There are many ways to skin a cat

Dirty tricks

Pyramiding charges, protracting foreclosure, more

Many ways to skin a cat
The banks have many ways, legal and illegal, to hurt borrowers. Adding fees, unnecessary insurances, unwarranted or protracted foreclosures and much more.

Pyramiding charges and other dirty tricks
It is not enough to pay your mortgages; a significant number of those facing foreclosure has made every single mortgage payment. The borrower might be late paying on the mortgage; even if he is on time, the bank can delay registering the payment. So the borrower is charged $75 for late payment. He does not know this but sends in his regular payment. The bank takes $75 to pay the charge, then it charges for insufficiency and maybe another late fee. Under Federal law, monthly payments are to be applied to principal and interest first, fees second; still, often that's not how it's done.
After two late payments, the bank lets a broker give a price opinion; typically the broker drives past the house, takes some pictures and charges $250 for a guess. In remarkably short time, even if the borrower never has been late, the charges can become some thousand dollars. The borrower does not know anything until he gets a note from the bank; maybe not until he gets a foreclosure notice. This was not something the banks did only when they saw a chance. They had software that routinely, against Federal law, pulled fees before making principal payments.
Homes have been foreclosed where the mortgage has been paid off and in spite of having no mortgages. Borrowers have been forced to take unnecessary insurances. False fees and charges not authorized by law are common. One bank was supposed to handle the insurance payments but let it lapse and changed a $4,000 insurance to a $33,000 insurance.

Active duty soldiers targeted?
The Administration can act when it chooses to. A Congress hearing disclosed illegal foreclosures on active duty soldiers, something that riled both congressmen and the public. Jamie Dimon, CEO of offending JPMorgan, got really scared and promised a lot of supporting activities to the soldiers: lower interest, jobs, donating homes, finding other ways to help. Those foreclosed on would get their homes back and remaining debt would be forgiven. Just a pity JPMorgan wouldn't do the same with other illegal foreclosures. Or were soldiers the only people harmed? That's what JPMorgan claimed. As I understand it, this means they claimed they had been targeting soldiers.

Banks dragging on with foreclosure
It is not only that banks prefer foreclosure to modification or short sale. They want foreclosure to drag on, maybe not forever but they have strong incentives not to rush things. On a foreclosure sale, their foreclosure fees are paid from the incoming money; if their total fees are lower than the foreclosure price, the surplus goes to their investors and not to the banks. So they drag on as long as they can extract fees. A further reason to delay foreclosure is that in the case of the bank taking over the property, it will be responsible for upkeep and real estate taxes.
Another neat trick is starting a foreclosure but, without telling the borrower, not finishing it. Years later, the borrower suddenly finds out that he owes property taxes, maybe also fines; sometimes the bank has made such a mess that the borrower can't get rid of the house for years to come.

Breaking foreclosure stay
On bankruptcy proceedings, there is an automatic stay. This means that most actions against the debtor are stopped; lawsuits, repossessions, foreclosures, evictions, garnishments, attachments, utility shut-offs, and debt collection activity. Foreclosure mills often try to break the stay. It can be battled down but to somebody filed for bankruptcy it can be expensive, $800 is a typical cost. The bank can offer an alternative. If the borrower signs a harmless looking agreement, the bank will quit trying to break the bankruptcy stay. However, the agreement has language that might result in the bank's being able to seize the house outside the bankruptcy process.

Sloppy handling, passwords shared and more
As a borrower, there are many ways to get in trouble. Lender Processing Services (LPS) is a firm used by many banks to handle mortgages; it is defendant in a class action involving many types of misdemeanor. It is tried for cutting corners using robosigners and DocX, an infamous document fabrication service; also for sloppy work resulting in real injury for the borrowers, for example application of mortgage payments to incorrect accounts. Passwords are shared so a large number of employees could and did access mortgage records of borrowers; they could alter them by changing entries, reversing transactions, adding transactions, and moving funds in and out of suspense accounts. According to one witness, 20% of the files had phantom referrals; on top of this another 35% had some problem. Among the problems were improperly raising interest and error in accounting for principal and interest payments; another employee reported even higher error rates. Not only was speed rewarded over accuracy, employees were required to hide LPS's errors no matter how severe. A witness stated: "out of 100 files, I guarantee 78 are incorrect." The errors included adversary proceeding violations, incorrect agreed orders, missing payments not accounted for, and escrow issues such as clients escrowing on non-escrow loans. The majority of foreclosures are probably warranted. Still, a high percentage of the cases are bank driven foreclosures; the LPS and US Trustee revelations now make the claims against the banks seem far more credible than before.

© Anders Floderus