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Lawsuit Filed in Kentucky against CitiGroup

citing forged documents involving foreclosures.

 

 

 How Will This Foreclosure Mess Affect You & Your Business?
(15 min Video)

 


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 Hey Mike,

 
Here’s a good one, there is a company called DocX, that, for a fee researches mortgages for banks, find  what the defects are in the paperwork, then, they create new docs to make it appear everything has been done correctly. 
They even have a price list for the various docs that would need to be "created" have a look at this http://bit.ly/bcNlQC
Take care,
Nicholas Capra
 
 
SUNDAY, OCTOBER 3, 2010
4ClosureFraud Posts Lender Processing Services Mortgage Document Fabrication Price Sheet
A bombshell has dropped in mortgage land.
 
We’ve said for some time that document fabrication is widespread in foreclosures. The reason is that the note, which is the borrower IOU, is the critical instrument to establishing the right to foreclose in 45 states (in those states, the mortgage, which is the lien on the property, is a mere “accessory” to the note).
 
The pooling and servicing agreement, which governs the creation of mortgage backed securities, called for the note to be endorsed (wet ink signatures) through the full chain of title. That means that the originator had to sign the note over to an intermediary party (there were usually at least two), who’d then have to endorse it over to the next intermediary party, and the final intermediary would have to endorse it over to the trustee on behalf of a specified trust (the entity that holds all the notes). This had to be done by closing; there were limited exceptions up to 90 days out; after that, no tickie, no laundry.
 
Evidence is mounting that for cost reasons, starting in the 2004-2005 time frame, originators like Countrywide simply quit conveying the note. We are told this practice was widespread, probably endemic. The notes are apparently are still in originator warehouses. That means the trust does not have them (the legalese is it is not the real party of interest), therefore it is not in a position to foreclose on behalf of the RMBS investors. So various ruses have been used to finesse this rather large problem.
 
The foreclosing party often obtains the note from the originator at the time of foreclosure, but that isn’t kosher under the rules governing the mortgage backed security. First, it’s too late to assign the mortgage to the trust. Second. IRS rules forbid a REMIC (real estate mortgage investment trust) from accepting a non-performing asset, meaning a dud loan. And it’s also problematic to assign a note from the originator if it’s bankrupt (the bankruptcy trustee must approve, and from what we can discern, the note are being conveyed without approval, plus there is no employee of the bankrupt entity authorized to endorse the note properly, another wee problem).
 
We finally have concrete proof of how widespread document fabrication was. For some reason the ScribD embeds aren’t working correctly, you can view the entire Lender Processing Services price sheet here, and here are the germane sections.
 
 Picture 21
 
 
Picture 22 
 
 
Not only are there prices up for creating, which means fabricating documents out of whole cloth, and look at the extent of the offerings. The collateral file is ALL the documents the trustee (or the custodian as an agent of the trustee) needs to have pursuant to its obligations under the pooling and servicing agreement on behalf of the mortgage backed security holder. This means most importantly the original of the note (the borrower IOU), copies of the mortgage (the lien on the property), the securitization agreement, and title insurance.
 
Also notice that there is a price for creating allonges. We discussed earlier that phony allonges have become the preferred fix for the failure to convey notes properly:
 
The cure for the mortgage documents puts the loan out of eligibility for the trust. In order to cure, on a current basis, they have to argue that the loan goes retroactively back into the trust. This is the cure that the banks have been unwilling to do, because it is a big problem for the MBS. So instead they forge and fabricate documents.
 
The letter in particular mentions an allonge. An allonge is a separate sheet of paper which is attached to a note to allow for more signatures, in this case, endorsements, to be added. Allonges have had a way of magically appearing in collateral files while trails are in progress (I’ve seen it happen in cases I was tracking; it’s gotten so common that some attorneys warn judges to be on the alert for “ta dah” moments).
 
The wee problem with an allonge miraculously being discovered is that the allonges that show up are inherently in violation of UCC (Uniform Commercial Code) provisions (UCC has been adopted by all states, a few states have minor quirks, but the broad provisions are very similar).
 
An allonge is NOT to be used unless all the space on the original note, including the margins and the back side of pages, has been used up. This is never the case. Second, an allonge has to be so firmly attached to the original document as to be inseparable. Thus an allonge suddenly being discovered is an impossibility (well impossible if it were legit), yet it seems to happen all the time.
 
