RE Attorneys Archives

 F.H.A. Rule Changes for Mortgage Borrowers

 
HOME buyers with sketchy credit who are unable to qualify for conventional mortgages may now find it more costly and difficult to obtain loans insured by the Federal Housing Administration. 
 
New rules that went into effect this month adjust the two types of mortgage insurance paid by consumers for loans insured by the F.H.A., which is part of the Department of Housing and Urban Development.
 
One change raises the annual insurance premium, paid monthly by the borrower, setting it at 0.85 percent to 0.9 percent of the loan balance, depending on the down payment or equity owned; the amount used to be 0.5 percent to 0.55 percent. The other change lowers the one-time upfront insurance premium that borrowers must pay, to 1 percent of the loan balance from 2.25 percent.
 
The upfront premium is paid in a lump sum at closing or added to the loan balance, unlike the monthly premium, which is paid over the life of the loan in addition to the interest and principal.
 
The decrease in the upfront premium, welcome though it might seem to some customers, does little to offset the effects of the monthly increase, which Andre Harriott, the president of the Access Mortgage Corporation in New Haven, Conn., called “really pretty hefty.”
 
“Everyone is really living paycheck to paycheck,” he said.
 
F.H.A. loans are usually taken out by buyers who cannot qualify under the stiffer down-payment requirements of Fannie Mae or Freddie Mac, the government-controlled buyers of loans. F.H.A. requires 3.5 percent, while Fannie Mae typically requires 5 to 15 percent or more, depending on the type of loan.
 
The changes, under an example provided by the F.H.A., mean that a borrower who puts 3.5 percent down on a $154,000 house with a 30-year fixed-rate mortgage at 5 percent (such a consumer typically earns a gross annual income of $54,000, according to the agency) and who finances the upfront premium into the loan will see monthly mortgage payments, including taxes, interest and the two insurance premiums, rise to $1,238 from $1,205. The example is based on median data, including property taxes put at about 2.5 percent of home value. That increase includes the drop in the upfront mortgage insurance, to $1,486 from $3,344 — but also includes the rise in the monthly insurance premium, to $111 from $68.
 
Last August, President Obama signed into law a bill authorizing the F.H.A. to increase premiums to shore up its insurance funds; the agency had been authorized to raise the annual premium to as much as 1.55 percent.
 
Conventional loans, which conform to Fannie and Freddie underwriting guidelines, do not require upfront mortgage insurance. But some may require monthly private mortgage insurance, if the borrower puts less than 20 percent down toward the purchase, or has less than 20 percent equity in a refinancing.
 
F.H.A. borrowers, meanwhile, can stop paying the monthly mortgage insurance only after five years and when their loan-to-value ratio reaches 78 percent, at which point they have 22 percent equity in their home.
 
F.H.A. loans are typically offered by niche direct lenders, and because of the insurance, they often carry interest rates equal to or slightly below those of conventional loans.
 
In October, the F.H.A. set a minimum FICO score of 500 for borrowers who want an F.H.A.-insured loan — the first time a minimum was set. It also introduced a new minimum down payment of 10 percent for borrowers with FICO scores below 580. (Those above 580 still pay a minimum 3.5 percent.)
 
The issue for the F.H.A, Mr. Harriott said, is that the realm of borrowers has widened. “We see executives of little companies, teachers, people making $200,000 a year, doing an F.H.A. loan, because they’ve gotten into a financial situation,” he said, adding that F.H.A. loans are perceived as safe by investors because of the insurance.
 
By LYNNLEY BROWNING
For more: http://nyti.ms/h22leV
Question: What’s worse than having your house foreclosed upon?
 
Answer: having your house foreclosed upon twice . Unless, of course, you get it back the second time.
 
Homeowners in Massachusetts are now facing "back-to-back foreclosures," due to problems with property titles. When lenders are unable to get title insurance for the property on which they have foreclosed, they are now opting to try the whole process again. In Massachusetts, where the issue has affected at least hundreds, and "possibly thousands," of homeowners, it has become common enough to merit its own name: "re-foreclosure."
 
It sounds pretty awful. But the “re-foreclosure’’ storm clouds may have a silver lining for some homeowners: Sometimes, the banks lose the second time around.
 
From the Boston Globe article:
 
"Zepheniah Taylor lost his Dorchester three-decker to foreclosure two times in 17 months. Now the 59-year-old grandfather has returned home to stay. The scenario, once implausible, is becoming more common in the crazed and fast-changing world of foreclosures."
 
