Foreclosure From Old Mortgages ‘Most Egregious Manifestation’ Of Broken Housing Market

Michelle Conlin, Reuters

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 aren’t alone.

More and more, homeowners say 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 the executive director of the National Association of Consumer Advocate.

Diane Thompson, an attorney with the National Consumer Law Center, says she has defended hundreds of foreclosure cases, and in nearly all of them, the homeowner was not in default. “The record-keeping on the part of the mortgage servicers is not to be trusted.”

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.

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 a day, to pose as bank vice presidents, assistant secretaries and corporate attorneys.

These “robosigners” 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.

Read more here