The latest 8.5 billion dollar foreclosure fraud settlement has the top ten banks paying out this money to mortgage borrowers who were involved in a foreclosure proceeding in 2009 and 2010, without regard for whether that borrower was wronged or not.
It seems that the entire process of reviewing mortgages for evidence of fraud, with the intention of making restitution of as much as $125,000 to homeowners who were fraudulently foreclosed on has now been terminated in favor of this broad-brush approach to paying everyone a little, instead of making wronged borrowers whole.
Critics of this plan say that it is nothing more than a victory for banks, whitewashed to look like a "win" for consumers. The regulators say that the whole process, involving over 300,000 loans targeted for review, would take many months to complete and is very costly for the banks. So, to speed things along, this settlement benefits consumers by making payments available immediately, instead of months or years later. But the rules for paying out this money are not clear, no schedule has been set, and there is no way to actually know who will get what amount, or whether banks can even locate foreclosed borrowers to send them a payment.
The reaction has been strong on both sides of the issue. This article, on the Naked Capitalism blog is titled "Yet Another Loss For Homeowners Touted As A Victory". gives details highly critical of the settlement, saying that at most, borrowers can expect around $2,200 in benefits, depending on how the banks decide to divvy up the funds. Their point is that any borrower who was defrauded out of their homes has little to be happy about, while the banks get off the hook for what should be a criminal offense.
Indeed, NO bankers have been prosecuted as a result of any banking actions related to foreclosure fraud. Is this because there has been no fraud? If a person gets behind on their mortgage payments, and a bank forecloses, even if someone has to fabricate some of the required documents, is it really fraud if the borrower is actually delinquent and not paying their mortgage?
Daniel Fisher of Forbes Magazine, writes on the finance industry and legal matters, and how the two interact. He asks in this article "In the past 5 years, has there been one single case of a bank fraudulently foreclosing on a home owner who was current on their mortgage?"
Fisher points out that foreclosure fraud is not in a banks best interest, as it costs money. It is not an economic benefit to a bank to foreclose. That's true, but I'll also add that FHA insured mortgages are a possible exception to this rule. With FHA insured loans it may actually be possible for a bank to profit more from the insurance, in areas where home values are below the face value of the mortgage. But that being said, even with FHA loans, does anyone know of a documented case where the borrower was NOT in default on the mortgage prior to the foreclosure?
Another point raised by Fisher is that the real fraud is often perpetrated against desperate borrowers by attorneys who operate foreclosure rescue firms that advertise that they can save your home from foreclosure for a fee. I have first hand experience with these gimmicks, and have saved a number of home owners from this scam and tried to save others who paid a foreclosure service thousands of dollars in up front fees, only to lose their home and their money.
The only thing that's been done to clean up these foreclosure rescue scammers is to pass laws saying that only attorneys may charge up front fees for foreclosure services. But the attorneys can be as bad as the original scammers. The fact is, if a borrower is in default on their mortgage, there are few things that can be done to stop a foreclosure, short of either paying the back payments, refinancing or getting the loan modified to bring it current.
And since attorneys are involved, there is no liability for fraud if they fail to stop the foreclosure after charging thousands in fees.
And I have to agree, I've personally seen a lot more fraud of this nature, while I've seen no documents at all that clearly indicated that a bank deliberately foreclosed on a borrower who was current on their mortgage. I'm sure there may be a few cases of this, because of bank errors, but assuming that all foreclosures are fraudulent because of paperwork issues is somewhat of a misnomer, because it wasn't the bank employees doing most of the actual fraud, but rather foreclosure attorneys coming up with creative ways to get things done for their clients.
To wit, there is this article, written by Chip Parker a Florida attorney, writing on Bankruptcy Law Network, pointing out that lawyers are the ones perpetrating most of the actual fraud where the robo-signing scandal is concerned. And it was the robo-signing scandal that started this whole foreclosure fraud mess. His article provides a lot of insight into how foreclosure documents are created and processed by attorneys in Florida, one of the states most impacted by the robo-signing scandal.
It seems to me, when you consider the range of issues involved in this very complex situation, there is plenty of blame to go around. And the banks are certainly a popular target because of their own incompetence. But, one thing is for sure, the real estate and foreclosure attorneys getting paid by the banks and the borrowers continue to profit from foreclosure in a variety of ways. They are supposed to be the gate keepers for the complicated legalities of real estate. Yet they are the ones who stand to realize significant financial benefit from the housing market crash, not the banks themselves. The banks may be guilty of gross mismanagement, but it's the attorneys who, by all accounts, have been busy benefiting from the whole foreclosure mess.
The foreclosure fraud settlement may make eligible borrowers feel like something was done to bring the banks to justice, but one has to wonder whether the real criminals have gotten away.
Donna S. Robinson is a real estate investor, author and residential market analyst in Atlanta, GA. Follow her on twitter at donnaconsults. Her latest book "Basics Of Real Estate Investing" is now available on Amazon.com