When Banks Break In to Your House: A Foreclosure Debate

Evidence of illegal practices raises questions about whether the foreclosure process needs to be reformed

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Today's New York Times tells the story of Mimi Ash, who entered her mountain house at the start of a weekend ski trip only to find the locks changed and all her belongings--including her late husband's ashes--missing. Ash was not robbed, the Times explains, but instead locked out by her bank. She has now filed a federal lawsuit accusing Bank of America of wrongfully foreclosing on her house without prior notification. The incident is part of a larger trend, the article notes:

In an era when millions of homes have received foreclosure notices nationwide, lawsuits detailing bank break-ins like the one at Ms. Ash's house keep surfacing. And in the wake of the scandal involving shoddy, sometimes illegal paperwork that has buffeted the nation’s biggest banks in recent months, critics say these situations reinforce their claims that the foreclosure process is fundamentally flawed.

The Times states that it's difficult to estimate the number of homeowners who have been illegally foreclosed on and that banks claim situations like Ash's are rare. When they do occur, the Times adds, it's sometimes because banks are unsure whether a home in default is abandoned and want to secure it, a right they are often granted through a clause in the mortgage. Other times, the break-ins are mistakes involving homeowners who are not behind in their mortgage payments or have already paid off their home.

Most commentators weighing in so far are expressing outrage at banks:

  • Banks Are Cutting Corners, argues Barry Ritholtz at The Big Picture:
The reason this keeps coming up is the fraudulent, half assed, on the cheap, illegal, mass production of fraudclosures by banks. They ... decided that tossing out a few people illegally--even those who had no mortgages--was worth the cost savings of actually doing this correctly (i.e., legally). I hope that some AG or judge recognizes the systemic bank perjury and tosses some of these jackals into prison.
  • This Is Obscene, declares John Ballard at Newshoggers: "This is not one of those local stories that clutter the news--drug busts, apartment fires, C-store robberies, police chases, traffic jams ... This is a national plague that has been unfolding over what will soon become three years."
  • I Don't Buy the Explanation from Banks, states Yves Smith at Naked Capitalism. Even if illegal break-ins account for a tiny percentage of foreclosures, a tiny percentage "across the huge numbers of foreclosures happening across the US adds up to meaningful numbers in real terms." Smith observes that the Times story mainly profiles middle- to upper-income homeowners: "for someone of lesser means, the consequences of wrongful action can be devastating. If possessions are removed, or worse, put out on the street, the losses can be significant." She adds that "these suits likely represent only a small fraction of the actual cases of bank miscreance, since few of the victims are likely to have the financial wherewithall and intestinal fortitude to sue a bank."
  • Let's Get Some Numbers, urges Felix Salmon at Reuters. The Times does not identify the number of homeowners wrongfully foreclosed on, and the unnamed bank representatives cited in the article don't indicate the percentage of foreclosures these cases represent, he notes.
It's easy to guess that the cost of preventing such break-ins is larger than the cost of settling with enraged homeowners, and that the banks consider that settling such suits is a natural cost of doing business, rather than something which they should try to bring down to zero. Getting numbers on percentages and settlements would surely help in determining whether the banks are cynically allowing this to happen because doing so means that their overall costs are lower.
This article is from the archive of our partner The Wire.