Bank of America Corp. (BAC) on Friday suspended foreclosure sales in all 50 U.S. states, as it extends a review of foreclosure documents.
Bank of America, the largest U.S. mortgage servicer, had last week suspended all foreclosure proceedings in the 23 states where foreclosure must be approved by a judge. J.P. Morgan Chase & Co. (JPM) and GMAC Home Mortgage Inc., a unit of Ally Financial Inc., had announced similar plans earlier.
The decisions come amid reports of servicers ???dubbed "robo-signers"??? who signed thousands of foreclosure documents on a daily basis without properly reviewing the information in the documents. Some of the employees of the lenders are alleged to have rushed through the mortgage documents without properly verifying their information. The verification includes the accuracy of the loan information, including who owns the mortgage.
Bank of America, the largest U.S. bank, has not yet come up with any exact figure stating the number of suspended foreclosures. GMAC has also refrained from giving any figure. However, J.P. Morgan has said the move could affect 56,000 home loans that are currently in some stage of the foreclosure process.
Bank of America became the largest U.S. mortgage servicer after buying Countrywide Financial Corp. in 2008 at the peak of the financial crisis.
Now, let me put my corporate counsel hat on (my day job) and explain the reasoning for the process that was used. At some point, the head of the loan servicing department called counsel and said, "we've got a ton of foreclosure documents that we need to sign. The problem is we don't have enough people to go through all of them. What can we do?" That's when this "robo-signing" idea same about. Someone basically said, "place all of the foreclosure documents in one file and we'll get a mass signing program in place to move the process forward."
In theory (which means on a low school exam) this idea made sense.
Here's the basic problem with what's going on: banks who serviced the loans had loan officers essentially mass file foreclosure documents. The problem is the signatures were on affidavits, which are:
written declaration[s] made under oath; a written statement sworn to be true before someone legally authorized to administer an oath
The purpose of an affidavit is it forces the signor to "go on the record." If the signor of the affidavit is not telling the truth he (or she) can now be charged with perjury. And that's where the problem for this situation comes in: after going through these records and talking to the people who signed the affidavits on now closed cases it became obvious that they had no idea of what was going on with the relevant cast files. That's a huge problem from which there is no easy exit; frankly, I have no idea how to handle it.
Now, the real question becomes how to handle the foreclosure situation from a legal perspective because the system is not really able to deal with the current amount of cases. Personally, I think the real answer is to create a separate foreclosure court for the heavily effected areas (California, Arizona, Nevada and Florida come to mind), dedicated solely to foreclosures. Give the court a limited mandate and existence (say 5 years) and set them to work.
4 comments:
Excellent idea....here are some statistics indirectly related to
foreclosure....there are 7 states
(California.Nevada,Arizona,Michigan
Ohio,Florida and Georgia) that comprise 31% of the populace but have 62% of the negative equity mortgages. Also of the really bad negative equity mortgages ( 25% or greater) these 7 states have 80% of these really underwater mortgages.
Affidavit signers.
If the affidavit is factually true, there is no issue. If the affidavit is extensively false, give them a fair trial, encourage the judge to lecture the signers that obeying orders is not a defense and why do you think history courses teach about Nuremberg, and inform them that their new job in life is preventing unemployment among prison guards for the next decade. I am not sure what the penalty for perjury is, but some of these people are going to be up on a lot of counts.
And make sure that their lamentations are remembered by the next several generations of potential affidavit signers.
The real problem here is with title. The problem isn't really that the robo-signing took place, but that the title history either had holes or was wrong. This means that no one is going to want to buy these homes until they can get a clear title (which is why the signers were supposed to look over the mortgages before foreclosing) and title insurance (since who is going to insure these titles now).
In no way does this mean that the delinquent homeowner is going to get a free house, what it may mean though is that a judge can now put the mortgage in the back of the line in terms of creditors (ie credit cards/autos/etc come first).
This is not a foreclosure problem. It only looks like one because foreclosures ARE the housing market right now.
This failure to properly transfer the notes is likely affecting many, if not most, mortgages that were originated in the last 5-6 years or so. That means the many homeowners who bought or refinanced and have had their notes subsequently "sold" probably no longer have clear title. They may not figure this out for years, until they try to sell and can't get title insurance, or pay it off and can't get the lien removed because the party they gave a few hundred thousand dollars to never actually had the piece of paper.
This is a big deal. Most people seem to have no clue how big it is.
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