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Thursday, September 23, 2010

Law - Forclosure mess is even worse than previously thought

Yesterday a story by Ariana Eunjung Cha in the Washington Post began:

Some of the nation's largest mortgage companies used a single document processor who said he signed off on foreclosures without having read the paperwork - an admission that may open the door for homeowners across the country to challenge foreclosure proceedings.

The legal predicament compelled Ally Financial, the nation's fourth-largest home lender, to halt evictions of homeowners in 23 states this week. Now it appears hundreds of other companies, including mortgage giants Fannie Mae and Freddie Mac, may also be affected because they use Ally to service their loans.

As head of Ally's foreclosure document processing team, 41-year-old Jeffrey Stephan was required to review cases to make sure the proceedings were legally justified and the information was accurate. He was also required to sign the documents in the presence of a notary.

In a sworn deposition, he testified that he did neither.

The reason may be the sheer volume of the documents he had to hand-sign: 10,000 a month. Stephan had been at that job for five years.

How the nation's foreclosure system became reliant on the tedious work of a few corporate bureaucrats is still a matter that mortgage lenders are trying to answer. While the lenders may have had legitimate cause to foreclose, the mishandling of the paperwork has given homeowners ammunition in their fight against foreclosure and has drawn the attention of state law enforcement officials.

In a story today, Ms. Cha and Brady Dennis report:
The nation's overburdened foreclosure system is riddled with faked documents, forged signatures and lenders who take shortcuts reviewing borrower's files, according to court documents and interviews with attorneys, housing advocates and company officials.

The problems, which are so widespread that some judges approving the foreclosures ignore them, are coming to light after Ally Financial, the country's fourth-biggest mortgage lender, halted home evictions in 23 states this week. * * *

In theory, a judge should review the files one more time. But after the crisis produced massive numbers of delinquent homeowners, judges in many cases became overwhelmed.

Some simply took at face value the documents handed over to them by the lenders - who in many cases were not checking the files, either, according to interviews with judges, attorneys and consumer groups.

In some Florida courts, for instance, many judges automatically approve a foreclosure unless a borrower can point to a specific problem. Homeowners are given five minutes for a presentation. Often, they do not bother to show up.

Arthur M. Schack, a Kings County Supreme Court judge in Brooklyn, said it's clear those involved in the foreclosure process are taking the legal requirements too lightly. They forget, he said, that there's a bigger picture to think about: People are losing their homes. * * *

Schack has become infamous among some of the nation's most powerful banks for rejecting foreclosure motions that come across his courtroom - about half of the hundreds of files that he has reviewed over nearly three years. He said Ally's document-processing violations shouldn't be dismissed lightly.

"There are procedures to be followed in order to get a foreclosure, and you either get it right or not. Either you're pregnant or not. There's no in-between," he said.

But Judge Isaac Garb, a retired trial judge in Bucks County, Pa., who has heard many foreclosure cases and still oversees mortgage mediations, had a different view.

He said that because foreclosure files contain standard language, document processors such as Stephan do not need to review every page. He added that the signers are verifying only that the information in the file is "true and correct to the best of his/her knowledge, information and belief."

Often, homeowners are using minor problems in the documents simply to stall the foreclosure process as long as possible, Garb said.

Posted by Marcia Oddi on September 23, 2010 11:18 AM
Posted to General Law Related