Although I don't usually follow Georgia case law, this is an interesting discussion of a recent case regarding deficiency judgments. In Florida (and elsewhere) we are already seeing some lenders simply sue on the note rather than pursue a cumbersome and more time-consuming foreclosure. This is especially the case where the property is so underwater that the lender doesn't even want it.
Should lender sue 1st, foreclose 2nd?
Atlanta Business Chronicle - by Jim Jordan
Date: Friday, February 11, 2011, 12:33pm EST
With all of the focus on foreclosures, you might have heard about the Georgia “confirmation” statute. Originating from the Great Depression, the confirmation statute provides that before a lender can hold a borrower or its guarantor liable for a “deficiency judgment” (i.e, a judgment for the difference between the amount of the loan and the sums recovered at the foreclosure sale), the lender must first have the sale “confirmed.” The policy underlying the confirmation statute is that a borrower should not be subject to a double-whammy of both losing its property and being tagged with a deficiency judgment unless the price obtained at the foreclosure sale was a fair one. Accordingly, the confirmation statute requires that the price obtained at the foreclosure sale must be the “true market value” of the property, or the lender will not be permitted to pursue a deficiency action against the borrower for the outstanding loan amount in excess of the foreclosure sale price.
The confirmation statute, which is only applicable in the case of a recourse loan, has strict language that, in theory, creates the potential for a big “cliff effect”—if the judge finds that the foreclosure sale price was even one penny below the “true market value,” then the lender loses the entire deficiency amount. The law’s language does not allow a court to prorate the deficiency, so it’s all-or-nothing.
As a result of this threat, most lenders will carefully appraise the property on which they intend to foreclose before going through with the foreclosure sale and sometimes even bid an amount slightly above the appraised value to give themselves a safety cushion. When a borrower elects to fight a confirmation, the result is typically a “battle of the appraisers” whose outcome turns on which appraisal expert (lender’s or borrower’s) the court finds more credible, and so some lenders will have the property appraised more than once to further bolster their case.
Anecdotal evidence suggests that during this current downturn, superior court judges have been less likely than in the past to grant foreclosure confirmations. To avert the risk of a confirmation denial, foreclosing lenders should consider taking advantage of existing case law that allows the lender to first sue on the promissory note, obtain a judgment for the outstanding loan balance, foreclose on the property, and then execute the judgment on the borrower for any amount remaining outstanding after application of the foreclosure bid amount against the lender’s judgment, all without getting a confirmation.
In a recent case, a borrower attacked the legality of this approach, claiming that this was effectively an end run around the policy of the confirmation statute because a lender could buy the property at a fire-sale price at foreclosure, yet still obtain the rest of the outstanding loan amount from the borrower. After losing at the trial court, the borrower appealed to the Court of Appeals, which found in favor of the lender based on existing case law (DuPree v. SunTrust Bank, 305 Ga. App. 507 (2010)). The borrower then appealed to the Georgia Supreme Court.
The Georgia Supreme Court declined to accept the appeal, but did not state why it refused to do so. It is likely that the Supreme Court believed that the existing case law is “good law” and thus there was no need to weigh in on the issue.
Based on the reported cases, the law in Georgia is that a lender has a choice when faced with a failed project that is encumbered by recourse debt: it can foreclose on the property first and then seek a confirmation as a means of obtaining a deficiency judgment, or it can sue on the note, obtain a judgment, and then execute on the judgment against the property and any other assets of the debtor (or guarantors). Which strategy the lender will choose depends on a variety of factors, including whether the borrower (or guarantors) have any assets besides the collateral property and whether the lender believes it can sell the property after foreclosure (and how quickly), and of course, whether the borrower is likely to put up a fight!
As more foreclosure cases from the Great Recession percolate their way through the court system, lenders and borrowers will each need to pay attention to this issue.
Saturday, February 12, 2011
Friday, February 4, 2011
Learning To Walk: Fear, Shame And Your Underwater Mortgage
HUFFINGTON POST -- Nearly one in every four homeowners across the country owe more on their home than it's worth. Once a month, those 10.8 million are faced with a question that cuts to the core of the American Dream and offers a confusing collision between a deep-seated sense of personal obligation and a cold, simple business calculation: Should I pay my mortgage?
For decades, there was only one answer for most people: Of course I should keep paying, it's the right thing to do. Besides, the argument went, a home is a great investment. Today, in the wake of the most seismic housing collapse in the nation's history, that logic has increasingly been challenged by homeowners despondent about their lack of options.
Although researchers find that some underwater borrowers who could continue paying their mortgages strategically default anyway, the vast majority continue to pay. Many homeowners, out of a combined sense of fear, shame, courage and morality, resist making what is otherwise a logical financial decision.
Walking away from a home, however, is more than the sum of a few business decisions. For many homeowners, it's either an act of civic defiance against a system they no longer buy into or the end result of being shuffled around by institutions that don't help them solve their financial problems.
While walking away is a frightening and dangerous step into the unknown, millions have beaten the path in the past few years. To find out what it's like to walk away, The Huffington Post asked readers who were considering making the move, or who had already done so, to write in and share their stories. That was in January 2010. A year later, we followed up with them to see how they reflected on the experience.
Find out how it went here...
For decades, there was only one answer for most people: Of course I should keep paying, it's the right thing to do. Besides, the argument went, a home is a great investment. Today, in the wake of the most seismic housing collapse in the nation's history, that logic has increasingly been challenged by homeowners despondent about their lack of options.
Although researchers find that some underwater borrowers who could continue paying their mortgages strategically default anyway, the vast majority continue to pay. Many homeowners, out of a combined sense of fear, shame, courage and morality, resist making what is otherwise a logical financial decision.
Walking away from a home, however, is more than the sum of a few business decisions. For many homeowners, it's either an act of civic defiance against a system they no longer buy into or the end result of being shuffled around by institutions that don't help them solve their financial problems.
While walking away is a frightening and dangerous step into the unknown, millions have beaten the path in the past few years. To find out what it's like to walk away, The Huffington Post asked readers who were considering making the move, or who had already done so, to write in and share their stories. That was in January 2010. A year later, we followed up with them to see how they reflected on the experience.
Find out how it went here...
Thursday, February 3, 2011
Bet on Foreclosure Boom Turns Sour for Investors
David J. Stern may be the best-known beneficiary of the foreclosure boom, having made millions in recent years from evictions processed by his law firm, the largest of its kind in Florida. But when he took part of his firm public early last year, he had plenty of help from a constellation of investors also looking to cash in on people losing their homes.
Early in 2010, the back-office processing operations of Mr. Stern’s law firm were converted into a publicly traded company called DJSP Enterprises. Mr. Stern pocketed nearly $60 million from that transaction, public filings show. Behind that big-money deal was a curious cast of characters, including some with previous run-ins with regulators. Other parties included a small Wall Street investment bank headed by a former presidential candidate, the retired Gen. Wesley K. Clark, and a little-known private equity firm based in New York.
