On a hilltop property just outside Muskogee city limits, Virginia Morgan worries that she'll lose her humble yellow home and her livelihood.

Not far from her house sits the portable building where she runs her dog-grooming business, Country Paws.

She's facing foreclosure on the nearly three-acre property and house and is not sure what to do about it. At 67, she can't start over.

"I'm just trying to stay afloat; I'm drowning here," she said. "I love this place. My business is out here. Where am I going to put my business?"

Morgan is trying to work out a mortgage modification with the current servicer for her loan, Bank of America. But it hasn't happened yet - and she's 17 payments behind. Her financial woes started when her husband was laid off in 2009, and since then, he's been having trouble finding full-time work.

The only place she's been able to find help is the Metropolitan Tulsa Urban League, where a housing counselor has been helping her apply for the mortgage modification.

She and her husband bought their home in 2005, but a few years ago, their insurance went up and their monthly payment jumped from $640 to $810. Now, with late fees and attorney's fees, Bank of America is telling her they owe $101,000 on their mortgage.

Their home and land aren't worth nearly that, Morgan said. And she can't afford the $1,000 retainer one attorney quoted her to fight foreclosure in court.

Her mortgage servicer has changed at least four times since the initial home loan, and in researching her documents for the modification, she thinks she may have stumbled onto proof of "robo-signing" by the banks involved.

Earlier this year, Bank of America was one of several banks revealed by a federal investigation to have widely used the practice called robo-signing, where employees or computers would sign large volumes of foreclosure documents without reviewing supporting documentation as required by law.

That practice is an industry abuse cited in the $25 billion settlement negotiated by the Justice Department, the Department of Housing and Urban Development and 49 state attorneys general. The settlement is intended to resolve violations of state and federal law by the nation's five largest mortgage servicers: Bank of America, J.P. Morgan Chase, Wells Fargo, Citigroup and GMAC/Ally.

Oklahoma was the only state to opt out of its proposed share of $47.8 million in federal settlement funds to assist homeowners facing foreclosure with principal reduction, refinancing, short sales and other counseling programs.

Instead, Attorney General Scott Pruitt chose to negotiate a separate $18.6 million agreement for compensatory damages for homeowners who were victims of "unfair and deceptive practices" such as dual-tracking and robo-signing by the banks involved. Pruitt has argued that the federal settlement drifted too far from its original goal of investigating mortgage fraud to becoming housing policy.

Oklahoma homeowners who were victims of robo-signing or dual-tracking have until Sept. 13 to apply for restitution through his office, and the compensation will be awarded in levels based on harm as determined by the Attorney General's Office.

Morgan said she hadn't planned on applying because she didn't know about Oklahoma's program.

"The attorney general's settlement? What is that for?" she said.

She wants to know: Could it help save her home?

The paper trail

Broken Arrow attorney Phillip Taylor is ready to take on banks' rapid foreclosure processes in court.

He's defending local home- owners against foreclosure using an argument that could prove to be troublesome for mortgage banks in Oklahoma: that the practice of robo-signing or using proxy parties to file foreclosure action in Oklahoma courts means the bank has no legal standing.

In essence, he's arguing that unless the bank filing for foreclosure has documented proof it holds a valid note with proper endorsements, it has no right to foreclose on a homeowner under Oklahoma law.

Sloppy and fraudulent practices by banks when bundling mortgages to sell to investors have resulted in banks and servicing companies skipping steps they're not legally allowed to skip, Taylor said.

During the height of the mortgage buy-and-sell madness that led to the housing crisis, banks often used an electronic database called the Mortgage Electronic Registration System, MERS, to transfer titles quickly during sales.

But under Oklahoma law, a "mortgagee" is clearly defined as the party who provides financing for the mortgage, he said. So under Oklahoma's laws, MERS may never have been a valid mortgagee - which could mean homeowners who challenge the validity of paperwork transfers involving MERS in their mortgage have a defense against foreclosure, Taylor said.

State courts have yet to rule definitively on this question, he said. But homeowners and residents need to understand what's been going on for years in the mortgage banking industry and how it could potentially affect their property rights.

"People in Oklahoma need to know this. It's a really big deal," he said. "This is all about speed, and the work these foreclosure mills push out is sloppy. They've been getting away with this for a long time."

The auction

Every Tuesday, the hopes and dreams of homeowners collide with the balance sheets of banks in a nondescript room at the Tulsa County Courthouse.

A sheriff's deputy reads the foreclosure case number and property address, the bank enters an initial bid, and in fewer than 30 seconds for most properties, it's a done deal.

Some of the homes had been owned for more than a decade, but they were sold in a matter of seconds, back to the bank - the entity that had filed for foreclosure in the first place.

The banks are represented by a cluster of lawyers at the front of the room, with suitcases of paperwork in tow. On a few occasions, a property flipper or home buyer seeking a bargain wins out over the bank.

On this particular Tuesday, a young couple holding bidder No. 16 outbid the bank by $100 - and won, much to their surprise. They bid $197,124.50 for a Bixby home with a market value of $263,000, county records show.

By law, the properties have to be appraised in advance by at least three disinterested parties, and the starting bid can be no less than two-thirds of the home's appraised value.

