Circuit Judge Jennifer Bailey Miami Throws 15,000 foreclosures into chaos for procedural irregularities

I think we will be seeing more from Judge Bailey but bravo to the Judge for being so insightful. If memory serves me correctly she is Chairman of the Foreclosure Task force in Florida and this is a very good way of (a) demonstrating how the pretender lenders played fast and loose with basic law and procedure and (b) forcing the the real parties in interest in either put up or shut up. The tide is turning. And it is with great pleasure that we say “told you so!” 🙂

Foreclosures
Judge grapples with her discovery of 15,000 unserved foreclosure cases

June 24, 2009 By: Billy Shields

Jennifer Bailey

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Miami-Dade Circuit Court judge discovered more than 15,000 foreclosure cases filed this year haven’t been served.

It’s the latest shoe to drop in a foreclosure crisis garnering nationwide attention, and an unwelcome discovery in the face of state budget cuts that produced layoffs for courts and clerks.

The backlog is critical because cases where homeowners haven’t been served within four months are subject to dismissal.

Civil Division Administrative Judge Jennifer D. Bailey made the discovery last month as she was taking stock of the circuit’s foreclosure load. She noticed 15,219 cases with no letters of correspondence, no answers and no motions to dismiss.

“In other words, no service,” she said.

The circuit is scrambling to find the root of the problem, which could jeopardize most of this year’s 17,000 foreclosure filings. Most of the cases still fall within the four-month window, but no program is in place to speed things up.

If a foreclosure proceeds to a default judgment with no service on the defendants, it could lead to a title dispute down the road. Bailey said there is no sign that has happened so far but recognizes the potential for problems.

The circuit adopted a foreclosure mediation program for owner-occupied properties through the nonprofit Collins Center for Public Policy in Tallahassee on May 1. As the fledgling program moved forward, lenders argued the center should start contacting borrowers after they’ve been served, said Collins Center president Rod Petrey. Photo by A.M. Holt

But Florida circuits don’t keep statistics on foreclosure service, which is why Bailey requested the statistics last month.

“There’s no feedback loop that circles back to the court, and we were not able to wait,” Petrey said. The center contacts defendants in foreclosure after lawsuits are filed; it has received 1,689 Miami-Dade cases since May 1.

Petrey was at a loss to say why foreclosure service is so difficult.

Some, like Charles Taylor, president of Metro Process Servers in Miami, think the problem is on the clerks’ end.

“I don’t think the bottleneck is in service. I believe the bottleneck is that they’re not equipped to handle this stuff,” he said. The crushing volume of foreclosures combined with clerk layoffs conspired to swamp the system.

Home abandonment plays a factor in failed service, but the rate of home abandonment in foreclosure cases hasn’t been calculated.

“No one really keeps those statistics,” said Alex Sanchez, president of the Florida Bankers Association in Tallahassee. “You would have to call every FDIC-insured institution and every non-bank” to get it.

Fort Lauderdale foreclosure defense attorney Morton Antman, says the problem is that lenders and process servers don’t have the resources to pursue every foreclosure properly, and mistakes are made along the way. In Antman’s mind, volume is a factor, but chasing residents who don’t want to be found is a persistent problem. “The primary issue is that most of these people leave their house,” he said. “They just vanish, and how do you make service on these people? Constructive service is a lengthy process.”

And the high number of South Florida investment properties in foreclosure with absentee landlords further complicates service problems, said Marc Ben-Ezra, a Fort Lauderdale partner with Ben-Ezra & Katz, who represents lenders.

“A lot of people are making it difficult for the plaintiffs to serve them, or in other cases, people have just left the properties,” he said. “The plaintiffs have to do a significant amount of work in order for the plaintiffs to try to find them.”

Bailey speculates the problem is procedural. Summonses are issued by clerks after a lawyer files a foreclosure action and sent to process servers for service, which can take up to five business days. The proof-of-service materials then get sent back to lawyers as process servers serve the parties.

