Lawless Foreclosure Machine Spares No One, Even Soldiers Overseas

It is now well-known that a culture of cheating pervaded the mortgage industry during the real estate boom, with widespread deception around underwriting practices as lenders scrambled to lend piles of money to anyone with a pulse amid an orgy of greed and irresponsibility.

What is less known is that boom-era cheating also involved illegal foreclosure practices. While those practices have gotten a lot of attention during the bust, they actually started during the boom as the mortgage industry totally lost its ethical compass. 

The latest revelation is that, starting in the early 2000s, lenders foreclosed on scores of properties owned by military personnel serving in Iraq and Afghanistan, including those who sustained injuries in combat, without first obtaining a court order, as required by law.

There is an obvious reason that lenders must first get a court's okay to foreclose on soldiers. Being overseas in a combat zone can make it pretty difficult to keep track of one's personal affairs in the states. And recovering from wounds in a military hospital can make it impossible.

Protections for servicembers from civil actions by creditors and others date back to the Civil War. Todays' Servicemembers Civil Relief Act has been repeatedly amended and updated since 1918, with the most recent version of the law passed in 2003. Not only do banks need a court order to foreclose on a property own by a serviceperson, but that order can only be issued after a hearing before a judge at which the military owner is present.

Banks know these rules. And, while some forecelosures on military personnel were surely accidental, it appears that others moved ahead without court orders even though the banks knew, or should have known, that the owner was a serviceperson.

Guess who was one of the big culprits in these illegal foreclosures? Countrywide. Surprised? Of course not. That company set the standard of lawlessness in the mortgage industry.

The experience of being foreclosed upon while overseas in combat was deeply distressing for servicemembers. A number of these people were National Guardsmen who never anticipated long stints in war zones and were financially devastated by having to leave their regular jobs. Losing their homes came on top so many costs already.

In May, the Justice Department reached a settlement with Bank of America and Saxon Mortgage for illegally foreclosing on servicemembers. The settlement includes at least $22 million in relief for victims. But it is unlikely that DOJ's actions will offer much protection to military personnel who are dealt with by the banks through legal channels. Up to 20,000 servicemembers lost their homes to foreclosure last year.

Of course, as we know, there are plenty of other examples of the financial services industry treating soldiers with callous disregard. Payday lenders and other subprime predators have made a bundle on low-income servicemen and life insurance companies have even gone so far as to delay payments to widows in order to reap the interest.

These stories offer yet more evidence of why we need a strong Consumer Financial Protection Bureau. Indeed, the CFPB is going to have an Office of Servicemebers Affairs that is led by Holly Petraeus, the wife of General David Petraeus, who has been an advocate for military families.

Even before Petraeus took her job at CFPB, she sent a letter to 25 banks reminding them of the laws protecting military homeowners. Let's hope they actually read it.

Comments

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"Being overseas in a combat zone can make it pretty difficult to keep track of one's personal affairs in the states. And recovering from wounds in a military hospital can make it impossible." Nonsense. Before deploying to a combat zone you set up an automatic allotment to cover it.