Bankers Use Fake Documents to Seize Homes; Borrowers Fight Back

by on Feb 28, 2015 in Debt News

Last March, a New York lawyer revealed that Wells Fargo was using fabricated papers to initiate foreclosures and seize properties. Some homeowners are fighting back by filing lawsuits against the national bank. Although federal authorities have been slow to take action, several courts and city governments have begun to penalize Wells Fargo in various ways.

Phony Documents

Attorney Linda Tirelli proved that fabricated foreclosure papers weren't only used in a few isolated incidents. She produced evidence that this was a systematic policy adopted by the bank. Wells Fargo lawyers even had a manual with the instructions they needed to generate fake documents when the real papers were missing.

Tirelli told a radio program that the top mortgage lender compiled these directions in early 2012. She said that they were obviously written for legal professionals that the company had hired. These instructions listed specific steps needed to create fake foreclosure papers. Surprisingly, the New York lawyer explained that an acquaintance found Wells Fargo's directions on the Web.

In one instance, Wells Fargo needed a foreclosure paper to be produced by a representative of fellow bank Washington Mutual. The mortgage had apparently been transferred from lender to lender without appropriate documentation. However, WaMu had gone out of business two years earlier. Wells Fargo employees still fabricated a document in the name of a company that no longer existed.

Federal Inaction

Tirelli called on judges throughout the nation to prioritize this issue and take action against the lender. Nonetheless, the inspector general for the Department of Justice recently disclosed that the government had done little to prosecute bank officials who committed crimes. It was revealed that loan fraud had been designated as a very low priority.

Even as they overlooked most instances of fraud, DOJ officials told the public that they intended to crack down on banks. Attorney general and former bank lawyer Eric Holder informed reporters that the department was taking legal action to recover over a billion dollars in homeowner losses associated with mortgage fraud. In reality, the DOJ sought less than $100 million.

Ongoing Malfeasance

During 2012, attorney generals in 49 states reached an agreement with five of the largest mortgage lenders. It required them to pay compensation and take steps to protect property owners from unfair evictions. Nonetheless, Wells Fargo went on to publish its document fabrication manual. Along with Bank of America, it reportedly violated the agreement on countless occasions.

Suspicions of bank wrongdoings go back several years. In late 2010, the Washington Post reported on a federal investigation into fabricated foreclosure papers. It indicated that top lenders were suspected of deceiving government loan insurers, "robo-signing" documents that no one had reviewed and tricking investors into buying flawed mortgage derivatives.

Fighting Back

Homeowner advocates say that news headlines about a recovering real estate market often obscure the reality in many locales. Even as national banks report tremendous profits that were achieved with the help of government bailouts, they continue to seize homes in an inflexible manner. Many top lenders refuse to negotiate reasonable terms that would allow people to remain in their homes.

Rather than accept eviction notices from the banks that destroyed their property values and cost taxpayers billions, many distressed homeowners are fighting back. Protests and petitions have enabled the public to express displeasure with major lenders. In some cases, top banks like Wells Fargo cancel unjustified foreclosures to minimize negative publicity.

At the same time, a few city governments have also taken action to prevent evictions. They used eminent domain to adjust the principal amounts that locals owe on their mortgages. This means that people in these districts owe what their homes are presently worth rather than the inflated pre-2008 prices. Banks threatened to punish the cities with lawsuits and other sanctions.

Courts have also begun to address these problems. In January 2015, a federal judge barred Wells Fargo from using fake documents to foreclose on a property. The New York Post reported that a Missouri court forced the lender to pay over $3 million to a family who lost their home to an illegal foreclosure. Despite the banks' tremendous influence, homeowners are beginning to win victories against them.