Even before the DJSP windfall, Mr. Stern enjoyed a lifestyle that featured grand mansions, flashy sports cars and a yacht called Misunderstood. But the days of easy money are over for Mr. Stern, his law firm and DJSP investors. As the Florida attorney general’s office continues to investigate whether Mr. Stern’s law firm falsified documents in order to speed up foreclosures, the firm has lost its biggest clients, including Citibank and Fannie Mae. Many of DJSP’s executives have left the company, and it has laid off about 80 percent of its 1,200 employees.
Even before the DJSP windfall, Mr. Stern enjoyed a lifestyle that featured grand mansions, flashy sports cars and a yacht called Misunderstood. But the days of easy money are over for Mr. Stern, his law firm and DJSP investors. As the Florida attorney general’s office continues to investigate whether Mr. Stern’s law firm falsified documents in order to speed up foreclosures, the firm has lost its biggest clients, including Citibank and Fannie Mae. Many of DJSP’s executives have left the company, and it has laid off about 80 percent of its 1,200 employees.
Wednesday, February 2, 2011
Even More Millionaires Defaulting on Mortgages
Homeowners with Loans of More Than $1 Million Default More Often than Owners with Loans Worth Less Than $1 Million
As foreclosures in 2011 are predicted to exceed the record 3.8 million reported last year, John Blackstone reports on a group of million-dollar home owners bucking the trend. One in seven homeowners with loans over $1 million are seriously delinquent compared to one in 12 with mortgages below $1 million. (CBS)
CBS News correspondent John Blackstone reports one group of mortgage defaulters seems to be bucking the trend. In wealthy communities like La Jolla, Calif., living near the ocean is a privilege that many homeowners are willing to pay millions for. For Darren Thomas that ocean view was quickly losing its value. He says, "I bought it for [$1.385 million]. It is worth less than [$800,000], maybe less." Thomas bought his townhome in 2006 but after seeing its value drop steadily he stopped paying.
"I haven't made a payment in two years," he says. "It was business decision. It was an easy decision. I have a property worth six or 700,000 less than when I bought it. I was making payments of 10,000 a month."
Thomas has gone into strategic default. He could make payments but is refusing to put more money into a home that is worth less than his mortgage. Among luxury homeowners he is not alone.
One in seven homeowners with loans over $1 million are seriously delinquent compared to one in 12 with mortgages below $1 million. The more you owe, it seems, the better off you may be. Darren Thomas continues to live in his home because banks are often slower to foreclose on million-dollar homes.
In Huntington Beach, Calif., realtors say banks can be slow to foreclose on luxury homes because an empty house can be bad for everyone's bottom line. "An empty $2 million home hurts the inventory around it," says realtor Rob Magnotta.
For those who have stopped paying their million-dollar mortgages it's just an investment that didn't work out.
"As negative equity took place and drove the value down it became an investment not worth holding onto," says Corelogic's Mark Flemming. "Not much different than a regular stock you would sell." "People like myself, business people, are going it is silly to throw good money after bad," says Thomas "The loss is not mine. The loss is the banks." When it comes to real estate, the rich are different. They can be just as ruthless as the bankers.
©MMXI, CBS Interactive Inc. All Rights Reserved.
As foreclosures in 2011 are predicted to exceed the record 3.8 million reported last year, John Blackstone reports on a group of million-dollar home owners bucking the trend. One in seven homeowners with loans over $1 million are seriously delinquent compared to one in 12 with mortgages below $1 million. (CBS)
CBS News correspondent John Blackstone reports one group of mortgage defaulters seems to be bucking the trend. In wealthy communities like La Jolla, Calif., living near the ocean is a privilege that many homeowners are willing to pay millions for. For Darren Thomas that ocean view was quickly losing its value. He says, "I bought it for [$1.385 million]. It is worth less than [$800,000], maybe less." Thomas bought his townhome in 2006 but after seeing its value drop steadily he stopped paying.
"I haven't made a payment in two years," he says. "It was business decision. It was an easy decision. I have a property worth six or 700,000 less than when I bought it. I was making payments of 10,000 a month."
Thomas has gone into strategic default. He could make payments but is refusing to put more money into a home that is worth less than his mortgage. Among luxury homeowners he is not alone.
One in seven homeowners with loans over $1 million are seriously delinquent compared to one in 12 with mortgages below $1 million. The more you owe, it seems, the better off you may be. Darren Thomas continues to live in his home because banks are often slower to foreclose on million-dollar homes.
In Huntington Beach, Calif., realtors say banks can be slow to foreclose on luxury homes because an empty house can be bad for everyone's bottom line. "An empty $2 million home hurts the inventory around it," says realtor Rob Magnotta.
For those who have stopped paying their million-dollar mortgages it's just an investment that didn't work out.
"As negative equity took place and drove the value down it became an investment not worth holding onto," says Corelogic's Mark Flemming. "Not much different than a regular stock you would sell." "People like myself, business people, are going it is silly to throw good money after bad," says Thomas "The loss is not mine. The loss is the banks." When it comes to real estate, the rich are different. They can be just as ruthless as the bankers.
©MMXI, CBS Interactive Inc. All Rights Reserved.
Wednesday, December 15, 2010
One of the Dumbest Articles: More Foreclosures Leads to Fewer Underwater Mortgages
According to a CoreLogic report released today:
There were fewer homeowners underwater on their mortgage at the end of the third quarter than the second quarter, but it's because more properties that had severe negative equity were foreclosed upon not an increase in home values.
"Negative equity is a primary factor holding back the housing market and broader economy," according to Mark Fleming, chief economist with CoreLogic. "The good news is that negative equity is slowly declining, but the bad news is that price declines are accelerating, which may put a stop to or reverse the recent improvement in negative equity."
This has to be one of the Top 10 silliest statements of the entire foreclosure debacle. These foreclosed properties are almost invariably being held in bank REO inventory. As previously pointed out in this blog, the banks are actually holding back on listing much of this inventory so as not to depress prices even further.
The idea that foreclosures are somehow reversing the price or equity decline would be like the AMA offering a statistic that people are all of a sudden healthier - only because a large portion of the sickly just died off. You absolutely cannot read any article written by the National Association of Realtors or some mortgage broker advocacy group such as CoreLogic without looking for the spin.
There were fewer homeowners underwater on their mortgage at the end of the third quarter than the second quarter, but it's because more properties that had severe negative equity were foreclosed upon not an increase in home values.
"Negative equity is a primary factor holding back the housing market and broader economy," according to Mark Fleming, chief economist with CoreLogic. "The good news is that negative equity is slowly declining, but the bad news is that price declines are accelerating, which may put a stop to or reverse the recent improvement in negative equity."
This has to be one of the Top 10 silliest statements of the entire foreclosure debacle. These foreclosed properties are almost invariably being held in bank REO inventory. As previously pointed out in this blog, the banks are actually holding back on listing much of this inventory so as not to depress prices even further.
The idea that foreclosures are somehow reversing the price or equity decline would be like the AMA offering a statistic that people are all of a sudden healthier - only because a large portion of the sickly just died off. You absolutely cannot read any article written by the National Association of Realtors or some mortgage broker advocacy group such as CoreLogic without looking for the spin.