This revelation touches every major servicer and RMBS trustee in the US. DocX is a part of of Lender Processing Services. Lender Processing Services has three lines of business, the biggest of which is “default services”, representing close to half its revenues of this over $2 billion in revenues company. DocX is its technology platform it uses to manage its national network of foreclosure mills. Note that DocX closed one of its offices in Alpharatta, Georgia earlier this year, per StopForeclosures:
 
On April 12, 2010, Lender Processing Services closed the offices of its subsidiary, Docx, LLC, in Alpharetta, Georgia. That office was responsible for pumping out over a million mortgage assignments in the last two years so that banks could foreclose on residential real estate. The law firms handling the foreclosures were retained and largely controlled by Lender Processing Services, according to a Sanctions Order entered by U.S. Bankruptcy Judge Diane Weiss Sigmund (In re Niles C. Taylor, EDPA, Case 07-15385-sr, Doc. 193). Lender Processing Services, the largest “default management services company” in the country, has already made at least partial admissions that there were faults in the documents produced by the Docx office – although courts and homeowners were never notified. According to Lender Processing Services, over 50 major banks use their default management services. The banks that especially need the services provided by Lender Processing Services include Deutsche Bank, Citibank, Wells Fargo and U.S. Bank, acting as trustees for mortgage-backed securitized trusts. These trusts, in the rush to securitize mortgages and sell them to investors, often ignored the critical step of obtaining mortgage assignments from the original lenders to the securities companies to the trusts. Now, years later, when the companies “servicing” the trusts need to foreclose, they retain Lender Processing Services to draft the missing documents. The mortgage servicers, including American Home Mortgage Services, Saxon Mortgage Services, and American Servicing Company, never disclose that the trusts are missing essential documents – they just rely on Lender Processing Services to “fix” the problems. Although the Alpharetta office has been closed, Lender Processing Services continues to mass produce “replacement” assignments from its Jacksonville, Florida, and Dakota County, Minnesota offices. Law firms retained by Lender Processing Services also often use their own employees, posing as officer of Mortgage Electronic Registration Systems, to produce the needed Assignments.
 
So wake up and smell the coffee. The story that banks have been trying to sell has been that document problems like improper affidavits are mere technicalities. We’ve said from the get go that they were the tip of the iceberg of widespread document forgeries and fraud. This price sheet provides concrete proof that the practices we pointed to not only existed, but are a routine way of doing business in servicer and trustee land. LPS is the major platform used by all the large servicers; it oversees the work of foreclosure mills in every state.
 
And this means document forgeries and fraud are not just a servicer problem or a borrower problem but a mortgage industry and ultimately a policy problem. These dishonest practices are so widespread that they raise serious questions about the residential mortgage backed securities market, the major trustees (such as JP Morgan, US Bank, Bank of New York) who repeatedly provided affirmations as required by the pooling and servicing agreement that all the tasks necessary for the trust to own the securitization assets had been completed, and the inattention of the various government bodies (in particular Fannie and Freddie) that are major clients of LPS.
 
Amar Bhide, in a 1994 Harvard Business Review article, said the US capital markets were the deepest and most liquid in major part because they were recognized around the world as being the fairest and best policed. As remarkable as it may seem now, his statement was seem as an obvious truth back then. In a mere decade, we managed to allow a “free markets” ideology on steroids to gut investor and borrower protection. The result is a train wreck in US residential mortgage securities, the biggest asset class in the world. The problems are too widespread for the authorities to pretend they don’t exist, and there is no obvious way to put this Humpty Dumpty back together.

 

Another article sent from Roger

 

Flawed Paperwork Aggravates a Foreclosure Crisis

By GRETCHEN MORGENSON
Published: October 3, 2010
 
As some of the nation’s largest lenders have conceded that their foreclosure procedures might have been improperly handled, lawsuits have revealed myriad missteps in crucial documents.
 
Jay LaPrete/Associated Press
Jennifer Brunner, the secretary of state of Ohio, has highlighted examples of what her office considers possible notary abuse.
The flawed practices that GMAC Mortgage, JPMorgan Chase and Bank of America have recently begun investigating are so prevalent, lawyers and legal experts say, that additional lenders and loan servicers are likely to halt foreclosure proceedings and may have to reconsider past evictions.
 
Problems emerging in courts across the nation are varied but all involve documents that must be submitted before foreclosures can proceed legally. Homeowners, lawyers and analysts have been citing such problems for the last few years, but it appears to have reached such intensity recently that banks are beginning to re-examine whether all of the foreclosure papers were prepared properly.
 
In some cases, documents have been signed by employees who say they have not verified crucial information like amounts owed by borrowers. Other problems involve questionable legal notarization of documents, in which, for example, the notarizations predate the actual preparation of documents — suggesting that signatures were never actually reviewed by a notary.
 
