Trevor Douglas, 54, may soon lose his Orlando house. Sure, Douglas hasn’t paid his mortgage in more than two years, which is what a Bank of America spokesperson tells me “is important to remember.” It is. Still, if it happens, I will feel partially responsible. I helped push Douglas closer to eviction.
Like many other home loans, Douglas’ IOU was bought and sold numerous times and finally packed into a bond. So when his foreclosure notice finally arrived, the entity trying to kick him out was one he had never heard of, something called GSAMP 2005-HE3. Worse, GSAMP said it had lost the original document — called a promissory note — to prove they owned his loan. Douglas hired a lawyer, who got the foreclosure put on hold. And that’s when I showed up. Much of the ire focused on the banks recently has been on their use of robo-signers — low-wage workers hired by banks to witness and sign hundreds of thousands of foreclosure notices without verifying that the grounds for the evictions were valid. On Thursday, a Federal Reserve official told lawmakers on a House Financial Service subcommittee that U.S. bank regulators are conducting a review of the banks’ foreclosure practices. In hundreds of thousand of cases, the promissory note that proves a bank owns a borrower mortgage is now gone. Vanished. Some borrowers may walk away scot free. In other instances, banks may be forced to dramatically reduce what a borrower owes. Many foreclosures have already been halted by the courts or by the banks themselves. Still, bank officials say, even if they are missing the original promissory note, they have the paperwork to prove they own the mortgages. Just how bad is the problem? TIME dug into the mortgage of one troubled borrower. What we found suggests that many promissory notes are not lost. In an effort to rush homeowners to foreclosure, and hide damaging information, bankers’ have needlessly created a huge legal mess that once again questions the financial industry’s credibility and ethics. “They [banks] don’t comply with the law when they’re taking people’s homes,” says Michael Olenick, who owns Legalprise, a legal research firm.
Douglas’ mortgage broker got him a loan from subprime lender Fremont General, which before it went bankrupt in 2008, was based in Brea, California. In mid-2005, Fremont sold the loan to New York-based Goldman Sachs, which packaged it up with other loans and sold it off to investors. In June, Iris Owens, an official in the servicing arm of Bank of Amerca, signed an affidavit attesting that after a “diligent search,” Douglas’ original note could not be recovered. But even without the bank’s internal record it took me about four hours to find Douglas’ loan.
