Christopher Marconi was in the shower when he heard a loud banging on his door. By the time he grabbed a towel and hustled to his front step, a U.S. marshal's sedan was peeling out of his driveway. Nailed to Marconi's front door was a foreclosure summons from Wells Fargo, naming him as a defendant. But the notice was for a house Marconi had never seen — on a mortgage he never had.
Tom Williams was in his kitchen thumbing through the mail when he opened a letter from GMAC. It informed him that the bank would confiscate his house unless he immediately paid off his mortgage balance of $276,000. But Williams had never missed a mortgage payment. And his loan wasn't due to mature until 2032.
Warren Nyerges opened his front door in Naples, Fla., to find a scraggly-haired summons server standing on his stoop. He plopped a foreclosure notice from Bank of America in Nyerges' hands. But Nyerges had paid for his house in cash. And he'd never had a checking account, much less a mortgage, with Bank of America.
By now, you may have heard the stories of bank robo-signers powering through hundreds of foreclosure affidavits a day without verifying a single fact. But most of those involved homeowners who had stopped paying their mortgage. They were genuine defaulters. Now a new species of homeowner is getting pushed into foreclosure hell.
People have always loved to complain about their banks. The push-button circus that passes for customer service. The larding on of fees. But the false foreclosure cases are hardly the usual complaints. These homeowners paid their mortgages — or loan modifications — on time. Some even paid off their loans. Worse, those on the receiving end of a bad foreclosure claim tell similar stories of getting bounced from one bank official to the next with no resolution while the foreclosure process continues apace.
Many have to resort to paying a lawyer, even after presenting documentation. They say they have to sue not only to stop the wrongful foreclosure but also to attempt to win back their costs.
There are no official statistics for these homeowners, but lawyers, real estate agents and consumer advocates say their ranks are growing. In November, during foreclosure hearings on Capitol Hill, senator after senator scolded the banks about wrongful foreclosures. They said their offices were deluged with complaints from people who had done everything right but were being treated by banks as if they had done everything wrong. And the Florida attorney general's office is also investigating the issue as part of its foreclosure probe.
"This is the worst I've ever seen it," says Ira Rheingold, an attorney and executive director of the National Association of Consumer Advocates. Diane Thompson, a lawyer with the National Consumer Law Center, has defended hundreds of foreclosure cases. "In virtually every case, I believe the homeowner was not in default when you looked at the surrounding facts. It is a widespread problem throughout the country."
Homeowners in Florida, Nevada, Texas and Pennsylvania have filed lawsuits alleging that they were victims of mistaken foreclosure. In many of those cases, the bank went so far as to haul away belongings and change the locks on the wrong homes.
One such suit was filed in March by Pennsylvania homeowner Angela Iannelli. She was up to date on her payments when, she says, she arrived home in October 2009 to find that Bank of America had ransacked her belongings, cut off her utilities, poured anti-freeze down her drains, padlocked her doors and confiscated Luke, her pet parrot of 10 years. It took her six weeks to get the bank to clean up the house.
Iannelli's lawyer says the parties are in the process of "mutually resolving the issues" and the lawsuit is "in the process of being discontinued." Bank of America did not immediately respond to a request for comment on her case.
But the incidents haven't stopped. Maria and Jose Perez of Seguin, Texas filed suit in October after Bank of America sent them a notice that their house was scheduled for a foreclosure sale Nov. 2. The couple say they are current on their mortgage payment and they have no loan with Bank of America. A trial is set for June 13.
Now the class actions are coming. In Kentucky and California, class-action lawsuits have been filed against major lenders on behalf of homeowners in loan modification programs who allege that they made all of their payments but got foreclosed on anyway.
"It is mind-boggling that these large banks accepted billions and billions of TARP money from the government, and they are just committing a fraud on the American people," says Jack Gaitlin, who filed the Kentucky suit on Oct. 4. He was referring to the 2008 government bailout of the banks, the Troubled Asset Relief Program.
To understand the banks' back-office dysfunction, you have to travel back to the credit bubble of the early 2000s. Rising home prices were turning real estate into the new national casino. Lending standards evaporated. No job or down payment necessary! Banks, meanwhile, stopped holding on to mortgage loans and pooled them into securities that were sold to investors.
The banks charged fees for servicing the mortgages — tasks such as collecting monthly payments. The banks slap on the biggest fees when a borrower can't make payments and the bank forecloses. Says Rheingold, "They created a servicing model where they made the most money by foreclosing on people as quickly and cheaply as possible." When a foreclosed house is put back on the market and sold, the proceeds are used to pay creditors, like mortgage servicers, first.