Also of note, homeowners are able to purchase their houses back at "current market value" — which means if the property value has deteriorated, as is often the case in neighborhoods with high foreclosure rates, the homeowner may be able to benefit by buying the property back at a cheaper price.
 
In the words of one such beneficiary: "I’m starting over fresh…It feels good. It is a new chance. "
 
But the whole process can be a little unsettling. In the words of Zoe Cronin, an attorney with Greater Boston Legal Services, a group that represents low income people: "They are weirded out…What is this? I got a letter saying I own my house again."
 
At the moment, it is still unclear how many properties and homeowners could be affected by these types of issues in the future.
 
By: Ash Bennington, writer for CNBC
 
For more: http://bit.ly/a7mX5v

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Even as investors put aside their worries on Friday about the effect of the foreclosure mess on bank stocks, new signs emerged of what is likely to be a long and expensive legal battle for the financial services industry over mortgages gone bad.

 
Citigroup disclosed in a regulatory filing that it was being sued by several investors, including Charles Schwab and the Federal Home Loan Bank of Chicago, in an effort to force Citigroup to buy back soured mortgages that the investors contended did not conform to proper underwriting standards.
 
Meanwhile, Wells Fargo said in a filing that it “cannot estimate the possible loss or range of loss” from these cases, and Bank of America said in a filing that investors holding $375 billion worth of mortgage securities had filed similar suits.
 
In a separate announcement, however, Bank of America said a lawsuit brought by the Maine State Retirement System and other investors was dismissed on Thursday by a federal court in California, reducing that $375 billion figure to $54 billion. But that news came after the S.E.C. filing had already been prepared.
 
The dismissal is a significant victory for Bank of America and underscores the legal challenges in trying to force banks to buy back defaulted mortgages.
 
“The court’s ruling demonstrates the strict legal hurdles plaintiffs face in bringing these sorts of claims,” said Brian E. Pastuszenski, counsel for Bank of America’s Countrywide unit.
 
Still, Bank of America faces a different effort by other investors, including the Federal Reserve Bank of New York and Pimco, the giant money management firm, to force it to buy back a portion of roughly $47 billion in mortgages they hold. Neither the $375 billion nor the $54 billion figure reflects this push, because those investors have yet to sue.
 
On Thursday, Bank of America’s lawyers sent a strongly worded letter to the lawyer leading the $47 billion effort, rejecting her claims as “utterly baseless.” The bank contends the any loss of value stemmed from the economic downturn rather than an underlying problem with how the mortgages were sold to investors or have been serviced.
 
Bank of America and other large institutions like JPMorgan Chase and GMAC Mortgage have been criticized for pursuing foreclosures without the proper paperwork or with signatures by so-called robo-signers.
 
But on Wall Street, the worry is that efforts to force the banks to buy back defaulted mortgages could actually be a longer and more expensive fight for the industry. Some analysts estimate the eventual cost could total tens of billions of dollars, and that worry pushed down shares of the big banks sharply last month.
 
Indeed, Bank of America’s chief executive, Brian T. Moynihan, has signaled that the threat of forced buybacks will not be resolved quickly — or cheaply.
 
“It’s loan by loan, and we have the resources to deploy in that kind of review,” he said last month, during a conference call to discuss the bank’s financial results for the third quarter. “We’d love never to talk about this again and put it behind us, but the right answer is to fight for it.”
 
Despite the disclosures, bank stocks rallied for the second day in a row. Bank of America shares closed up 23 cents, at $12.36, while Citigroup rose 16 cents, to $4.49, and Wells Fargo jumped $1.76, to $29.22.
 
By NELSON D. SCHWARTZ
For more: http://nyti.ms/aQgZUD

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 Consumer advocates, the press, investors and homeowners have already compiled a compelling list of transgressions: conflicts of interest that have banks pushing foreclosures, without a good-faith effort to modify troubled loans. Dubious fees that inflate mortgage balances. The hundreds of thousands of flawed foreclosure affidavits that violated homeowners’ legal protections. The misplaced documents. And it goes on. 

 
 
IN Congressional hearings last week, Obama administration officials acknowledged that uncertainty over foreclosures could delay the recovery of the housing market. The implications for the economy are serious. For instance, the International Monetary Fund found that the persistently high unemployment in the United States is largely the result of foreclosures and underwater mortgages, rather than widely cited causes like mismatches between job requirements and worker skills.
 