“Obviously, those numbers are staggering. Maybe their own internal systems are not able to keep up,” said Richard Burton, a Miami attorney who launched a pro bono foreclosure-defense project.

But the scope of the foreclosure service problems could be much worse than the 15,000 cases without service that Bailey discovered. Some foreclosure lawyers question whether there are more cases where service hasn’t been done, but court records show the defendants have been served.

Take a foreclosure case filed by Indymac Federal Bank against Ahron and Amitza Benvenisti, who bought a North Miami Beach condo for $177,938 in January 2006.

Indymac attempted to serve the husband through constructive service — or service by publication without actual notice — and the wife through a relative in Massapequa, N.Y.

The lender moved for a default judgment against the couple. Antman, who represented the couple, argued the process server contradicted himself by checking boxes stating he successfully served the wife through the relative, though Amitza Benvenisti doesn’t live at the relative’s address.

The relative, Gilan Benvenisti, swore in an affidavit that she doesn’t live with him.

A docket entry dated Monday said the clerk’s office was not authorized to enter a default because of a lack of service.

“I don’t know if this was intentional or not, but this isn’t the first time we’ve had situations where process servers do stuff like this,” Antman said. “I think it’s a mistake.”

Ron Rice Jr., a Plantation attorney with Kahane & Associates who represented Indymac, did not return calls seeking comment by deadline.

Bailey said she still is trying to interpret the data to determine the source of the problem and chart a new course.

But whoever is at fault, Bailey quickly notes the problem threatens to overwhelm a court system that already is strapped.

“The question I now face is what do I do with this?” she asked. The cases “would potentially be subject to dismissal,” but she noted many cases are recent enough that service within the four-month window is still possible.

“Let’s assume a third of these are subject to dismissal. In my spare time, I’ve got to figure out ways to generate orders in 5,000 cases and pay for 5,000 stamps and serve everyone,” Bailey said. “Are we going to do that? Yes. Am I trying to figure it out? Yes.”

“It all starts with service. If people don’t get served, all we’re doing is buying ourselves a bunch of title cases in six years,” the judge said.

Billy Shields can be reached at (305) 347-6649.