Other problems occurred when notarizations took place so far from where the documents were signed that it was highly unlikely that the notaries witnessed the signings, as the law requires.
 
On still other important documents, a single official’s name is signed in such radically different ways that some appear to be forgeries. Additional problems have emerged when multiple banks have all argued that they have the right to foreclose on the same property, a result of a murky trail of documentation and ownership.
 
There is no doubt that the enormous increase in foreclosures in recent years has strained the resources of lenders and their legal representatives, creating challenges that any institution might find overwhelming. According to the Mortgage Bankers Association, the percentage of loans that were delinquent by 90 days or more stood at 9.5 percent in the first quarter of 2010, up from 4 percent in the same period of 2008.
 
But analysts say that the wave of defaults still does not excuse lenders’ failures to meet their legal obligations before trying to remove defaulting borrowers from their homes.
 
“It reflects the hubris that as long as the money was going through the pipeline, these companies didn’t really have to make sure the documents were in order,” said Kathleen C. Engel, dean for intellectual life at Suffolk University Law School and an expert in mortgage law. “Suddenly they have a lot at stake, and playing fast and loose is going to be more costly than it was in the past.”
 
Attorneys general in at least six states, including Massachusetts, Iowa, Florida and Illinois, are investigating improper foreclosure practices. Last week, Jennifer Brunner, the secretary of state of Ohio, referred examples of what her office considers possible notary abuse by Chase Home Mortgage to federal prosecutors for investigation.
 
The implications are not yet clear for borrowers who have been evicted from their homes as a result of improper filings. But legal experts say that courts may impose sanctions on lenders or their representatives or may force banks to pay borrowers’ legal costs in these cases.
 
Judges may dismiss the foreclosures altogether, barring lenders from refiling and awarding the home to the borrower. That would create a loss for the lender or investor holding the note underlying the property. Almost certainly, lawyers say, lawsuits on behalf of borrowers will multiply.
 
In Florida, problems with foreclosure cases are especially acute. A recent sample of foreclosure cases in the 12th Judicial Circuit of Florida showed that 20 percent of those set for summary judgment involved deficient documents, according to chief judge Lee E. Haworth.
 
“We have sent repeated notices to law firms saying, ‘You are not following the rules, and if you don’t clean up your act, we are going to impose sanctions on you,’ ” Mr. Haworth said in an interview. “They say, ‘We’ll fix it, we’ll fix it, we’ll fix it.’ But they don’t.”
 
As a result, Mr. Haworth said, on Sept. 17, Harry Rapkin, a judge overseeing foreclosures in the district, dismissed 61 foreclosure cases. The plaintiffs can refile but they need to pay new filing fees, Mr. Haworth said.
 
The byzantine mortgage securitization process that helped inflate the housing bubble allowed home loans to change hands so many times before they were eventually pooled and sold to investors that it is now extremely difficult to track exactly which lenders have claims to a home.
 
Many lenders or loan servicers that begin the foreclosure process after a borrower defaults do not produce documentation proving that they have the legal right to foreclosure, known as standing.
 
As a substitute, the banks usually present affidavits attesting to ownership of the note signed by an employee of a legal services firm acting as an agent for the lender or loan servicer. Such affidavits allow foreclosures to proceed, but because they are often dubiously prepared, many questions have arisen about their validity.
 
Although lawyers for troubled borrowers have contended for years that banks in many cases have not properly documented their rights to foreclose, the issue erupted in mid-September when GMAC said it was halting foreclosure proceedings in 23 states because of problems with its legal practices. The move by GMAC followed testimony by an employee who signed affidavits for the lender; he said that he executed 400 of them each day without reading them or verifying that the information in them was correct.
 
JPMorgan Chase and Bank of America followed with similar announcements.
 
But these three large lenders are not the only companies employing people who have failed to verify crucial aspects of a foreclosure case, court documents show.
 
Last May, Herman John Kennerty, a loan administration manager in the default document group of Wells Fargo Mortgage, testified to lawyers representing a troubled borrower that he typically signed 50 to 150 foreclosure documents a day. In that case, in King County Superior Court in Seattle, he also stated that he did not independently verify the information to which he was attesting.
 
Wells Fargo did not respond to requests for comment.
 
In other cases, judges are finding that banks’ claims of standing in a foreclosure case can conflict with other evidence.
 
Last Thursday, Paul F. Isaacs, a judge in Bourbon County Circuit Court in Kentucky, reversed a ruling he had made in August giving Bank of New York Mellon the right to foreclose on a couple’s home. According to court filings, Mr. Isaacs had relied on the bank’s documentation that it said showed it held the note underlying the property in a trust. But after the borrowers supplied evidence indicating that the note may in fact reside in a different trust, the judge reversed himself. The court will revisit the matter soon.
 
