Q: I’ve been getting your newsletters for a while and always enjoy and learn from them.
I tried the rehab business back in 2006 and bought a home to fix up in Missouri. By the time the local real estate market collapsed, I had spent over $100,000 on the house.
I lost the house to a big box lender about two years ago. My loan had been bought and sold multiple times. Is there any misbehavior on the banks part with “sloppy paperwork, etc” that I should investigate? Where do I start? I’ve been reading that the “big 3” banks did some illegal things and have to pay back those who were harmed. Do you have any advice for me?
A: These are good questions and there is a two-part answer.
The first part is to determine whether you have been harmed by the actions of the bank or by your own actions in trying to enter the real estate market as it was heading to the big crash.
It’s quite possible that all of your paperwork was done properly and processed properly after you purchased the home. If that’s how your situation played out, and your lender did nothing wrong, you don’t have much of a case.
There are many cases where the big box lenders have failed to properly document loans, failed to properly “paper” their files after the closing of the loan, and failed to deliver accurate documentation to the courts when they moved to foreclose and evict homeowners.
It’s been a couple of years since your foreclosure. It does not appear that you know of any specific wrongdoing by your bank in your case, so it seems that you would be on a fishing expedition to try to find out if they handled your case improperly.
You should know that it seems that most loans have been handled properly but there have been a significant number of instances reported in the press in which borrowers’ paperwork was handled improperly or the methods used during the foreclosure case were not done right.
We know of instances in which banks have emptied out properties when those homes were not even subject to foreclosure but the companies hired to clean out properties made mistakes. Likewise, it has been generally reported that some foreclosure cases handled by the courts have had documentation processed as if the papers were being printed by a newspaper printing facility when that documentation should have been processed carefully with due attention paid to the details.
But knowing that some paperwork was not handled properly is a far cry from contending that your specific file was not processed correctly. At this point, do you know if your bank did something wrong?
If you don’t know whether the bank did something wrong that would have changed the outcome in your case or caused you harm, it may be difficult now to try to get a recovery or change the outcome on your case.
Most people (including the lenders) see a borrower who has stopped paying his mortgage as someone who should be evicted from the home and that home should be foreclosed on and sold.
Having said that, our system of justice requires the lenders, the court and our government to proceed in the manner provided by law. When there is an injustice committed against a homeowner – even if that homeowner has stopped paying his or her mortgage – the justice system can’t just overlook the errors.
The second part of the issue is whether it’s worth the time and money to hire a company or law firm review all of the paperwork from your loan to determine whether there were problems with your loan documents.
While these companies and firms generally work with borrowers while they are still in their homes, some help homeowners that have lost their homes. There is a lot of litigation brewing in the courts around these issues, including some class action lawsuits. And it wouldn’t surprise us if a class action lawsuit is filed against banks found to have cut corners on their paperwork and court filings.
If everything in your case was done correctly, you might pay a company hefty fee upfront to review all of the paperwork only to find that nothing can be done. You may find out that there were errors in your documents but now that you have lost the home, finding those errors now may not help you. Those errors may be sufficient to start a class action suit, but may not yield much to you.
(Successful class action lawsuits often wind up paying hefty fees to the attorneys, but consumers sometimes end up with a few dollars or receiving coupons of little real value. In some cases, filing the paperwork for these cases by consumers seem more of a hassle than the single digit checks that come back to consumers from the litigation.)
The bottom line for you is to know whether you were harmed by the actions of the lender – aside from the foreclosure. The foreclosure is a harm to you but the lender is in its legal right to foreclose on the home when you stop paying on the mortgage. Whether you have a claim against the lender at this point seems like a fishing expedition.