This chapter of the financial crisis is a self-inflicted wound. The major banks and their agents have for years taken shortcuts with their mortgage securitization documents — and not due to a momentary lack of attention, but as part of a systematic approach to save money and increase profits. The result can be seen in the stream of reports of colossal foreclosure mistakes: multiple banks foreclosing on the same borrower; banks trying to seize the homes of people who never had a mortgage or who had already entered into a refinancing program.
 
Banks are claiming that these are just accidents. But suppose that while absent-mindedly paying a bill, you wrote a check from a bank account that you had already closed. No one would have much sympathy with excuses that you were in a hurry and didn’t mean to do it, and it really was just a technicality.
 
The most visible symptoms of cutting corners have come up in the foreclosure process, but the roots lie much deeper. As has been widely documented in recent weeks, to speed up foreclosures, some banks hired low-level workers, including hair stylists and teenagers, to sign or simply stamp documents like affidavits — a job known as being a “robo-signer.”
 
Such documents were improper, since the person signing an affidavit is attesting that he has personal knowledge of the matters at issue, which was clearly impossible for people simply stamping hundreds of documents a day. As a result, several major financial firms froze foreclosures in many states, and attorneys general in all 50 states started an investigation.
 
However, the problems in the mortgage securitization market run much wider and deeper than robo-signing, and started much earlier than the foreclosure process.
 
When mortgage securitization took off in the 1980s, the contracts to govern these transactions were written carefully to satisfy not just well-settled, state-based real estate law, but other state and federal considerations. These included each state’s Uniform Commercial Code, which governed “secured” transactions that involve property with loans against them, and state trust law, since the packaged loans are put into a trust to protect investors. On the federal side, these deals needed to satisfy securities agencies and the Internal Revenue Service.
 
This process worked well enough until roughly 2004, when the volume of transactions exploded. Fee-hungry bankers broke the origination end of the machine. One problem is well known: many lenders ceased to be concerned about the quality of the loans they were creating, since if they turned bad, someone else (the investors in the securities) would suffer.
 
A second, potentially more significant, failure lay in how the rush to speed up the securitization process trampled traditional property rights protections for mortgages.
 
The procedures stipulated for these securitizations are labor-intensive. Each loan has to be signed over several times, first by the originator, then by typically at least two other parties, before it gets to the trust, “endorsed” the same way you might endorse a check to another party. In general, this process has to be completed within 90 days after a trust is closed.
 
Evidence is mounting that these requirements were widely ignored. Judges are noticing: more are finding that banks cannot prove that they have the standing to foreclose on the properties that were bundled into securities. If this were a mere procedural problem, the banks could foreclose once they marshaled their evidence. But banks who are challenged in many cases do not resume these foreclosures, indicating that their lapses go well beyond minor paperwork.
 
Increasingly, homeowners being foreclosed on are correctly demanding that servicers prove that the trust that is trying to foreclose actually has the right to do so. Problems with the mishandling of the loans have been compounded by the Mortgage Electronic Registration System, an electronic lien-registry service that was set up by the banks. While a standardized, centralized database was a good idea in theory, MERS has been widely accused of sloppy practices and is increasingly facing legal challenges.
 
By YVES SMITH
 
For more: http://nyti.ms/aPlvOQ
 

 Wells Fargo said that current reviews found that bank employees had failed to “strictly adhere” to its required procedures during a final step in its documentation processes. It also acknowledged that “some aspects of the notarization process” had not always been properly followed, creating the potential for paperwork errors.

 
After several weeks of insisting its foreclosure processes were sound, Wells Fargo & Company said on Wednesday that it planned to correct and resubmit up to 55,000 improperly filed documents by mid-November.
 
Wells Fargo said that current reviews found that bank employees had failed to “strictly adhere” to its required procedures during a final step in its documentation processes. It also acknowledged that “some aspects of the notarization process” had not always been properly followed, creating the potential for paperwork errors.
 
Wells officials said that the bank started to correct the 55,000 questionable files, and “out of an abundance of caution,” planned to resubmit them in 23 states where foreclosures require court approval. Bank officials maintained that the underlying information in the loan files was accurate and that the bank had not improperly foreclosed on any troubled homeowners.
 
Wells Fargo also said that it had no plans to temporarily freeze foreclosure sales, an action previously taken by its rivals Bank of America and GMAC.
 
Still, the revelations that Wells had identified as many as 55,000 improper foreclosure files add to the mortgage morass. Attorneys general in all 50 states are conducting a sweeping investigation into the industry’s practices, while a White House task force and several federal regulators have embarked on similar reviews.
 