Bank of New York said it was reviewing the ruling and could not comment.
 
Another problematic case involves a foreclosure action taken by Deutsche Bank against a borrower in the Bronx in New York. The bank says it has the right to foreclose because the mortgage was assigned to it on Oct. 15, 2009.
 
But according to court filings made by David B. Shaev, a lawyer at Shaev & Fleischman who represents the borrower, the assignment to Deutsche Bank is riddled with problems. First, the company that Deutsche said had assigned it the mortgage, the Sand Canyon Corporation, no longer had any rights to the underlying property when the transfer was supposed to have occurred.
 
Additional questions have arisen over the signature verifying an assignment of the mortgage. Court documents show that Tywanna Thomas, assistant vice president of American Home Mortgage Servicing, assigned the mortgage from Sand Canyon to Deutsche Bank in October 2009. On assignments of mortgages in other cases, Ms. Thomas’s signatures differ so wildly that it appears that three people signed the documents using Ms. Thomas’s name.
 
Given the differences in the signatures, Mr. Shaev filed court papers last July contending that the assignment is a sham, “prepared to create an appearance of a creditor as a real party in interest/standing, when in fact it is likely that the chain of title required in these matters was not performed, lost or both.”
 
Mr. Shaev also asked the judge overseeing the case, Shelley C. Chapman, to order Ms. Thomas to appear to answer questions the lawyer has raised.
 
John Gallagher, a spokesman for Deutsche Bank, which is trustee for the securitization that holds the note in this case, said companies servicing mortgage loans engaged the law firms that oversee foreclosure proceedings. “Loan servicers are obligated to adhere to all legal requirements,” he said, “and Deutsche Bank, as trustee, has consistently informed servicers that they are required to execute these actions in a proper and timely manner.”
 
Reached by phone on Saturday, Ms. Thomas declined to comment.
 
The United States Trustee, a unit of the Justice Department, is also weighing in on dubious court documents filed by lenders. Last January, it supported a request by Silvia Nuer, a borrower in foreclosure in the Bronx, for sanctions against JPMorgan Chase.
 
In testimony, a lawyer for Chase conceded that a law firm that had previously represented the bank, the Steven J. Baum firm of Buffalo, had filed inaccurate documents as it sought to take over the property from Ms. Nuer.
 
The Chase lawyer told a judge last January that his predecessors had combed through the chain of title on the property and could not find a proper assignment. The firm found “something didn’t happen that needed to be fixed,” he explained, and then, according to court documents, it prepared inaccurate documents to fill in the gaps.
 
The Baum firm did not return calls to comment.
 
A lawyer for the United States Trustee said that the Nuer case “does not represent an isolated example of misconduct by Chase in the Southern District of New York.”
 
Chase declined to comment.
 
“The servicers have it in their control to get the right documents and do this properly, but it is so much cheaper to run it through a foreclosure mill,” said Linda M. Tirelli, a lawyer in White Plains who represents Ms. Nuer in the case against Chase. “This is not about getting a free house for my client. It’s about a level playing field. If I submitted false documents like this to the court, I’d have my license handed to me.”
 
Link to Article
http://www.nytimes.com/2010/10/04/business/04mortgage.html

Attorney Harry Borders sent this article from the Federal Trade Commission

 

Forensic Mortgage Loan Audit Scams:

A New Twist on Foreclosure Rescue Fraud

Fraudulent foreclosure “rescue” professionals use half-truths and outright lies to sell services that promise relief to homeowners in distress. According to the Federal Trade Commission (FTC), the nation’s consumer protection agency, the latest foreclosure rescue scam to exploit financially strapped homeowners pitches forensic mortgage loan audits.

In exchange for an upfront fee of several hundred dollars, so-called forensic loan auditors, mortgage loan auditors, or foreclosure prevention auditors backed by forensic attorneys offer to review your mortgage loan documents to determine whether your lender complied with state and federal mortgage lending laws. The “auditors” say you can use the audit report to avoid foreclosure, accelerate the loan modification process, reduce your loan principal, or even cancel your loan.

Nothing could be further from the truth. According to the FTC and its law enforcement partners:

  • there is no evidence that forensic loan audits will help you get a loan modification or any other foreclosure relief, even if they’re conducted by a licensed, legitimate and trained auditor, mortgage professional or lawyer.
  • some federal laws allow you to sue your lender based on errors in your loan documents. But even if you sue and win, your lender is not required to modify your loan simply to make your payments more affordable.
  • if you cancel your loan, you will have to return the borrowed money, which may result in you losing your home.