Jennifer Bailey photo by A.M. Holt

9 Responses

  1. My story is a little different, but I still need help. I am in a Bank of America nightmare, and not of my own doing…

    After 3 years of no action, and our credit ruined. I am taking my story worldwide until something is done. Back in 2009, my Mortgage with Countrywide was transferred to Bank of America (BOA) , and that is when our BOA nightmare began. We have owned our current home since 2003 which was the year construction was completed. My husband and I have been homeowners and have been paying a mortgage payment since 1988 and have always been covered with homeowners insurance. We have NEVER missed a payment, never lapsed on a payment, never took advantage of the “skip a payment” option offered, never received any kind of assistance to help us with payments. We have always met our financial obligations. One month, I received my mortgage statement in the mail, and it was more than my regular payment of $1055.21. I could not understand and thought it to be a mistake and called Bank of America to find out why my payment had increased. I was given a song and a dance about the amount needed to cover my escrow account. I proceeded to inform them that I did not have an escrow account with Bank of America. I got nowhere with the representative. So I sent my normal amount of 1055.21. The following month, I received my next statement with a different amount even more than the last statement, PLUS late charges. I called Bank of America again, explaining to them that we had a fixed rate, 30 year mortgage. There is no way that my payment should increase, after some searching, the representative told me the money added to my payment was part of funds placed into an escrow account that Bank Of America created to cover the Lenders Placed Homeowners insurance they imposed on our home. We explained to them that we had Homeowners insurance and our premiums were paid through Statefarm. I called Statefarm, and they confirmed they had given the bank a Declarations Page for the Insurance, as we had as well. Like we did every year since homeownership. The representative said that because they had no proof of insurance Re: A declarations page ( Did Countrywide neglect to transfer over that vital part of information when BOA took over our loan??) that BOA just went ahead and imposed the insurance on our home. I never received any information prior to this about Lenders placed Homeowners insurance, and I didn’t get any letters or phone calls explaining why they did his without letting us know. And I never received notification that they didn’t have that information prior to imposing their own insurance on our home. As far as I was concerned, because nothing had changed with my State Farm Homeowners insurance, there was no need to do anything different. Then the harassing phone calls began. Phone calls from Bank of America Collections department trying to collect the money that they said I was delinquent on. In the meantime, I continued to pay my scheduled monthly payment of 1055.21. I would make them every month and on time. I made numerous phone calls and each and every time I spoke to a representative, I was transferred to another one. It was always a different department. We hoped they could clear up why the debt collection department was calling us and make it right. Instead, we were back to dealing with whatever nameless, faceless BofA customer rep happened to take our call, who in turn would bounce us around to countless other reps in countless other departments, each time having to retell our story, until, a few hours later, we were ‘accidentally’ disconnected, or we parted with no resolution. They could not give us names, phone numbers or emails of anyone to whom we could speak directly about our problem. The right didn’t know what the left was doing. Then I was told they could not speak to me because I wasn’t authorized being that my name is not on the loan. I had to fax confirmation from my husband allowing them to speak to me. I faxed the confirmation. Over and over and over again.The harassing phone calls continued throughout the day and evening. Sometimes as many as 12 phone calls a day. Each and every representative refused to help me stating there was nothing they could do about it, or they would transfer me to a different department and I would have to repeat my story again and again and again. Most of them gave me the same number to call over and over. The number always took me back to the collections department. So many times the call ended abruptly either through disconnection, or a representative that just didn’t want to be bothered. Some were downright rude. Still the harassing phone calls continued. And these phone calls were coming from India…Really??? There was always a foreigner on the phone trying to “extort” money from us. I finally got a representative who said if I sent them the Declarations page for my Homeowner’s Insurance from State Farm, that they would be able to fix the problem. So I faxed over the Declarations Page proving that I had insurance. She said it would take about 48 hours to process. I waited to hear back from them…Nothing. We received more continuing harassing phone calls and more statements with increased amounts including mounting late charges. I called again. This time I went to Statefarm. Had them investigate the last 4 years of statements and payments, proved that I had NEVER lapsed on Homeowners insurance and proceeded to call Bank Of America once again. This time I had Statefarm call bank of America with the information. State farm faxed over the information that Bank of America asked for. (State farm also faxed me the same information they faxed to BOA) A couple of weeks passed and the harassing phone calls continued. The statements never changed and now we were getting letters threatening foreclosure proceedings if we didn’t bring our account up to date. We would also get packages from FedEx that I would have to sign for from Bank of America containing application for Loan Modification. What for??? We pay our loan payments on time. Why would I need