Bad Banks Continue to Screw Homeowners


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

33 thoughts on “Bad Banks Continue to Screw Homeowners”

  1. Darren,
    I don’t think banning a corporation from doing business will stop the bad behavior. The best deterrent is the spectre of jail time.

  2. Larry wrote:
    gander. So if corporations really are people, they should be spending time behind bars just like the little guy does. Shouldn’t they?!
    Yep. It might not be possible to physically put a company in jail. But forbidding them to do business is essentially the same thing.

    1. It used to be from my understanding that the AG of the state can revoke the corporations charter, sell off all their assets and close them down This needs to be done a LOT more often. Then as part of selling off the assets, the golden parachutes that the officers are relying on can be collapsed along with the company.

  3. I don’t think that they have this problem in Texas since most folks, homeowners are armed. That knowledge sure slows down a lot of crooks and it they are so stupid as to enter, they will have a nasty time leaving.

  4. HumpinDog if you are gonna quote Blazing Saddles then make the correct analogy: Where da lawyers at?

  5. So, where are the lawyers ? (take off on Blazing Saddles)
    If this has happened a lot then there ought to be a lot of lawsuits against both the contractors who come into a home and rape and pillage and the bank who pays them.

    And, when the plaintiff is on the stand and has already recited all of the personal items of property taken and damaged and gone, he gets to the fact that the dog is missing. I say the dog alone is worth a hundred thousand.

  6. Timely topic rafflaw.

    The lawsuit is a good start, but it is only a civil action.

    I agree with the comments that essentially say that “too big to jail” is the DNA of a nation that is not too big to fail.

  7. Darren and Justice,
    What is good for the goose is good for the gander. So if corporations really are people, they should be spending time behind bars just like the little guy does. Shouldn’t they?!
    Thanks RWL.

  8. Banks can “legally” order that crimes be committed, encourage that crimes be committed and commit crimes and not one human involved in the process has gone to jail; none has even been prosecuted. And Obama and others wonder why they, ie. that government and its officials, have NO CREDIBILTY. Are they really that stupid?

    The law such as it is seems to apply only to poor or middle class humans. Billionaires and corporate CEOs have no personal responsibility for anything and when they lose their companies money we the US tax payer covers the loss.

  9. Re: Darren Smith

    It should work that way but the courts have essentially given “corporate citizens” all of the benefits of U.S. citizenship but none of the responsibilities of citizenship.

    Ex: Corporate citizens that participated in torture, kidnappings, illegal wiretapping, etc. were not required to follow laws on war crimes, etc. and were not charged with felonies or punished in any way.

  10. The corporate personhood can be a double edged sword to those corporations. If an individual can be put in jail, isolated from their means of employment or liberty, then so can corporations, that is revocation of their business license for the same period of time as a person would be incarcerated in prison. See how that works for them

  11. Monetary penalties mean nothing to these sharks. They just pass them on to customers and recoup the fines. Part of doing business, just like paying the utility bills. As others have said, it won’t begin to stop until the decision makers start going to jail for extended stays. However, that requires resolve on the part of the DoJ and regulators. Regulators? Golly gee whiz, what a joke. Fox, meet henhouse.

    As I said before, once a congresscritter leaves office, even if it is after just one term, they need to be kept on the payroll with full benefits and subject to the ethics rules. No outside employment after leaving congress, unless it is a government appointment. Perhaps writing a book, but that’s it. IRS enforces it by monitoring their tax returns. Expensive, but considering the alternative, cheap at the price.

  12. Until we fix the “Citizens United” ruling by the U.S. Supreme Court on “corporate personhood” this is a losing battle.

    Should corporate citizens have greater representation than real citizens?

  13. I look at it this way. Is the contractor (in the role of Safeguard here) liable and does this insulate the bank? Yes , No

    The contractor never would have known that a particular house is subject to being in foreclosure unless the bank told it of this. The contractor has no need to know about any particular house until the end when the foreclosure has been finalized and the courts have authorized the repossession of the bank. So what is happening it seems to me is the banks are using the contractor to strong-arm the residents out of the house.

    Until the bank has legally taken full possession of the house, that is the end stage of the foreclosure process, any person (whether it be Joe Criminal, an employee of the contractor or bank or whoever) who without lawful authority enters a dwelling and commits a crime is committing Residential Burglary and if items are taken Theft. I don’t see why people some don’t see it this way. It is pretty cut and dried.

