united States


Foreclosure Scam Update

By Ted Newcomen

Back in January/February 2011 an article appeared by me in Socialist Viewpoint (Vol.11 No1.) that blew the lid on the government’s efforts to buy up toxic bank assets with taxpayer money. The story revealed how the current foreclosure process rewards corrupt and incompetent financial institutions and at the same time screws working American families who are trying to get a foothold on the affordable housing ladder. The story was largely ignored by the “lamestream” media—either they didn’t believe it was true, were too lazy to check it out and run with it themselves, or are complicit with the government and their banking pals who all hope that nobody else notices this egregiously wasteful scam.

I thought now would be an opportune moment to revisit the scene of the crime and see how things have panned out since the original story was released. For those who may not have read my original article or have forgotten the details I will briefly recap.

A couple of years back I attended a foreclosure auction on the steps of my local courthouse in Centreville on the Eastern Shore of Maryland. The foreclosed property, a small townhouse just over four years old, had been vacated by the owner who handed his keys in and walked away. The original mortgage holder, Countrywide, was then stuck with the original loan for the home, the missed interest and Escrow payments, and all legal fees, etc. Countrywide, as we all know, went out of business and the property was acquired by Bank of America—a recipient of $45 billion in taxpayer TARP funds.

How the government buys up toxic bank assets

Anyway, it was fascinating to watch the courthouse foreclosure auction as the bids curiously went way over the fair market price of the property. It was not possible to determine the identities of the bidders but they effectively locked all local homebuyers out of the process. I was totally mystified, so a couple of weeks later decided to do a little investigating and asked the Clerk of the Courts to see the documentation to follow the details of the foreclosure process, and this is what I discovered:

The original purchase price for the home paid by the first owner in November 2005 was $212,900, including a mortgage for $170,000. By the time the owner was in default in June of 2009 the outstanding balance owed was still $168,501. By July 2010 this had racked up to $189,993 including missing interest payments, Escrow debits, and unexplained but seemingly very lucrative “corporate advances.” Now remember, this property may have been owned by Bank of America but that is basically the U.S. taxpayer. The bank then put the home up for auction at my local courthouse where they sold the property for $198,178 (including commissions, fees, etc.) Not only did the bank get back their original loan, but they got enough money to cover all the missed mortgage payments, all their legal fees, and even made a nice little profit on the deal!

I later found out from court documents that the winning bid that paid well over the current fair market price for this home and effectively excluded all local buyers was none other than Freddie Mac, the government-owned (read taxpayer-funded) mortgage broker.

Update—The symmetrical scam just gets bigger and better!

The town house then remained empty for months and I foolishly lost interest in the story. However, a recent follow up investigation reveals that the property was finally put up for sale with a local real estate agent who sold it in July 2011 for the “fair” market price of $160,000. That’s almost $40,000 less than the figure paid at auction by one government subsidized organization to a government bailed out bank—all done with our money!

Now think about it—really think about it! All over the nation in hundreds of courthouses, there are thousands, maybe even millions of foreclosed homes that have been sold, or will be sold, by corrupt financial institutions to incompetent government backed mortgage brokers.

Here we have the ultimate scam! The crooked banksters get back all their losses and even make a profit; Freddie Mac makes money on the fees it charges; working Americans are bid out of buying affordable homes at foreclosure auctions but they still have to borrow money from those same bailed out banks and mortgage brokers when the properties are finally sold in the open market—and its all done with our taxpayer dollars!

—November, 2012