The New York Times
Sunday, September 30, 2012
When Banks Erase a Debt That Isn’t There
By GRETCHEN MORGENSON
GREETINGS, unhappy homeowners! Here’s some wonderful news:
“We are canceling the remaining amount you owe Chase!” says a letter that JPMorgan Chase sent recently to thousands of home loan borrowers. “You are approved for a full principal forgiveness of your Home Equity Account,” says another, from Bank of America.
Jackie Esposito, of Guilford, Conn., got a letter like that. But she wasn’t elated — because she doesn’t owe the money anymore. She and her husband filed for bankruptcy three years ago. The roughly $64,000 they owed Chase has been legally wiped out.
What’s going on?
Cast your mind back to February. Five of the nation’s big banks, including Chase and Bank of America, agreed to pay $25 billion to settle state and federal claims over questionable mortgage practices and promised to work harder to help borrowers who were in trouble. To prod the banks, the government said it would give them credits against the amounts they agreed to pay.
So, to the ire of customers who couldn’t get banks to work with them before, banks are now forgiving debts that no longer exist.
“When I got this letter that said they were going to relieve our debt, I just about fell over,” Ms. Esposito said last week. “You can’t forgive a debt that you’re legally unable to collect.”
Others have received similar letters about phantom debts. A borrower in Florida received word this month that Chase was erasing $190,065.10 of debt that had already been wiped out. Bank of America told a Virginia resident that a $231,767 home equity loan was being forgiven, even though the debt was discharged last May.
Neil Crane is a lawyer in Hamden, Conn., who represented Ms. Esposito and her husband in their bankruptcy. He says four of his other clients have recently received letters from banks claiming to forgive discharged debt.
“I never thought in my wildest dreams that the banks would do this properly,” Mr. Crane said last week. “But I think it’s really wrong to be foreclosing on mortgages you don’t own and relinquishing debt you don’t own.”