Foreclosure-Gate: What Is a Wrongful Foreclosure?

11-26-2010 • ProPublica.org

1) Homeowners were not in default but faced foreclosure. Most everyone agrees it’s wrong for banks to foreclose on someone who isn’t behind on a mortgage or has even paid off a mortgage. Homeowners in both these scenarios have faced foreclosure actions due to processing errors—often involving miscommunication between lenders, servicers, title insurers, foreclosure law firms and other bank contractors. In many of these cases, banks have apologized for such errors. 2) Homeowners who were told that to be eligible for a loan modification, they needed to fall behind on their mortgage—and subsequently found themselves on the path to foreclosure. It’s not uncommon for banks to give this kind of advice to homeowners who were at the time current on their mortgage but were seeking a modification. In a survey we conducted in August, nearly half of the 373 homeowners who responded told us that their mortgage servicer incorrectly told them that they had to stop making mortgage payments in order to qualify for a loan modification. 3) Homeowners were behind on their mortgage but could have caught up if not for additional fees. In a speech this month, Federal Reserve Governor Sarah Bloom Raskin criticized the mortgage servicing industry for using a “Pandora’s Box of predatory tactics” including “the padding of fees, such as late fees, broker-price opinions, inspection fees, attorney’s fees, and other fees.” 4) Mistaken foreclosures due to dual track of foreclosure and loan modification processing. Banks aren’t supposed to foreclose on homeowners until they’ve exhausted all available loss mitigation options. But foreclosures and loan modifications being processed simultaneously by different divisions within the bank can cause many struggling homeowners awaiting approval for a loan modification to be foreclosed on first.