Now it's becoming clear just how chaotic the whole system became. Depositions from employees working for the banks or their law firms depict a foreclosure process in which it was standard practice for employees with virtually no training to masquerade as vice presidents, sometimes signing documents on behalf of as many as 15 different banks. Together, the banks and their law firms created a quick-and-dirty foreclosure machine that was designed to rush through foreclosures as fast as possible.
Former employees at banks and foreclosure law firms have testified that they also knowingly pushed through foreclosures on the wrong people.
Tammie Lou Kapusta is a former paralegal with the law offices of David J. Stern, a Florida firm that works for all the major banks and handles up to 70,000 foreclosure cases a year. Kapusta testified in September that she received as many as 50 calls a day from homeowners who said they were the victims of mistakes. But she was told, she testified, to ignore the callers and push through the foreclosures anyway. The law firm is under investigation by the Florida attorney general.
The banks say they are reviewing their mortgage and foreclosure procedures and most of the people involved in foreclosure deals were behind on their payments. As for people wrongly caught in the foreclosure net, they say they are reviewing those cases, too.
But what emerges from court filings, depositions, and interviews is that once the bank places you on its foreclosure assembly line, it becomes nearly impossible to get off.
The minute Marconi ripped the foreclosure notice from the door of his house in Garrison, N.Y., on Oct. 20, he saw he was named as a defendant along with a woman who had run a red light and smashed into Marconi's car four years earlier. Marconi had received a payment from her insurance company. It was her house, in Rye, N.Y., that Wells Fargo was foreclosing on.
Marconi explained the bizarre mix-up to Wells Fargo's customer service department, its ethics complaint department, its law firm and the office of the chief executive officer, John Stumpf. Marconi says they all told him that they could not help him and that he needed to get a lawyer.
Wells Fargo spokeswoman Vickee J. Adams says Marconi was named in the foreclosure suit because he filed a judgment against the woman in the car accident. It is common for lien holders to be mentioned in foreclosure documents. But Marconi says the judgment against the woman was satisfied in April 2009.
"Now I have to pay a $3,500 retainer for a lawyer to get my name pulled off some lawsuit by Wells Fargo," Marconi says.
Equally puzzling is the case of Williams, the chief executive of a food distribution business in Kansas City, Kan. Williams lives in a 3,000-square-foot house with a luxurious patio and pool out back. Before his GMAC nightmare began, he says his credit score was 794 out of 800. "I've never been any days late on anything, ever," Williams says.
But when Williams, 52, tried to pay his $2,500 monthly mortgage payment online on Aug. 5, he found out that GMAC had put a "stop" on his mortgage account.
Since that day last August, Williams has found himself trapped in an alternative banking world worthy of the Twilight Zone. The trouble couldn't come at a worse time for Williams and his wife, Carol. She was in the process of buying the upholstery business where she has worked for 10 years. Bank of America lowered Carol's credit limit, citing "serious delinquency on other accounts." And the couple's credit score is sinking by the day.
During the past four months, Williams says he has talked with 25 GMAC representatives. He has twice contacted the offices of the CEO and the chief financial officer. He has sent packages of paperwork documenting and verifying his claims. And, he says, various GMAC employees have promised to straighten it out immediately. All the while, GMAC has repeatedly refused to take his mortgage payments, going so far as to mail them back to him. It is routine for banks to refuse payments once they start foreclosure proceedings.
Finally, on Nov. 9, a GMAC employee who said she worked in the executive offices contacted Williams and told him that an audit had revealed the bank had lost his loan's paperwork. But she couldn't explain why the stop had been put on Williams' account, why the bank was rejecting his payments or why the bank was assessing him for late fees every month. She said she would send letters to his credit agencies to correct the misinformation.
On Nov. 15, she sent Williams a package of documents for a loan modification and stressed that it was urgent that Williams "immediately" sign and return them, "prior to the Nov. 24 regulatory deadline." If Williams didn't do so, the GMAC employee said in an e-mail, the loan modification "would no longer be valid."
Williams emailed the woman with several concerns and questions about the documents but he never heard back from her. He felt the only option he had left was to hire a lawyer. "It's really a bite — and I can't tell you how it chafes me — to have to pay hundreds of dollars an hour just to get to make my house payment because the mortgage company can't find their loan documentation," says Williams.
GMAC spokesman James Olecki says the bank is looking into Williams' situation.
Even those who have managed to clear up their misunderstanding say the fight was a full-time job.
After going to court and serving as his own lawyer, Nyerges got Bank of America to drop its foreclosure action. All along, he had been showing employees of Bank of America a copy of the $165,000 cashier's check he used to pay for his house in September 2009. "No one at Bank of America could wrap their brain around this concept that I had no mortgage," he says. In September, the court awarded Nyerges $2,500, plus 6 percent interest, for his costs.
Says Bank of America spokeswoman Jumana Bauwens, "This was an unfortunate error that was corrected when it was brought to our attention."