Foreclosure Trash-Outs: How to Make Sure Your House Isn't on the List

Imagine coming home one day and finding your home emptied and the locks changed. That's exactly what's been happening across the country. Fortunately, there are ways to prevent it.

So-called trash-outs are supposed to be done by contractors who are hired by loan servicers or banks to clean out a home after it has been abandoned, just before or after a foreclosure. It's a booming business in which, promoters claim, contractors can make as much as $500,000 a year. There's even a book about how to set up a trash-out business on eBay.

These days, however, many homeowners are becoming victims of rogue trash-out crews that have targeted the wrong house.

These trash-outs have happened to cash buyers who bought foreclosed homes from the banks, but the homes stayed on the trash-out list in error. It's happened to those who have bought a home with cash, have no mortgage and the trash-out company went to the wrong address. It's happened most frequently to people who've had trouble paying the mortgage, got their home on the foreclosure train, but acted in time to save it -- yet the bank or servicer neglected to take the house off the trash-out list.

Attorneys for the plaintiffs say it's like the Wild West out there.

To protect your home from a trash-out, you might need to post a notice on your doors that your home is not abandoned, especially if you live in a neighborhood with lots of foreclosures or have bought a foreclosed home from the bank.

Carlin Phillips, who represents people who have been wrongfully trashed-out in Massachusetts, Florida, California, Washington State, Michigan and Nebraska, even wrote a book, Foreclosure Lock-outs and Trash-outs: Consumers Have Rights, which is available as a free download.

Phillips' clients include the Roughts from Grand Rapids, Mich., who filed a federal suit against Deutsche Bank claiming that after they bought a home from the bank for their daughter, the bank broke into it as though it was a foreclosure. They bought the house, which had been a foreclosure, with cash and had no mortgage on it. Phillips also represents the Cardosos, whose second home in Spring Hill, Fla. was trashed-out even though the couple bought the home for cash in 2005. They were renting it out, but planned to use it as their retirement home. In their case, the trash-out contractor went to the wrong address because Bank of America had the wrong information on the foreclosure documents. The house that was supposed to be trashed out was 10 doors down.

Phillips insists that "servicing companies and trash-out companies are not taking the necessary legal steps." The servicers hire trash-out contractors to clean out homes that supposedly are abandoned and take out everything in the property. He explained that servicing companies are managing thousands of loans as part of large pools of securitized loans, and the information about these homes that go to trash-out companies are not always updated on a timely basis.

Another attorney, William Yochim, who is based in Michigan, is planning to file a class-action suit in that state. He expects about 2,000 homeowners will be party to it. The case initially was filed by Martin and Helen Powelson, whose house had been on the foreclosure train, but who had redeemed it on the final day redemption was possible. They rescued the house from foreclosure using cash from his mother and paid off the mortgage in full. Notice of the redemption didn't make it to the trash-out company in time and their home was emptied.

Michigan has a anti-lockout law and Yochim contends that a contractor must have an eviction order before they can enter a property and trash-out the home. He told HousingWatch that a mortgage company has the right to secure a property that they believe has been abandoned, but they don't have the right to take property out of the home unless there is an eviction order.

Both Phillips and Yochim say that property has been taken out of their clients' homes without eviction orders. Each state has its own rules about trash-outs, so what can be done and how it must be done varies by state. But no state allows trash-outs if a property has not been abandoned -- unless there is a court order.

What's happening to the property that is taken out of the home? While no one can prove it yet, Phillips says there's a "vulture mentality." Contractors are salvaging what they can and selling it for whatever they can get to earn more money. In some cases, Yochim says, he's learned that property has been used to compensate people who do the work, in lieu of payment.

All the cases mentioned in this story are still winding their way through the courts. We probably won't know full details until one of these cases makes it to court. The attorneys for the servicers and banks did not return phone calls.

Lita Epstein has written more than 25 books, including "The 250 Questions Everyone Should Ask About Buying Foreclosures"and "The Complete Idiot's Guide to Personal Bankruptcy."
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