Wednesday, December 22, 2010

Banks struggling with glut of foreclosures

Most banks were not prepared to foreclose and own hundreds-of-thousands of properties. The housing bust required a range of mass-scale foreclosure and re-sale processes unfamiliar to these lenders and mistakes soon followed. National media reported on notary fraud and other irregularities in the foreclosure process.

Andrew Martin in the New York Times now reports a rise in bank break-ins.

In Texas, for example, Bank of America had the locks changed and the electricity shut off last year at Alan Schroit’s second home in Galveston, according to court papers. Mr. Schroit, who had paid off the house, had stored 75 pounds of salmon and halibut in his refrigerator and freezer, caught during a recent Alaskan fishing vacation. (emphasis added).

Lacking power, the freezer’s contents melted, spoiled and reeking melt water spread through the property and leaked through the flooring into joists and lower areas.

Of course, banks are not without excuse. Many mortgages allow lenders to enter a property in default and secure it, if deemed abandoned. From the apparent rise in unwarranted bank break-ins, however, it seems lenders expend little effort in determining whether such homes are truly abandoned.

In another case, a homeowner in default was still negotiating loan modification when the bank broke in and took everything:

Near Halloween 2008, work crews broke in and cleaned out the place, taking Persian rugs, china, furniture bought on a trip in Peru, skis, photos of her marriage and childhood in Iran. Her husband’s ashes were taken from the couple’s master bedroom.

Certainly a spike in volume of foreclosures accounts for the increase in such break-ins. But should volume excuse unwarranted break-ins?  It will be interesting to track the lawsuits brought against lenders in the following months. 

McKay Cunningham

Caselaw, Financial Crisis, Housing, Mortgage Crisis, Mortgages, Property Rights | Permalink

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