On my way home I heard this on the radio with ABC news and did a double take. I searched the news wires and found this. This could be huge because they are now calling for industry wide pauses in the foreclosure process. STAY TUNED!
By Ariana Eunjung Cha
Washington Post Staff Writer
Wednesday, September 29, 2010; 8:47 PM
J.P. Morgan Chase, one of the nation’s leading banks, announced Wednesday that it will freeze foreclosures in about half the country because of flawed paperwork, a move that Wall Street analysts said will pressure the rest of the industry to follow suit.
The bank’s decision will affect 56,000 borrowers in 23 states where allegations of forged documents and signatures and other similar problems threaten to overturn court-ordered evictions. Yet the impact may be much broader, given J.P. Morgan’s stature within the industry. If other banks adopt the same approach, the foreclosure process in many parts of the country would grind to a halt.
Officials at Fitch Ratings, a credit rating firm that measures the health of companies, said the "defects" found in foreclosure documents at J.P. Morgan are industry-wide. Underscoring that concern, Fitch said it is considering whether to lower the grades it gives to the mortgage servicing divisions of the nation’s largest lenders.
"Over the next few weeks, we expect to see more and more companies come out with similar announcements," said Diane Pendley, a managing director at Fitch.
The paperwork problems at J.P. Morgan mirror those uncovered last week at another large mortgage lender, Ally Financial. But J.P. Morgan’s decision is expected to have a much greater effect on the industry because it is held in high regard by its peers. By contrast, Ally, formerly known as GMAC, is a still under the cloud of a $17 billion federal bailout package that it has been unable to pay back.
Both firms are investigating whether foreclosure files were improperly or fraudulently assembled, and whether their employees failed to review the documents even as they signed off on them.
A growing number of homeowners – even those who missed their mortgage payments – are now scrambling to challenge the proceedings, weighing down an already overburdened court system.
J.P. Morgan had declined to address the matter until Wednesday. But in a sworn deposition, one of the bank’s employees, Beth Ann Cottrell, admitted that she and her team signed off on about 18,000 foreclosures a month without checking whether they were justified.
J.P. Morgan spokesman Tom Kelly said Wednesday that the firm "does not expect to find any factual problems or that customers have been harmed, but if we do find any cases we will take appropriate action."
In addition to the measures that private lenders have taken, four states – California, Colorado, Connecticut and Illinois – have called for a moratorium on all foreclosures initiated by Ally, while attorneys general in seven other states have opened civil or criminal investigations related to flawed foreclosures.
Even as the extent of the problems has become more apparent, the Treasury Department has declined to answer specific questions about the matter since it surfaced last week.
On Wednesday, Treasury spokesman Mark Paustenbach said that officials have been in touch with Ally and that they expect it to take "prompt action to correct any errors." He added that the agency is "monitoring their progress."
Treasury officials raised the issue personally with Ally chief executive Michael Carpenter during a recent meeting, according to an administration official.
Yet the agency’s response has frustrated some consumer advocates. A few lawmakers have also been calling for investigations of whether homeowners are being improperly removed from their homes.
Sen. Al Franken (D-Minn.) said Wednesday that the Treasury Department and relevant federal agencies should begin their own inquiry.
"With millions of families losing their homes, it’s inexcusable for companies like Ally to be this patently negligent," he said. "I want the federal government to hold Ally accountable and ensure that homeowners who wrongly received foreclosure get the compensation they deserve."
Ira Rheingold, director of the National Association of Consumer Advocates, criticized the Treasury Department, saying it has not been forthcoming about what actions it is taking to the remedy the situation.
The agency has been "protecting services and investors and doing what is minimally possible to help homeowners," he said.
Other consumer advocates say administration officials are in a no-win situation. If they determine there is no reason to take action, they may be criticized for not helping homeowners. But taking extreme measures such as calling for a national moratorium on foreclosures could hurt the economy and damage the housing market.
Mark Zandi, chief economist for Moodys.com, said that, in the worst-case scenario, the document processing problems could lengthen the foreclosure process from three years to as long as a decade, especially if homeowners use the flawed paperwork to appeal their evictions.
The long holdup could have "macroeconomic consequences" as a destabilizing force on home prices. Banks could become more unwilling to extend credit to households or to small-business owners who use homes as collateral. And investors who had been keeping home prices propped up by buying foreclosures may stop and never come back.
He added, however, that that it is still an open question how the courts will handle the paperwork problems.