If you are in default on your mortgage or facing foreclosure, you may be targeted by a foreclosure rescue scam. The FTC wants you to know how to recognize the telltale signs and report them. If you are faced with foreclosure, the FTC says legitimate options are available to help you save your home.

Spotting a Scam

If you’re looking for foreclosure prevention help, avoid any business that:

  • guarantees to stop the foreclosure process – no matter what your circumstances are
  • instructs you not to contact your lender, lawyer or credit or housing counselor
  • collects a fee before providing any services accepts payment only by cashier’s check or wire transfer
  • encourages you to lease your home so you can buy it back over time
  • recommends that you make your mortgage payments directly to it, rather than your lender
  • urges you to transfer your property deed or title to it
  • offers to buy your house for cash at a fixed price that is inappropriate for the housing market
  • pressures you to sign papers you haven’t had a chance to read thoroughly or that you don’t understand.
Finding Legitimate Help

Housing experts say that when you’re behind on your mortgage payments, maintaining communication with your lender is the most important thing you can do. Contact your lender or servicer immediately if you’re having trouble paying your mortgage or you have received a foreclosure notice. You may be able to negotiate a new repayment schedule. 

 

 

Company Stops Insuring Titles in Chase Foreclosures

 

 

 

A major title insurance company has stopped insuring homes foreclosed by JPMorgan Chase, another sign that the controversy over the legal practices of the big lenders is starting to influence the housing market.

 
The company, Old Republic National Title Insurance, told its agents Friday that it would not write policies on foreclosed Chase properties until “the objectionable issues have been resolved,” according to a memorandum sent out by the firm’s underwriting department.
 
A Chase spokesman declined to comment. Old Republic executives did not return calls for comment. The title insurer, which is based in Minneapolis, said earlier in the week that it would not write policies for properties that had been foreclosed by another big lender, GMAC Mortgage.
 
As GMAC and Chase try to deal with questions over their legal methods, they have halted all foreclosures in the 23 states where they need a court’s approval. Late Friday, Bank of America said it would stop all its pending foreclosures in those states as well.
 
GMAC and Bank of America have declined to say how many cases are involved. Chase said it was halting 56,000 cases. About two million households in the country are in foreclosure, and millions more are on the verge.
 
After a lender seizes a home in a foreclosure case and the defaulting homeowner is, if necessary, evicted, the company works with local real estate agents to prepare the house for sale. The National Association of Realtors said distressed sales, including foreclosures, were 34 percent of all existing home sales in August. In some stricken areas, the percentage is much higher.
 
When foreclosures are done with faulty documentation, that could leave the new owners of the house vulnerable to claims. Title insurance protects the buyer against defects, errors or omissions in the chain of title.
 
Old Republic said in the memorandum that its agents were already reporting written cancellations of contracts involving both Chase and GMAC.
 
Shares of the major title insurance companies dropped on Friday amid concern that their business would suffer as a result of the foreclosure freezes. Fidelity National Financial fell more than 4 percent, while First American Financial dropped 3 percent.
 
Fidelity National issued a statement saying it did not believe the problems with the foreclosure process would have “a material adverse impact.”
 
Mark P. Stopa, a lawyer in Florida who represents defaulting homeowners, said that if more title insurance firms began to shy away from insuring foreclosed properties, the entire housing market could suffer. The prices of foreclosures would plummet, because lenders will not issue a new mortgage without title insurance.
 
“Judges have to force banks to do foreclosures correctly,” Mr. Stopa said. But that would require a significant increase in staff, he said, and “I’ll believe it when I see it.”

Gold Member Roger Taylor emailed me this article in the New York Times.

This is huge and will greatly affect the real estate market across America.

Chew on this a bit, not only will this slow down and halt foreclosures creating a massive stockpile of defaults, but there will also be many other critical issues for both homeowners and investors alike.

For Example:

Title Companies will stop writing title insurance. Old Republic has already announced it will not insure any properties having a GMAC mortgage.

Investors and Homeowners alike, who have already purchased "bank owned" real estate or HUD properties, may find themselves with a toxic property because it may have an unmarketable title due to all of the huge lenders and law firms having openly admitted falsifying documents during the foreclosure process.

Homeowners in default, by the masses, will be filing all kinds of action demanding lenders produce all of the original and real documents involving their mortgage. Keep in mind, a California bankruptcy court has already ruled that "MERS" is NOT sufficient proof of ownership of notes and mortgages. In other words, the lender who claims to own the note and mortgage, must be able to produce the original promissory note and documents. (Notes and mortgages were sliced, diced, and chopped up and sold on the secondary market using MERS without any concern for the physical documents themselves. 