In addition to Wells Fargo, four other large mortgage players are resubmitting tens of thousands of cases in large swaths of the country. Chase said it was looking at about 115,000 files in 41 states. Bank of America is looking at 102,000 in 23 states, where foreclosures require court approval. GMAC and PNC Financial have come forward to say they are resubmitting files with improper paperwork, too.
 
Still, Wells Fargo’s announcement was the second time a bank had backtracked on statements it had made about the extent of its foreclosure problems. After weeks of insisting that its review had not turned up any serious errors, Bank of America acknowledged a number of paperwork errors, including incorrect data and misspelled names.
 
Wells Fargo had previously taken an even more combative stance. In its Oct. 20 conference call with investors, bank officials said they were confident that the foreclosure processes and controls were sound. That statement gave the impression that there were few if any problems but left room for the possibility that the bank might have to fix a small number of mistakes.
 
During the conference call, Wells officials dismissed concerns that the bank had systematically engaged in so-called robo-signing, where a single employee would sign thousands of loan documents without verifying their contents, as the law requires. Instead, the bank emphasized that their policies called for the same employee who compiled the foreclosure file to sign off on it — a crucial legal requirement in many states.
 
But revelations in an obscure Florida lawsuit and elsewhere raised concerns about whether that process was always followed. Under questioning, Xee Moua, a Wells Fargo manager, said she would sign off on as many as 500 foreclosure files a day without verifying the accuracy of their contents. “We don’t go into the details with these affidavits,” she said in a deposition.
 
Oscar Suris, a Wells Fargo spokesman, declined to comment on whether any of the problems the bank identified stemmed from such violations. He previously called Ms. Moua’s testimony “one isolated case” that is being disputed in the courts.
 
Wells officials also acknowledged the possibility of notarization errors. Previously, Wells officials said they believed that their notarization procedures complied with the law in South Carolina, where the bank’s loan foreclosure operations were based. As a result of the reviews, bank officials now say they are taking into consideration the unique requirements of different counties and states.
 
By ERIC DASH
For more: http://nyti.ms/bs89x7
Indiana Attorney General Greg Zoeller and a team of his attorneys fanned across nine counties to sue 10 so-called foreclosure counselors Thursday.
 
Zoeller said it was the next step in his campaign to beef up consumer protection statewide. Last month, the attorney general sued two local for-profit credit counseling companies for what he described as fraudulent practice.
 
Zoeller said his team is also taking a close look at banking behemoths like Chase and Bank of America after word of their representatives "robo-signing," or blindly signing foreclosure documents, tantamount to legal affidavits, on thousands of homeowners nationwide, including a fair number in Indiana.
 
With Lake County Clerk Mike Brown by his side, Zoeller filed a complaint in Lake Circuit Court for an injunction and restitution against Santa Ana, Calif., based Meridian Law Center, run by attorney Kamran Yusuf Malik, for trying to get $2,000 from Sandra Dobson for foreclosure help.
 
"I had way more sense than to send those people any money," said Dobson, from the home she’s owned for 33 years. "I filed a complaint with the Indiana Attorney General’s office last year because the package they sent me looked fraudulent."
 
According to Zoeller, the 10 companies his investigators and attorneys sued have been taking money from people in financial straits and promising to help them save their homes from foreclosures or lower their mortgage rates.
 
Zoeller said the companies did not register to do business in Indiana, did not obtain $25,000 bonds mandated by the state and violated the Consumer Protection Act and other deceptive practices laws.
 
He accused the companies of having agents who seek targets based on foreclosure filings.
 
"Each of the companies have the same modus operandi," Zoeller said. "They’re preying on people who are in financial trouble."
 
Zoeller said collecting any money in restitution or costs from such companies is difficult, but the action at least sends out a warning to unsuspecting homeowners.
 
Dobson said she was in no financial trouble when she received a glossy, "important looking package" from Meridian Law Center Aug. 24, 2009, and immediately filed a complaint with the Attorney General’s office. The last time she was in any foreclosure proceedings was more than 25 years ago, Dobson added.
 
Dobson still praised Zoeller and his actions.
 
"I just think it’s wonderful because we’re just little people, and it’s about time somebody steps up to protect little people," she said. "They’re just con artists ripping off people trying to lead a decent life."
 
Zoeller said he is headed to Oregon for a meeting with of the states’ attorneys general to address the "robo-signing" scandal, but he declined to comment on specific cases in Indiana.
 