    Moreover, if the bank uses illegal extensions or credit or enforcement of unlawful means to collect, engages in a pattern of this behavior as organized under the structure of a hierarchy while using interstate commerce that sounds more like a RICO case than just a mere paperwork error. Plus, using extortionate means by lockouts, thefts and property damage to “pay up” or “get out” is extortion and in my view a Hobbs Act violation.

    One problem that might be at play is that the powers to be, either prosecutors, police supervisors, US attorneys, get cold feet and whither on whether or not to go after those criminals that engage in this illegal behavior is because it is “outside the box” and “Oh I couldn’t go after the bank, they are not street criminals” and they waver and cannot bring themselves to do it. I saw this type of behavior myself on several occasions, if you go after a person using a law that is rarely used (though perfectly applicable to a criminal act) supervisors and prosecutors wimp out. (that is unless the particular supervisor or prosecutor has a wild hair and personal hatred for the accused then they use anything under the sun to go after them)

  14. Great article Professor JT:

    In relation to your article, one has to read this:



    Simon Maierhofer

    “Too Big to Fail

    The five biggest US banks have amassed $8.3 trillion in assets. That’s $2.5 trillion more than in 2007. The chart below compares the assets the five biggest banks held in 2007 with today. JPMorgan Chase is 74% bigger today than in 2007, BofA 44%, Wells Fargo 177%, and US Bancorp 66%. Only Citigroup has shrunk.

    The problem of too big to fail is that any one big bank (KBE) can light up the entire financial house of cards.

    Handelsplatt reports plans of a corporate ‘last will and testament’, where banks have to outline how they can be wound down most efficiently during times of crisis.

    Ballooning Derivatives Market

    The derivatives market, which sparked the 2007 firestorm, has grown from $586 trillion in 2007 to almost $633 trillion today and is largely unregulated.

    Regulators would like to funnel derivatives transactions through clearinghouses in an effort to increase transparency. Clearinghouses are also supposed to take the hit if any of the involved parties bites the dust. This, however only shifts the risk, it doesn’t eliminate it.

    Shadow Banks

    With assets of $67 trillion (growing rapidly), the shadow banking sector is already half as big as the ‘regulated’ (if you can call it that) banking sector.

    Unlike regulated banks, shadow banks (hedge funds, private equity funds, money market fund) are not subject to capital requirements. This is attractive if you’re greedy. That’s why many players leave the regulated market place in favor of more convenient shadow banking.

    A positive; G20 members agreed at the recent summit in St. Petersburg to figure out a way to control shadow banking by 2015. Note the wording. Not to control, but find out how to control.

    Fannie Mae & Freddie Mac Are Growing

    Not only are Fannie Mae and Freddie Mac government controlled, they are more dominant then ever before. 90% of US mortgages are currently guaranteed by the government.

    This means that the government, not the free market, determines the price, terms and conditions of mortgages. The lack of free market forces (such as supply and demand) exposes the mortgage/real estate market to renewed excesses.

    Hank Paulson observed that every financial crisis is the result of failed political measures, which lead to economic/financial bubbles.

    The whole financial leverage subject is a mind over matter issue. Investors don’t mind until it matters.

    Investors at large were blindsided by the 2007 financial debacle. Excess leveraged mattered only after the S&P 500 (^GSPC), Dow Jones (^DJI), and Nasdaq (^IXIC) started to tumble and not a moment before.

    Bernie Madoff’s investors got bamboozled for years before it mattered. The scam was there all along, but it didn’t blow up until Wall Street got hit.

    Bear markets are the best auditors. They reveal things first. The media follows thereafter.

    When will the above excesses start to matter again?

    The Financial Select Sector SPDR ETF (XLF) sports a pretty clear pattern and a specific break down point that – once triggered – should get investors (and the media’s) attention and lead to much lower prices and a more critical examination of banking/financial excesses.

    A detailed analysis of the financial sector can be found here: The XLF Financial ETF Chart Looks Ominously Bearish”

  15. If protesters across the country didn’t get the guilty charged the last time, I don’t see much changing here either….

    Corruption is hard to fight….

  16. “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?”

    Yep. If they aren’t, there is no distinction between legitimate banking and loan sharks. Just because you clothe yourself in the cloth of incorporation and a facade of legitimate business doesn’t mean you aren’t a criminal.

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