loan modification? By this time almost a year had passed since the problem started. All I got was empty promises from Bank of America that the problem would be rectified. One day, a woman appeared at our home. She was walking around the house with a clipboard in her hand. My husband went out and asked her who she was and what she wanted. She wanted to know if the homeowners still resided in the residence. My husband was dumbfounded. He explained that he was the homeowner and yes he still lived there. She proceeded to tell him who she was and explained she was sent to the house from Bank of America. They wondered if the house was abandoned. My husband told her to get off of the property or he would call the police. She left. I called the bank and never got an answer as to who this woman was just that it is their policy when they need to see the condition of the home or whether or not it has been abandoned. Now we were in shock and feeling totally helpless. When I called Bank of America to find out if they received the Declarations page from Statefarm, they said they could not rectify the matter because the page was from the wrong year. I went back to Statefarm and told them what happened. They contacted BOA and sent them the last 4 years Declarations pages proving that we always had insurance. And the information was ALWAYS forwarded to our Mortgage servicers. BOA apologized and explained to us since the take over there must have been a “glitch” in the system and the insurance information was either lost, not carried over, or sitting in a different department that had not crossed the information over. A glitch in the system was the representative’s exact words. Once again there were promises that the problem would be rectified. But they weren’t. By this time, I had spent countless hours on the phone, taken days off of work to deal with the problem and suffered many sleepless nights dealing with the situation. All the while feeling helpless against one of the biggest corporations in the world and getting nowhere fast. BOA appeared untouchable. My husband’s credit was ruined and the stress this mess has caused just kept getting worse. Sleepless nights, heart palpitations, headaches, stomach problems and anxiety had taken over. I cried more than anyone should have over this awful situation. Over a year had passed and we were in limbo. On the advice of an attorney, he informed us that it was illegal to call so many times in a day, I wrote a letter to BOA and the 12 -15 calls a day dropped to about 2-3 a day. This was a small improvement. But the statements still reflected the amount due and kept accumulating late charges along with the amount due for the ridiculously high amount of BOA’s Lenders Placed Insurance. I made phone call after phone call, talked to one representative after another to try and resolve the problem. Each one saw the problem, and either tried to help or passed it on to someone else. I had to deal with one department after the other, and in more cases than not, the department they transferred me to was the same department to make a payment to bring my account up to date. 75% of the transferred phone calls were to the collections department. Some of the representatives sounded like they were sincere in wanting to help us. Other representatives were cold and nasty in their response to me over the situation. I got answers like “pay your fees and late charges and your problems will be resolved”. Or “We can’t do anything for you until you meet your financial obligations with BOA”. Or Sorry, there is nothing we can do as this is a system error”…WHAT??? Then there were the returned checks. BOA issued us a check a few times because they could not accept partial payment. I would send in my $1055.21 payment on time every month , BOA would state I owed more and take some of the money and send me back a check (refunding my mortgage payment)with a letter stating that they do not accept partial payments so they refunded my mortgage payment minus some money.. We NEVER cashed these checks. I continued to make my regular scheduled mortgage payments on time. Every month…Every time… Finally after almost 2 years, a representative said she investigated the problem and would be able to help us. Her name was Betty. After months, the lenders placed insurance was removed as were some of the other charges. All except around $245.00. I was told I would have to contact another department to have it refunded because it came out of another department. . I contacted the department and they said they would take care of it. Here we go again. Department after department kept transferring me from one to another. The letters continued that I was behind on my mortgage and the late charges are still mounting. Once again, no one is able to help us rectify this situation. I was at my wits end at one time not too long ago and contacted BOA through their online banking service and threatened to go to the St. Petersburg Times in Tampa (our local newspaper) and expose BOA for everything they have put us through in the last 2 years. That is when I got a phone call from a woman named Angel Baker who said she was from the BOA Office of the CEO and Presidents Executive Customer Relations. She apologized for the mess that BOA has caused and she would do everything she could in her power to help straighten out the mess. She left her number and extension number if there were any problems. 877 498-7226 ext: 2796. In her follow up phone call because it was a weekend, she would follow up with me the following week. In that follow up phone call she said the problem would be resolved but to give it time for all parties involved to fix the account. Last month, when I tried to call Angel Baker at the number she gave me, when I dialed the extension, I got a recording that the number no longer existed……And there were no options to speak to anyone else. I truly believed the problem would finally be resolved…We were sadly mistaken… Once again, we started receiving phone calls and letters stating that we were now 1 month behind on our mortgage. And when we told them we paid, BOA stated that our current payment was taken for the month before. No one was able to tell us when the payment was missed. 