Ally officials on Wednesday declined to comment on any ongoing or potential investigations, but they have said that they are confident that "the processing errors did not result in any inappropriate foreclosures."
Company officials have declined to disclose how many loans may be affected and how much remedying the issue might cost, but spokesman Gina Proia said the firm "does not anticipate significant adverse effect on Ally related to this matter."
Bill Rafter sent me and attorney Harry Borders this article;
Will This Help or Hurt Your Business?
California Bankruptcy Court rules "MERS" can NOT transfer note for want of ownership and cites several cases.
The United States Bankruptcy Court for the Eastern District of California has issued a ruling dated May 20, 2010 in the matter of In Re: Walker, Case No. 10-21656-E-11 which found that MERS could not, as a matter of law, have transferred the note to Citibank from the original lender, Bayrock Mortgage Corp. The Court’s opinion is headlined stating that MERS and Citibank are not the real parties in interest.
The court found that MERS acted “only as a nominee” for Bayrock under the Deed of Trust and there was no evidence that the note was transferred. The opinion also provides that “several courts have acknowledged that MERS is not the owner of the underlying note and therefore could not transfer the note, the beneficial interest in the deed of trust, or foreclose on the property secured by the deed”, citing the well-known cases of In Re Vargas (California Bankruptcy Court), Landmark v. Kesler (Kansas decision as to lack of authority of MERS), LaSalle Bank v. Lamy (New York), and In Re Foreclosure Cases (the “Boyko” decision from Ohio Federal Court).
The opinion states: “Since no evidence of MERS’ ownership of the underlying note has been offered, and other courts have concluded that MERS does not own the underlying notes, this court is convinced that MERS had no interest it could transfer to Citibank. Since MERS did not own the underlying note, it could not transfer the beneficial interest of the Deed of Trust to another. Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note is void under California law.”
Read that again: “Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note IS VOID UNDER CALIFORNIA LAW.” This conclusion was based upon California law cited in the opinion that the note and the mortgage are inseparable, with the former being essential while the latter is “an incident”, and that an assignment of the note carries the mortgage with it, “while an assignment of the latter [the mortgage] alone is a nullity.” As MERS must own the note in order to assign the incident deed of trust, MERS is legally precluded from assigning the deed of trust for want of ownership of the note, and cannot assign the note in any event as it never owned it. MERS’ lack of ownership interest in promissory note is a matter of decided case law based on a record stipulation of MERS’ own lawyers in the MERS v. Nebraska Dept. of Finance decision.
This opinion thus serves as a legal basis to challenge any foreclosure in California based on a MERS assignment; to seek to void any MERS assignment of the Deed of Trust or the note to a third party for purposes of foreclosure; and should be sufficient for a borrower to not only obtain a TRO against a Trustee’s Sale, but also a Preliminary Injunction barring any sale pending any litigation filed by the borrower challenging a foreclosure based on a MERS assignment.
The Court concluded by stating: “Since the claimant, Citibank, has not established that it is the owner of the promissory note secured by the trust deed, Citibank is unable to assert a claim for payment in this case.” Thus, any foreclosing party which is not the original lender which purports to claim payment due under the note and the right to foreclose in California on the basis of a MERS assignment does not have the right to do so under the principles of this opinion.
This ruling is more than significant not only for California borrowers, but for borrowers nationwide, as this California court made it a point to cite non-bankruptcy cases as to the lack of authority of MERS in its opinion. Further, this opinion is consistent with the prior rulings of the Idaho and Nevada Bankruptcy courts on the same issue, that being the lack of authority for MERS to transfer the note as it never owned it (and cannot, per MERS’ own contract which provides that MERS agrees not to assert any rights to mortgage loans or properties mortgaged thereby).
We thank one of our dedicated readers for providing this opinion to us.
Amid mountain of paperwork, shortcuts and forgeries mar foreclosure process
By Ariana Eunjung Cha and Brady Dennis
Washington Post Staff Writers
Thursday, September 23, 2010; 2:36 AM
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.
Connecticut and California join probe of Ally, order foreclosures freeze
Political Economy: Ally knew of faulty GMAC documents
Ally’s mortgage documentation problems could extend beyond 23 states
View All Items in This Story
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.
During the housing boom, millions of homeowners got easy access to mortgages while providing virtually no proof of their income or background. Now, as millions of Americans are being pushed out of the homes they can no longer afford, the foreclosure process is producing far more paperwork than anyone can read and making it vulnerable to fraud.