Tuesday, December 14, 2010
Fed Research Paper Concludes Loan Modifications Counterproductive and "May Increase Strategic Defaults"
To all those who insist lenders are not doing enough loan modifications, a Federal Reserve Bank of Philadelphia research paper suggests that current loan modification programs may have unintended consequences for consumer behavior, specifically, "loan modifications may increase borrowers’ incentives to default on their first mortgage while remaining current on their second mortgage."
While the change in priority of defaults between mortgage and non-mortgage debt has received a good bit of attention, this paper focuses on an issue that has not received much attention: priority of default between first mortgages and second lien mortgages on the same home.
Why might households default on their first mortgage but not default on their home equity loans? One explanation for this behavior is that households do not act strategically but rather default because they are unable to make loan payments – the “inability to pay” hypothesis.
An alternative explanation suggests a more strategic approach to default. Some households that anticipate ultimately going to foreclosure may wish to stop paying their largest debt payment, which is typically their first mortgage payment. However, since foreclosure can be a slow process, these borrowers may decide that they are better off continuing to make their home equity payments to allow them to maintain some access to credit (e.g., unused HELOCs, unused credit card lines, additional credit card or card loans). This explanation would suggest that consumers with high unused HELOCs would be less likely to default on their home equity loans, even though they have defaulted on their first mortgage.
Loan modification programs may provide incentives for homeowners to default as homeowners are not likely to be approved for a modification unless they have missed their mortgage payments. In some cases, borrowers may need to be as late as 90 DPD for their accounts to be handed over to the modification department so that their loans could be renegotiated. Since most loan modifications are modifications of the first mortgage, the availability of a loan modification may provide incentives for borrowers to stop paying on their first mortgage while staying current on their second.
Our results overall suggest that people default strategically as their home value falls below the mortgage value; they exercise the put option to default on their first mortgage. However, they tend to keep their HELOCs current in order to maintain the credit line available to them, particularly for those who have already used their credit card lines. Credit quality as reflected in the types of mortgages (prime, alt-A, or subprime) does not seem to play a significant role in determining this behavior. In addition, we find that loan modifications may increase borrowers’ incentives to default on their first mortgage while remaining current on their second mortgage. Overall, our empirical findings provide a better understanding of consumer strategic default behavior and implies that current loan modification programs may have unintended consequences for consumer behavior.
While the change in priority of defaults between mortgage and non-mortgage debt has received a good bit of attention, this paper focuses on an issue that has not received much attention: priority of default between first mortgages and second lien mortgages on the same home.
Why might households default on their first mortgage but not default on their home equity loans? One explanation for this behavior is that households do not act strategically but rather default because they are unable to make loan payments – the “inability to pay” hypothesis.
An alternative explanation suggests a more strategic approach to default. Some households that anticipate ultimately going to foreclosure may wish to stop paying their largest debt payment, which is typically their first mortgage payment. However, since foreclosure can be a slow process, these borrowers may decide that they are better off continuing to make their home equity payments to allow them to maintain some access to credit (e.g., unused HELOCs, unused credit card lines, additional credit card or card loans). This explanation would suggest that consumers with high unused HELOCs would be less likely to default on their home equity loans, even though they have defaulted on their first mortgage.
Loan modification programs may provide incentives for homeowners to default as homeowners are not likely to be approved for a modification unless they have missed their mortgage payments. In some cases, borrowers may need to be as late as 90 DPD for their accounts to be handed over to the modification department so that their loans could be renegotiated. Since most loan modifications are modifications of the first mortgage, the availability of a loan modification may provide incentives for borrowers to stop paying on their first mortgage while staying current on their second.
Our results overall suggest that people default strategically as their home value falls below the mortgage value; they exercise the put option to default on their first mortgage. However, they tend to keep their HELOCs current in order to maintain the credit line available to them, particularly for those who have already used their credit card lines. Credit quality as reflected in the types of mortgages (prime, alt-A, or subprime) does not seem to play a significant role in determining this behavior. In addition, we find that loan modifications may increase borrowers’ incentives to default on their first mortgage while remaining current on their second mortgage. Overall, our empirical findings provide a better understanding of consumer strategic default behavior and implies that current loan modification programs may have unintended consequences for consumer behavior.
Thursday, December 9, 2010
Shadow Inventory Is Keeping Real Estate Prices Artificially HIGH
Like everyone else in the industry, I am forever hearing the question "Will prices get lower?" While I have no crystal ball, it is fair to say that the market will get worse before it gets better. Why? The market right now is artificially high. As I have pointed out in previous blogs, the banks are not only flooded with inventory, but they are holding thousands of properties off the market - referred to as shadow inventory. This is to prevent real estate prices from a total collapse.
So, if you think that prices have hit bottom, just keep in mind that it is precisely the opposite. Real estate prices are being artificially propped up by keeping much of the supply off the market.
http://www.dailyfinance.com/story/real-estate/housing-market-outlook-2011-unsettled-underwater-unsold/19745450?a_dgi=aolshare_email
By the way, please never ever read a NAR (National Association of Realtors) article, so-called economic report or anything they distribute as anything but propoganda or advertising. Look at such articles as you would a toothpaste or deodorant advertisement.
So, if you think that prices have hit bottom, just keep in mind that it is precisely the opposite. Real estate prices are being artificially propped up by keeping much of the supply off the market.
http://www.dailyfinance.com/story/real-estate/housing-market-outlook-2011-unsettled-underwater-unsold/19745450?a_dgi=aolshare_email
By the way, please never ever read a NAR (National Association of Realtors) article, so-called economic report or anything they distribute as anything but propoganda or advertising. Look at such articles as you would a toothpaste or deodorant advertisement.
Tuesday, December 7, 2010
According To Wall Street Journal, Short Sales No Better For Credit Rating Than Foreclosure
Since the mortgage disaster started in 2007, I have never advocated that any owner participate in a “short sale” of their upside down property. I cannot find any legal advantage for a homeowner. The lender benefits by having the homeowner market the house and usually procuring much higher sale proceeds compared to the lender’s own fire sale. The biggest beneficiary is of course the real estate broker. (Earlier entries in this blog contained some heated attacks from realtors, who never like being exposed.) The buyer benefits by acquiring a house at a low price. But, where’s the benefit to the homeowner?? The lender usually does not release the homeowner from personal liability so the chances of a lawsuit seeking a deficiency judgment lingers after the short sale just as it does after foreclosure.
The most common reason people give me for their insistence in pursuing a short sale before letting a home go to foreclosure is “credit.” Most people tell me that a foreclosure has a worse effect on the borrower’s credit score, and they assume their credit will recover quicker if they provide the mortgage lender with a buyer in a short sale arrangement. Really?
A week ago, on Saturday, November 27, 2010, the Wall Street Journal, Nick Timiraoas wrote an article about short sales and credit. He posed the question, “Is a short sale as damaging to a borrower’s credit as foreclosure.” His answer was, “Generally speaking, yes.” He explained that in either a foreclosure or a short sale a borrower’s credit score will fall by about 100 points according to Fair Isaac Corp. So, your credit will get hit the same whether you make the effort to short sale your property or simply walk away.
