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June 17th, 2011

A mortgage-free home was foreclosed by a lender

by Peter Miller


BofAEvery business has risks, including companies that handle mortgage payments and send out foreclosure notices. These companies–called servicers–have now become a lot more risky, according to Fitch Ratings.

Fitch Ratings has now “downgraded the operational risk ratings of several U.S. residential mortgage servicers. Reasons for the rating downgrades include the growing burden of managing delinquent and defaulted mortgages in an environment of heightened regulatory scrutiny.”

The idea that “heightened regulatory scrutiny” as a risk seems curious. Aren’t companies supposed to comply with relevant regulations? And if they comply, then what difference does it make if enforcement is heightened? If the speed limit is 65 and you’re going 65, do you really care if there are 15 speed traps along the highway?

The problem is that even if the vast majority of foreclosure claims are correct and only a few are wrong, then huge numbers of claims will still need to be reviewed, especially if it’s your house that might have been unfairly foreclosed.

Mortgage-free foreclosure

A perfect example concerns the Florida home owned by Warren and Maureen Nyerges. They bought their property in 2009 and were doing just great until they were foreclosed by the Bank of America.

Given the hideous real estate market which defines much of Florida you might think that the Nyerges were among the many owners who had not made their monthly payments. And, actually, the Nyerges were not making monthly loan payment. Why? The Nyerges weren’t worried about mortgage rates, or mortgage amortization or monthly payments because they paid cash for their home. They had no mortgage, no loan to amortize. Of course, if they had no mortgage they also had no reason to make payments and could not possibly be foreclosed for failing to send monthly checks to a lender.

But they were.

Borrowers foreclosing on BofA

The case went to court, the case was thrown out of court, and BOA was told to pay the legal bills for the Nyerges. When the bank failed to make the required payments, the Nyerges sought to foreclose a local BOA branch.

What could be more fair? With the sheriff and movers on hand, the local bank branch was shuttered until the manager came up with the appropriate check, according to WINK-TV in southwest Florida.

In considering this matter, remember that to foreclose, a lender or servicer must actually own the mortgage and a judicial foreclosure must show a judge appropriate documentation. In this case, the judge threw out the foreclosure claim.

But what if the Nyerges did not go to court? What if they did not have an attorney?

Given so many alleged checks and balances in the system, how is it possible for a homeowner without any debt to face foreclosure? And if a mortgage-free home can be foreclosed for non-payment of the mortgage, is it possible that financed properties have also been improperly taken?

It’s the last question which is slowing the system. Since the famous 2007 decision by Judge Christopher Boyko throwing out 14 Ohio foreclosure claims when a lender could not prove ownership of the debt, judges have increasingly–if slowly–begun to realize that automatically accepting lender claims and paperwork is not the same as dispensing justice. No one should lose their home because of a clerical mistake or a lender shortcut. Foreclosure claims need to be checked and re-checked.

If you don’t believe it, just ask the Nyerges.

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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