Ally Financial is now double-checking to make sure all documents are in order after lawsuits uncovered that a single employee of the company’s GMAC mortgage unit, a 41-year-old named Jeffrey Stephan, signed off on 10,000 foreclosure papers a month without checking whether the information justified an eviction.
Many of the homeowners in fact might have been in default. Some might have been unfairly targeted. But the flawed process is creating an opening for borrowers to contest some of the more than 2 million foreclosures that have taken place since the real estate crisis began.
The company sought to play down the impact of Stephan’s actions, saying this week that what he did amounted to a "technical" error but that the documents themselves were "factually accurate." Ally said it had no further comment Wednesday.
Ally wasn’t the only major lender that had a foreclosure process dependent on a few corporate bureaucrats.
Beth Ann Cottrell said in a sworn deposition in May that she signed off on thousands of foreclosures a month for JPMorgan Chase even though she did not verify the accuracy of the information.
In one instance in Palm Beach, Fla., Cottrell signed off on two documents that stated conflicting amounts of mortgage, the court testimony states. Cottrell claimed that both were signed by the borrower at closing. But the homeowner recognized that her signature had been forged, her attorney Christopher Immel said. The attorney added that such forgeries are common among the cases he’s seen. JPMorgan Chase declined to comment.
In Georgia, an employee of a document processing company, Linda Green, for years claimed to be executives of Bank of America, Wells Fargo, U.S. Bank and dozens of other lenders while signing off on tens of thousands of foreclosure affidavits. In many cases, her signature appeared to be forged by different employees.
Green worked for a foreclosure document company owned by Lender Processing Services. The company is being investigated by a U.S. attorney in Florida for allegedly using improper documentation to speed foreclosures.
Lenders have already started to withdraw foreclosures that had Green’s name on them.
Green also submitted to courts documents that listed "Bogus Assignee" as the owner of a mortgage instead of the real name. In another case, she signed as the vice president of "Bad Bene," a made-up company.
Ally’s mortgage documentation problems could extend beyond 23 states
View All Items in This Story
Michelle Kersch, a senior vice president for Lender Processing Services, said in an e-mailed statement Wednesday that the names were just "placeholders."
"Unfortunately, on occasion, incomplete documents were inadvertently recorded before the missing information was obtained," she said. "LPS regrets these errors and the use of this particular placeholder phrasing."
The company declined to comment further, citing the pending criminal investigation.
A large chunk of the nation’s foreclosures are being initiated by three companies owned by the federal government: Ally, Fannie Mae and Freddie Mac. Fannie and Freddie have said they are looking at the matter but refuse to reveal the numbers of affected homeowners.
The Obama administration has repeatedly said it would try to help homeowners facing foreclosure. But its principal mortgage-relief effort is faltering. More than half of those who enrolled in the program are have now fallen out of it, the Treasury Department said Wednesday.
This week, Treasury Secretary Timothy F. Geithner and the Obama administration’s newly appointed consumer protection adviser, Elizabeth Warren, also vowed to simplify the process for getting a mortgage.
But when asked to respond to problems plaguing foreclosures at the companies controlled by the Treasury, a spokesman repeatedly declined to respond to questions, saying only that the agency does not involve itself in the companies’ day-to-day affairs.
Some of the problems in foreclosure paperwork are being created because mortgage loans were repackaged and resold to investors so often that the physical documents become lost. It’s the job of a document processor to present and vouch for the authenticity and accuracy of these papers, but attorneys for homeowners have unearthed examples where critical records are forged.
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.
David Berenbaum, chief program officer for the nonprofit National Community Reinvestment Coalition, said companies eager to get bad loans off their books quickly have given rise to a foreclosure system that is as faulty as the excessive lending that created the problem in the first place.
"What’s happened here is that there are these foreclosure machines that don’t do due diligence and that are profiting at the expense of consumers," he said.
Dennis reported from Doylestown, Pa. Staff researchers Julie Tate and Magda Jean-Louis contributed to this report.
Over 62 million mortgages are now held in the name of MERS, an electronic recording system devised by and for the convenience of the mortgage industry. A California bankruptcy court, following landmark cases in other jurisdictions, recently held that this electronic shortcut breaks the chain of title, voiding foreclosure.
The logical result could be 62 million homes might be foreclosure-proof.
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