A short sale may have a moral, non-legal, purpose. Many people feel a moral obligation to do every thing they can to pay back the bank. That obligation may include finding a buyer for the property to get the bank as much money toward the loan as is possible. Moral obligations are important in life, and some may find it more palatable to try to do as little financial damage as they can to their mortgage lender. (To be perfectly candid, I would not consider myself one of them. Listen to enough of our lender stories and, believe me, you will be convinced.) It is important to distinguish moral issues from the legal and credit issues in the short sale procedure. Putting it more bluntly, it is important to sift through the self serving BS and do what is in your own best interests. Tell your realtor or attorney: It's all about the deficiency.
The most common reason people give me for their insistence in pursuing a short sale before letting a home go to foreclosure is “credit.” Most people tell me that a foreclosure has a worse effect on the borrower’s credit score, and they assume their credit will recover quicker if they provide the mortgage lender with a buyer in a short sale arrangement. Really?
A week ago, on Saturday, November 27, 2010, the Wall Street Journal, Nick Timiraoas wrote an article about short sales and credit. He posed the question, “Is a short sale as damaging to a borrower’s credit as foreclosure.” His answer was, “Generally speaking, yes.” He explained that in either a foreclosure or a short sale a borrower’s credit score will fall by about 100 points according to Fair Isaac Corp. So, your credit will get hit the same whether you make the effort to short sale your property or simply walk away.
A short sale may have a moral, non-legal, purpose. Many people feel a moral obligation to do every thing they can to pay back the bank. That obligation may include finding a buyer for the property to get the bank as much money toward the loan as is possible. Moral obligations are important in life, and some may find it more palatable to try to do as little financial damage as they can to their mortgage lender. (To be perfectly candid, I would not consider myself one of them. Listen to enough of our lender stories and, believe me, you will be convinced.) It is important to distinguish moral issues from the legal and credit issues in the short sale procedure. Putting it more bluntly, it is important to sift through the self serving BS and do what is in your own best interests. Tell your realtor or attorney: It's all about the deficiency.
Tuesday, November 23, 2010
Wednesday, November 17, 2010
Foreclosure Attorney David Stern is Struggling to Pay His Bills
David Stern can't pay bills and seeks "leniency and patience" from his lenders.
The Law Offices of David J. Stern, which has helped banks seize thousands of homes from homeowners who missed mortgage payments, is now having trouble paying its own bills. One of its subsidiaries is seeking bank forbearance for defaulting loans, and the shrinking company has fallen behind on rent payments at its Plantation offices, according to a regulatory filing Monday.
Here is the story in the Sun Sentinel
http://articles.sun-sentinel.com/2010-11-15/business/fl-stern-finances-1116-20101115_1_jeffrey-tew-foreclosure-processing-david-j-stern
The Law Offices of David J. Stern, which has helped banks seize thousands of homes from homeowners who missed mortgage payments, is now having trouble paying its own bills. One of its subsidiaries is seeking bank forbearance for defaulting loans, and the shrinking company has fallen behind on rent payments at its Plantation offices, according to a regulatory filing Monday.
Here is the story in the Sun Sentinel
http://articles.sun-sentinel.com/2010-11-15/business/fl-stern-finances-1116-20101115_1_jeffrey-tew-foreclosure-processing-david-j-stern
Sunday, November 7, 2010
After A Loan Mod (Or if Your House Is Upside Down) You Are Effectively Renting The Home From The Mortgage Company
Many homeowners with upside down mortgages are seeking a mortgage modification in order to lower their monthly mortgage payments. Under the government’s HAMP program, mortgage modification usually involves lowering the interest rate to 2 % intially and adding deferred interest and past-due payments to the loan principal.
Loan Mod companies are happy to take your money. But, it seems that most people do not comprehend the practical reality of a mortgage modification. If you continue to live in a currently upside down house with a modified mortgage payment you are essentially renting the property from the lender. You are renting because it is unlikely you will see any profit when the house is sold unless there is an explosive recovery in real estate value. Even if real estate values were to inflate at a 10% annual rate, starting tomorrow, very few people will break even on their modified mortgage because the deferred interest and arrearage is continuously increasing the mortgage balance. If you were upside down to begin with, it only makes matters worse.
“Renting” through a modification still makes business sense for homeowner and lender. If the homeowner did not modify the mortgage payment and could not afford to pay the mortgage the homeowner would face foreclosure, and after foreclosure the owner would have to rent an apartment or rent someone else’s home. It will take several years before the homeowner will qualify for a new home mortgage. From the lender’s standpoint, permitting the current homeowner to remain in the property in what is effectively a rental status is better than taking back the property in today’s real estate market. You are essentially renting for the benefit of the lender - or until the market turns around.
I am not criticizing mortgage modifications. If you like your home and want to live in your home then you should modify the mortgage payment to something you can afford. Just be aware the for practical purposes you are on the same position as a tenant because you it is very unlikely that you will retain any home equity.
Loan Mod companies are happy to take your money. But, it seems that most people do not comprehend the practical reality of a mortgage modification. If you continue to live in a currently upside down house with a modified mortgage payment you are essentially renting the property from the lender. You are renting because it is unlikely you will see any profit when the house is sold unless there is an explosive recovery in real estate value. Even if real estate values were to inflate at a 10% annual rate, starting tomorrow, very few people will break even on their modified mortgage because the deferred interest and arrearage is continuously increasing the mortgage balance. If you were upside down to begin with, it only makes matters worse.
“Renting” through a modification still makes business sense for homeowner and lender. If the homeowner did not modify the mortgage payment and could not afford to pay the mortgage the homeowner would face foreclosure, and after foreclosure the owner would have to rent an apartment or rent someone else’s home. It will take several years before the homeowner will qualify for a new home mortgage. From the lender’s standpoint, permitting the current homeowner to remain in the property in what is effectively a rental status is better than taking back the property in today’s real estate market. You are essentially renting for the benefit of the lender - or until the market turns around.
I am not criticizing mortgage modifications. If you like your home and want to live in your home then you should modify the mortgage payment to something you can afford. Just be aware the for practical purposes you are on the same position as a tenant because you it is very unlikely that you will retain any home equity.
Friday, November 5, 2010
David Stern, Florida's Largest Foreclosure "Mill," Announces Massive Layoffs
Fla. foreclosure firm in probe announces layoffs
The Associated Press
A Florida law firm involved in a state investigation into questionable foreclosure practices is laying off hundreds of employees.
David J. Stern told employees in an e-mail Thursday that the firm's staff is being slashed by 70 percent. The e-mail was provided to The Associated Press by Stern's attorney.
Lenders including Fannie Mae and Freddie Mac have stopped doing business with Stern's firm amid the investigation by Florida Attorney General Bill McCollum. Stern's e-mail says business has dropped 90 percent.
The investigation into Stern's firm and three others focuses on whether false or improper affidavits were filed in thousands of foreclosures. Some employees say they were "robosigners" who signed documents without reading them.
The Associated Press
A Florida law firm involved in a state investigation into questionable foreclosure practices is laying off hundreds of employees.
