Illinois Attorney General’s Action Against Wrongful Foreclosures May Be First of Many

This blog post was written by False Claims Act attorney Tony Munter.

The fight to protect homeowners from mortgage processors never ends.

The New York Times Deal Book is reporting on a new lawsuit to fight mortgage companies who are wrongfully foreclosing on clients:

Faced with millions of foreclosures, the nation’s biggest banks turn to property management firms to help them navigate the wreckage. But the firms are coming under fire for using questionable and possibly illegal tactics…

Credit goes to the office of the Illinois Attorney General who is apparently taking action to pursue this kind of disaster:

Illinois on Monday became the first state to take on the property management firms legally, contending in a lawsuit that Safeguard Properties, the largest of the firms, wrongfully dispossessed hundreds of homeowners in the state. Lisa Madigan, the attorney general, claims that Safeguard broke into homes despite stark evidence that homeowners still lived in them, bullied tenants into leaving even though they had no legal obligation to do so and, in some cases, damaged the very homes they were sent to protect….”

So, we are happy to see at least one state agency is not going to let the banks and their agents avoid the legal processes they are required to follow when they foreclose.  Despite what we presume to be the best efforts of lobbyists for the banks, there are still a great many legal requirements and licensing requirements involved in a foreclosure.

Hopefully the suit Ms. Madigan is filing will protect some homeowners in Illinois.  Our disclaimer is that it is always possible the banks and their agents are acting in good faith at the end of a difficult process in which the homeowner failed to pay, the mortgage went into default, and the bank must do what it must do to protect its asset.

On the other hand, what if that is not the case? Not only could the banks and their agents be facing suits like the one the Illinois Attorney General filed, but it is also possible somebody on the inside could come forward with the kind of information which would lead to a case.  After all mortgages today involve investments of federal money through Fannie Mae and Freddie Mac and insurance through the FHA, so wrongful foreclosures or actions which could damage the value of the property could lead to a case under the Federal False Claims Act.

In addition, if those mortgages or the properties support securities and the value of those securities is compromised by these kinds of actions, there is the new whistleblower reward available under the SEC whistleblower office.

The Illinois Attorney General claims that there were more than 400 complaints to her office prior to filing her suit.  Maybe they were all disgruntled people.  Or maybe we will soon find out about a case filed by an insider who can say what these firms are really doing.

We’ll keep watching for these kinds of reports. It’s only been a year or so since the major banks had to settle claims of mortgage service issues with the states and federal government for more than 25 billion dollars.  Still, it does not mean that everyone in the mortgage world has cleaned up their acts.