(Bloomberg)  An audit of foreclosure practices at the Federal Housing Administration’s five largest mortgage servicers uncovered widespread failures to ensure the banks had proper legal documents.

According to reports released today by the inspector general of the Department of Housing and Urban Development, banks including Bank of America Corp. and Wells Fargo & Co. violated the federal False Claims Act when they improperly foreclosed on homes insured by the FHA.

The audits, spurred by revelations in 2010 that mortgage servicers were seizing homes using improper paperwork, were forwarded to the Department of Justice last year. They formed part of the basis for a $25 billion settlement with five banks filed in U.S. court in Washington yesterday.

“I believe the reports we just released will leave the reader asking one question: How could so many people have participated in this conduct?” the inspector general, David Montoya, said in a statement accompanying the reports. “The answer: simple greed.’”

Other banks included in the review were Ally Financial Inc, and JPMorgan Chase & Co.

Ally Financial regrets the deficiencies in the foreclosure process, said Gina Proia, a spokeswoman for the lender. Still, she said, “there was no evidence of someone being foreclosed on without being in significant default of their loan.”

Efforts to Improve

Mark Rodgers, spokesman for Citigroup, said the bank had already improved its procedures and “is making every effort to ensure that no foreclosure goes forward based on an inaccurate or defective affidavit.”

Spokesmen for Bank of America and Wells Fargo noted that the audit focused on activities that took place several years ago. Wells Fargo has made “significant strides” in improving its procedures, said Vickee J. Adams, a spokeswoman for the bank.

“We do all we can to modify loans when possible and to ensure foreclosures are fair when they are unavoidable,” said Bank of America spokesman Richard G. Simon.

Patrick Linehan, a spokesman for JP Morgan, said the bank had no comment.

Servicers failed to ensure that their employees and contractors verified the content of affidavits before signing them as they churned through thousands of foreclosures, the review found. The banks also eliminated quality control departments.

The inspector general will issue recommendations to correct the problems once the settlement agreements are approved by the court, the reports said.

Source:  Bloomberg

(KSL.com) LAYTON — More than 32,000 homes in Utah received a foreclosure notice last year.

A lot of those foreclosure notices went to people who thought they were meeting all of the lender’s demands while they were following the procedures to apply for a loan modification. One of those people is Steve Curtis, the mayor of Layton.

Two weeks before Christmas, Curtis came home and found a foreclosure notice taped to his door. It said his home would soon be put up for auction — even though he had never missed a mortgage payment.

This was just one of the many nightmares Curtis encountered by applying for a trial loan modification.

“Naturally our trust was with the bank,” he said. “We saw no reason why not to trust. Call it gullibility or whatever.”

Curtis says he was stunned to see the foreclosure notice on the home he has lived in for 14 years.

“It was very painful,” he said. “Nobody should have to go through that. Nobody.”

The foreclosure process on the Curtis home began when Curtis and his wife applied for a loan modification in March. Curtis had been out of full-time work for nine months and was trying to stay current on all of his bills.

Bank of America agreed to a trial loan modification that lowered their mortgage payment by $350.

“All along they said as long as you were making your payments, a foreclosure would not happen,” Curtis said. “Even when it got to the underwriter everything looked very good. We were told that and that we would have no problem in qualifying.”

So what went wrong? How did a foreclosure notice end up on the Curtis’ door in December?

“The payments that they are making actually don’t go to the servicing department,” said advocate Marco Fields.

According to Fields, it’s because departments within Bank of America are not communicating with each other. As soon as the Curtis family applied for the loan modification, their payments went into an escrow account so they showed up as delinquent in the servicing department.

“I think it is a simple fix. It’s a computer program that needs to be able to talk to one another,” Fields said.

The miscommunication is costing homeowners all over the country a lot of time and money — and in some cases even their homes. Bank of America now faces consumer class-action suits in several states for persistent failure to modify loans.

“Every homeowner needs to be concerned about this issue because we are having the equity in our homes eroded because of these irresponsible actions by these financial institutions,” said Fields.

Fields helped push the Curtis file into the office of Bank of America’s CEO. But the company still hasn’t been able to find all the right paperwork to straighten out their error.

“This is so far beyond advocacy. This is so far beyond a counselor. At the end of the day you are going to need a five-star attorney,” said Fields.

Curtis says it’s easy to lose hope. “Legally, no I don’t have the resources to fight the big bully Bank of America. They’d crush me.”

In order to save their home, the Curtises will have to pay all reinstatement charges. On top of that, they will also have to foot the bill for the legal fees Bank of America racked up when they foreclosed on the Curtis’ home.

“I’m thinking that never should’ve been done in the first place,” Curtis said. “So why should I be paying legal fees for something that shouldn’t have been in the first place?”

Curtis now has a full-time job and will be able to save his home, but says he will continue to speak.

“I will stand up and fight because my neighborhood matters,” he said.

To further illustrate what a mess the whole process has been for the Curtis family — just two weeks ago they received an e-mail stating that they are not eligible for a loan modification because their loan is in active litigation.

But the only reason the loan is in litigation is because Bank of America wrongly foreclosed.

Source:  KSL.com Utah

(CNNMoney) — Like millions of Americans, Joanne and John Buchanan are facing foreclosure. But at a value of more than $2 million, the home they stand to lose isn’t your average delinquency.

For the Buchanans, it’s the dream house they built from the ground up in a resort community near Breckenridge, Colo., in 2003. It took them almost two years and about $2.2 million to build — and soon they will have to move out.

For years, homeowners at the high end of the housing market were able to postpone the foreclosure process, but now multi-million dollar homes are becoming more commonplace in America’s foreclosure pipeline. In fact, America’s wealthiest families are now losing their homes to foreclosure at a faster rate than the rest of the country, according to RealtyTrac.

Out of all foreclosure activity, the share of foreclosures on multi-million dollar properties — or homes valued at more than $2 million — has jumped by 273% since 2007.

For the Buchanans, losing the six-bedroom estate they helped design was unimaginable at one time, but now it seems unavoidable.

The couple moved to Colorado from California where John had worked as the director of business development at a high-tech Silicon Valley firm.They came seeking a less stressful life. John took a buyout package and the couple opened two wine and tapas restaurants, using their new dream home as collateral.

See inside the Buchanan’s $2 million dream home

Things went well, for a while. “In 2008, we were hit up here with the slowdown as much as anybody,” John said. But “we were on the wrong end of the market,” he said. High-end restaurants like theirs were quickly without customers.

John was forced to shutter the restaurants ina Chapter 7 bankruptcy filing.

Meanwhile other expenses were also piling up, including the couple’s mortgage payment, which was more than $7,000 a month. They had gone to their lender, CitiMortgage, to ask them to modify the mortgage on their home, which was then valued at $3 million. But the bank refused.

Eventually, the Buchanans just stopped paying their mortgage. John said he hoped it would get the bank’s attention. It has been almost 30 months since they last made a payment, meaning the couple is more than $210,000 behind on their mortgage.

Sean Kevelighan, a spokesman for Citi, said the bank could not comment on specific cases. “Our first priority is to keep families in their homes,” he said.

Since 2007, Citi has helped more than 1 million homeowners avoid potential foreclosure, he noted. “Unfortunately, that is not always possible, and some cases proceed to foreclosure,” said Kevelighan.

As part of the bankruptcy filing, the Buchanans have agreed to sell their home and hand over the remaining assets to the restaurant lender after Citi recoups the $1.7 million that it is still owed on the mortgage, according to John.

“We had a lot of our savings tied up in the house and we’ll end up losing all of that,” he said.

Source:  CNN Money