Stay Tuned…

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Bank of America to Freeze Foreclosure Cases

By DAVID STREITFELD
Published: October 1, 2010 in NYT
 
Bank of America, the country’s largest mortgage lender by assets, said on Friday that it was reviewing documents in all foreclosure cases now in court to evaluate if there were errors.
 
It is the third major lender in the last two weeks to freeze foreclosures in the 23 states where the process is controlled by courts.
 
But Bank of America went further than the first two lenders, GMAC Mortgage and JPMorgan Chase, which have said they will amend paperwork only in cases they think were improperly done. So far, that has amounted to only a handful of cases.
 
Bank of America, in an e-mailed statement, said it would “amend all affidavits in foreclosure cases that have not yet gone to judgment.”
 
That could mean tens of thousands of foreclosure cases would be in limbo for months or, if the consumers in default hire lawyers, years.
 
Spokesmen for the bank said that they were uncertain how many cases the lender currently had in court. They provided no timeline or explanation for the freeze, saying only that the bank planned to eventually resubmit all the cases.
 
The moratorium is likely to further fuel the uproar over the foreclosure tactics of the big lenders, which continued to have political ramifications on Friday.
 
Before Bank of America’s announcement, Richard Blumenthal, the Connecticut attorney general, asked judges in his state to put a halt to all foreclosures for 60 days. Connecticut is one of the 23 states where foreclosure is a judicial matter. Others include Illinois, Florida, New Jersey and New York.
 
Mr. Blumenthal, who is running for senator in Connecticut, said the freeze “should stop a foreclosure steamroller based on defective documents and enable effective remedies.”
 
California’s attorney general, Jerry Brown, said that Chase should stop any foreclosures in the state until it proved that it was following the law. Mr. Brown, who is a candidate for governor, earlier made the same demand of GMAC.
 
In California, lenders generally pursue foreclosures outside of the court system, so they are presumably still proceeding with evictions. Chase declined to say whether it would comply with Mr. Brown’s comments.
 
Chase said this week that it had frozen 56,000 foreclosure cases. GMAC, which is largely owned by the Treasury after receiving $17 billion in federal bailout money to prevent its collapse, has repeatedly declined to say how many cases it is halting.
 
The nation’s two other major lenders, Citi and Wells Fargo, have issued statements maintaining they have no problems with their cases.
 
The problem for all the lenders that have announced moratoriums stems directly from their attempt to deal with an unprecedented number of foreclosures.
 
According to LPS Applied Analytics, a mortgage data firm, 2 million households are in foreclosure. Another 2.37 million households are seriously delinquent and waiting for their lender to take action.
 
Sometimes these loans are still owned by the lender but often, the banks are merely the loan servicer acting on behalf of the owner. Many of the loans are owned by Fannie Mae and Freddie Mac, the mortgage holding companies now controlled by the Treasury. In other cases the loans have been sold to private investment pools.
 
Confronted with so many cases, the lenders tried to process them on a wholesale basis, with the goal of avoiding the expense of a full trial and instead getting summary judgments.
 
The tool for doing this was the so-called robo-signers, in which midlevel bank executives would sign thousands of affidavits a month attesting that they had personal knowledge that the facts of the case were as presented. The affidavits were prepared by lawyers who were paid a flat fee, which also placed a premium on volume.
 
When defense lawyers started deposing these robo-signers, they acknowledged that they could not possibly have knowledge of all the cases. The banks say this is a technicality and they will refile the proper affidavits. The defense lawyers say the practice calls the cases, and indeed the entire process, into question.
 
Thomas Lawler, a housing economist, said the current mess was predictable and probably inevitable. Lenders made their money by making loans and then simply and efficiently servicing them by collecting the checks every month. They were never prepared to deal with the labor-intensive problems of delinquency and foreclosure.
 
“However, the foreclosure crisis is now almost three years old, and not having staffed up sufficiently to deal with the problems with inadequate staffing borders on criminal,” Mr. Lawler said. “I mean, jeepers, look at the unemployment rate; how hard would it have been to hire more folks?”
 
Mark Stopa, a Florida lawyer who represents defaulting homeowners, said the magnitude of the current troubles depends on how title insurance companies react. If those firms begin to shy away from insuring foreclosed properties because they think those properties are vulnerable to claims, he said, the entire housing market could suffer.
 
“Judges have to force banks to do foreclosures correctly,” Mr. Stopa said. But he noted that would require a significant increase in staff. “I’ll believe it when I see it,” he said.
 