"Maybe all the documents are correct, but, in my mind, when you sign your name on those papers, you’re signing a legal affidavit."
 
For more on this article:  http://bit.ly/dDkZFO
 
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GOLD Member Roger Taylor just sent me this very interesting article.

My hometown has a neighborhood in the TOP 25. Beth and her mother think Louisville is safe.

What do you think?

Please VOTE for your most dangerous neighborhood in America!

——————————————————————————————

 

Top 25 Most Dangerous Neighborhoods In USA

Do You Agree?

1. Chicago, Ill.
Neighborhood: W. Lake St.
Found within ZIP code: 60612
Predicted annual violent crimes: 297
Violent crime rate (per 1,000): 257.72
My chances of becoming a victim here (in one year): 1 in 4

2. Cleveland, Ohio
Neighborhood: Scovill Ave.
Found within ZIP code: 44104
Predicted annual violent crimes: 307
Violent crime rate (per 1,000): 165.56
My chances of becoming a victim here (in one year): 1 in 6

3. Las Vegas, Nev.
Neighborhood: Balzar Ave.
Found within ZIP code: 89106
Predicted annual violent crimes: 351
Violent crime rate (per 1,000): 145.98
My chances of becoming a victim here (in one year): 1 in 7

4. Las Vegas, Nev.
Neighborhood: N. 28th St.
Found within ZIP code: 89101
Predicted annual violent crimes: 875
Violent crime rate (per 1,000): 135.09
My chances of becoming a victim here (in one year): 1 in 7

5. Atlanta, Ga.
Neighborhood: Carter St.
Found within ZIP code: 30314, 30313
Predicted annual violent crimes:118
Violent crime rate (per 1,000): 126.77
My chances of becoming a victim here (in one year): 1 in 8

6. Philadelphia, Pa.
Neighborhood: N. 13th St.
Found within ZIP code: 19123
Predicted annual violent crimes: 488
Violent crime rate (per 1,000): 117.19
My chances of becoming a victim here (in one year): 1 in 9

7. Atlanta, GA
Neighborhood: Marietta St.
Found within ZIP code: 30313, 30303
Predicted annual violent crimes: 307
Violent crime rate (per 1,000): 114.18
My chances of becoming a victim here (in one year): 1 in 9

8. Las Vegas, Nev.
Neighborhood: D St.
Found within ZIP code: 89106, 89101
Predicted annual violent crimes: 392
Violent crime rate (per 1,000): 113.53
My chances of becoming a victim here (in one year): 1 in 9

9. Washington, D.C.
Neighborhood: L St. SE
Found within ZIP code: 20003
Predicted annual violent crimes: 240
Violent crime rate (per 1,000): 111.34
My chances of becoming a victim here (in one year): 1 in 9

10. Chattanooga, Tenn.
Neighborhood: King St.
Found within ZIP code: 37402, 37403, 37408
Predicted annual violent crimes: 114
Violent crime rate (per 1,000): 110.79
My chances of becoming a victim here (in one year): 1 in 9

11. Charlotte, N.C.
Neighborhood: N. Tryon St.
Found within ZIP code: 28206
Predicted annual violent crimes: 352
Violent crime rate (per 1,000): 108.94
My chances of becoming a victim here (in one year): 1 in 9

12. Memphis, Tenn.
Neighborhood: Florida St.
Found within ZIP code: 38106
Predicted annual violent crimes: 203
Violent crime rate (per 1,000): 108.91
My chances of becoming a victim here (in one year): 1 in 9

13. North Charleston, S.C.
Neighborhood: Echo Ave.
Found within ZIP code: 29403, 29405
Predicted annual violent crimes: 233
Violent crime rate (per 1,000): 108.86
My chances of becoming a victim here (in one year): 1 in 9

14. Louisville, Ky.
Neighborhood: E. Breckinridge St.
Found within ZIP code: 40203, 40204
Predicted annual violent crimes: 226
Violent crime rate (per 1,000): 106.01
My chances of becoming a victim here (in one year): 1 in 9

15. Fort Worth, Texas
Neighborhood: E. Lancaster Ave.
Found within ZIP code: 76102, 76111, 76103
Predicted annual violent crimes: 284
Violent crime rate (per 1,000): 98.12
My chances of becoming a victim here (in one year): 1 in 10