David J. Stern told employees in an e-mail Thursday that the firm's staff is being slashed by 70 percent. The e-mail was provided to The Associated Press by Stern's attorney.
Lenders including Fannie Mae and Freddie Mac have stopped doing business with Stern's firm amid the investigation by Florida Attorney General Bill McCollum. Stern's e-mail says business has dropped 90 percent.
The investigation into Stern's firm and three others focuses on whether false or improper affidavits were filed in thousands of foreclosures. Some employees say they were "robosigners" who signed documents without reading them.
Tuesday, October 19, 2010
Witness Says Stern Law Firm Gave Employees Cars and Jewelry
The Florida Attorney General’s Office released some really interesting information today. This is another article from the Tampa Bay Tribune:
“The office released transcripts of two interviews it conducted for its investigation into the law offices of David J. Stern. The sworn statements were from Kelly Scott, a former employee of Stern’s and Mary R. Cordova, a former employee of G&Z, a process server used by Stern’s office. The women’s testimonies appear to back up that of former Stern’s employee Tammie Lou Kapusta, whose statement was released last week. The three statements paint a picture of a secret system designed to speed up the foreclosure process. Attorneys and staff members forged signatures, changed dates, passed around notary stamps, the women say in interviews with attorney general’s staff.
The two former Sterns employees described long tables where employees would sign as a witness and notarize documents without actually witnessing the signing. Twice a day, Scott said, the company’s chief operating officer, Cheryl Samons, would go into the office and sign 500 documents at a time – without reading them.
As a perk of Samons’ job, Stern’s office would routinely pay her personal mortgage, a car payment, her electric bills and her cell phone bill, according to Scott, who told investigators Stern also bought Samons a new BMW sport utility vehicle every year and gave her and other employees jewelry. Additionally, Stern purchased employee David Vargas a house, a car and a cell phone, Scott claims in her statement.
Scott said the office would move forward with cases, even if they knew the homeowner had not been properly notified of the lawsuit. Fannie Mae and Freddie Mac were Stern’s “babies,” Scott said, and they routinely questioned documents and came to the office to check files. Last week Freddie and Fannie said they would audit Stern’s files.
Someone inside both organizations would tip Sterns off to the visits, and Stern’s staff would then alter client codes and hide files, according to Scott’s statement. (emphasis by Christine) When Fannie and Freddie employees left, they’d bring the files back out. The other witness, Cordova, worked at G&Z for two months. The firm, which handled service for various foreclosure law firms, had special instructions for Stern, the firm’s main client, according to Cordova’s statement.
Every file was billed for at least four people to be served with the foreclosure paperwork, even if the firm knew there weren’t that many people with interest in the property. (emphasis by Christine.) These bills were sent out before the parties were served and, often, Cordova said, the company didn’t follow through with the service. These bills are paid by the lenders and, eventually, passed along to the homeowners. Kapusta, whose statement was initially released last week, said she was fired after she questioned procedures. The other two employees said they left on their own.”
“The office released transcripts of two interviews it conducted for its investigation into the law offices of David J. Stern. The sworn statements were from Kelly Scott, a former employee of Stern’s and Mary R. Cordova, a former employee of G&Z, a process server used by Stern’s office. The women’s testimonies appear to back up that of former Stern’s employee Tammie Lou Kapusta, whose statement was released last week. The three statements paint a picture of a secret system designed to speed up the foreclosure process. Attorneys and staff members forged signatures, changed dates, passed around notary stamps, the women say in interviews with attorney general’s staff.
The two former Sterns employees described long tables where employees would sign as a witness and notarize documents without actually witnessing the signing. Twice a day, Scott said, the company’s chief operating officer, Cheryl Samons, would go into the office and sign 500 documents at a time – without reading them.
As a perk of Samons’ job, Stern’s office would routinely pay her personal mortgage, a car payment, her electric bills and her cell phone bill, according to Scott, who told investigators Stern also bought Samons a new BMW sport utility vehicle every year and gave her and other employees jewelry. Additionally, Stern purchased employee David Vargas a house, a car and a cell phone, Scott claims in her statement.
Scott said the office would move forward with cases, even if they knew the homeowner had not been properly notified of the lawsuit. Fannie Mae and Freddie Mac were Stern’s “babies,” Scott said, and they routinely questioned documents and came to the office to check files. Last week Freddie and Fannie said they would audit Stern’s files.
Someone inside both organizations would tip Sterns off to the visits, and Stern’s staff would then alter client codes and hide files, according to Scott’s statement. (emphasis by Christine) When Fannie and Freddie employees left, they’d bring the files back out. The other witness, Cordova, worked at G&Z for two months. The firm, which handled service for various foreclosure law firms, had special instructions for Stern, the firm’s main client, according to Cordova’s statement.
Every file was billed for at least four people to be served with the foreclosure paperwork, even if the firm knew there weren’t that many people with interest in the property. (emphasis by Christine.) These bills were sent out before the parties were served and, often, Cordova said, the company didn’t follow through with the service. These bills are paid by the lenders and, eventually, passed along to the homeowners. Kapusta, whose statement was initially released last week, said she was fired after she questioned procedures. The other two employees said they left on their own.”
Palm Beach Post: Top executives at DJSP Enterprises resign amid foreclosure flap
DJSP Enterprises, Inc., which handles the non-legal side of foreclosures for the David J. Stern law firm in Plantation, announced this morning the resignations of its three top executives and appointment of a temporary chairman of the board. The interim chairman of the board replaces David J. Stern, who will continue to serve as CEO and president of the company.
The announcement comes as Stern’s firm is criticized for its handling of foreclosure documents, with sworn statements by employees alleging forgery and notary problems. Resigning is the company’s president and chief operating officer, executive vice president and chief financial officer, and vice president, genreal counsel and secretary. DJSP Enterprises, Inc. is the largest provider of prodcessing services for the mortgage and real estate industries in Florida one one of the largest in the U.S., according to its website. Its principal customer is the Law Offices of David J. Stern, P.A.
On Monday, the Florida attorney general’s office, released a second sworn statement by a Stern former employee. The employee, Kelly Scott, backed up a previous statement that signatures on foreclosure documents were regularly forged.
But, she also offers new testimony that foreclosure cases for Fannie Mae and Freddie Mac would be hidden from auditors if there were problems with the files. Scott said client codes on the documents would be changed from Fannie and Freddie to reflect a different customer and then the files would be hidden in a room. When Fannie and Freddie auditors left, the cases would be changed back. The government owned entities said last week they were no longer sending new files to Stern’s firm.
The announcement comes as Stern’s firm is criticized for its handling of foreclosure documents, with sworn statements by employees alleging forgery and notary problems. Resigning is the company’s president and chief operating officer, executive vice president and chief financial officer, and vice president, genreal counsel and secretary. DJSP Enterprises, Inc. is the largest provider of prodcessing services for the mortgage and real estate industries in Florida one one of the largest in the U.S., according to its website. Its principal customer is the Law Offices of David J. Stern, P.A.
On Monday, the Florida attorney general’s office, released a second sworn statement by a Stern former employee. The employee, Kelly Scott, backed up a previous statement that signatures on foreclosure documents were regularly forged.
