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.
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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.
Forgeries
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.
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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.
Judges’ oversight
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.
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