Foreclosure Wave Hits Cash Buyers, Too

By James Kwak

Since most of you probably read Calculated Risk, you’ve probably seen the Sun Sentinel story of the man in Florida who paid cash for a house–and still lost it in a foreclosure. Not only that, but he bought the house in a short sale in December 2009, the foreclosure sale happened in July 2010, and only then did he learn about the foreclosure proceeding.

Even after that,

“Grodensky said he spent months trying to figure out what happened, but said his questions to Bank of America and to the law firm Florida Default Law Group that handled the foreclosure have not been answered. Florida Default Law Group could not be reached for comment, despite several attempts by phone and e-mail. . . .

“It wasn’t until last week, when Grodensky brought his problem to the attention of the Sun Sentinel, that it began to be resolved.”

Bank of America now says it will correct the error “at its own expense.” How gracious of them.

If the legal system simply allows Bank of America to correct errors, at cost and with ordinary damages, after they happen, this type of abuse will only get worse. There’s obviously no incentive for banks not to make mistakes, and as a result they will behave as aggressively as possible at every opportunity possible. Yes, this was probably incompetence, not malice, on the part of the bank. But if you don’t force companies to pay for the consequences of their incompetence, they will remain willfully incompetent, and the end result will be the same.

31 responses to “Foreclosure Wave Hits Cash Buyers, Too

  1. Maybe he can sue them for “psychological trauma” (or whatever) and become an instant millionaire. Actually I would be surprised if he didn’t.

    Sure, BofA deserves to lose millions for this kind of screw-up. But should those millions really go to Mr. Grodensky and his lawyers? That doesn’t seem right… Is there any alternative in our current system?

  2. I guess it’s not that hard to find, but a little surprised you didn’t leave the link.
    http://www.calculatedriskblog.com/2010/09/oops-no-mortgage-and-still-foreclosed.html

    Newspapers still do a great job. In my opinion newspapers (or “print media”) still do the best job of all the different forms of media. And it’s no wonder that it’s hard to find good quality journalism and hard news, when after performing the best journalism of all the major forms of media (the other being TV, radio, internet) their reward is lower readership, and for many, bankruptcy.

    I like Andrew Sullivan, but I get so tired of him taking cheap shots at “mainstream media”. I’d like to know where Mr. Sullivan thinks people would get their news if everybody sat at a monitor waiting for others to bring them the news, and then complain they didn’t do a good enough job when they did it.

    I like how the host of Calculated Risk mentions the journalist’s name Harriet Johnson Brackey. Oftentimes bloggers mention the news outlet, but never mention the journalist/writer who did the work for the story. Yay for Miss Brackey!!

    Yves Smith also had a solid post related to this topic recently. Seems amongst all their other questionable acts recently, Uncle Buffett’s favorite little bank is finding new sleazy tricks for their customers:
    http://www.nakedcapitalism.com/2010/09/latest-real-estate-time-bomb-title-of-foreclosed-properties-clouded-wells-fargo-dumping-risk-on-hapless-buyers.html

  3. Where should the money go, if not to the victim pray tell us?? Nemo’s home for wayward girls???

  4. 1) Re Nemo and Ted K: damages should go to the victim, of course, but there should also be fines from Federal & State supervising authorities (and insurers) over B of A.

    2) Yves Smith is great, and usually quite brilliant, but her first post on MERS and the Wells Fargo addendum revolved around a couple of very serious errors that led Yves to assert, wrongly, that buyers of Wells Fargo REO houses have zero recourse to Wells Fargo if the title from foreclosure proves bogus. Sure, Wells Fargo would love it if that were the case, but Yves assertion was completely wrong. She also claimed REOs were being transferred after sale with quitclaim deeds, which is not the case.

  5. To the public purse, obviously.

    This guy did not suffer millions in damages. Punitive damages should be imposed for the harm BofA’s general incompetence/malice does to society. So those damages should go to society, not to the one guy who happened to be the victim this particular time.

  6. Agree with you completely, Nemo. This is a huge flaw in our current system. A damages award substantial enough to meaningfully punish a giant corporation is completely out of proportion with what’s appropriate for a single victim. The damages should be set to give BofA (et al) an appropriate disincentive to continue this harmful practice, and the majority of the money should go to the public (as we’re all being injured).

  7. “The evidence doesn’t matter, the proof doesn’t matter, due process doesn’t matter,” said Asbury, the attorney. “The only thing that matters is that they get rid of these cases.”

    Hooray for America’s legal system! The most advanced system in the world!

  8. Why does it seem to be always Bank of America involved
    in this kind of stuff? The incompetence must be
    pervasive throughout that company.

  9. Banks have shown time and again that they will push the limit to maximize profits. Which is fine, as long as they stay within the limit. But when there is no cost to going over the line, they will do so repeatedly.

  10. 1. Damages to the direct victim, generous damages, plus a goodly chunk of money awarded to his lawyers for smoking B of A out.

    2. Huge fines and sanctions against B of A, of the magnitude that really hit a year’s earnings in the family jewels. That way, stockholders will demand that heads roll, and roll they will.

    3. Finally, and most importantly: Criminal fraud prosecutions against bank officers and the lawyers who participated in this scam. Disbarment for the lawyers. Public arrests and perp-walks for the cameras for everyone charged, very high bail at arraignment and all passports pulled.

    #3 on the list will certainly get the attention of the B of A board, execs and stockholders. This nonsense stops when people who used to wear the $500 golf shirts start wearing prison orange and sharing cells with big guys named Bubba.

  11. Assuming what you are saying to be true (I am relatively ignorant on real estate) I wonder if Yves Smith will retract that or correct herself. Surely if that is the case others would have called her on the error in e-mails etc….

    I know when others like Gretchen Morgenson of NYT make mistakes Yves doesn’t show much mercy.