But, she also offers new testimony that foreclosure cases for Fannie Mae and Freddie Mac would be hidden from auditors if there were problems with the files. Scott said client codes on the documents would be changed from Fannie and Freddie to reflect a different customer and then the files would be hidden in a room. When Fannie and Freddie auditors left, the cases would be changed back. The government owned entities said last week they were no longer sending new files to Stern’s firm.
Thursday, October 14, 2010
Wednesday, October 13, 2010
49 STATES SIGN MORTGAGE FORECLOSURE JOINT STATEMENT
(Note: I love the fact that they actually used the term "robo-signing" in the official statement)
It has recently come to light that a number of mortgage loan servicers have submitted affidavits or signed other documents in support of either a judicial or non-judicial foreclosure that appear to have procedural defects. In particular, it appears affidavits and other documents have been signed by persons who did not have personal knowledge of the facts asserted in the documents. In addition, it appears that many affidavits were signed outside of the presence of a notary public, contrary to state law. This process of signing documents without confirming their accuracy has come to be known as “robo-signing.”
We believe such a process may constitute a deceptive act and/or an unfair practice or otherwise violate state laws. In order to handle this issue in the most efficient and consistent manner possible, the states have formed a bi-partisan multistate group to address issues common to a large number of states. The group is comprised of both state Attorneys General and the state bank and mortgage regulators. Currently 49 state Attorneys General have joined this coordinated multistate effort. State bank and mortgage regulators are participating both individually and through their Multistate Mortgage Committee, which represents mortgage regulators from all 50 states. Through this process, the states will attempt to speak with one voice to the greatest extent possible. At the end of this statement is a list of the participating states.
Our multistate group has begun inquiring whether or not individual mortgage servicers have improperly submitted affidavits or other documents in support of foreclosures in our states. The facts uncovered in our review will dictate the scope of our inquiry.
The Executive Committee is comprised of the following Attorneys General Offices:
Arizona, California, Colorado, Connecticut, Florida, Illinois, Iowa, New York, North Carolina, Ohio, Texas, and Washington; and the following state banking regulators:
Maryland Office of the Commissioner of Financial Regulation, New York State Banking Department, and the Pennsylvania Department of Banking.
Participating Attorneys General:
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii Department of the Attorney General / Hawaii Office of Consumer Protection
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
It has recently come to light that a number of mortgage loan servicers have submitted affidavits or signed other documents in support of either a judicial or non-judicial foreclosure that appear to have procedural defects. In particular, it appears affidavits and other documents have been signed by persons who did not have personal knowledge of the facts asserted in the documents. In addition, it appears that many affidavits were signed outside of the presence of a notary public, contrary to state law. This process of signing documents without confirming their accuracy has come to be known as “robo-signing.”
We believe such a process may constitute a deceptive act and/or an unfair practice or otherwise violate state laws. In order to handle this issue in the most efficient and consistent manner possible, the states have formed a bi-partisan multistate group to address issues common to a large number of states. The group is comprised of both state Attorneys General and the state bank and mortgage regulators. Currently 49 state Attorneys General have joined this coordinated multistate effort. State bank and mortgage regulators are participating both individually and through their Multistate Mortgage Committee, which represents mortgage regulators from all 50 states. Through this process, the states will attempt to speak with one voice to the greatest extent possible. At the end of this statement is a list of the participating states.
Our multistate group has begun inquiring whether or not individual mortgage servicers have improperly submitted affidavits or other documents in support of foreclosures in our states. The facts uncovered in our review will dictate the scope of our inquiry.
The Executive Committee is comprised of the following Attorneys General Offices:
Arizona, California, Colorado, Connecticut, Florida, Illinois, Iowa, New York, North Carolina, Ohio, Texas, and Washington; and the following state banking regulators:
Maryland Office of the Commissioner of Financial Regulation, New York State Banking Department, and the Pennsylvania Department of Banking.
Participating Attorneys General:
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii Department of the Attorney General / Hawaii Office of Consumer Protection
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Wednesday, October 6, 2010
New York Times: Foreclosure Furor Rises; Many Call for a Freeze
October 5, 2010
By DAVID STREITFELD and GRETCHEN MORGENSON
The uproar over bad conduct by mortgage lenders intensified Tuesday, as lawmakers in Washington requested a federal investigation and the attorney general in Texas joined a chorus of state law enforcement figures calling for freezes on all foreclosures. Representative Nancy Pelosi, the House speaker, and 30 other Democratic representatives from California told the Justice Department, the Federal Reserve and the comptroller of the currency that “it is time that banks are held accountable for their practices.”
In a request for an investigation into questionable foreclosure practices by lenders, the lawmakers said that “the excuses we have heard from financial institutions are simply not credible." Officials from the federal agencies declined to comment. Texas Attorney General Greg Abbott, a Republican, sent letters to 30 lenders demanding they stop foreclosures, evictions and the sale of foreclosed properties until they could provide assurances that they were proceeding legally.
Both developments indicated that scarcely two weeks after the country’s fourth-biggest lender, GMAC Mortgage, revealed that it was suspending all foreclosures in the 23 states where the process requires judicial approval, concerns about flawed foreclosures had mushroomed into a nationwide problem.
Some of the finger-pointing was also being directed back at Congress. The Ohio secretary of state, Jennifer Brunner, suggested in a telephone interview on Tuesday that a bill passed by Congress last week about notarizations could facilitate foreclosure fraud. Dubious notary practices used by banks to justify foreclosures have come under scrutiny in recent weeks as GMAC and other top lenders suspended homeowner evictions over possible improper procedures. Ms. Brunner, who has recently referred possible cases of notary fraud in her state to federal authorities, worries that the legislation would allow the lowest standard for notaries to become a nationwide practice. She said she also worried that the changes were coming in the middle of a foreclosure storm where people could lose their homes improperly. “A notary’s signature is that of a trusted, impartial third party, whose notarization bolsters the integrity of the document,” Ms. Brunner said. “To take away the safeguards of notarization means foreclosure procedures could be more susceptible to fraud.”
As banks’ foreclosure practices have come under the microscope, problems with notarizations on mortgage assignments have emerged. These documents transfer the ownership of the underlying note from one institution to another and are required for foreclosures to proceed. In some cases, the notarizations predated the preparation of the legal documents, suggesting that signatures were not reviewed by a notary. Other notarizations took place in offices far away from where the documents were signed, indicating that the notaries might not have witnessed the signings as the law required.
Notary practices vary from state to state and the bill, sponsored by Representative Robert B. Aderholt, a Republican from Alabama, would essentially require that one state’s rules be accepted by others. If one state allows its notaries to sign off on electronic signatures, for example, documents carrying such signatures and notarized by officials in that state would have to be recognized and accepted in any state or federal court. Ms. Brunner pointed out that some states had adopted “electronic notarization” laws that ignored the requirement of a signer’s personal appearance before a notary. “Many of these policies for electronic notarization are driven by technology rather than by principle, and they are dangerous to consumers,” she said.
