Deceptive Practices in Foreclosures
In early 2012 when five big banks settled with state and federal officials over widespread foreclosure abuses, flagrant violations — including the seizure of homes without due process — were supposed to end.
But abuses keep coming to light. Despite happy talk about a housing rebound, nearly three million homeowners are in or near foreclosure, and many continue to be victimized by improper and possibly illegal practices.
A lawsuit filed this week by the attorney general of Illinois, Lisa Madigan, and a report by The Times’s Jessica Silver-Greenberg have detailed one such abuse.
It starts out innocently enough. The banks hire property management companies to determine whether homeowners who are behind on their mortgage payments have abandoned their homes and, if so, to secure the vacant property.
It doesn’t always go that way. The Illinois suit accuses the largest company in the industry, Safeguard, of breaking into homes despite evidence of occupancy, damaging and removing personal property, changing locks, cutting off utilities, and bullying occupants into leaving their homes when they have the legal right to stay. In several other states, private lawsuits and complaints to legal aid lawyers have alleged similar abuses.
Under the foreclosure settlement, banks are responsible for vetting, supervising and auditing contractors, a category that clearly includes property management companies. Profit and expediency, however, seem to have trumped due process yet again. Property companies and their subcontractors make more money on vacant homes than on occupied ones, because abandoned property requires more work, including changing locks, boarding up doorways and removing trash. And banks get some or all of the proceeds from the sale of vacant homes.
In the past, banks have downplayed foreclosure abuses by noting that affected homeowners were, after all, late on their payments, as if that justifies harassment and worse. The Illinois suit makes clear that eviction is permissible only after a legal process is concluded. In addition, state laws to protect homeowners are consistent with federal policies — weak as they are — to promote loan modifications. Both state and federal laws are intended to ensure fairness in the brutal foreclosure process.
Safeguard has said its work meets “the highest standards in the industry.” The banks have said they carefully monitor the property management companies. That is hard to square with allegations in the Illinois suit, including the claim that Safeguard deemed homes vacant when the foreclosure process was not under way or when homeowners were negotiating loan modifications with the bank.
Illinois prosecutors have correctly referred the Safeguard case to the monitor of the foreclosure settlement, who must decide whether banks have breached the settlement terms. State and federal officials should start their own investigations.
The failure of federal policy to ensure adequate mortgage relief to borrowers, even as the banks were bailed out, remains an injustice and a drag on the economy. Foreclosure abuses add inexcusable insult to injury.