My wife, deep into her third trimester of pregnancy, went out to run some errands with my mother and a family friend. It was pouring, and when they got back to the house, they saw a piece of paper stapled to a little tree at the end of our driveway. It was a notice from the Sheriff's Department that our house was going to be auctioned off on October 1st.Canada has similar horror stories. The one that I find most incredible is that banks had a special dispensation under Canadian law (I think it has now been changed in all provinces, but I could be wrong). They were given the right to seize your house no matter what the problem. So there have been a number of tales where somebody fraudulently presents themselves as the owner of the property, the bank arranges a mortgage, and the fraudsters abscond with the money. You would think the bank would be on the hook for making a "mortgage" on which they had not checked the validity of the title. Nope. Under Canadian law, the bank is secure and they can sell your property to make up for their mistake! Incredible! But it has happened in the past and there are a number of notorious cases where people had to fight like hell to keep the bank from taking their house.
Now, obviously it had to be a bad joke. After all:
1. We had only bought the house the previous year and were about two months ahead on our mortgage.
2. The plaintiff was CountryWide, which is not the company with which have a mortgage.
3. The name of the defendant from whom the home was to be foreclosed was not the legal owner of the house - that is to say, my wife or I. In fact, the name of the defendant was similar to the name of the previous owner of the home, but the spelling was definitely off.
4. From what we heard of Sheriff's auctions, notices tend to be left on the door. Not stapled to a tiny little tree in the pouring rain.
But when my wife checked the Sheriff's site on-line, it turns out that, indeed, our home was slated to be auctioned off on October 1st. Multiple calls to the Sheriff's office were not returned. As to CountryWide - who exactly do you call at CountryWide? There's no "Press 4 if you have no relationship with CountryWide but we're trying to seize your house anyway." Ironically, if we did have a delinquent CountryWide mortgage, getting somewhere with them might have possible as any of their call center representatives would have been able to handle taking a payment. But the situation we were in, that they put us in, isn't one of the options that their call center seems equipped to sort out.
When it started to become obvious that a) this was deadly serious and b) there was a whole machine moving inexorably forward, my wife got nervous. She didn't sleep at all that first night, and because she didn't sleep, neither did I. And every roadblock we hit made us more exasperated at what was already a difficult time.
After a couple of days of trying the obvious remedies, we contacted our title company and called our attorney. And it took a while, but the upshot was that after a few weeks, we managed to stop the proceedings. CountryWide uses an external law firm to deal with the Sheriff's office, and we managed to convince them that the process should be halted. Doing so meant showing we had the title and that we are the owners of record as far as the County is concerned. Additionally, thanks to the previous owner who helped us out here, we were able to show that CountryWide received a wire transfer when the previous owner sold us the house. Thus, we proved to CountryWide's external legal firm that they had followed unlawful orders by putting in the request to have our home foreclosed. They in turn managed to get their contacts at CountryWide to give them the OK to contact the Sheriff's department to put a halt to the process.
Though we're no longer in danger of losing our home (as far as we know), I'm kind of upset right now at two parties. The first is CountryWide, for all the obvious reasons. But I also have a problem with the Sheriff's department because from where I'm standing, it seems like its procedures are set up in such a way as to validate CountryWide's mistakes. Let's start with the note pinned to a tree in the pouring rain. What if we were traveling or the wind was just a little stronger? Would the note have been there when we got back? Would we even have known about the auction until after it happened?
Second, it appears that that the Sheriff's department auctions off homes simply on the word of CountryWide or its outside attorney. A check of the County Tax Assessor's Office would have told them there was a problem with CountryWide's request, namely that the person they wanted to seize the home from doesn’t own it or have any rights to it whatsoever. (Actually, I also wonder why the outside attorney didn't check any of this either.) And it isn't as if CountryWide and/or the Sheriff checked but were working off outdated information; if the previous owner was truly the intended defendant, her name wasn't even spelled right in the complaint which also should have raised some eyebrows. Worse, as per the above-mentioned wire transfer, CountryWide actually wasn’t owed anything at all by anyone.
In short, CountryWide was trying to collect on a debt that didn’t exist, supposedly owed by a person who they had wrongly identified, by seizing property owned by other people. And yet the Sheriff’s Department acted on their claim, and refused to give us, the party affected by that series of errors, so much as a return phone call.
The only conclusion I can reach from this is that there are no safeguards at all built into the system. None. After all, it would have taken only a trivial amount of due diligence by any of the parties (CountryWide, their outside attorneys, or the Sheriff’s office) to derail this crazy train before it started. However, I assume CountryWide would be against such checks, as they cost money. But guess what? This whole process has cost my wife and me money, time, frustration and emotional distress. It would make more sense to hit up CountryWide for an extra few bucks every time they ask the Sheriff to auction off a house than it does to force the victims of CountryWide's errors to pay for the company's mistakes. Fortunately, we could afford an attorney, and despite the whole pinning-a-note-to-a-straggly-tree-in-the-pouring-rain thing, we also had the time to mount a defense.
The law has favours the bank. If a fraudster sells your house illegally, the bank can come back to the legal owner and demand the full payment of the mortgage! Yes, it sounds insane, but that is how the law worked in Canada until fairly recently (and may still work that way in some provinces). As Bruce Schneier points out, the solution is easy, but it has been hard to get the law changed because it requires making banks responsible for making fraudlent mortgages and banks don't like that!
The problem is one of economic incentives. If banks were held liable for fraudulent mortgages, then the problem would go away really quickly. But as long as they're not, they have no incentive to ensure that this fraud doesn't occur.Sometimes the law does finally side with the innocent victim, but it is expensive to get "justice". Here is an article by a Toronto real estate lawyer where the judge finally did the right thing.