Last week, JPMorgan Chase and Bank of America joined GMAC in suspending foreclosures in the states where they must be approved by a judge. The judicial states do not include California or Texas. But Mr. Abbott, the Texas attorney general, told lenders in letters dated Oct. 4 that if they used so-called robo-signers — employees who signed thousands of foreclosure affidavits a month, falsely attesting that they had reviewed the material — it would be a violation of Texas law. As a result, he wrote, “the document and therefore the foreclosure sale would have been invalid.”
The three lenders who are at the center of the controversy, GMAC Mortgage, JPMorgan Chase and Bank of America, declined to comment. Other lenders singled out by Mr. Abbott include Wells Fargo, CitiMortgage, HSBC and National City.
Meanwhile, shares of a major foreclosure outsourcing company, Lender Processing Services of Jacksonville, Fla., fell 5 percent on Tuesday, adding to a slide that began last week. The company’s documentation practices are stirring questions, including how the same employee can have wildly varying signatures on mortgage documents. L.P.S. blamed a midlevel manager’s decision to allow employees to sign forms in the name of an authorized employee. It says it has stopped the practice. The United States Attorney’s Office in Tampa began investigating L.P.S. in February. An L.P.S. representative could not be reached Tuesday for comment. Other calls for investigations came from Senators Al Franken, a Democrat from Minnesota, and Robert Menendez, a Democrat from New Jersey.
By DAVID STREITFELD and GRETCHEN MORGENSON
The uproar over bad conduct by mortgage lenders intensified Tuesday, as lawmakers in Washington requested a federal investigation and the attorney general in Texas joined a chorus of state law enforcement figures calling for freezes on all foreclosures. Representative Nancy Pelosi, the House speaker, and 30 other Democratic representatives from California told the Justice Department, the Federal Reserve and the comptroller of the currency that “it is time that banks are held accountable for their practices.”
In a request for an investigation into questionable foreclosure practices by lenders, the lawmakers said that “the excuses we have heard from financial institutions are simply not credible." Officials from the federal agencies declined to comment. Texas Attorney General Greg Abbott, a Republican, sent letters to 30 lenders demanding they stop foreclosures, evictions and the sale of foreclosed properties until they could provide assurances that they were proceeding legally.
Both developments indicated that scarcely two weeks after the country’s fourth-biggest lender, GMAC Mortgage, revealed that it was suspending all foreclosures in the 23 states where the process requires judicial approval, concerns about flawed foreclosures had mushroomed into a nationwide problem.
Some of the finger-pointing was also being directed back at Congress. The Ohio secretary of state, Jennifer Brunner, suggested in a telephone interview on Tuesday that a bill passed by Congress last week about notarizations could facilitate foreclosure fraud. Dubious notary practices used by banks to justify foreclosures have come under scrutiny in recent weeks as GMAC and other top lenders suspended homeowner evictions over possible improper procedures. Ms. Brunner, who has recently referred possible cases of notary fraud in her state to federal authorities, worries that the legislation would allow the lowest standard for notaries to become a nationwide practice. She said she also worried that the changes were coming in the middle of a foreclosure storm where people could lose their homes improperly. “A notary’s signature is that of a trusted, impartial third party, whose notarization bolsters the integrity of the document,” Ms. Brunner said. “To take away the safeguards of notarization means foreclosure procedures could be more susceptible to fraud.”
As banks’ foreclosure practices have come under the microscope, problems with notarizations on mortgage assignments have emerged. These documents transfer the ownership of the underlying note from one institution to another and are required for foreclosures to proceed. In some cases, the notarizations predated the preparation of the legal documents, suggesting that signatures were not reviewed by a notary. Other notarizations took place in offices far away from where the documents were signed, indicating that the notaries might not have witnessed the signings as the law required.
Notary practices vary from state to state and the bill, sponsored by Representative Robert B. Aderholt, a Republican from Alabama, would essentially require that one state’s rules be accepted by others. If one state allows its notaries to sign off on electronic signatures, for example, documents carrying such signatures and notarized by officials in that state would have to be recognized and accepted in any state or federal court. Ms. Brunner pointed out that some states had adopted “electronic notarization” laws that ignored the requirement of a signer’s personal appearance before a notary. “Many of these policies for electronic notarization are driven by technology rather than by principle, and they are dangerous to consumers,” she said.
Last week, JPMorgan Chase and Bank of America joined GMAC in suspending foreclosures in the states where they must be approved by a judge. The judicial states do not include California or Texas. But Mr. Abbott, the Texas attorney general, told lenders in letters dated Oct. 4 that if they used so-called robo-signers — employees who signed thousands of foreclosure affidavits a month, falsely attesting that they had reviewed the material — it would be a violation of Texas law. As a result, he wrote, “the document and therefore the foreclosure sale would have been invalid.”
The three lenders who are at the center of the controversy, GMAC Mortgage, JPMorgan Chase and Bank of America, declined to comment. Other lenders singled out by Mr. Abbott include Wells Fargo, CitiMortgage, HSBC and National City.
Meanwhile, shares of a major foreclosure outsourcing company, Lender Processing Services of Jacksonville, Fla., fell 5 percent on Tuesday, adding to a slide that began last week. The company’s documentation practices are stirring questions, including how the same employee can have wildly varying signatures on mortgage documents. L.P.S. blamed a midlevel manager’s decision to allow employees to sign forms in the name of an authorized employee. It says it has stopped the practice. The United States Attorney’s Office in Tampa began investigating L.P.S. in February. An L.P.S. representative could not be reached Tuesday for comment. Other calls for investigations came from Senators Al Franken, a Democrat from Minnesota, and Robert Menendez, a Democrat from New Jersey.
Tuesday, October 5, 2010
Judges revisiting foreclosure cases may aid homeowners but clog market
By Ariana Eunjung Cha and Brady Dennis Washington Post Staff Writers Monday, October 4, 2010; 10:59 PM
On Florida's west coast, where the housing bust has flooded courts with foreclosure filings, the chief judge of the 6th Judicial Circuit has little sympathy for lenders who have routinely submitted flawed and possibly fraudulent foreclosure cases. J. Thomas McGrady, whose jurisdiction includes two hard-hit counties with more than 1 million people in the Tampa area, said Monday that foreclosures based on improper paperwork should be tossed out. Judges "are going to have to vacate that judgment and start over again," he said.
Across the country, judges facing pressure from homeowners and their attorneys are beginning to reexamine old cases and dismiss pending ones. The trend could lead to overturned evictions, and it could stall foreclosure cases for years and scare away buyers of millions of seized properties clogging the real estate market. "We've never been inundated to this extent with this number of cases alleging fraudulent paperwork," said Peter D. Blanc, chief judge of the 15th Judicial Circuit Court, in West Palm Beach. "We're in new territory, and we're struggling to determine what the proper solution is."
Judges nationwide have broad latitude in deciding whether to accept new paperwork and whether to charge the lenders with fraud for submitting problematic documents in the first place. Even before three of the nation's largest lenders - Bank of America, J.P. Morgan Chase and Ally Financial - announced moratoriums on foreclosures in the 23 states that require a court order to evict a borrower from a home, some judges were beginning to push back against banks with sloppy or fraudulent filings.
