Bank executives who were hoping for a quiet end to this fall’s controversy over irregularities in the foreclosure process are facing a new threat: state judges.
The chief justice of New Jersey’s Supreme Court, Stuart Rabner, announced Monday that the state’s courts would stop foreclosures by big banks if they cannot show they’re following state law when foreclosing.
Rabner made the announcement after assigning a judge to oversee foreclosure matters. That judge, Mary C. Jacobson, issued an order Monday requiring six banks – Ally Financial, Bank of America, J.P. Morgan Chase, Wells Fargo, OneWest Bank and Citigroup – to appear in court and explain why she shouldn’t suspend foreclosures.
The New Jersey action stems from the controversy over questions surfaced over the legality of documents submitted to courts in foreclosure proceedings.
"Today’s actions are intended to provide greater confidence that the tens of thousands of residential foreclosure proceedings underway in New Jersey are based on reliable information," Rabner said in a statement. "Nearly 95 percent of those cases are uncontested, despite evidence of flaws in the foreclosure process."
The six banks must by Jan. 19 show the court why it should not suspend foreclosures. The order said the banks were chosen "based on a public record of questionable practice."
Only one bank would comment on Monday. Mark Rodgers of Citigroup said the bank would review the judge’s order and ensure that it is in compliance.
Banks are expected to argue that problems in the foreclosure process have been minor and the vast majority of those facing foreclosure lost their homes because they didn’t pay their mortgages for many months.
They’re also likely to say that a protracted freeze in foreclosures could have a negative effect since it would keep those vacant homes out of the market.
But homeowner advocates and others will likely argue that banks’ problems with following the letter of the law in foreclosure proceedings reflect a range of harmful practices that have hurt borrowers trying to avoid foreclosures.
By Zachary A. Goldfarb
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