If Only These Mortgage Lenders Had Called Quandis…

For less than $200 up front, Bank of America and Morgan Stanley might have saved themselves a combined $22 million, and a whole lot of embarrassment.

Last week, B of A agreed to pay $20 million and Morgan Stanley $2.35 million for improperly foreclosing on members of the military — some of whom were on active duty in Iraq and Afghanistan — under a settlement with the Justice Department.

The Servicemembers Civil Relief Act of 2003 bars lenders from foreclosing on active-duty military members.

Scott Stoddard, the chief executive of Quandis Inc., a software company in Foothill Ranch, Calif., said that for three years he has offered a service that checks whether a borrower facing foreclosure is in the military. But few servicers signed up until Congress hauled JPMorgan Chase & Co. executives to testify in February about wrongful foreclosures of servicemembers.

A search of Justice Department records costs just 10 to 20 cents, Stoddard said. He suggested that servicers check four times: before a foreclosure review, before referral to an attorney, before the first legal action and five days before a foreclosure sale.

The Justice Department's complaints against Countrywide Home Loans Servicing LP, a unit of Bank of America, and Morgan Stanley's Saxon Mortgage Services Inc. allege the companies did not consistently check the military status of borrowers who were foreclosed on through May or June 2009.

"It would have cost just $1 [per borrower] for servicers to find out whether the 177 service members whose homes they took in foreclosure were actually out fighting for our country," Stoddard said.