CNN / YOUR MONEY

Foreclosure Frenzies

(TRANSCRIPT) Aired June 22, 2008 - 15:00   ET

Other news out this week. Hundreds of arrests having to do with mortgage fraud.

WESTHOVEN: Yeah. You said some of the first criminal charges that we have seen connected to the housing market crisis hitting Wall Street this week. Two former Bear Stearns Hedge Fund managers were indicted on conspiracy and fraud counts. Their funds invested heavily in these risky mortgages. When they collapsed along with the subprime market it cost the investors nearly $2 billion and then basically set off the chain reaction that led to Bear Stearns' downfall.

In a separate case the justice department says more than 400 people have been indicted. This is since March. In a federal crackdown on mortgage fraud. In this case, we are not talking about big Wall Street guys; we are talking about mostly small-time realtors and mortgage brokers who are accused of lying about income or assets, forging documents, inflated appraisals. But it is very interesting that we are starting to see charges, indictments, arrests.

VELSHI: One is people who are swindling average homeowners getting mortgages. The other one people charged with misleading the wealthy investors. It shows you how big this mortgage situation is.

WESTHOVEN: While it may not help people if you are losing your home, it may put in place the kind of preventative measures so it does not happen again.

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Coming up, Greg Hunter has a look at how some people are actually able to fight back against foreclosures. What the banks don't want you to know about one option that could be available to you. Stay with us to hear that. Your are watching YOUR MONEY on CNN.

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VELSHI: While the banks and the Fed and even Congress figure out what to do about this foreclosure crisis, Americans continue to get hit hard. Last month alone more than 70,000 families lost their homes. Foreclosures jumped a staggering 158 percent year over year. Can the little guy fight back? Greg Hunter thinks so.

GREG HUNTER, CNN INVESTIGATIVE CORRESPONDENT: I think they can. In foreclosure, the bank has to show it owns your house. What most people don't know is almost half of the time the banks don't have their paperwork to prove it in court. In many cases, it ends up lost or destroyed. It is a national problem that the banks would love to keep quiet because knowing that could be your best defense in fighting foreclosure.

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HUNTER (voice over): Like many home owners, Jacci O'Brien is behind on her mortgage. She bought her house near Clearwater, Florida, in 2004. But in 2007, fell behind on her payments following a death in the family.

JACCI O'BRIEN, HOMEOWNER: I returned to England. I was getting support of family members and things like this. When I came back to America, I was in default with my mortgage. I was behind with my payments.

HUNTER: She says she tried several occasions to catch up on her payment with her bank Wachovia. She showed us a photo copy of one catch up payment for $8,500. But the bank wouldn't accept and is foreclosing on her property. They wouldn't take your payments?

O'BRIEN: No. They wouldn't take my payments. That was it. No more. They didn't want to talk to me.

HUNTER: But in foreclosure she discovered the bank filed a motion for lost instruments. In other words, the bank lost or destroyed the actual proof that it owns her house.

O'BRIEN: I think the note is being sold so many times and they have become very sloppy with their paperwork. It could be in a dumpster for all I know.

HUNTER: A bank losing a mortgage note may sound like a rare occurrence but a recent study by law professor Katherine Porter found it happens nearly half the time.

KATHERINE M. PORTER, ASSOC. PROFESSOR, UNIV. OF IOWA: What I found is banks failed to attach a copy of the promissory note that's the evidence of the consumer owes the debt in 40 percent of the situation. Four out of ten consumers were being asked by their bank to make payments on a mortgage but the bank didn't provide the evidence to establish what those debts were.

HUNTER: Last November, a federal court ruled against Deutsche Bank and stopped them from fore closuring on 14 houses until they could produce the note. Those foreclosures are still in limbo.

CHRIS HOYER, ATTORNEY: If your case ends up in court don't let the mortgage companies off easy. Make them produce the note.

HUNTER: Chris Hoyer is a Tampa attorney that's on the Internet with a free Website that helps people fight foreclosure. He thinks people should fight for a better deal.

HOYER: If you are about to lose your home at least make them produce the note. Make them prove first that they have the note and the IOU and the person standing in the court is the person authorized by the owner to take your home.

HUNTER: That's just what Jacci O'Brien is planning to do. O'BRIEN: I would like to know who actually owns my mortgage. I would like to know who I can deal with. I'm going make them produce the note.

HUNTR: She says the bank is pressing on with foreclosure. And won't agree on a catch up payment. In addition she says -- they keep tacking on fees.

O'BRIEN: The only they will do it, if I pay them something like $20,000 in fees and things. They want me to pay all these extra fees that they have thrown in on top.

HUNTER: Katherine Porter says excessive and unnecessary fees are also a national trend.

PORTER: The most disturbing thing we saw was that most banks simply don't tell consumers what these fees are for. We saw thousands of dollars of charges that were labeled as other or miscellaneous. So consumers have no way to know if, in fact, those fees are legitimate.

HUNTER: We contacted Wachovia to ask about the case and they said due to customer privacy concerns, we cannot give specifics into pending customer actions. But we will work with customers through the delinquency and foreclosure process to keep them in their homes. O'Brien says if the bank can't find her note, they should renegotiate a new mortgage without the fees and payments she can afford.

O'BRIEN: I want to pay -- I'm not looking for a free ride. I want to pay my mortgage. I want to get my life back on track.

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HUNTER: O'Brien goes to court Monday to find out how long she will stay in her house. Attorney Chris Hoyer says if you do get a foreclosure notice, you should get an attorney or at the very least find out when and where your foreclosure court date is and shows up. Do not just abandon your property and move out. For more on this, logon to CNNmoney.com.

VELSHI: Why doesn't the judge just start out with something like this and says can somebody provide me with the proof of ownership of the house?

HUNTER: I think that's a great idea. A lot of times people move out and say a foreclosure note, let's go get a u-haul and move out. The banks go to court; they say hey, the property is abandoned. We want to re-title the note in our name and re-establish the note in our name. There's nobody there to contest it. Contest it and that's where the problem starts. The bank should first off say listen, where is the paperwork? Where is your work and proof you own the house?

VELSHI: Greg Hunter, thank you very much for that.

Thank you for writing to us and thank you for disagreeing with us from time to time. It does make us think what we report to you. Thank you for joining us for this edition of YOUR MONEY, we'll see you back here next week Saturday at 1:00 and Sunday at 3:00. See you then.

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