Banks ‘foreclose’ on houses bought for cash

A man in Fort Lauderdale, Fla., bought a house for cash last December as an investment property.  In July, he was learned that the Bank of America had foreclosed on the house and sold it at auction.  He was astonished because he didn’t have any mortgage or any other relationship with the Bank of America.  But it was only after he contacted the South Florida Sun-Sentinel that he got anywhere in trying to get his house back.

His experience wasn’t unique.  A woman in central California bought a house for cash in 2001.  But the Bank of America in February sent her a notice of foreclosure, placed ads in the local newspaper and nailed a notice of foreclosure to her door.  She said she couldn’t get the bank to admit its mistake until KCRA of Sacramento took up her case.

There are other examples besides those two cases and other culprits besides the Bank of America, although it seems to be the worst offender.

And there are worse cases than this.  Banks foreclose on properties based on mistakes in the addresses.  Property-owners come home to find their furniture and personal property missing, their utilities cut off and their locks broken by “trash out” companies that have been sent to the wrong address.

Foreclosures on houses without mortgages are only the worst and most obvious of examples of a huge and increasing number of wrongful foreclosures.  It is the result of the bursting of the housing bubble, and banks trying to clear their books of bad debts.

I don’t suppose banks intentionally seize houses for which they have no legal claim.  It is just that mortgages are sold and resold so many times that the paperwork gets messed up, and the mortgage-holders can’t be bothered to hire enough people to check whether it’s right or not.

It’s in the nature of things that a large, bureaucratic organization such as a bank will make mistakes.  But in these cases, and many more, some of which are indicated in the links below, the banks show no interest in correcting mistakes – even in something so simple as foreclosing on the wrong property because of a clerical error in the address. Usually they only act when a reporter for a local newspaper or broadcaster investigates and threatens them with bad publicity, or when the property-owner successfully sues.

True, Bank of America recently announced that it will review foreclosure documents for correctness in cases pending in the 23 states where the courts must approve the documents.  GMAC Mortgage and JP Morgan Case have said they will amend paperwork where improperly done.  We’ll see whether this makes any difference in the affected states; homeowners in the other 27 states are out of luck.  Citi and Wells Fargo, the other two big mortgage processors, claim to have no problem with their process.

Click on the links below for individual wrongful foreclosure stories.

Bank of America’s unfunny foreclosure tricks

Repossession hell: 6 extremely ‘wrongful’ foreclosures

Bank of America Sued for Foreclosing on Wrong Homes

House “trashed out” that Michigan couple paid cash for

Kentucky man sues after bank takes wrong house

Bank of America Pocketed Insurance Proceeds for Gas Explosion, Then Attempts Foreclosure on Home Anyway

Foreclosures go wrong as lenders, clean-up crews cut legal corners

Pittsburgh area woman with paid-up mortgage says bank “repossessed” property, damaged furniture, confiscated pet parrot

Bank of America forecloses on house that Massachusetts couple paid cash for

Texas doctor says bank seized house he owns free and clear, turned off utilities and left him with 75 pounds of spoiled fish

Bank Tries To Foreclose on Owned Home in California

Fort Lauderdale man’s home sold out from under him in foreclosure mistake

Impossible Foreclosure: Never Late on a Payment [Added 12/30/10]

Click on the links below for overviews of the foreclosure crisis.

Caught in a pile of paper – the foreclosure crisis rages on

The looting of America continues

Bank of America Exec Signed, but Didn’t Read Up to 8,000 Foreclosure Papers Per Month

A Crack in Wall Street’s Foreclosure Pipeline

While We Are on the Subject of Bad Foreclosures, What About HAMP’s Compliance?

Fannie And Freddie’s Foreclosure Barons

Bank of America to Freeze Foreclosure Cases

The wave of wrongful foreclosures shows the importance of traditional print and broadcast journalism in helping individuals get justice.  I don’t think the Bank of America or any other big bank would pay attention to a blogger.

It shows that with all the problems of the abuse of lawsuits, no adequate substitute has yet been found for the tort liability system.  Even if you had a system of bank regulation in which banks would pay fines – fines big enough to hurt – for violating the rights of property-owners, the banks would always appeal the regulators’ decisions, and so the decision would rest with the courts anyway.

Finally, it shows that the consequences of the housing bubble have not yet run their course.

[Added 10/9/10]  Click on ‘This is the biggest fraud in the history of capital markets’ for analysis of the larger significance of the foreclosure crisis.

Click on Are All Politicians the Same? for the political response to the crisis.

[Added 10/11/10]  Last year, the House of Representatives passed a bill that would have allowed bankruptcy judges to modify terms of home mortgages, and homeowners to negotiated modifications with their lenders.  This would have provided tools to deal with the current crisis, but the bill died in the Senate because of the influence of the banking lobby and because the Obama administration said it was unnecessary.

Click on  Remember Cramdown? for background

Click on The Obama administration wants to ruin your neighborhood for more background.

Click on What Must Be Done for the way to resolve the situation under current law.

Click on How the Foreclosure mess would play out in an actual Free Market for more.

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