Kamal Sharma almost lost his house in a foreclosure auction the other day. The funny thing is: He doesn't even owe any money on it.
Sharma's story — an extreme case even in Sacramento's chaotic real estate market — shows that lenders continue to make foreclosure mistakes despite extensive publicity and promises to fix problems, which include sloppy paperwork and communication breakdowns.
"There are a lot of people that have been wrongly foreclosed upon," said Kevin Stein, associate director of the San Francisco-based California Reinvestment Coalition.
Sharma's troubles started last month when he arrived at his West Sacramento house one day to find a foreclosure notice from the servicing arm of Bank of America taped to the front door.
Sharma, 34, had paid $85,000 in cash for the three-bedroom home in March, using money from a settlement he received from a workplace accident in which he lost half of his left foot. He planned to rent the house out for income.
After the foreclosure notice arrived, other curious things happened. A potential buyer came snooping around the neighborhood, and then a property management firm refused to list the house as a rental due to the foreclosure notice.
Unable to reach Bank of America for answers, Sharma headed to West Sacramento City Hall on June 22, the day his house was scheduled for auction. That's when the bank abruptly called off the sale just as buyers were lining up.
Sharma still hasn't heard anything directly from Bank of America. But in response to a McClatchy Newspapers inquiry, the bank apologized and attributed the problem to a "data entry error" that restarted an old foreclosure action against the home's previous owner.
"I went through all of this mental stress," said Sharma. "I put my heart and soul into this house."
Each year, more than 500,000 foreclosures are filed in California. The volume has overwhelmed back-office operations and loan workout teams. Bank of America and other lenders likely will have to pay billions of dollars to settle an investigation by states attorneys general into "robo-signing," the practice of rubber-stamping foreclosures without actually reviewing homeowners' loan documents.
Prompted by regulatory investigations and congressional hearings, lenders say they've taken steps to clean up their practices. But consumer advocates say mistakes still regularly occur.
Earlier this year, the nonprofit California Reinvestment Coalition surveyed 55 foreclosure counselors around the state. Ninety-four percent said they had worked with clients who lost homes even though they had worked out a loan modification with a lender or were in the process of finalizing one.
Applying for a loan modification does not stop the foreclosure process. Instead, lenders have set up a two-track system in which one arm of the company may be working with a distressed customer to modify the loan while another is trying to foreclose.
Lack of communication has resulted in instances where homeowners who had already reached an agreement to modify a loan found that their homes had been auctioned off.
That's what happened to Joseph Lopez last year.
Lopez, 46, who lives in Oak Park, Calif., lost his job when the economy went south four years ago. In April 2010, lender JPMorgan Chase filed a foreclosure action against him.
Lopez, who owed the bank about $85,000, said he reached a one-time deal with the lender within days of the foreclosure filing that would have allowed him make his loan current.
Despite the agreement, Lopez said, Chase sold his home two months later to mortgage lending giant Fannie Mae.
"This has aged me; this has destroyed me," he said.
With the help of state Senate President Pro Tem Darrell Steinberg, U.S. Rep. Doris Matsui and Mike Himes of the Sacramento NeighborWorks Homeownership Center, Lopez is still trying to get his property back.
A Chase spokeswoman in San Francisco said she wasn't aware of the particulars of Lopez's case, but said his circumstances aren't typical. Prior to a foreclosure auction, Chase typically works with a homeowner for months and helps them examine alternatives such as a short sale, said Eileen Leveckis, a bank spokeswoman.
Dustin Hobbs, communications director for the California Mortgage Bankers Association, said instances of wrongful foreclosure are rare.
On average, Hobbs said, it takes about 300 days before a bank can sell a home in an auction. During that period, debtors typically have made no payments on their loans. That's plenty of time for most homeowners to get a loan modification or develop some way to cure the default, he said.
Bank of America, meanwhile, said its "routine pre-foreclosure reviews" were able to catch the errors that resulted in Sharma's home being mistakenly included on an auction list.
"All systems have been updated and there is no remaining prospect of foreclosure proceeding," said bank spokesman Rick Simon.
For Sharma, that's little consolation.
Sharma said he and his real estate agent, Manny Toledo, spent weeks calling a 530 area code phone number listed on the foreclosure notice but never got a response.
Sharma, who doesn't work because of his disability, said he's losing out on $1,300 in potential income each month because he hasn't been able to rent his house.
"They really stonewalled us," said Toledo.
Source: McClatchy-Tribune Information Services.