Amal and Rizkalla Kamel survived the housing crisis and the recession with their home and finances intact; their personal collapse wouldn’t come until 2012.

That winter, Amal suffered two heart attacks in two months, drastically reducing his ability to work. At the same time, Rizkalla lost her job at a gas station. Then everything really started falling apart. A year later, the family found themselves $36,000 in debt, spending what money they had on a lawyer they hired to help them avoid losing their home. They filed motions against their bank, but they had another nemesis too: the Kamels were in court battling the very government relief agency that they had turned to in hopes it would save them from their mortgage troubles.

The Kamels, like others, have discovered the darker flip side of the mortgage crisis: some of the housing relief agencies funded by billions in taxpayer dollars to ease the millions of foreclosures in the US have fallen behind on the task, proving themselves no match for the persistence and legal power of banks intent on collecting fees and racking up foreclosures. In the Kamels' case, they turned to the Florida Hardest-Hit Fund, one of the biggest housing relief programs in the nation. During the course of a year, they fell through the cracks of the system: they have alleged in court that Hardest Hit did not intervene enough with their bank and that they received dubious legal advice from housing counselors.

What the Kamels didn't know is that their struggles were no surprise to critical government officials. The Hardest-Hit Fund has been on the radar of federal officials for some time, particularly that of the special inspector general of the Troubled Asset Relief Program (Tarp), Christy Romero, who regularly criticizes Hardest-Hit in her reports to Congress for failing to force banks to participate. Last April, Romero’s office initiated an audit of Florida Hardest-Hit, based on a request from Senator Bill Nelson. That audit could be completed within the month, but the state of Florida and the Treasury Department get to take a look first, so a public release is several months away.

Tracing the trouble back to its origins, however, proves tricky.

The Treasury Department launched Hardest-Hit in 2010 by allocating $7.6bn from Tarp to 18 states where the foreclosure crisis had done the most damage. The states were granted a share of the total funds and designed their own foreclosure relief programs.

In Florida the idea behind the two core Hardest-Hit programs was to keep homeowners in their homes by intervening with their banks. If banks participated in Hardest Hit, the program would pay them $18,000 for the homeowner's mortgage arrears and up to $24,000 to make mortgage payments for another year. Lenders who agree to participate in the program are supposed to pause any foreclosure proceeding while the family receives Hardest-Hit assistance. Even a successful Hardest-Hit intervention does not dismiss the foreclosure case, but only pauses it, allowing the bank to restart proceedings after getting a year’s worth of payments from the fund. Banks often accept the mortgage payments from the Hardest-Hit Fund but then foreclose on homeowners later, undermining the program's goal of keeping people in their homes.

This is not the only problem. A minuscule portion of the money from Hardest-Hit has gone to help homeowners. An audit in 2012 found that states had delivered just $217.4m in assistance in the first two years, or 3% of the total. What is more, over a third of that figure went toward administrative expenses rather than homeowner relief.

As of this year, the Florida Hardest-Hit has devoted just 13% of the over $1bn in funds earmarked for the program to homeowners. The Treasury Department, the audit concluded, neglected Hardest-Hit early on, declining to use government power to force banks to participate. Some states have improved their programs since then, but others have given in to the inevitable and dramatically cut back on their initial performance goals.

“We see states continuing to drop and drop how many homeowners they will help,” said Romero. “It’s been very unfortunate for homeowners that have been struggling these last few years. Some people lost their homes because of that.”

Romero singles out the Florida program.

“Florida Hardest-Hit is reaching far fewer homeowners than what was expected,” she says. In three years, Florida Hardest-Hit has provided aid to 9,745 homeowners, or 17% of all applicants, the lowest percentage of any participating state, according June 2013 report. Romero cites more figures: in the last quarter, the Florida fund lowered its estimates of how many borrowers would get help by 40%, down from the peak estimate.

Cecka Green of the Hardest-Hit Fund's parent, the Florida Housing Finance Corporation, disputes that figure, saying that they have always estimated that the programs will help between 37-39,000 homeowners.

The few who do apply for relief may find themselves struggling anyway because of the way the assistance is implemented, as the Kamels' case shows.

