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Expected Federal Reserve Report Finds No Wrongful Foreclosures Among 500 Files

March 11, 2011

Our Corona foreclosure defense lawyers have been following the "robo-signing" issues closely since they began surfacing in late September. So we were interested to see a few articles on a Federal Reserve Bank report that is expected to say there were no wrongful foreclosures among a sampling the Fed examined. The report has not been released to the public, but the Fed's Consumer Advisory Council, which makes recommendations for how Fed policies affect consumers, criticized the report at a March 10 meeting. According to the Huffington Post, consumer advocates said the definition of wrongful foreclosure used was too narrow, and that the Fed had buried its finding that there were significant problems with how banks handled foreclosures.

Reportedly, the Fed examined 500 loan files to determine whether the sloppy practices known as "robo-signing" had led to wrongful foreclosures. The sample size itself was criticized as too small, the article said, in a nation that saw more than 3 million foreclosures last year. (This would make the 500 files 0.0167 percent of all foreclosures.) But the advisory council also criticized the Fed for defining "wrongful foreclosure" as a foreclosure on a home not significantly behind in payments. Consumer advocates wanted to expand the definition to include cases with significant mistakes in the foreclosure documents or cases in which a bank tried to foreclose on a property it didn't own. One member of the council said the dispute is not over whether the homeowners were delinquent, but whether foreclosures were avoidable.

We couldn't agree more, and we believe this report buries rather than clarifies the issue. By defining wrongful foreclosures only as foreclosures of people not far behind on their payments, the Fed neatly sidestepped the issue of whether banks are doing all they say they're doing -- never mind all they can -- to prevent foreclosures. In our experience as Costa Mesa foreclosure defense attorneys, they are not -- and the council, which is made largely of pro bono housing attorneys, appears to agree that this is the real issue. Sloppy paperwork by loan servicers also leads to foreclosures by banks that don't actually own the loan, as well as foreclosures that take place while the borrower is trying to negotiate a loan modification, often despite seeming incompetence by the servicer.

It's also worth noting, as the Supreme Judicial Court of Massachusetts recently did, that whether borrowers were truly in default is not the point. Robo-signing breaks the law regardless of whether any harm was done.

At Howard Law PC, we represent clients who are tired of negotiating with loan servicers that have shown little interest or ability to negotiate with them. Our Gardena foreclosure defense lawyers negotiate aggressively on behalf of clients who believe they can afford to stay in their homes after a reasonable modification to their mortgages. In the current real estate market, lenders stand to lose money by foreclosing, since they can't sell the homes for the same price the borrower paid. However, loan servicers don't own the loans and don't care about the lender's profits -- all they care about is maximizing the fees they receive before the home is taken. We help our clients stop the foreclosure machine, using litigation whenever necessary to halt a foreclosure sale or get the attention of a servicer that seems determined to ignore less extreme moves.

If you're frustrated by months of doing everything you could to get a loan workout, only to be rejected or treated unfairly, you should call Howard Law for a free, confidential consultation. You can reach us toll-free at 1-800-872-5925 or send us a message through our website today.