Stocks of the major title insurance companies dropped on Friday amid concern that their business would suffer as a result of the foreclosure freezes. Fidelity National Financial fell more than 4 percent, while First American Financial dropped 3 percent.
 
One firm, Old Republic National Title, said this week it would not issue policies on GMAC foreclosures until further notice.

 

Gold Member Roger Taylor emailed me this article this morning. Thanks Roger!

 

Foreclosures Slow as Document Flaws Emerge

By DAVID STREITFELD
Published: September 30, 2010
 
 
The foreclosure machinery that has forced millions of Americans out of their homes is beginning to seize up as some lenders and their lawyers are accused of cutting corners in their pursuit of rapid home repossessions.
 
Matthew Staver/Bloomberg News
GMAC and JPMorgan Chase have acknowledged legal missteps, and have suspended new foreclosure actions in 23 states.
 
Evictions are expected to slow sharply, housing analysts said, as state and national law enforcement officials shine a light on questionable foreclosure methods revealed by two of the country’s biggest home lenders in the last two weeks.
 
Even lenders with no known problems are expected to approach defaulting homeowners more cautiously and look more aggressively for resolutions short of outright eviction.
 
Despite the turmoil, some economists said the breakdown could ultimately lay the groundwork for a real estate recovery.
 
Stricken neighborhoods across the country, for example, could benefit. One big factor undermining home sales is fear of a large number of foreclosed homes coming to the market. If the foreclosures are delayed or never happen, housing prices might find a floor.
 
“Maybe this is like shock therapy,” said the economist Karl E. Case. “Maybe this will actually get the lenders to the table and encourage them to work out deals that are to the benefit of everybody.”
 
While such a happy ending is possible, the near term is more likely to produce paralysis and confusion.
 
As more defaulting homeowners become aware of the lenders’ problems, they are expected to hire lawyers and challenge the proceedings against them. And if completed foreclosures were not properly done, families who bought the troubled homes could be vulnerable to claims by the former owners.
 
Apparently alarmed about such a possibility, one of the major title insurance companies, Old Republic National Title, has sent a bulletin to agents saying that “until further notice” it would not insure title to properties foreclosed upon by GMAC Mortgage, the country’s fourth-largest home lender and one of the two big lenders at the center of the current controversy.
 
GMAC declined to comment, and Old Republic representatives did not return calls.
 
GMAC has acknowledged legal missteps in processing mortgages, and JPMorgan Chase has acknowledged the possibility of missteps, and both have suspended all foreclosures in the 23 states where they need a court’s approval. That’s 56,000 in the case of Chase alone; GMAC declined to provide a number.
 
Attorneys general in half a dozen states are demanding action or opening investigations. The Treasury Department said Thursday it was asking regulators to look into “these troubling developments.”
 
“We’re seeing a fundamental breakdown in the system, because no one cared that much about getting things right,” said Representative Alan Grayson, a Democrat of Florida, who unsuccessfully asked the Florida Supreme Court to halt all foreclosures in that state.
 
Wall Street was examining the impact the disclosures could have on the lenders. Moody’s Investors Service has placed the servicer ratings of GMAC and Chase on review for possible downgrade.
 
The federal government has been the majority owner of GMAC since supplying $17 billion to prevent the lender’s failure during the financial crisis.
 
Other lenders said Thursday that their foreclosure filings, including the crucial affidavits, had been properly done.
 
A Citigroup spokesman said the lender required “annual training for our foreclosure employees on the proper execution of affidavits, including having personal knowledge of the information in the affidavit.”
 
A Wells Fargo spokeswoman said “the affidavits we sign are accurate.” A spokesman for Bank of America, Rick Simon, said, “We do not have anything to tell you at this time.”
 
GMAC and Chase are in trouble because, overwhelmed with foreclosures, they tried to process them as quickly and cheaply as possible, defense lawyers say. The companies say they are reviewing their procedures to take care of any violations.
 
The missteps stemmed from the affidavits the lenders file as they seek a quick or summary judgment in thousands of foreclosure cases. The affidavits state certain facts about the case, including the amount owed, which the signer indicates he has personal knowledge of. Without the affidavit, the lender would have to prove the facts at trial.
 
In depositions taken by lawyers for homeowners, executives at GMAC and Chase said they or their teams signed 10,000 or more affidavits and related documents a month. That did not give them time to review the cases.
 
Defense lawyers say the disclosures are symptomatic of the carelessness, if not outright fraud, that lenders have been exhibiting for years in their rush to file cases. Many necessary documents have disappeared, with defense lawyers saying the lenders often do not even have standing to foreclose.
 
