When banks "threw out the book" on loan underwriting back in the boom, they created costly problems not only for themselves and their borrowers, but also for communities nationwide, a panelist said at Suffolk University’s Foreclosure Fiasco conference today.
Andres Garcia, a real estate attorney with Philips & Garcia, Hannah Thomas, of the Heller School for Social Policy and Management at Brandeis University and Pat Hanratty, a consultant and consumer advocate Pamet Ventures and a banking industry veteran discussed the wider impact that flawed documents have had on communities and the larger housing market.
"We have discovered in the last few years of litigation, there’s really no oversight of the servicer industry" and a lot of potential for fraud and abuse, said Garcia, whose practice has morphed from simple real estate conveyancing to specializing on wrongful foreclosure, lockout and trashout litigation.
Hannah Thomas, a sociologist at Brandeis University, discussed some of the community impacts of the problems with the foreclosure process and documentations, using the transaction history of a two-family in Dorchester, 5 Medell Way. The property was first foreclosed on and vacated by the family in 2006. But neglect by the servicer and the subsequent impact of the Ibanez decision meant that the property was left vacant for more than four years, until the bank got around to completing a second, post-Ibanez foreclosure and assignment, at which point it was able to be sold to a developer. In the meantime, Thomas said, the property had attracted homeless vagrants and teenage parties, contributing to a rise in mugging and other crimes in the immediate neighborhood.
A recent paper on the costs of foreclosure in Boston, Thomas said, suggested that every foreclosed property costs an average of $2,000 to secure and maintain, $30,000 worth of increased crime damage and enforcement costs, and reduces the value of surrounding property from $157,000 to $1 million.
Garcia said the cases he’s been dealing with involve problematic documentation at all stages of the of the loan process, such as failure to properly record discharges resulting in foreclosure proceedings being brought against people who have paid off their loans, robosigned documents in the foreclosure proceedings, and a lack of proper notice for seizure and eviction, resulting in people in the midst of foreclosure proceedings or attempting to get a modification coming home to find their locks changed and all the stuff gone.
Gaps in the law regarding some of the abuses he’s seeing can make it difficult for homeowners to protect their rights, Garcia said. For example, if the bank seizes the wrong home and trashes the owner’s stuff, one can’t sue for breach of contract, because there’s no contract between the homeowner and the bank.
Hanratty, who has worked with nonprofit agencies that aim to help homeowners and restore properties, said that the thousands of clouded titles created by the foreclosure crisis are impeding that works. She works with a nonprofit who buys properties from banks and resells them to homeowners, and in several cases deal broke down even because banks simply refused to help remediate title prior to sale and the organization felt it couldn’t hand over the property to a willing homeowner in good conscience because the owner likely wouldn’t be able to resell down the road.
"If you can’t get clear title, even when you’re the city, what do you do?" she said.