  12. Yes, this was probably incompetence, not malice, on the part of the bank.

    We need to reject this false distinction. Just as where it comes to an assertion there’s no moral difference between a conscious lie and willful ignorance, so there’s no moral difference between a conscious crime and willful negligence. (“Incompetence” is the wrong word where the conduct is willful and can readily be improved, which we all agree it easily can where it comes to any bank practice.)

  13. While going through foreclosure, about two months before the final order, we came to the house to find that it had been broken into and the locks changed. We called the police, who must have assumed we were lying as they notified us that we could arrested for trespassing on our own property. Finally after a week of dealing with the attorney for Wells Fargo, we found out that they had not obtained judicial approval to possess the house , nor had they authorized the property maintenance company to change the locks. He had the maintenance co come out and change the locks back, and we had the police there, though the officer suggested that we keep the attorney’s letter, “proving” that we were still owners, so that we didn’t get arrested if we were found at he house in the future.

  14. When someone calls for ‘customer service,’ they get plugged into a sort of ‘menu hell,’ with maze-like prompts that produce endless aggravation and frustration on the part of the ‘esteemed customer.’ Companies know how universally hated the system is. But why change it? Afterall, the ‘unintended’ consequence produces a desired effect, namely causing customers to avoid calling for support, at the risk of impairing their sanity. Don’t you love it when the menu prompt hell system requires you to input all sorts of data, in the name of efficiency, so that eventually you can be asked for the same information? How about when companies repeat an obnoxious series of mindless commercials while you’re on hold? The ‘unintended’ effect of that is to make you hang-up, especially given the long hold times–no matter what time of day you call, you always get a message that call volume is such that you may experience longer than normal hold times. Companies have no clue this discourages customers from calling however, and are just incompetent. The same can be said for the maliciously designed rebate scam.

  15. Well, chances are he was not singled out for abuse by BofA and that there are many many more victims who could join in an action. Compensating them all would be less awkward for those who hate to see ordinary people get a windfall.

  16. What I can’t understand about this article is why title insurance does not cover such issues. What are you paying for with title insurance if not protection against the risk of someone seizing your house.

    Did the buyer not have title insurance? Is this issue specific to short sales or something that make it hard to get title insurance? Or could this happen to even to normal buyers with title insurance?

  17. Bayard Waterbury

    As a man who spent his entire career in the real estate transaction business, on nearly every side when all was said and done, I can tell you that this sounds like the kind of emptor caveat story that I used to tell people at closing to encourage them to purchase and policy of owner’s title insurance. That policy, if purchased, provides ironclad protection against this very kind of situation. In the legal quagmire sponsored by the current viral horde of mortgage lenders out there, this is the kind of thing that will cause sleepless nights for those who chose not to pay a tiny cost, all things considered, for complete peace of mind.

  18. Insurance? Peace of mind? Oh, come on. Ever heard of AIG?

  19. The question I have was the release on the prior mortgage recorded? The article does not say so. If it was then its an open and shut case end of story, the title company would have to write a letter citing the release and end of story. Otherwise it will take a bit more work on their part.

  20. One the more general question, what ever happened to the old return reciept requested letter with a request. You have legal proof the letter got there. I notice the modern mortgage forms no longer require it, but despite its $5.00 cost it gives one a legal proof the org got the letter. Its just like if you send your tax return in that way the burden of proof for non reciept changes.

  21. Say for example with cable TV. Why should the companies change when people don’t watch 3/4 of the channel packages they are paying for, are charged outrageous prices, swallow the bad service and never drop it??? The consumer sits there with crap running down his chin saying “Well the Johnsons next door have cable, what am I gonna do if they want to talk about what happened on ‘Jersey Shore’ last night and I don’t have an answer??? My life cannot go on as before”

  22. Got problems with who gets settlement money? Here’s an idea, make behavior such as this criminal and forget the civil suits. The company will identify an employee as the fall guy, so make his managers criminally liable as well.

    Then rich companies cannot just say “oops” and write a check for what amounts to chump change for them.

    And people will stop suing because their hot coffee is hot.

  23. Increasingly the work of the Courts is being turned over to private financial firms which–shock! gasp!–have their own interest in the matter. This is especially egregious, but credit rating agency conflict resolution procedures are another example.

    Just one more government service that we don’t need.

    Croak!

  24. If it does not seem right you should ask your banker to foreclose your property without having any right to do so, see how it feels and then w can discuss further. In all likelihood you will feel you deserve more millions than Mr. Grodensky!

  25. how are you injured by this?

  26. Solution: grow a big brassy pair and don’t pay for cable. Learn to have a conversation about things other than the vicarious experiences of your favorite fictional or reality show characters.

    Oh who am I kidding? Nobody is interesting enough to have a conversation like that in America anymore. “You Americans don’t smoke anymore. You all live long, dull, uninteresting lives. “

  27. This is amusing and touches on things intentionally broken – or not, depending solely on your personal point of view.

  28. Thankyou James for giving “Hard Print” {@ Sun Sentinel/ St. Petersburg Times ;-)}a shot in the arm. The “4th Estate” must always remain visable, and accessible!!! Just think of the raw, realistic facts – how many of these cases have fallen through the cracks, pathetic.

  29. This is where you file a “wrongful entry and detainer” suit against both the “maintenance company” and Wells Fargo, demanding money damages. then, within the context of the foreclosure suit, you file an affirmative defense reciting that the plaintiff Wells did “with strong hand” engage in self-help entry and seizure of the property without due process of law, and ask that the foreclosure suit be non-suited on the grounds cited in “Keystone Driller Co. v. General Excavator Co.,” 290 US 240.

  30. Forcing companies to pay for the consequences of their incompetence is a way to avoid such problems.