Carol Kelly wasn’t just any customer of Sovereign Bank. She was an employee — the chief executive’s assistant, in fact.
Yet Kelly and her husband, Tom, found themselves caught in the same kind of mortgage paperwork limbo that thousands of American homeowners have experienced since the financial crisis.
The solution seems simple enough, but years later the Kellys still can’t refinance the mortgage on their Raynham home and remain locked in a bureaucratic stalemate with the bank.
“We just want to keep this from happening to someone else,’’ Carol Kelly said, speaking publicly about the ordeal after five years of unsuccessful negotiations with Sovereign and appeals to state and federal officials for help.
The saga started in 2007. Tom had just undergone a third surgery for cancer and the family budget was straining on Carol’s $60,000 salary. She told her boss, Sovereign chief executive Joe Campanelli, that she was thinking about getting a second job. Instead, Campanelli walked her down the hall to the loan department, she said, and suggested she sign up for a $150,000 home equity line of credit.
No matter that her husband wasn’t well enough to be involved in the transaction, Carol said she was told by bank employees handling the loan; she could sign the papers on her own.
But it turned out to be a big problem. As joint owners of their well-kept home in the southern Boston suburbs, they both needed to sign the second mortgage papers. There were layers of people who should have caught the error, but no one did.
Sovereign could not file the documents with the Registry of Deeds because they did not contain Tom Kelly’s signature. Now, the Kellys say, Sovereign will not issue papers to properly correct the problem. As a result, they have been unable to refinance their primary mortgage to take advantage of lower interest rates, even though they are current on all their loans, they say.
Under the law, borrowers and lenders agree to promptly fix any mistakes they discover on loan documents. Tom Kelly says Sovereign initially gave his wife bad advice at a stressful time. Since then, he says, customer service representatives and bank managers have not returned his calls. The only fix the bank has offered, he says, are demands for him to sign backdated documents, which imply the error never happened.
A former contractor who once made a handsome living and is now disabled from his medical ordeal, he has refused to sign what he considers an inaccurate document. “I’m not going to sign something I know has been backdated,’’ he said.
Sovereign declined to comment about the Kellys’ loan problem, citing a company policy of keeping customer matters private. But in a letter to Carol Kelly, the bank said she caused the original problem and blamed the couple for not resolving the document issue.
David Baron, a Boston lawyer who specializes in mortgages and real estate and is not involved in this case, said the right thing for a bank to do in such a scenario is to correct the documents. Often, a new document would include phrasing that explicitly states it is correcting an error. “It wouldn’t be out of line to say, ‘No, I’m not signing a backdated document,’ and they’ll eventually figure out there is a reasonable way to fix this,” said Baron.
The Kelly loan was made at the height of the fast-and-loose mortgage writing days, when hundreds of thousands of loans were being made across the industry with poor or incomplete paperwork. Sovereign put itself at risk by extending the full value of the loan — $150,000 — without properly documenting its interest in the property.
It was a time when Campanelli had plenty on his own plate. Within a year of his assistant’s erroneous loan, Campanelli was overseeing a raft of problem loans at Sovereign. He was pushed out of the job on Sept. 30, as the financial crisis hit, the bank’s stock was plunging, and after a near run on the institution, when depositors feared it might fail.
And Carol Kelly was already gone by then. She left in early 2008 with a severance package, after a falling-out with Campanelli.
But the Kellys are not alone in their mortgage document woes. Attorney General Martha Coakley’s office said that of 4,000 mortgage cases it has resolved, and another 3,700 still outstanding, most involve documentation problems.
Tom Kelly has complained about the paperwork problem to both Coakley and to the Consumer Financial Protection Bureau in Washington. Coakley’s office has referred the Kellys’ case to the queue for its legal assistance group. The consumer bureau connected the Kellys with the bank but the response was more of the same.
There were two letters from Sovereign last April. One was sent to Tom Kelly, telling him his name was not on the account, so the bank couldn’t help him. If he had further questions, Sovereign said, “contact Mrs. Kelly directly.”
The second letter, addressed to Carol Kelly, said she failed to disclose the fact she co-owned the property with her husband. “Had we known at the closing that the property was jointly owned, we would not have originated the loan without your husband’s signature on the mortgage,” the bank wrote.
Sovereign also said it had twice asked Carol Kelly to have her husband sign the documents but she did not come through.
Campanelli declined to comment on the specifics of the dispute. In a statement, he said, “During my time at Sovereign we always encouraged employees to have customer relationships with the bank,’’ including mortgage loans and home equity lines, sometimes with beneficial rates. But, he added, “At the same time, all loans made to employees were required to adhere to all bank policies, be properly documented and comply with all applicable regulations.”
Meanwhile, the Kellys are still waiting. So is Sovereign.