Homeowners Facing Foreclosure Demand Recourse

Ricky Rought paid cash to the Deutsche Bank National Trust Company for a four-room cabin in Michigan with the intention of fixing it up for his daughter. Instead, the bank tried to foreclose on the property and the locks were changed, court records show.

Sonya Robison is facing a foreclosure suit in Colorado after the company handling her mortgage encouraged her to skip a payment, she says, to square up for mistakenly changing the locks on her home, too.

Thomas and Charlotte Sexton, of Kentucky, were successfully foreclosed upon by a mortgage trust that, according to court records, does not exist.

As lenders have reviewed tens of thousands of mortgages for errors in recent weeks, more and more homeowners are stepping forward to say that they were victims of bank mistakes — and in many cases, demanding legal recourse.

Some homeowners say the banks tried to foreclose on a house that did not even have a mortgage. Others say they believed they were negotiating with the bank in good faith. Still others say that even though they are delinquent on their mortgage payments, they deserve the right to due process before being evicted.

Some consumer lawyers say they are now swamped with homeowners saying they have been wronged by slipshod bank practices and want to fight to keep their homes. Joseph deMello, a Massachusetts lawyer who represents Mr. Rought, said the common denominator in many of the cases was an overwhelmed system of foreclosures in which banks relied on subcontractors to do much of the work.

“No one double-checks anything,” he said. “It’s completely high volume and that’s unfortunately what leads to this.”

It may never be known how many homeowners have legitimate claims against the banks, real estate and banking experts say, because lenders do not release such data and because the vast majority of cases never make it to court.

For the last month or so, some of the nation’s largest banks have temporarily halted foreclosures in some states amid accusations that the paperwork used as evidence to oust homeowners was incomplete or signed off by so-called robo-signers who did little to check its veracity.

Even if the paperwork was faulty, the fact remains that most homeowners in foreclosure have not paid their bills, often because they bought more house than they could afford or because they lost their jobs. As a result, they will most likely lose their homes eventually, once the banks clean up their paperwork and resolve any outstanding legal issues.

“We believe that the overwhelming majority of the cases will be that the loan was seriously delinquent and needed to go to foreclosure,” said Paul Leonard, vice president for government affairs of the housing policy council at the Financial Services Roundtable, an advocacy group for the nation’s largest financial institutions.

Consumer lawyers and housing experts acknowledge that it is relatively rare that a bank initiates foreclosure on a homeowner who is current on the mortgage or has no mortgage at all. More common, they say, are instances where homeowners have applied for mortgage modifications but get foreclosed upon anyway.

In a report to Congress released this week, a federal inspector general described the government-sponsored modification program, known as the Home Affordability Modification Program, as deeply flawed.

While about 467,000 mortgages had received permanent modifications under the program, an estimated 3.5 million homes will receive foreclosure notices this year, an increase of 26 percent over 2009, the report says.

“You have this promise of relief for borrowers but actually getting that relief is like a zigzag line from point A to point B,” said Jose Vasquez, a lawyer for Colorado Legal Services.

Ms. Robison’s case is a variation on the theme. When she returned home to Yoder, Colo., outside Colorado Springs, from a holiday trip in December 2008, she found the locks changed and her electricity, gas and water heater shut off. A sign on the door advised her to contact Safeguard Properties, a company hired by the mortgage servicer, Litton Loan Servicing.