Karen Winkey’s Green Brook house was in trouble long before Hurricane Irene.

In March 2010, a nor’easter blasted through the East Coast, leaving in its wake two New Jersey deaths, power outages and flooding. Severe flooding.

Right into Winkey’s three-bedroom Cape Cod home.

"I heard rumbling during the night up against the house. I thought the water carried something that hit the house," said Winkey, 51. "It wasn’t until the water receded in the morning that I saw the damage."

A wall collapsed, leaving two other walls structurally unsound. Seven feet of water was in the basement. Crews had to dig through the front yard to turn off the utilities to the house.

The home Winkey had owned since 2001 was now unsafe to live in, according to engineers, architects, the local building inspector and the fire department.

At least she had flood insurance, Winkey thought. The policy would pay to make the house right.

Not quite.

Winkey’s lender, Bank of America, had apparently let her flood insurance policy lapse, Winkey said.

"I keep waiting for the bank to come to me and say, ‘We’ve made a mistake. Let’s fix it.’ But they haven’t," Winkey said.

THE CONFUSION STARTS

In 2008, money was tight. Winkey was laid off from her job of 15 years, and she spent down savings, even cashing in her 401(k), to pay the bills.

For two years she looked for a job, but nothing came through as her nest egg dwindled.

She contacted her lender, Bank of America, to ask about a modification, but she wasn’t eligible because she was current on the mortgage.

"I had to be behind before they’d talk to me about modifying the loan," she said.

Eventually, Winkey started falling behind, only making partial payments, and she kept asking for a modification. Finally, in July 2009, Winkey entered into a trial modification that was supposed to last for three months. But because the bank was behind on modifications, Winkey said, she was told to continue making the modified payments and eventually it would be made permanent.

In the meantime, the modification documents said the bank would be responsible for making sure all taxes and insurance premiums were paid.

"Under the terms of the modification agreement, my client is supposed to make a lump sum payment, which includes payment associated with insurance, taxes and the mortgage itself," said Lawrence Friscia of Friscia & Associates in Newark, a firm that specializes in foreclosure cases. "That’s then sent to the bank and the bank in turn has to pay the relevant tax authorities, insurers and it pays itself."

But it seems that didn’t happen for Karen Winkey.

Winkey had a flood insurance policy through Selective Insurance, and it would be up for renewal in October 2009. Per the modification agreement, Winkey gave Bank of America the bill for the policy, which would cover the home through October 2010.

The bank told her it would pay, she said, but she kept getting premium notices from Selective, which she forwarded to the bank. In October 2009, she started receiving notifications from Bank of America, saying it would purchase a "lender-placed" flood policy if she didn’t provide proof of another policy.

Winkey said she spoke to the bank dozens of times, and the bank kept promising it would pay for the Selective policy. Winkey faxed and refaxed bills, she said. Her insurer even faxed copies of the bill to Bank of America, but the bank didn’t pay.

"To put it simply, the bank is a conduit. You pay them one lump sum and they have the authority and the responsibility to apply the payments appropriately," attorney Friscia said. "The insurance payment was one component of this and on that front, Bank of America clearly screwed up."

On Feb. 5, 2010, a Bank of America rep had news.

Winkey said the rep told her the Selective policy was paid for, and even confirmed the policy number over the phone.

Winkey thought she was covered.

CONFUSION, PART TWO

On March 15, 2010, after the flood collapsed the wall in her home, Winkey called Selective to file a claim.

There was no policy, Winkey said the insurance company told her, because of nonpayment by Bank of America.

Thinking it was a mistake, Winkey called the bank.

"The person said to me, ‘Oh my gosh. I’m probably going to get fired over this, but we dropped the ball,’ " Winkey said.

The bank paid for lender-placed coverage again, which cost $700 more than the Selective policy, and the benefits weren’t nearly as comprehensive.

The repairs, to bring the home up to code with the town, the state and the Department of Environmental Protection, would cost $86,420.

The Selective policy would have covered it all, Winkey said. But not the lender-placed policy. Even though all flood policies under the National Flood Insurance Program require "code replacement," the lender-placed policy would only pay out $60,000.

Furthermore, the insurance company sent a check for $36,801 to Bank of America — not Winkey — because the bank had put itself down as the policyholder.

That made a bad situation even worse. No repairs have been made, and the damage has gotten worse after being untouched for more than a year. And new repair estimates are even more costly.

And then, it happened again: flooding and the fumbling by the bank.

Bank of America didn’t pay the premium for Winkey’s Selective policy that would have covered the home through October 2011.

Once again, the bank seemed to ignore the many bills it was sent for the Selective policy and it purchased lender-placed coverage instead. And once again, Winkey — this time, with an attorney — contacted Bank of America over and over. And once again, they were incorrectly told that the payment had been sent to Selective. A Selective rep even got on the phone with the bank, and everything was seemingly fixed.

And then, Irene. Seven more feet of floodwater poured into the already broken home.

"The contractor put in a temporary wall where the wall caved in the first time, and the water pushed that temporary wall in again and it flooded again," Winkey said. "It’s just a mess."

This time, the home is beyond repair.

"(Contractors) said I can’t repair the home now," she said. "It’s so full of mold we have to knock it down. And that’s because they took so long to resolve it. Had they done it years ago …"

And the loan modification Winkey was waiting to be made permanent? In November 2010, it was denied. Why?

"A qualification for a HAMP (Home Affordable Modification Program) modification is the property in question needs to be your permanent residence," Friscia said. "Bank of America’s basis for denying the modification was that very condition — in this case homelessness — that they created by not appropriately dealing with the insurance issue."

Bamboozled readers might think Winkey should just walk away. The home, without the modification, is now in foreclosure. And the structural damage can’t be undone.

But Winkey doesn’t want to walk away from her obligations, or from her home.

"I wasn’t able to buy a home until I was almost 40 years old," she said. "I was extremely comfortable here. You put in your little touches. It’s not perfect but it worked for me. Your heart goes into it."

After the first flood, Winkey "temporarily" moved in with family members. She remains there today, nearly 18 months later. "My gosh, everyone else goes home every night and they sleep in their own bed. That’s all I want," Winkey said.

BANK OF AMERICA'S SIDE

Bank of America contends that Winkey was responsible for paying the flood insurance on her own, and it was not supposed to be paid through escrow, spokeswoman Jumana Bauwens said.

"That just doesn’t make any sense and they know it," Winkey’s attorney Friscia said.

Language in the modification document seems to support Winkey’s case: "I will pay the Servicer the amount set forth below, which includes payment for Escrow items, including real estate taxes, insurance premiums and other fees, if any..."

Had she been told to pay independently, she would have, Friscia said. "We want justice and justice isn’t always cheap," attorney Friscia said.

Winkey, still living with relatives, hopes she can keep and rebuild her home.

Bank of America has filed a foreclosure suit, and Winkey’s attorney filed a counterclaim.

We asked Bank of America about the foreclosure status, and if it would do anything to cut through the red tape and help this customer.

"Until we have an opportunity to research this case, we will not move forward with a foreclosure sale," Bauwens said. "If we have made a mistake on the flood insurance, we will contact Ms. Winkey and work with her directly to resolve this issue."

It also said it would investigate why an escrow account wasn’t established with the trial modification.

That’s a start. We’ll let you know what happens.

Have you been Bamboozled? Contact Karin Price Mueller at bamboozled@starledger.com

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