Confusion and miscommunication between M&T Bank Corp. and two contractors has caused embarrassment for the bank, after workers for one of the firms entered a delinquent mortgage customer's Pennsylvania home and caused tens of thousands of dollars in damages by mistake.
The incident illustrates a growing risk for banks and loan servicers around the country as the mortgage and foreclosure crisis continues. Lenders and their contractors are struggling to keep up with the pace.
And many borrowers are unaware of the rights that their lenders have after the mortgage is signed.
"Probably a large percentage of borrowers never know what's in their mortgages unless things go wrong," said David Blackmon, a real estate attorney at Hogan Willig PLC in Amherst.
In the Pennsylvania case, workers for Roman's Restorations entered the unoccupied State College home of Alicia and Dan Dorsey through the rear French doors last month, with instructions to do a visual inspection of the property and "winterize" the house.
That just means shutting off the water, blowing any remaining water out of the pipes and putting antifreeze in them to prevent the pipes from freezing, bursting and flooding.
It's a common procedure for Buffalo-based M&T and other lenders when a mortgage borrower is in default and a home is vacant. M&T even plows driveways and mows lawns of vacant homes.
The Dorseys still own the 8-year-old home, but moved to Albany in 2007 and have been unable to sell their former house, whose value has plummeted well below their mortgage.
They're still paying for utilities and maintenance, but fell behind on payments a few months ago. They're not in foreclosure, and have been negotiating a "short sale" with the bank. But since no one lives there, M&T wanted to ensure that the seven-bedroom home wouldn't suffer damage from the cold winter.
Doing a 'trash-out'
Banks and their contractors take such steps to stabilize properties all the time, without problems. But this time, something went wrong. The workers thought they were going into a home after a foreclosure sale, so they did a "trash-out," which means removing all personal belongings and changing the locks.
The Dorseys had long since moved their belongings to Albany, but they had a buyer for the "short sale," slated to close on Feb. 15. As part of the sale agreement, they were working with the buyer to renovate and upgrade the kitchen with new appliances, counter tops and solid wood cabinets.
The old appliances had been removed, and the new ones were sitting in the garage, waiting to be installed, along with the new cabinets and counter tops. So the workers took everything -- valued at tens of thousands of dollars, Dorsey said -- and tossed it into the back of a white box truck, unsecured and unprotected, and drove off.
A neighbor called local police, who came to the house to investigate what appeared to be a burglary. The neighbor and the home buyer -- who each had permission from the Dorseys to come to the house -- joined officers, and found a notice from Safeguard Properties.
Safeguard is a Cleveland-based property preservation and management firm that works with lenders nationwide to maintain vacant homes backing delinquent mortgages -- including in Western New York. The company inspects and maintains more than 1 million properties a month. M&T had hired Safeguard, which in turn contracted with Roman's Restorations to inspect the home.
Police tracked down the belongings. Except for three items, everything was returned the next day, "in a huge heap in the garage," but "everything's damaged now," Alicia Dorsey said.
In addition, she said, the workers had "walked with muddy boots all over" the house, scratched the hardwood floors and "dinged" the walls, and also took off curtains, rods and any hook fixtures, bending some of them in the process. The sump pump was ripped out and left on the hardwood floor, and the pink antifreeze leaked out and damaged the hardwood floors.
Alicia Dorsey is demanding that the bank or Safeguard pay for all of the damages, upfront. "I want a check cut," she said. "We're talking over $100,000."
And she says she's getting the runaround from M&T and Safeguard, even though they acknowledge a mistake occurred and have apologized. "This is the biggest debacle I have ever seen in my life," she said.
The bank says it is looking into it.
"This was an isolated incident involving a contractor in Pennsylvania, hired by a property preservation company to secure and winterize a vacant home," said M&T spokesman Chet Bridger. "We have been working with the property preservation company and attempting to work with the customer in an effort to fully investigate and understand the circumstances surrounding this situation and assist in resolving the customer's concerns in a fair and equitable manner."
Mortgage rules allow it
Homeowners have filed lawsuits or made complaints against Bank of America Corp., J.P. Morgan Chase & Co., National City Mortgage, U.S. Bancorp and even Fannie Mae, alleging trespassing and theft or destruction of property. And in most if not every case, Safeguard is the primary contractor.
"We are sorry for the distress the homeowners experienced, and have been working with them ever since we became aware of the situation to resolve it," said Safeguard spokeswoman Diane Roman Fusco.
"These events are rare among the properties across the country that we inspect, maintain and protect annually for banks and servicers."
No criminal charges were filed in the Dorseys' case, but Alicia Dorsey, a safety engineering consultant, said the couple plans to sue.(1)
"The bank is responsible because the bank sent marching orders to Safeguard to do this," she said. "The bank had no right to order that. We are not in foreclosure. We are paying all the taxes and fees and utilities. I obviously didn't give them permission to enter my home."
The bank may not have needed permission. Under a standard mortgage document, a lender has the right to "enter on and inspect the property" in "a reasonable manner and at reasonable times," including the inside of a home if "it has a reasonable purpose." It must give notice before or at the time of such an inspection.
Moreover, if a borrower doesn't keep his or her "promises and agreements" in the loan, including making payments, or if the borrower abandons the property, the lender "may do and pay for whatever is reasonable or appropriate to protect" its interest in the property.
"The loan documents are pretty standard from state to state, and they ... give the lender the right to enter the property and inspect it," said Michael Piette, a real estate attorney and partner at Jaeckle Fleischmann & Mugel LLP in Buffalo, which has represented M&T. "The lender has a right to protect their interests in the property. They become greater in the event of a default or if the property has become abandoned."
And since the Dorseys were in default, even though they weren't in foreclosure and the property wasn't abandoned, M&T and Safeguard had the right to enter the house to inspect and winterize it, with proper notice, lawyers said.
Still, lawyers say, having the right doesn't mean they have to exercise it, although Fannie Mae and Freddie Mac often require it of banks that are servicing their loans. In this case, for example, the Dorseys and others question why M&T would treat the home as abandoned and enter it, when the bank was in communication with the borrower over the sale, and when the borrower was paying for utilities and maintenance.
"That is a pretty egregious violation of someone's right to possess property," said Diane Tiveron, managing partner at the Hogan Willig law firm. "You've got to assume that M&T knows that they're trying to work this out. If the bank wants to do something more, then they should go into court."
Meanwhile, the Dorseys fear the impending home sale is now jeopardized. That would leave the parents of four children back where they started, with a loan they can't afford and a home they can't sell.
"I'm completely broke because of keeping my house going for three years," Alicia Dorsey said. "Because of what M&T did, we are going to lose the potential buyer of this house. How can we put a price on that?"