In a number of pending cases in Florida, defense lawyers there said, GMAC has already withdrawn affidavits. The lawyers said they would try to have the cases thrown out for possible fraud, although they acknowledged that might be difficult.
 
GMAC said it would refile the affidavits. Chase said it had not withdrawn any affidavits.
 
“The way the plaintiffs’ lawyers have handled this has corrupted our legal system,” said Thomas Cox, a Maine lawyer whose deposition of a GMAC executive in June helped prompt the current disclosures. “They tried to manufacture foreclosures the way you’d manufacture cars, on an assembly line. It can’t be done that way.”
 
Mr. Cox is representing pro bono a rural woman who is in foreclosure on a $82,000 mortgage. The plaintiff in the case is Fannie Mae, the mortgage holding company that failed during the financial crisis and is now under government conservatorship. GMAC serviced the loan for Fannie Mae.
 
This week, the judge in the case set aside his summary judgment in favor of Fannie when he read Mr. Cox’s deposition of a GMAC executive, Jeffrey Stephan, who said he never reviewed the file he had signed. The case will now go to trial.
 
“I don’t think they are going to give up easily,” said Mr. Cox.
 
As the foreclosure crisis has deepened, the length of time borrowers spend waiting for the end has lengthened.
 
In January 2009 the time between the owner’s first missed payment and eviction was 319 days, according to LPS Applied Analytics. By August it was 478 days.
 
Since spring, the data firm says, the lenders have been trying to clear their backlog. They have stepped up the rate at which they put defaulting owners into the formal foreclosure process. In August, they started 283,000 foreclosures, up from 220,000 in April.
 
Now, as the lenders are pressed to examine more closely their filings, those foreclosure starts are likely to fall, prolonging the owner’s time in limbo. Many borrowers use this period, when they are living in their home but not paying for it, to try and get their financial house back in order.

 Gold Member Tom Kennedy in Los Angeles emailed the following chart and information.

State Judicial Non-
Judicial
Comments Process
Period

(Days)
Sale
Publication

(Days)
Redemption
Period

(Days)
Sale/NTS
Alabama 49-74 21 365 Trustee
Alaska 105 65 365* Trustee
Arizona 90+ 41 30-180* Trustee
Arkansas 70 30 365* Trustee
California 117 21 365* Trustee
Colorado 145 60 None Trustee
Connecticut   62 NA Court Decides Court
Delaware   170-210 60-90 None Sheriff
District of Columbia   47 18 None Trustee
Florida   135 NA None Court
Georgia 37 32 None Trustee
Hawaii 220 60 None Trustee
Idaho 150 45 365 Trustee
Illinois   300 NA 90 Court
Indiana   261 120 None Sheriff
Iowa 160 30 20 Sheriff
Kansas   130 21 365 Sheriff
Kentucky   147 NA 365 Court
Louisiana   180 NA None Sheriff
Maine   240 30 90 Court
Maryland   46 30 Court Decides Court
Massachusetts   75 41 None Court
Michigan   60 30 30-365 Sheriff
Minnesota 90-100 7 1825 Sheriff
Mississippi 90 30 None Trustee
Missouri 60 10 365 Trustee
Montana 150 50 None Trustee
Nebraska   142 NA None Sheriff
Nevada 116 80 None Trustee
New Hampshire   59 24 None Trustee
New Jersey   270 NA 10 Sheriff
New Mexico   180 NA 30-270 Court
New York   445 NA None Court
North Carolina 110 25 None Sheriff
North Dakota   150 NA 180-365 Sheriff
Ohio   217 NA None Sheriff
Oklahoma 186 NA None Sheriff
Oregon 150 30 180 Trustee
Pennsylvania   270 NA None Sheriff
Rhode Island 62 21 None Trustee
South Carolina   150 NA None Court
South Dakota 150 23 30-365 Sheriff
Tennessee   40-45 20-25 730 Trustee
Texas 27 NA None Trustee
Utah     142 NA Court Decides Trustee
Vermont   95 NA 180-365 Court
Virginia 45 14-28 None Trustee
Washington 135 90 None Trustee
West Virginia 60-90 30-60 None Trustee
Wisconsin 290 NA 365 Sheriff
Wyoming 60 25 90-365 Sheriff

* Judicial Only Mouseover the  symbol to view state-specific comments


Chase primary servicing portfolio totaled roughly 6.8 million loans for an unpaid principal balance of roughly $1.2 trillion as of June 30.

Moody’s will assess delinquency transition rates, foreclosure timelines, loan cure rates, recoveries, loan resolution outcomes and REO management of both JPMorgan Chase and Ally. 

All factors are potentially affected by the foreclosure suspensions.

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