Why You Won’t Have to Leave Your Foreclosed House (If You have a Good Lawyer)
FlaglerLive | October 6, 2010
Three of the nation’s largest mortgage servicers have halted foreclosures as scrutiny increases over whether they verify the required paperwork. Several other servicers have also been faulted for foreclosure affidavits that were signed without much authentication, but they have not yet halted foreclosures.
Last week, we noted that the discovery of “robo-signers” — employees who signed off on thousands of foreclosure documents without much, if any, knowledge of their accuracy — had caused Ally Financial’s GMAC mortgage unit to freeze foreclosures in 23 states where foreclosures require a court order.
Since then, Bank of America and JPMorgan Chase have joined GMAC in halting foreclosures in those states. Together with Wells Fargo and Citigroup, these make up the nation’s top five mortgage servicers, with a 71 percent market share, as Bloomberg has noted. (Wells Fargo and Citi both have faced questions about their foreclosure affidavits.)
The Associated Press reported late Sunday that a Wells Fargo executive acknowledged in a May deposition that he had signed hundreds of foreclosure documents each week without verifying any information aside from the date. The company, nonetheless, told AP it had no plans to halt foreclosures and was confident of the documents’ accuracy. (As we’ve noted, other banks — including those that have chosen to halt foreclosures — have also expressed confidence in the accuracy of their documents and played down the likelihood of mistaken foreclosures, despite the flawed paperwork.)
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The Wall Street Journal reported today on a homeowner who was engaged in a foreclosure proceeding with IndyMac, which is now called OneWest Bank. A judge threw out the case after ruling that the servicer’s use of a robo-signer meant the affidavit — which establishes basic facts such as the bank’s ownership of a mortgage — had not been properly reviewed. The judge also concluded that the affidavit was incorrect; IndyMac didn’t own the mortgage and therefore did not have standing to foreclose.
The broadening scope of these problems shouldn’t be surprising. Officials at Fitch, a credit rating agency, recently noted that the processing “defects” are industrywide.
The breadth of these problems could initiate a Justice Department investigation or, for public companies like JPMorgan and Bank of America, a civil investigation by the Securities and Exchange Commission over the servicers’ disclosures to investors, according to Peter Henning, a securities law expert and blogger for The New York Times’ White Collar Watch.
More homeowners will likely challenge servicers’ foreclosure cases in court, which may ultimately prolong the housing slump, as Bloomberg pointed out.
We’ve noted that the paperwork flaws are only one of the many types of problems experienced by homeowners fighting foreclosure. For example, our reporting on the mortgage modification process has also uncovered instances in which banks failed to follow the rules and were sloppy with the handling of paperwork. In some cases, homeowners being helped by one part of a bank have been foreclosed on by another part of the bank.