16. Winston-Salem, N.C.
Neighborhood: E. 21st St.
Found within ZIP code: 27105
Predicted annual violent crimes: 175
Violent crime rate (per 1,000): 95.79
My chances of becoming a victim here (in one year): 1 in 10

17. Atlanta, Ga.
Neighborhood: Richardson St.
Found within ZIP code: 30312, 30303
Predicted annual violent crimes: 119
Violent crime rate (per 1,000): 94.94
My chances of becoming a victim here (in one year): 1 in 11

18. Chicago, Ill.
Neighborhood: 4000 S. Federal St.
Found within ZIP code: 60609
Predicted annual violent crimes: 202
Violent crime rate (per 1,000): 93.04
My chances of becoming a victim here (in one year): 1 in 11

19. Memphis, Tenn.
Neighborhood: N. Danny Thomas Blvd.
Found within ZIP code: 38105
Predicted annual violent crimes: 147
Violent crime rate (per 1,000): 90.42
My chances of becoming a victim here (in one year): 1 in 11

20. Cleveland, Ohio
Neighborhood: Chestnut Pl.
Found within ZIP code: 44104, 44115
Predicted annual violent crimes: 156
Violent crime rate (per 1,000): 90.38
My chances of becoming a victim here (in one year): 1 in 11

21. Galveston, Texas
Neighborhood: Church St.
Found within ZIP code: 77550
Predicted annual violent crimes: 84
Violent crime rate (per 1,000): 88.1
My chances of becoming a victim here (in one year): 1 in 11

22. Atlanta, Ga.
Neighborhood: Humphries St. SW
Found within ZIP code: 30310
Predicted annual violent crimes: 119
Violent crime rate (per 1,000): 82.96
My chances of becoming a victim here (in one year): 1 in 12

23. Kansas City, Mo.
Neighborhood: Independence Ave.
Found within ZIP code: 64106
Predicted annual violent crimes: 82
Violent crime rate (per 1,000): 81.97
My chances of becoming a victim here (in one year): 1 in 12


24. Cincinnati, Ohio

Neighborhood: Moore St.
Found within ZIP code: 45210
Predicted annual violent crimes: 150
Violent crime rate (per 1,000): 81.92
My chances of becoming a victim here (in one year): 1 in 12


25. Orlando, Fla.

Neighborhood: W. Central Blvd.
Found within ZIP code: 32805, 32801
Predicted annual violent crimes: 299
Violent crime rate (per 1,000): 79.83
My chances of becoming a victim here (in one year): 1 in 13

 

Thanks to Roger and Wallet Pro
Read more of this article: http://bit.ly/Top25DangerousNeighborhoods  

PLEASE VOTE!

For Your Most Dangerous Neighborhood in America!

Fire Away… I Want To Read Your Comments!
 

 Battle Lines Forming in Clash Over Foreclosures

 
That clash — expected to be played out in courtrooms across the country and scrutinized by law enforcement officials investigating possible wrongdoing by big lenders — leaped to the forefront of the mortgage crisis this week as big lenders began lifting their freezes on foreclosures and insisted the worst was behind them. 
 
Battle Lines Forming in Clash Over Foreclosures
 
 
About a month after Washington Mutual Bank made a multimillion-dollar mortgage loan on a mountain home near Santa Barbara, Calif., a crucial piece of paperwork disappeared.
 
Cynthia Veintemillas, a lawyer in Florida, met with a client, Patrick Jeffs, on Wednesday.
 
Herbert Newlands Jr. of Temple Terrace, Fla., getting foreclosure advice from his lawyer on Tuesday. Florida has been hit hard by foreclosures.
 
But bank officials were unperturbed. After conducting a “due and diligent search,” an assistant vice president simply drew up an affidavit stating that the paperwork — a promissory note committing the borrower to repay the mortgage — could not be found, according to court documents.
 
The handling of that lost note in 2006 was hardly unusual. Mortgage documents of all sorts were treated in an almost lackadaisical way during the dizzying mortgage lending spree from 2005 through 2007, according to court documents, analysts and interviews.
 
Now those missing and possibly fraudulent documents are at the center of a potentially seismic legal clash that pits big lenders against homeowners and their advocates concerned that the lenders’ rush to foreclose flouts private property rights.
 
That clash — expected to be played out in courtrooms across the country and scrutinized by law enforcement officials investigating possible wrongdoing by big lenders — leaped to the forefront of the mortgage crisis this week as big lenders began lifting their freezes on foreclosures and insisted the worst was behind them.
 