2 weeks ago, a man came to the house, placed a note on the door, my husband asked where he was from and he told my husband to call the number on the paper. We called the number on the paper and got nowhere. All we got was a recording that it was a debt collector from BOA, and only offered options, to make a payment. Finally on November 13, 2012 we were persistent and called the number again this time going through all of the motions until we were able to speak to a live representative. The representative went through the payment history and found that we were 1 month behind on our mortgage which we were still in foreclosure proceedings since 2010. She took her time going through the history from 2009, but became very confused as to where the problem started, she was able to see dates where it looks like the account reflected different reversal payments, and still could not find where the problem started. Only that we were a month behind. When we explained our situation and told her that we had contacted an attorney to assist us because we had been unable to have the problem resolved after almost 3 years, she told us that because of getting an attorney involved, that she would have to transfer us to a supervisor. The supervisor Aron Alvarado listened to our story researched the payment history and after about 30 minutes told us that he found out what the problem was. One of our mortgage payments had been applied to an escrow account BOA created for lenders placed homeowners insurance they took out on our property, and even after proof that we always maintained our own, and BOA’s insurance was removed, that mortgage payment was never applied back to our payment history. It just sat in escrow. He offered to rectify the situation and said we would have to call a different department, and then offered to call it for us. He then said he would have to research and call the department, it would take him about 30 minutes and he would call us back. But he would be able to have everything reversed and it would take about 48 hours before we would see the change in our statements. We left him 2 contact numbers, our home phone and a cell phone. He never got back to us. He never returned our phone calls. And the problem was never resolved. Over the course of the 2+ years, BOA could never find a faxed letter of authorization to allow me to speak to a representative. Another frustrating situation as I am the one who takes care of the household finances and record keeping. We believe a serious injustice has been committed against us as homeowners. We have been in a BOA nightmare since 2010. The worry, that one day we would come home from work and there would be a notice to evict on our door. The worry that after 34 years of hard work to maintain home ownership, that it would be taken away from us in the blink of an eye because of a “glitch” in the system. The sleepless nights, the times taken off from work to spend making phone calls, the countless letters, emails, the worry, the anxiety. I have recently cut my hours at my job, because I can’t handle the stress anymore. This nightmare has taken a toll on my health. This is when we finally decided that we could not let this go. That BOA was going to compensate us for all of the problems they have caused us and our family, so this will NEVER happen to anyone else, ever again. We want to finally awake from this nightmare, and be able to move on with our lives in peace, without the worry of not having a roof above our heads. Now the new nightmare begins. BOA has transferred our mortgage to Residential Credit Solutions. Inc…I have been investigating to find out what kind of company this is, and I read these words… “RCS is a Fort Worth financial services company that describes itself as expert “on credit-sensitive residential loans” — which means at-risk loans or those slipping into foreclosure.RCS says it buys troubled loans, many of them subprime, and works to help owners keep their homes. Foreclosure, a company spokesman once told me, is the last resort.But that’s not what a customer and hundreds of other RCS customers say. They claim in complaints on consumer websites, with government agencies and with The Watchdog that the company is a foreclosure mill where employees purposely delay responses to customers’ concerns to make it difficult for owners to keep their houses.” On January 3, I called Residential credit Solutions because I got a letter stating my December payment was not received. I explained to them that the December payment was made to BOA as instructed by them and the next payment in January was to be paid to RCS. I did an online payment to RCS today January 3, 2013 for my January payment. RCS states that I owe them Dec and Jan. RCS told me it does not have the full payment history from BOA as of yet. I explained to them the history behind this missing payment, and it is now assumed that BOA did not rectify the situation, probably applying my payment to the “missing” payment therefore reflecting I was 2 months behind on my mortgage. BOA basically transferred a “bad” loan and is now making it RCS’s problem. We are not amused as I am hearing a lot of negative press about how quickly RSC forecloses on customers. Now we are really scared. What has BOA done to us? We have a spotless payment history. Law abiding citizens. Would never do anything to cause anyone problems. Now BOA won’t even talk to us. And we are being harassed by RCS for money that we don’t even owe. BOA transferred our mortgage that they screwed up, promised to fix, never did and And now we probably have to pay for an attorney to get out of a situation BOA placed us in because of a “Glitch” in their system. I want BOA held accountable for all of the stress and heartache they have caused us. This is our life!! I am looking for someone who will help us. We want our story told. We want FRONT PAGE NEWS!!! I am at a loss for words…and desperate to find a solution to end this nightmare… Regards, Lisa Nazario-Gregory