Tulsa County Sheriff's Deputy Ed Pierce has been auctioning off the foreclosed homes for three years now. The auction list was noticeably longer about a year and a half ago, he said. But they're starting to see a gradual increase again.

"We were selling about 75 to 100 homes a week at the peak," he said. "It had dropped to the 40s and 50s, and it's in the range of 50 to 75 per week now. I'd look for those to start increasing, if not go higher soon."

As he understands it, he said, interest rates are low and refinancing could possibly save some of the homes from foreclosure - but the banks have tightened lending rules so much that few can qualify, it seems.

"You never know who's in a tragic situation or just milking the system," he said.

One person on the list hadn't made a mortgage payment in four years, he said.

About 99 percent of the time, the homeowners do not attend. Only one was in the audience on this Tuesday.

"I try to treat it with respect, because we are taking someone's home away from them," he said.

Helping navigate

Homeowners facing foreclosure show up in housing counselor Deidre Alvarez's office at the Metropolitan Tulsa Urban League, and they often look physically exhausted, have chest pains and end up in tears.

"Sometimes I'm sitting here crying with them," she said. "I just try to get them to a comfortable place. I tell them: 'You can always get another house; you can't get another health.' "

Some people come in with a Walmart shopping bag full of mail that has never been opened, she said. They don't want to face the problem - they've been putting off dealing with it.

"Most don't even understand what their options are," she said.

Homeowners who've attempted on their own to navigate the Home Affordable Modification Program - part of the Obama administration's attempt to help those struggling - have often run into roadblocks.

Alvarez was talking to a friend at church the other day when she overheard a homeowner telling someone else about his struggle to get a mortgage modification under the federal program.

"You have to know the rules," she explained.

A housing counselor such as Alvarez can help the homeowner work with the mortgage company to get their monthly payment to a more affordable place - or evaluate if staying in the home is really their best option, she said.

"You have to come to the realization - can you still afford the home?" she said. "A lot of times they're too far behind and can't get a modification."

Housing counselors can help homeowners consider foreclosure alternatives such as short sales or deed-in-lieu transfers - but even getting an appointment with one can be tough. Alvarez has at least a one-month waiting list for appointments. Clients from outside Tulsa - including Virginia Morgan - end up in her office because they don't know where else to turn for help.

She's not sure if the Oklahoma attorney general's settlement will help the home- owners she's seen in trouble because she's not sure if they're aware of it. She has seen firsthand how difficult it can be to get homeowners help, even when there are programs available.

"I don't think a lot of people know about what we do," Alvarez said. "The people we get here are mostly word of mouth."

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Iowa vs. Oklahoma: a tale of two state settlements

Iowa's attorney general, Tom Miller, led investigations and negotiations for the $25 billion federal-state civil settlement with the nation's five largest mortgage servicers accused of fraudulent practices.

Oklahoma's attorney general, Scott Pruitt, was the only one to opt his state out of the federal settlement, instead choosing to negotiate a separate $18.6 million program to compensate homeowners who were victims of unfair practices by Bank of America, J.P. Morgan Chase, Wells Fargo, Citigroup and GMAC/Ally.

Iowa's total share of the federal settlement was more than $40 million, with some of the money going toward legislation, research, infrastructure and oversight funds.

But there will be $25 million in estimated homeowner benefits - and the money will be used for many things, including counseling, legal aid, settlement funds and consumer education.

According to the Iowa Attorney General's Office, individual Iowans will receive an estimated $25 million in payments as follows:

Iowa borrowers will receive an estimated $5.9 million in benefits from loan modifications and other relief.

Iowa borrowers who lost their homes to foreclosure from Jan. 1, 2008, through Dec. 31, 2011, and encountered servicing abuse would qualify for an estimated $7.4 million in direct payments.

Iowa borrowers who are current on their loans but owe more than their house is worth will receive approximately $11.6 million in benefits by refinancing to lower loan rates.

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Relief from unfair lending in Oklahoma

Oklahomans who think they were subjected to unfair and unlawful practices during the foreclosure process can apply for compensation at tulsaworld.com/relief or by calling 405-521-2029.

The state Attorney General's Office is developing an index to determine how to compensate Oklahoma residents if they've been harmed by unfair lending practices such as dual-tracking or robo-signing.

Homeowners who aren't sure if they qualify for the program are encouraged to call the office and answer some basic questions to see if they may benefit. Only Oklahoma residents are eligible, and the home in question must be the primary residence.

Applications must be received by Sept. 13.

Applying for aid through Oklahoma's settlement does not prevent homeowners from applying for the national programs through the five included banks. Those programs include refinancing options for people who are current on their payments but who owe more than the current value of their home, and principal reduction options for people who are delinquent on their mortgages.

For information on the refinancing and mortgage reduction options provided by the federal settlement, Oklahomans whose mortgages are with these banks should call the following toll-free numbers: Bank of America: 877-488-7814. Citigroup: 866-272-4749. GMAC: 800-766-4622. JPMorgan Chase: 866-372-6901. Wells Fargo: 800-288-3212.

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Cary Aspinwall 918-581-8477
cary.aspinwall@tulsaworld.com