Respectfully submitted by Lawrence E. Rafferty (rafflaw)-Guest Blogger

I know it may not surprise you that banks may be screwing homeowners in light of their past bad and illegal tactics in foreclosing home loans.  However, in light of the fact that five of the largest banks agreed in a settlement in 2012 to end their deceptive and illegal foreclosure actions, their refusal or inability to control the contractors they hire in the foreclosure process may end them back in front of regulators.

Recently, the State of Illinois filed suit against the largest  property management company that some of these very same banks use, and alleged that the company, Safeguard Properties, LLC, illegally broke into homes of people who were involved in a foreclosure or about to be foreclosed on and removed possessions and in some cases stole or damaged borrower’s personal property.

Normally, a bank will hire a firm like Safeguard to investigate whether a home that is in foreclosure has been vacated for the purpose of securing and protecting the home during the rest of the foreclosure process.  The allegations from homeowners across the country paint a much different picture.

“Even before the Illinois action on Monday, homeowners across the nation have lodged complaints with state regulators and filed lawsuits of their own, contending that Safeguard tried to forcibly drive them from their homes in a campaign of fear that involved damaging possessions, changing locks and shutting off electricity.

In North Carolina, homeowners said that they had returned to find their houses padlocked and their personal property, including family photographs, destroyed. In Bedford Corners, N.Y., Susan Salzberg Rubin said Safeguard broke into her property multiple times and tampered with the alarm system. In Bethel Park, Pa., Alexandra Hlista said she was forced from her home after multiple break-ins.” New York Times  

Why would a contractor like Safeguard want borrowers out of their homes before they were legally required to?  Unfortunately, the answer is the usual reason for corporate bad acts.  Money.  The contractors will make more money from the Lenders if the owners have “vacated” the property.  Even if they have not really vacated.

“Lawyers for homeowners in foreclosure say the business arrangement — in which subcontractors at the end of the chain are typically paid a flat fee for a variety of services — contributes to problems because homes declared as vacant, rightfully or not, make the subcontractors more money. In one example outlined in the Illinois suit, Safeguard’s subcontractors took medical supplies.

“There seems to be a financial incentive to find a vacant home even when it might not be because there is more work to be done at that point,” said Adam Taub, a lawyer in Michigan who represents homeowners in cases pending against Safeguard.” New York Times

The allegations are mounting and when added up, are disturbing.  The Attorney General of Illinois, Lisa Madigan, has filed suit against Safeguard and Illinois became the first state to take official action against Safeguard.  In light of the many claims being made nationwide against Safeguard and similar contractors, Illinois’ action may not be the last.

The New York Times article quoted above suggests that the State of Illinois has referred this issue to the official in charge of monitoring the Big Banks compliance with the 2012 settlement.  I have a question for that monitor.  If the evidence does suggest or prove that the banks did not properly control their contractors, will a mere monetary penalty be enough to bring the banks into compliance?

We have seen the lender abuses in the foreclosure process during this recession continue to mount up.  The 2012 settlement was supposed to correct most or all of these abuses.  However, as is often the case with banks and their subcontractors, money seems to be continuing to dictate their actions.  Their agreements and the law don’t seem to ever be a part of the equation when decisions are made that adversely impact homeowners.  How much money can they save or make in the process seems to be the controlling issue.

Will banks ever stop these abuses or control their contractors if the only penalty they face is another fine?  Would the home owner be better protected if the contractors and/or the banks be subject to a serious criminal and financial penalty for continued malfeasance and intentional wrong doing in the foreclosure process?

When the big banks are making record profits, doesn’t a fine or financial penalty amount to a mere pinprick and not a deterrent to future wrongdoing?  As the New York Times editorial board put it. “State and federal officials should start their own investigations.  The failure of federal policy to ensure adequate mortgage relief to borrowers, even as the banks were bailed out, remains an injustice and a drag on the economy. Foreclosure abuses add inexcusable insult to injury.”

With that in mind, I want to use the now infamous quote or paraphrase of Speaker John Boehner, “Who is going to jail?”   If the evidence points to continuing or purposeful violation of the 2012 settlement, will financial penalties be enough to bring the banks and their contractors into compliance?

I need to repeat my earlier question.  Should officers of the bank and it’s contractors be charged with criminal action if the evidence proves these abuses are not mere errors?  What do you think?

Additional Resources:  National Mortgage Settlement