  2. would it still be considered unserved if they only served my wife which she is only on the mortgage not the note?
    they just handed her my complaint also.
    i never officially signed anything.

  3. Linda:
    I’m an attorney in Plantation and was a guest speaker at the recent Orlando seminar. You first must make sure that the docket sheet in the courthouse of your property does not show anything but the complaint filed. Many times the bank will say they served you when they did not.(Left you papers at the front door). If you know a lawsuit has been filed against you than it becomes a judicial case and must be defended. You can not allow the case to reach the DEFAULT stage. You must monitor by going on to the local clerk of court website. If you see that a lawsuit was filed and it is more than 120 days and they have not served you Only than you can move to dismiss the complaint by filing a Motion toDismiss Foreclosure Action and a Notice of Hearing with appropriate notice to the BANK attorney. If you would like a free consultation you may send me an e mail with your name and phone number and I would be happy to discuss your current options with you. My e mail is fsflaw@gmail.com

  4. Linda,
    Send me your email address. I may have a motion you can use.
    Marcus (info@foreclosureProSe.com)

  5. I am in Fl. and would like to know how to go about filing a dismissal on my un-served foreclosure property. Would the lender be notified of a dismissal procedure? What legal form would be used? Would it be a court case? Any help would be appreciated. Thank You.

  6. I check it several times a week…still nothing. I also have set up a google search for my name, spouses, subdivision to see if anything has been published….nothing. How long can this go? Is there anything I should do. I have “loads” of stuff on this loan and problems both with TIL, the fact I have 5 first loans done in 14 months and none of these should have been approved, and within the 4 corners of the loan app, this loan should have never been approved in the first place. Should I just sit or should I push it? Any advice?

  7. JT:
    Your case is NOT dead. First and foremost you must pull the docket sheet for your case to see exactly what is going on or I suggest you go to the courthouse where your case was filed and look at the court file. Be aware and alert of the fact that the clerks at the courthouse are behind schedule in filing of documents into the official court file. The fact that you were not served the next step the BANK will do is publish the lawsuit in the local newspaper and serve you by what is called constructive service. Please see if this has occurred. If not you must monitor your case to make sure the Bank does not try to pull a fast one on you. I hope my advise has helped you to be AWARE.

  8. Intersting article… I am in FL and Countrywide filed to foreclose in Mid November ’08. I was not served and according to the clerk’s office, the summons was returned “non-served” in mid April. Now that we are into July, isn’t this case dead? I had received an “interesting” response to my QWR in April indicating my house had been sold on the court house steps August of ’08. Obviously, they don’t have a clue. My question is this, isn’t this case dead (there are no other filings other than what I mentioned). Would there be a way to make this cose go dead for sure?

    Thanks

  9. http://www.nytimes.com/2009/07/01/business/global/01eurobanks.html?_r=1&dbk

    Bank Woes Deepening in Europe

    By LANDON THOMAS Jr.
    Published: June 30, 2009

    When the financial crisis struck the global economy last autumn, European governments moved swiftly to keep their biggest banks from falling into an abyss — never mind fears over nationalization.
    Skip to next paragraph
    Related
    Europe Competition Chief Sets Sights on U.K. Banks (July 2, 2009)

    But now, as big banks on this side of the Atlantic show signs of recovery, a number of their counterparts overseas are sinking into a spiral of deepening losses that has prompted the European Union to consider a more aggressive approach to cleaning up its banking system.

    Few people outside Belgium have ever heard of KBC Bank. But the travails of this lender, based in Brussels, highlight the broader challenges Europe is facing by not having more fully confronted the deteriorating health of its financial institutions.

    Since October, KBC Bank has had to seek government relief three times. In all, it has received $41.5 billion in financing and guarantees to recover from disastrous mortgage bets that its financial engineers and traders made when times were good. For a bank with a balance sheet of just $425 billion, it is an astounding sum, exceeding the bailout of the Royal Bank of Scotland.

    KBC is not alone. Souring loans and festering portfolios of securitized mortgages still plague a number of national banks.

    Moody’s, the rating agency that recently issued a warning about the credit risk at 30 Spanish banks, is expected to lower its outlook for the Greek banking sector because of a sharp rise in nonperforming loans. In Ireland, the nationalized Anglo-Irish Bank still has a contaminated loan book that has emerged as threat to the country’s sovereign credit rating.