Their illness and unemployment meant they could not afford the mortgage on their modest home in Tarpon Springs, Florida. From the beginning, the road to financial salvation was a twisted one. The Kamels’ bank, Third Federal Savings, told the family they were not deep enough in debt, and they had to miss more mortgage payments before the bank could help. The family soon fell several months behind. Then, when they applied for a loan modification, Third Federal rejected the application because they lacked a stable income.

Finally, the bank suggested the Kamels try the Florida Hardest-Hit Fund.

It seemed like a good deal to the struggling Kamels. “We just needed that one year,” said Sara Kamel, the couple’s daughter. “My father’s health issues were improving, and my husband was in his last year of pharmaceutical school. After that, they would all be working and everything would go back to normal.”

It didn't quite work out that way. The Kamels missed enough payments to end up $36,000 in debt. The $42,000 in aid they were eligible to receive from Hardest Hit could have paid off their past due payments in full, with around $6,000 remaining for monthly payments that would have stretched four months. But the Hardest-Hit Fund has a limit of $18,000 on past due payments, which made it impossible for the family to get current on what they already owed.

Speaking generally about Hardest-Hit, Romero cited program limitations as one potential reason for the lack of success. “That’s when Florida needs to look back at their requirements,” Romero said. “Do they have the appropriate limitations and requirements that protect the program while also addressing the needs of the homeowners?”

Third Federal Savings took the Kamels to court and a judge initially allowed the bank to take the house back. The Kamel's lawyer, Matt Weidner, helped them narrowly avoid the sale of the foreclosure earlier this month. The experience seems to have soured his view on the promise of homeowner relief. After months of motions and court arguments, he calls programs like Hardest-Hit state-created "foreclosure factories".

“The end result of all these policies just throw people into the grinder,” Weidner said.

Weidner alleges that the the Hardest-Hit Fund misled the Kamels, allowing them to be overcharged by their bank and led to the brink of foreclosure through bad legal advice from housing counselors who were supposed to help. He intends to subpoena the fund's leaders to testify about the Kamel's case.

Americans wait in line to get mortgage advice on foreclosures. Photograph: Joe Raedle/Getty Images Photograph: Joe Raedle/Getty Images

A labyrinth of fees

Florida farmed Hardest Hit out to the FHFC, a quasi-governmental entity largely involved in promoting homeownership. A problem emerged: the FHFC has no experience in the thorny businesses of mortgage modification or housing counseling.

With no ready expertise, the FHFC themselves farmed out the customer service portion of the Hardest-Hit Fund to a group of 85 “adviser agencies”, composed of accredited housing counselors from across the state. With FHFC working with 85 different agencies, they may lack tight controls on what counselors tell homeowners at the ground level. One such agency was fired last month after one of its leaders was arrested for "schemes to defraud". He has pleaded not guilty.

For homeowners, the process of navigating the network of banks and advisers – and getting mixed signals from each – has been a trying one, as the Kamels discovered.

A foreclosure sign in front of a home in Miami, Florida. Photograph: Joe Raedle/Getty Images Photograph: Joe Raedle/Getty Images

Hardest-Hit accepted them for the program on 14 August, a week before a final judgment hearing on their foreclosure case. Their counselor repeatedly told them that Third Federal could not foreclose, nor could they back out of the deal. “I told [the counselor] we have a court date next week,” Sara Kamel said. “She said you don’t need an attorney, they will have the papers from the state saying you were accepted.”

At the hearing, the Kamels were the only family in court without a lawyer. The judge told them he knew nothing of the Hardest-Hit agreement, and ruled in favor of Third Federal, which was looking to foreclose on them. He set a foreclosure sale date of 22 October. That freed Third Federal to complete foreclosure on the Kamels, free of legal impediments.

The Kamels were worried. Even after telling the Hardest-Hit counselor about the sale date, “she said not to worry,” said Sara. “The bank will sign off on the papers, the foreclosure will stop, you don’t have any problems.”

Weidner says their adviser made a critical mistake in telling them that no lawyer needed to be present at a final judgment of foreclosure. “They are by necessity practicing law without a license,” Weidner says. He is pursuing the argument in court.

Cecka Green, of FHFC, said that their adviser agencies are not trained to provide legal counsel to homeowners. “Many of them are local housing counseling agencies, and they could be talking about their own experience,” she said.