Federal officials meeting in Washington on Wednesday indicated that a government review of the problems would not be complete until the end of the year.
 
In short, the legal disagreement amounts to whether banks can rely on flawed documentation to repossess homes.
 
While even critics of the big lenders acknowledge that the vast majority of foreclosures involve homeowners who have not paid their mortgages, they argue that the borrowers are entitled to due legal process.
 
Banks “have essentially sidestepped 400 years of property law in the United States,” said Rebel A. Cole, a professor of finance and real estate at DePaul University. “There are so many questionable aspects to this thing it’s scary.”
 
Others are more sanguine about the dispute.
 
Joseph R. Mason, a finance professor who holds the Louisiana Bankers Association chair at Louisiana State University, said that concerns about proper foreclosure documentation were overblown. At the end of the day, he said, even if the banks botched the paperwork, homeowners who didn’t make their mortgage payments still needed to be held accountable.
 
“You borrowed money,” he said. “You are obligated to repay it.”
 
After freezing most foreclosures, Bank of America, the largest consumer bank in the country, said this week that it would soon resume foreclosures in about half of the country because it was confident that the cases had been properly documented. GMAC Mortgage said it was also proceeding with foreclosures, on a case-by-case basis.
 
While some other banks have also suggested they can wrap up faulty foreclosures in a matter of weeks, some judges, lawyers for homeowners and real estate experts like Mr. Cole expect the courts to be inundated with challenges to the banks’ actions.
 
“This is ultimately going to have to be resolved by the 50 state supreme courts who have jurisdiction for property law,” Professor Cole predicted.
 
Defaulting homeowners in states like Florida, among the hardest hit by foreclosures, are already showing up in bigger numbers this week to challenge repossessions. And judges in some states have halted or delayed foreclosures because of improper documentation. Court cases are likely to hinge on whether judges believe that banks properly fulfilled their legal obligations during the mortgage boom — and in the subsequent rush to expedite foreclosures.
 
The country’s mortgage lenders contend that any problems that might be identified are technical and will not change the fact that they have the right to foreclose en masse.
 
“We did a thorough review of the process, and we found the facts underlying the decision to foreclose have been accurate,” Barbara J. Desoer, president of Bank of America Home Loans, said earlier this week. “We paused while we were doing that, and now we’re moving forward.”
 
Some analysts are not sure that banks can proceed so freely. Katherine M. Porter, a visiting law professor at Harvard University and an expert on consumer credit law, said that lenders were wrong to minimize problems with the legal documentation.
 
“The misbehavior is clear: they lied to the courts,” she said. “The fact that they are saying no one was harmed, they are missing the point. They did actual harm to the court system, to the rule of law. We don’t say, ‘You can perjure yourself on the stand because the jury will come to the right verdict anyway.’ That’s what they are saying.”
 
Robert Willens, a tax expert, said that documentation issues had created potentially severe tax problems for investors in mortgage securities and that “there is enough of a question here that the courts might well have to resolve the issue.”
 
As the legal system begins sorting through the competing claims, one thing is not in dispute: the pell-mell origination of mortgage loans during the real estate boom and the patchwork of financial machinery and documentation that supported it were created with speed and profits in mind, and with little attention to detail.
 
Once the foreclosure wheels started turning, said analysts, practices became even shoddier.
 
For example, the foreclosure business often got so busy at the Plantation, Fla., law offices of David J. Stern — and so many documents had to be signed so banks could evict people from their homes — that a supervisor sometimes was too tired to write her own name.
 
When that happened, Cheryl Samons, the supervisor at the firm, who typically signed about 1,000 documents a day, just let someone else sign for her, court papers show.
 
“Cheryl would give certain paralegals rights to sign her name, because most of the time she was very tired, exhausted from signing her name numerous times per day,” said Kelly Scott, a Stern employee, in a deposition that the Florida attorney general released on Monday. A lawyer representing the law firm said Ms. Samons would not comment.
 
Bill McCollum, Florida’s attorney general, is investigating possible abuses at the Stern firm, a major foreclosure mill in the state, involving false or fabricated loan documents, calling into question the foreclosures the firm set in motion on behalf of banks.
 
That problem extends far beyond Florida.
 
As lenders and Wall Street firms bundled thousands of mortgage loans into securities so they could be sold quickly, efficiently and lucratively to legions of investors, slipshod practices took hold among lenders and their representatives, former employees of these operations say.
 