    Nonperforming loans at Russian banks are even more worrisome, composing about 10 percent of the average bank’s books, a figure expected to balloon to 25 percent by the end of the year, forcing banks to raise as much as $80 billion in new capital. And in Sweden, the imploding Latvian economy has hobbled Swedbank, a huge provider of loans in the Baltics.

    Scott Bugie, a European bank analyst at Standard & Poor’s, said it would be “a multiyear process” for these and other European banks to improve their capital positions and return to sound financial footing. He predicted that bad loan write-offs at Europe’s 50 largest banks would double next year.

    The growing losses have raised calls for several new approaches, including a more aggressive approach by the European Union to diagnose banks’ creditworthiness. Now, regulators are debating whether to impose a regionwide stress test for banks, like the ones the United States required of its 19 largest banks.

    But the European proposals have raised questions bordering on incredulity with some critics.

    “This has the feel of a Magritte painting,” said Karel Lannoo, chief executive of the Center for European Policy Studies in Brussels, comparing the European Commission’s approach with the surrealism of the Belgian painter. “This is Belgium’s third-largest bank,” he said of KBC, “and it has had three successive rounds of aid, and they still can’t target the problem.”

    KBC does not fit the profile of the classic overreaching bank. Its core business is serving Belgian corporations and individual investors. But as the credit boom approached its zenith, a small team of designers of exotic securitized investments pushed the envelope much further.

    Whether it was manufacturing high-yielding collateralized debt obligations, leveraged lending to hedge funds or buying up life insurance policies and securitizing them, these bankers, based in London and New York, cultivated an anything-goes aura that was at odds with the bosses in Brussels.

    So eager were KBC salesmen to sell high-reward products like collateralized debt obligations that they effectively promised risk-free returns, which lured a number of nonexpert investors.

    A group of European companies that said it was told that the investments were marketed as risk-free is suing the bank.

    Luc Philips, the chief financial and risk officer of KBC, said, “the decisions made by KBC FP were preapproved and vetted by the market and credit risk committees at the KBC Group headquarters in Brussels.” As for the lawsuits, Viviane Huybrecht, a spokeswoman, said the bank was examining them on a case-by-case basis.

    The financial products team leaders, Darren Carter and Thomas Korossy, came to KBC in 1999 when the bank bought the equity derivatives business from D. E. Shaw, an American hedge fund.

    The atmosphere was loose and geared toward risk-taking. Employees would come to meetings dressed in shorts and flip-flops, and if a business proposal did not meet the internal standard of a 22 percent return, it was discarded, former executives say.

    Angry investors claim the unit was unsupervised. They point to the bank’s unusual practice of combining the roles of chief financial and chief risk officer, a policy that is in stark contrast to the most basic of corporate governance standards. In an interview, Mr. Carter said the bank’s collateralized debt obligations were of the highest quality, and were insured by the bond insurer MBIA.

    When the mortgage market collapsed in late 2007, KBC, which had one of the highest ratios of collateralized debt obligations to bank capital of any institution in Europe, soon found itself close to insolvency. In October 2008 and again this January, KBC received 7 billion euros in public funds. When MBIA said in February that it could not pay off on its riskier positions, KBC was suddenly responsible for another 14.5 billion euros in collateralized debt obligations.

    In May, André Bergen, the chief executive, turned to the government again, this time for a bailout of 22.5 billion euros.

    The week before the latest infusion was announced, Mr. Bergen, 60, was rushed to the hospital for open-heart surgery. Late Tuesday, the bank said it was splitting the role of chief financial officer and chief risk officer, and that Mr. Bergen would step down permanently to recover, to be replaced by the interim chief Jan Vanhevel. Another crucial player, Guido Segers, resigned as the head of merchant banking, and traders and bankers have left as part of the inevitable downsizing. Still, the executives behind the collateralized debt obligation strategy remain in charge.

    Ms. Huybrecht said the bank was trying to put the past behind it. But in two and a half years, if its investment is converted into KBC stock, the Belgian government could end up owning as much as 25 percent of the bank.

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