Third Federal did receive $18,000 from Hardest Hit, but they told the Kamels that the amount did not cover the family's $36,000 in mortgage debt. The family believed the charges included what appear to be inflated costs. On a mortgage reinstatement sheet provided to Hardest Hit, Third Federal demanded legal costs of $6,816 to get the mortgage current – but the final foreclosure judgment listed attorney fees, filing fees and process serving that totaled only $5,327. The Kamels requested the mortgage reinstatement sheet with an itemization of all charges, but Third Federal did not send it.

Weidner criticized Hardest Hit for failing to audit financial statements provided to them by banks to check for inflated fees that could make it impossible for homeowners to catch up on their mortgage. “The whole reason for the existence of this program is that the banks were engaging in fraud that led to the collapse,” he argued, citing numerous national investigations of banks overcharging homeowners. With nobody overseeing the charges in a legal capacity, the chances of abuse are higher.

Green said FHFC did not have the ability to check banking statements, relying instead on both the bank to deliver an accurate reading of the charges and homeowners to review them. “We can’t go line by line and check against the bank’s records,” said Green, who added that homeowners sometimes attempt to verify the charges and notify the bank of mistakes (“We encourage homeowners to do that”).

In the end, the Kamels owed twice as much as Hardest-Hit could cover. Third Federal decided to return the portion of the money they had already received to the Hardest-Hit Fund. Legal filings in the case show Hardest Hit received the returned payments from Third Federal on 21 October. The foreclosure sale date was delayed to 7 January.

Houses in Detroit, Michigan, have sold for as little as $500 in foreclosure auctions. Photograph: Rebecca Cook/Reuters Photograph: Rebecca Coo/Reuters

Still, it was not that easy. For months after the payments were returned, Hardest-Hit counselors continued to insist to the Kamels that despite the court decisions, the bank could not rescind the initial deal with Hardest-Hit, and that their home was safe. Dave Reavis, a spokesman for Third Federal, stressed that they offered a number of options to the borrower, and that “the court put a judgment in our favor”.

“It has been a learning curve for all of us regarding this situation,” acknowledged Cecka Rose Green, communications director for FHFC.

Tent cities, like this one in Sacramento, California, have sprung up as more Americans go homeless. Photograph: Justin Sullivan/Getty Images Photograph: Justin Sullivan/Getty Images

Aid that only exacerbates

Deborah Stockhammer, an unemployed homeowner in Jupiter, Florida, is another who struggled with Hardest-Hit. She went through two rounds of the Hardest Hit Program in 2011 and 2013. Stockhammer says she initially entered the program with $3,000 due in back payments, and came out owing $7,600, still on the path to foreclosure.

She claimed her mortgage servicer, Ocwen, opened a homeowner’s insurance policy in her name and charged her for it, even though she had kept up her own home insurance payments. Assorted other late and administrative fees were included as well. Stockhammer resented that funds went to pay for Ocwen’s lawyers and other costs. (Other Hardest-Hit programs ban banks from using funds for fees, but Florida’s does not).

“When [Hardest-Hit] gave the money to the mortgage company, they should have stated it solely went to back payments,” she said. Stockhammer was served with foreclosure papers on New Year’s Eve. Ocwen did not respond to a request for comment.

While Cecka Green of HFHC maintains confidence that “the program is helping the people it was designed to help,” Weidner believes that FHFC is wasting millions giving bad advice to homeowners and hooking them into a program that will not save their homes. With no review of bank demands or an understanding of foreclosure law, Weidner argues, nobody within FHFC is looking out for homeowners’ best interests.

“Where are the consumer advocates, where are the judges, anyone with oversight?” Weidner asked. “Consumers would be far better off statistically to be given a voucher to hire a defense attorney. But then, this is not about protecting consumers, it's about giving this money back to the banks.”

Weidner was able to help the Kamels. On 6 January, a judge rescinded the foreclosure sale, and ordered Hardest-Hit officials to be subpoenaed, at Weidner's request, for testimony at a hearing to sort out the details of the Kamel case.

Deborah Stockhammer has not been so lucky. Her main complaint: “When I stop and think about the money President Obama gave to these companies, if he gave it to us homeowners we would have paid off our homes by now."