The Final Insult: Foreclosure Foul-ups Can Cost You Money and Your Home

The New York Times (3-30-08) has an investigative report on the often unethical, incompetent, and sometimes illegal, practices of companies that foreclose on mortgages in arrears. Business is booming at the companies (including law firms) that work for lenders in the foreclosure area, and with all this new business has come a slew of problems that could cost you your home. Here are some of the most common things that happen:

  • Incorrect or excessive fees. Most people have no idea what these fees should be, so they are not in a good position to challenge them. In one case reported by the Times, the homeowners who were trying to save their home paid thousands of dollars in fees and never saw any reduction in their loan balance.
  • Not recording loan payments properly. The Times reports on several cases where loan payments were not credited properly, causing the lender to proceed to foreclosure when they should not have. The homeowners had to go to court to get proper credit. In another case, the lender took three payments out of a checking account in one payment period.
  • Ignoring proper procedures in bankruptcy court. Filing Chapter 13 bankruptcy is supposed to forestall foreclosure proceedings but some lenders try to proceed anyway. Lenders are supposed to file accurate figures about what is owed and payments made so that the court can work out a plan for the borrower to handle past and future debt, but they often file incorrect figures and inaccurate statements.

They lenders say they want to “work it out” with any borrower they can rather than foreclose, but they often do not act like it. They are quick to turn over the case to foreclosure experts or employees and the poor quality of these services makes it almost impossible to get anything reasonable done. There needs to be some sort of legislation to make this process more fair.

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