Banks Pay Millions Over Wrongful Military Foreclosures

by:  Peter J. Gallagher

Just in time for Memorial Day, Bank of America agreed to pay millions of dollars to settle claims that it wrongfully foreclosed on the homes of scores of active-duty service members.  As the Charlotte Observer reported in the article entitled, "Bank of America Unit To Pay $20 Million Over Military Foreclosures , Countrywide Financial, which BOA acquired in 2008, foreclosed upon approximately 160 service members while they were serving overseas.  A lawsuit filed by the Department of Justice in federal court in California alleged that BOA violated the Civil Relief Act by failing to consistently check on the military status of borrowers before initiating foreclosure proceedings. The DOJ began investigating BOA after U.S. Marine Corps referred a case involving a service member facing foreclosure by Countrywide. 

 Under the terms of the settlement, BOA agreed to: (1) establish a $20 million fund to compensate service members; (2) pay all costs associated with any homes that were foreclosed upon without court orders between June 1, 2009, and Dec. 31, 2010; and (3) undertake corrective actions, including starting a dedicated customer service unit for service members and a loan balance reduction program for military members who are behind on their payments.

As the article notes, this settlement is only the latest Countrywide-related problem for BOA.  The bank is also  one of the many banks considering a settlement with various states attorneys general related to various mortgage servicing errors.  Most of BOA’s issues arise out of loans originated by Countrywide before BOA purchased the California-based lender as it teetered on the brink of collapse. 

Prior to the BOA settlement, the Justice Department settled with both Morgan Stanley and JPMorgan Chase % Co.  over similar allegations.  Morgan Stanley, which agreed to pay $2.36 million as part of its settlement, allegedly foreclosed on approximately 18 service members without court orders.  JPMorgan, which agreed to pay $27 million, acknowledged that it overcharged approximately 6,000 service men and women who were overcharged on their mortgages.  JPMorgan also agreed to cut interest rates on soldiers' home loans and return homes that were wrongfully foreclosed upon.  Finally, both banks issued statements apologizing to the U.S. military personnel for their actions.

Chickens Continue Coming Home To Roost For Lenders And Mortgage Companies Involved In Foreclosure Crisis

by:  Peter J. Gallagher and Steven P. Gouin

Our regular followers know that many of our pieces focus on the foreclosure industry, and with good reason, as over 2 million American homes are currently in foreclosure.  Add to this troubling statistic the recent allegations of shoddy paperwork at many of the nation's largest mortgage companies and the law firms representing them, and you have the makings of a compelling story of a giant foreclosure-induced catastrophe.  While homeowners have been feeling the pain from this crisis for years now, the catastrophe struck close to home recently for many of the banks and mortgage companies at the heart of the foreclosure crisis. 

In an article entitled “Confidential Federal Audits Accuse Five Biggest Mortgage Firms Of Defrauding Taxpayers,” the Huffington Post is reporting that a recent federal audit conducted by the Department of Housing and Urban Development (HUD) revealed that five of the nation's largest foreclosure firms, including industry giants like CitiBank and Bank of America, are guilty of fraud under the Federal False Claims Act.  Specifically, the audit concluded that the banks “filed for federal reimbursement on foreclosed homes that sold for less than the outstanding loan balance using defective and faulty documents.”  According to the article, federal prosecutors are debating whether to use the audits as the basis for criminal and civil sanctions against the mortgage companies. 

At the same time, the New York Times is reporting that New York Attorney General Eric Schneiderman has requested information and documents from three major banks – Goldman Sachs, Bank of America, and Morgan Stanley – about their mortgage-backed securities operations (“NY State Investigates Banks’ Role In Financial Crisis”).  This suggests that Mr. Schneiderman may be launching an investigation into the banks' practices, which many believe led to billions in mortgage losses.  One of the most interesting aspects of the article is the suggestion that, by requesting this information from the banks, Mr. Schneiderman is “operating independently of peers from other states who are negotiating a broad settlement with large banks over foreclosure practices.”  The article notes that Mr. Schneiderman has been unwilling to join this proposed settlement because the banks are demanding that it include a clause whereby regulators agree not to conduct additional investigations into the banks’ activities during the mortgage crisis.