Banks routinely failed to record each link in the chain of documents that demonstrate ownership of a note and a property, according to court documents, analysts and interviews. When problems arose, executives and managers at lenders and loan servicers sometimes patched such holes by issuing affidavits meant to prove control of a mortgage.
 
In Broward County, Fla., alone, more than 1,700 affidavits were filed in the last two years attesting to lost notes, according to Legalprise, a legal services company that tracks foreclosure data.
 
When many mortgage loans went bad in the last few years, lenders outsourced crucial tasks like verifying the amount a borrower owed or determining which institution had a right to foreclose.
 
Now investors who bought mortgage trusts — investment vehicles composed of mortgages — are wondering if the loans inside them were recorded properly. If not, tax advantages of the trusts could be wiped out, leaving mortgage securities investors with significant tax bills.
 
For years, lenders bringing foreclosure cases commonly did not have to demonstrate proof of ownership of the note. Consumer advocates and consumer lawyers have complained about the practice, to little avail.
 
But a decision in October 2007 by Judge Christopher A. Boyko of the Federal District Court in northern Ohio to toss out 14 foreclosure cases put lenders on notice. Judge Boyko ruled that the entities trying to seize properties had not proved that they actually owned the notes, and he blasted the banks for worrying “less about jurisdictional requirements and more about maximizing returns.”
 
He also said that lenders “seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance.” Now that their practices were “put to the test, their weak legal arguments compel the court to stop them at the gate,” the judge ruled.
 
Yet aside from the actions of a few random judges, little was done to force lenders to change their practices or slow things down. Since March 2009, more than 300,000 property owners a month have received foreclosure notices or lost their home in a foreclosure, according to RealtyTrac, which tracks foreclosure listings.
 
What finally prompted a re-examination of the foreclosure wave was the disclosure in court documents over the last several months of so-called robo-signers, employees like Ms. Samons of the Stern law firm in Florida who signed affidavits so quickly that they could not possibly have verified the information in the document under review.
 
Lenders and their representatives have sought to minimize the significance of robo-signing and, while acknowledging legal lapses in how they documented loans, have argued that foreclosures should proceed anyway. After all, the lenders say, the homeowners owe the money.
 
People who have worked at loan servicers for many years, who requested anonymity to protect their jobs, said robo-signing and other questionable foreclosure practices emanated from one goal: to increase efficiency and therefore profits. That rush, they say, allowed for the shoddy documentation that is expected to become evidence for homeowners in the coming court battles.
 
For example, years ago when banks made loans, they typically stored promissory notes in their vaults.
 
But the advent of securitization, in which loans are bundled and sold to investors, required that loan documents move quickly from one purchaser to another. Big banks servicing these loans began in 2002 to automate their systems, according to a former executive for a top servicer who requested anonymity because of a confidentiality agreement.
 
First to go was the use of actual people to determine who should be liable to a foreclosure action. They were replaced by computers that identified delinquent borrowers and automatically sent them letters saying they were in default. Inexperienced clerical workers often entered incorrect mortgage information into the computer programs, the former executive said, and borrowers rarely caught the errors.
 
Other record-keeping problems that are likely to become fodder for court battles involve endorsements, a process that occurs when notes are transferred and validated with a stamp to identify the institution that bought it. Eager to cut costs, most institutions left the notes blank, with no endorsements at all.
 
Problems are also likely to arise in court involving whether those who signed documents required in foreclosures actually had the authority to do so — or if the documents themselves are even authentic.
 
For example, Frederick B. Tygart, a circuit court judge overseeing a foreclosure case in Duval County, Fla., recently ruled that agents representing Deutsche Bank relied on documents that “must have been counterfeited.” He stopped the foreclosure. Deutsche Bank had no comment on Wednesday.
 
Cynthia Veintemillas, the lawyer representing the borrower in the case, Patrick Jeffs, said the paperwork surrounding her client’s foreclosure was riddled with problems.
 
“Everybody knows the banks screwed up and loaned out money to people who couldn’t pay it back,” she said. “Why are people surprised that they don’t know what they are doing here either?”
 
Meanwhile, another judge on Wednesday indicated that the courts would not simply sign off on the banks’ documentation. Jonathan Lippman, the chief judge of New York’s courts, ordered lawyers to verify the validity of all foreclosure paperwork.
 
“We cannot allow the courts in New York State to stand by idly and be party to what we now know is a deeply flawed process, especially when that process involves basic human needs — such as a family home — during this period of economic crisis,” Judge Lippman said in a statement.
 
For more: http://nyti.ms/clFAba
 
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