The Fed’s Foreclosure-Relief Fail

AP Photo/Don Ryan

Like far too many Americans, Debbie Marler of South Point, Ohio has her own foreclosure horror story. It involves one house, seven fraudulent mortgage assignments, three foreclosures, as many states, and five years. It ruined her career prospects, threatened her retirement security, and turned her life into what she calls “a living nightmare.”

This week, Debbie walked to her mailbox and found what the federal government considers appropriate compensation for this odyssey of suffering at the hands of JPMorgan Chase, the nation’s largest bank.

A check for $800.

“I was speechless, just a complete shock,” Debbie said. “That doesn’t even pay for the damn U-Haul from when I moved out of the house in the first place.”

The money is a product of the Independent Foreclosure Reviews, part of an enforcement action against 14 banks for crimes committed in the foreclosure process. The IFRs, shepherded by the Office of the Comptroller of the Currency (OCC) and the Federal Reserve, were supposed to give anyone in foreclosure during 2009 or 2010—a total of 4.2 million borrowers—the chance to have their case investigated by an independent reviewer, and to be compensated if the review revealed harm. But the OCC and the Fed found the program so flawed and mismanaged that they cancelled the reviews early this year and instead ordered the banks to pay $3.6 billion to all 4.2 million borrowers, whether they were harmed or not. The banks, not the regulators, determined how much cash each borrower would ultimately receive; the overwhelming majority received less than $1,000. Despite the paltry payouts, the meager data we have on the reviews shows that as many as 30 percent of all borrowers covered potentially suffered serious harm that led to the improper loss of their home. That matches up with Debbie’s story.

In 2008, Debbie was living with her husband in Greenville, South Carolina, working (ironically) as a real-estate agent. “You could see this coming, with all those mortgages sold to whoever came through the door,” Debbie recalled. With the real-estate market drying up after the collapse of the housing bubble, the family suffered a decline in income, as well as some unexpected medical bills. They could no longer afford their mortgage, and in May of that year, Chase Home Finance served them with a notice of foreclosure. Debbie and the bank worked out a six-month forbearance agreement, temporarily freeing the family from payments until they got back on their feet. But a month into the deal, tragedy struck, as Debbie’s husband died.

Debbie managed to secure the $6,000 that would make her current on the loan. But Chase claimed that the investor who owned her loan—the mortgage giant Fannie Mae—would not accept that arrangement and instead demanded $12,000 up-front to avoid foreclosure. Debbie didn’t have that. So in November 2008, she said, “Two big guys came to the door, said I had to be out in 10 days. I rented a truck and left the house.” A few months later, South Carolina issued a moratorium on foreclosures for properties owned by Fannie Mae. But it was too late for Debbie.

Debbie landed hundreds of miles away in West Virginia, where her daughter lived. She set up shop in her daughter’s basement, where she would stay for the next two years. The only solace was that the misery and uncertainty of foreclosure was complete; Chase had advertised the house for sale. Debbie’s credit score took a big hit, but she could try to pick up the pieces and move on.

But in September 2009, Chase suddenly dismissed the foreclosure, returning the property title to Debbie’s name. “I got a call from Chase asking me if I’d like to do a modification. I said, you must have me in the wrong pile. How can I get a modification if I’ve been foreclosed?”

It’s actually a depressingly common occurrence, known colloquially as “zombie title.” Banks regularly stop foreclosures when they determine it not worth their while to take possession of the home. The title then reverts to the previous owners, who find themselves legally liable for maintenance costs, property taxes, and any fees associated with the delinquent mortgage. Debbie now owed hundreds of thousands of dollars on a mortgage to an abandoned home.

In 2010, a Chase employee trundled out to West Virginia and served Debbie with another foreclosure notice; she hadn’t made any payments on her former home. Debbie investigated the maze of mortgage documents, and found that all the assignments of mortgage on the property were autographed by known robo-signers, who had no underlying knowledge of the mortgage. The documents were invalid in the eyes of a court, likely another reason why the foreclosure was never completed.

Chase told Debbie that in order to qualify for a “deed-in-lieu” foreclosure, which would voluntarily transfer ownership to the bank and satisfy the mortgage, she would have to fill out modification paperwork. The bank lost her paperwork five or six times, and then in May 2011, Chase dismissed the foreclosure again. In October of that year, Fannie Mae, serving as owner, filed for foreclosure number three, and this time, they sought a deficiency judgment, going after Debbie for any outstanding balance on her mortgage not covered after the foreclosure sale. “I paid $165,000 for the house, it was empty for three years, full of mold, appraised at $50,000. There was no way I could come up with the money to make up the difference,” Debbie said.

Now living in Ohio, Debbie dipped into her retirement account to pay a lawyer $7,500 to fight the deficiency judgment. The lawyer won the case, arguing that Fannie lost its right to seek deficiency judgment after the two prior foreclosures. But the judge did not award Debbie legal fees; she was still out $7,500. The foreclosure finally went through in January 2013, nearly five years after the initial notice.

Debbie submitted her case for the Independent Foreclosure Review before the program was scrapped. But she cannot figure out why she ultimately received only $800. Based on the payment agreement details, borrowers who requested a review would get $800 if they submitted a modification request, but never received a decision from the bank. That’s not what happened to Debbie at all; she participated in a forbearance plan for several months. In fact, the category of borrowers who met forbearance requirements and were nonetheless put into foreclosure are entitled under the payment plan to $24,000. Debbie expected that amount. There’s no way to check Debbie’s specific foreclosure circumstances, as the reviews have not been released, and regulators allowed banks to determine specific borrower compensation without oversight. Debbie also has no recourse; there is no appeals process for the compensation amount. She could sue JPMorgan Chase for additional restitution, but if she had the kind of money to pursue a lawsuit against a giant bank, she would never have fallen into foreclosure in the first place.

Adequately compensating homeowners was never a goal of the foreclosure reviews. For context, banks paid the third-party consultants who performed the reviews (and according to whistleblowers, helped deliberately minimize evidence of borrower harm) roughly $20,000 a pop, a windfall of $2 billion. Homeowners who suffered the abuse netted less than $1,000 on average. Regulators could not even give Congress an accurate percentage of borrowers harmed by illegal foreclosure processes, calling into question how they arrived at the $3.6 billion compensation figure in the first place.

Meanwhile, Debbie’s career as a realtor imploded when the notice of foreclosure hit the newspapers back in 2008—“my credibility went in the toilet,” she said. The defaulted debt will remain on her credit report for another seven years. Debbie eventually got another job and moved out of her daughter’s basement, but she saw her finances obliterated by this ordeal, along with her faith in the system. “I’ve lost so much patriotism for this country,” Debbie said matter-of-factly. “We’ve seen this man-made, greed-driven collapse of our economy, and then we gave the perpetrators blanket immunity.”

Debbie has plans for the $800, but it’s not for her. Through the Occupy Our Homes network, she learned about a former Atlanta police officer named Jacqueline Baker, currently fighting both foreclosure and bone marrow cancer. After years of staving off eviction by US Bank, Baker secured an agreement to buy back the home at a market rate. But US Bank refuses to finance the loan, leaving Baker, whose foreclosure makes her ineligible to obtain a mortgage, completely stuck. Debbie, who felt a kinship with the story due to medical problems in her own family (her grandson has leukemia), plans to give her $800 check to the Atlanta woman, to go toward a down payment, should Baker secure the financing.

“I don’t want their filthy money,” Debbie said, referring to JPMorgan Chase. “I’d rather take it and give it to someone who’s still fighting, someone who still has some hope.”

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