By Jamey Dunn
Illinois Attorney General Lisa Madigan is suing a company that she says has been locking people out of their homes when they had a legal right to stay.
Foreclosure filings in the Chicago area have dropped to the lowest level since the housing market crashed in 2008. But the fallout from the housing market collapse will likely be felt in Illinois for many years to come as older foreclosures work their way through the system. A lawsuit filed by Madigan this week alleges that one company is violating the rights of people who have fallen behind on their house payments.
Lenders and companies that service loans by collecting borrowers’ payments hire other entities to assist them with taking care of properties after a foreclosure. Safeguard Properties LLC is the largest privately held company that provides those services, which include determining if a property is vacant and boarding up windows on vacant properties. Madigan is suing the Ohio-based company because she says Safeguard has been entering homes that have not yet been foreclosed upon and evicting residents who still have the legal right to occupy their homes. In Illinois, residents are legally allowed to remain in a property until the foreclosure process has been completed.
“This case shows the lengths that banks and their service providers will go to abuse and intimidate borrowers in foreclosure,” Madigan said in a prepared statement. “This company was illegally breaking into people’s homes, removing all their possessions and locking them out. It is a homeowner’s worst nightmare.”
According to the complaint from Madigan, Safeguard often hired contractors to do the actual leg-work of finding out if properties were vacant, removing items left behind by former occupants, changing the locks and winterizing them by turning off the water.
But Madigan’s complaint says that those contractors were taking such steps while residents were clearly still occupying properties with the legal right to be there.
The complaint describes several incidents. In once case, Safeguard allegedly broke into the home of Mark Fencke, a reserve member of the U.S. Armed Services, who was away at mandatory military training. Fencke had fallen behind on his house payments and was working with his bank to sell the house. Madigan says Safeguard representatives broke into Fencke’s house, damaged his property, had his utility services shut off and changed the locks on the doors. In another case described in the suit, Safeguard broke into the home of a woman who had fallen behind on her house payments. She had not gone into default on her loan, and the home was not even in the foreclosure process. The company changed her locks and shut off her water service. Madigan’s office is seeking an injunction that would bar Safeguard from doing business in the state. She is also seeking a $50,000 for each violation of the Consumer Fraud Act and an additional $10,000 for each violation involving residents who are 65 or older.
The complaint says that Safeguard’s policies are a big part of the problem. The company uses contractors in the state that are paid a fee per service. Safeguard stresses that occupancy checks should be done quickly but does not have a set policy for determining if a property is occupied. The company allegedly will not accept an “unknown” status on a property and will not pay contractors if they don’t make a determination. The filing says Safeguard pushes contractors to deem a property vacant after only one visit and without trying to contact possible residents. The document says that “in many cases Safeguard or its subcontractors inaccurately deem a property vacant when the property is, in fact, legally occupied.” The suit says Safeguard representatives leave behind misleading notices that imply that occupants must leave before they are legally required to go. A call and email to Safeguard requesting comment were not returned.
“We have come across a whole range of servicer issues,” said Spencer Cowan, vice president of research at the Chicago-based Woodstock Institute. “We know, for example, that there are servicers who have been very aggressive in trying to get tenants out of the building, and sometimes they have stepped over the line.”
The institute focuses primarily on the other end of the spectrum; blight caused when banks do not keep up proper maintenance on foreclosed vacant properties. These buildings can drag down property values and even become dangerous to nearby residents. However, Cowan said he was not at all surprised by the allegations in Madigan’s complaint. “Problems seem to exist at both ends of the spectrum,” he said.
Cowan said a recent court ruling could make it more difficult for Chicago to push back against blight. The decision exempts the Federal Housing Finance Agency from the city’s Vacant Buildings Ordinance. That means that buildings owned by lending giants Fannie Mae and Freddie Mac, which hold more than half of all foreclosed properties, do not have to live up to the maintenance standards in the law. It also means that Chicago and the state have no ability to enforce any maintenance standards on either entity. A news release from the FHFA said of the law: “The ordinance would create risks and liabilities for the [Fannie Mae and Freddie Mac] at a time when they are already supported by taxpayers, including those in the city of Chicago. Additionally, the ordinance would subject the [Fannie Mae and Freddie Mac] to the regulation and supervision of the Chicago Department of Buildings instead of FHFA, as Congress intended.”