restitution fund should be established, funded by the servicers, to provide damages to this class of injured party.
- If the home has already been sold to a third party or if the homeowner no longer wishes to retain the home, the servicer should be required to refund to the homeowner all foreclosure fees assessed against the homeowner's account, plus the amount by which the valuation the servicer relied on exceeds the foreclosure sale price. Servicers must also take steps to repair the homeowner's credit in these situations. A restitution fund should be established, funded by the servicers, to provide damages to this class of injured
- If the homeowner who was subject to a wrongful foreclosure cannot be located, the servicer should be required to deposit the money that would otherwise be paid to the homeowner into the fund for legal services and housing counselors.
The last post in this series will cover a few final concerns, including the criminality of foreclosure fraud.