For some, mortgage fraud issues cropped up before foreclosure

Evidence that banks illegally cut corners when they sought to foreclose on mortgages has enabled some homeowners to stay in their homes. Others say the fraud happened before they even signed on the dotted line.

In court papers, homeowners have alleged a number of abusive tactics, including inflated appraisals, falsified loan applications and misrepresentations by the banks about the costs and perils of exotic loans.

Bob Nelson of DeForest said his path to foreclosure started with a faulty appraisal that trapped him and his wife, Hiroko, in a bloated mortgage they couldn't afford, tethered to a property they couldn't sell.

The state eventually suspended the appraiser for submitting an inflated $605,000 appraisal on the Nelsons' East Side fourplex -- which the same appraiser valued at $435,000 just 18 months earlier.

The issue came to a head in 2010, Nelson said, when the couple decided they could no longer afford the mortgage, and attempts to modify their loan failed.

In April, U.S. Bank sued the couple for foreclosure. The Nelsons demanded to see proof that U.S. Bank -- rather than the original lender -- was owed the $450,000 debt, alleging some documents weren't authentic. The bank's attorney Andrew, Zbaracki, dismissed the claim as "frivolous."

But in a January hearing, Dane County Circuit Judge Frank Remington ordered the bank to produce the records the Nelsons demanded.

Nelson said not everyone in foreclosure deserves to be there.

"We are not cheats and crooks and bums," Nelson said. "And if we work together, these frauds will unravel in the courts."

Choosing to fight

It's unclear how many people have taken the risky and expensive step of fighting their foreclosures in court. Homeowners and a growing number of local and state governments and regulators are responding with lawsuits and regulations aimed at curbing misleading and abusive tactics that have trapped homeowners in loans they cannot afford.

Roger Rinaldi said his troubles began when a mortgage loan officer falsified his application for a $164,000 loan on a three-bedroom home in Bristol in Kenosha County in 2005.

Rinaldi said the loan officer listed a $15,630 bank account that didn't exist, a college degree he didn't earn and a job -- sales manager -- that he didn't have.

"I didn't find out about that until two and a half years into the loan," Rinaldi said.

The lender's actions allowed him and his wife, Desa, to secure a $1,776-per-month loan the couple could not afford. Rinaldi also alleged the broker raised the interest rate to 8.5 percent from a promised rate "in the 7s" just before the couple, who were moving from Illinois with their three children, closed on the mortgage.

When the Rinaldis stopped paying, HSBC Bank, operating on behalf of Wells Fargo, sued for foreclosure in 2009. The lender then levied a series of fees totalling $4,500, he said.

The company agreed to modify the loan but proceeded with foreclosure anyway -- a practice that banks including Wells Fargo must discontinue under the $25 billion settlement.

In January 2010, a Kenosha County Circuit Court judge ruled for the banks, rejecting allegations about lender abuse. Wells Fargo spokesman James Hines said the Rinaldis' arguments "were found to be without merit."

(c)2012 The Wisconsin State Journal (Madison, Wis.)

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