The lenders have acknowledged that a handful of employees signing off on hundreds of thousands of files may not have read them, but they have insisted that the problem amounts to a technical issue that can be fixed easily by replacing old documents with new ones. They say that the facts proving that borrowers missed their payments are sound and that the procedural errors might delay foreclosures but won't change the outcome. As the situation in Florida shows, it's unlikely to wind up so simple.
Armies of consumer attorneys and homeowners are seizing on the paperwork issues to try to protect individual homes from foreclosure and bring into question the legitimacy of the millions of foreclosures undertaken since the housing crisis began in 2007. The recent moratoriums have made life easier for people such as Michael Gaier, a Philadelphia lawyer who has taken on 130 clients hoping to fight their foreclosures. Before, he said, judges churning through foreclosure cases tended "to roll their eyes, because they've heard every story in the book," he said. But now, "I don't have to convince them on my own. I don't have to start from scratch," he said, because the moratoriums show that the banks "know that something is wrong." Gaier and other lawyers say they have been flooded with calls from new clients who had lost hope of keeping their homes but now see an opportunity to stay. In addition, homeowners who had been complaining of flawed or forged paperwork for years feel they are finally getting traction.
On Florida's west coast, where the housing bust has flooded courts with foreclosure filings, the chief judge of the 6th Judicial Circuit has little sympathy for lenders who have routinely submitted flawed and possibly fraudulent foreclosure cases. J. Thomas McGrady, whose jurisdiction includes two hard-hit counties with more than 1 million people in the Tampa area, said Monday that foreclosures based on improper paperwork should be tossed out. Judges "are going to have to vacate that judgment and start over again," he said.
Across the country, judges facing pressure from homeowners and their attorneys are beginning to reexamine old cases and dismiss pending ones. The trend could lead to overturned evictions, and it could stall foreclosure cases for years and scare away buyers of millions of seized properties clogging the real estate market. "We've never been inundated to this extent with this number of cases alleging fraudulent paperwork," said Peter D. Blanc, chief judge of the 15th Judicial Circuit Court, in West Palm Beach. "We're in new territory, and we're struggling to determine what the proper solution is."
Judges nationwide have broad latitude in deciding whether to accept new paperwork and whether to charge the lenders with fraud for submitting problematic documents in the first place. Even before three of the nation's largest lenders - Bank of America, J.P. Morgan Chase and Ally Financial - announced moratoriums on foreclosures in the 23 states that require a court order to evict a borrower from a home, some judges were beginning to push back against banks with sloppy or fraudulent filings.
The lenders have acknowledged that a handful of employees signing off on hundreds of thousands of files may not have read them, but they have insisted that the problem amounts to a technical issue that can be fixed easily by replacing old documents with new ones. They say that the facts proving that borrowers missed their payments are sound and that the procedural errors might delay foreclosures but won't change the outcome. As the situation in Florida shows, it's unlikely to wind up so simple.
Armies of consumer attorneys and homeowners are seizing on the paperwork issues to try to protect individual homes from foreclosure and bring into question the legitimacy of the millions of foreclosures undertaken since the housing crisis began in 2007. The recent moratoriums have made life easier for people such as Michael Gaier, a Philadelphia lawyer who has taken on 130 clients hoping to fight their foreclosures. Before, he said, judges churning through foreclosure cases tended "to roll their eyes, because they've heard every story in the book," he said. But now, "I don't have to convince them on my own. I don't have to start from scratch," he said, because the moratoriums show that the banks "know that something is wrong." Gaier and other lawyers say they have been flooded with calls from new clients who had lost hope of keeping their homes but now see an opportunity to stay. In addition, homeowners who had been complaining of flawed or forged paperwork for years feel they are finally getting traction.
Monday, October 4, 2010
Fund Alert: Attorney's title no longer writing policies for GMAC and Chase
TO: ALL FLORIDA FUND MEMBERS
FROM: Underwriting Department
Re: Ally Mortgage/GMAC and JP Morgan/Chase Foreclosures
Recently, officials at GMAC Mortgage, a division of Ally Financial, Inc., JP Morgan/Chase, and most recently Bank of America announced that they are halting evictions of foreclosed borrowers and are halting REO sales in 23 states, including Florida. In fact, several agents have reported receiving written cancellation of pending transactions involving these lenders.
Accordingly, Old Republic policies may not be issued insuring REO sales after completion of foreclosure by these two lenders. There is no prohibition on writing title insurance on short sales or following a deed-in-lieu of foreclosure involving these lenders or any prohibition against insuring titles where a mortgage foreclosure by Ally Bank/GMAC, JP Morgan Chase or Bank of America appears in the back chain of title.
We are continuing to monitor this situation and expect to be able to resume insuring REO sales by these lenders as soon as the objectionable issues have been resolved. Please direct any questions you may have to The Fund's Underwriting Department at 800-432-9594..
Attorneys' Title Fund Services, LLC
FROM: Underwriting Department
Re: Ally Mortgage/GMAC and JP Morgan/Chase Foreclosures
Recently, officials at GMAC Mortgage, a division of Ally Financial, Inc., JP Morgan/Chase, and most recently Bank of America announced that they are halting evictions of foreclosed borrowers and are halting REO sales in 23 states, including Florida. In fact, several agents have reported receiving written cancellation of pending transactions involving these lenders.
Accordingly, Old Republic policies may not be issued insuring REO sales after completion of foreclosure by these two lenders. There is no prohibition on writing title insurance on short sales or following a deed-in-lieu of foreclosure involving these lenders or any prohibition against insuring titles where a mortgage foreclosure by Ally Bank/GMAC, JP Morgan Chase or Bank of America appears in the back chain of title.
We are continuing to monitor this situation and expect to be able to resume insuring REO sales by these lenders as soon as the objectionable issues have been resolved. Please direct any questions you may have to The Fund's Underwriting Department at 800-432-9594..
Attorneys' Title Fund Services, LLC
Sunday, October 3, 2010
Foreclosure Errors Cloud Homeownership With ‘Blighted Titles’
October 01, 2010 By: Bloomberg News
U.S. courts are clogged with a record number of foreclosures. Next, they may be jammed with suits contesting property rights as procedural mistakes in those cases cloud titles establishing ownership. Defective documentation has created millions of blighted titles that will plague the nation for the next decade,” said Richard Kessler, an attorney in Sarasota, Florida, who conducted a study that found errors in about three-fourths of court filings related to home repossessions.
Attorneys general in at least six states are investigating borrowers’ claims that some of the nation’s largest home lenders and loan servicers are making misstatements in foreclosures. JPMorgan Chase & Co. is asking judges to postpone foreclosure rulings, while Ally Financial Inc. said Sept. 21 its GMAC Mortgage unit would halt evictions. The companies said employees may have completed affidavits without confirming their accuracy.
Such mistakes may allow former owners to challenge the repossession of homes long after the properties are resold, according to Kessler. Ownership questions may not arise until a home is under contract and the potential purchaser applies for title insurance or even decades later as one deed researcher catches errors overlooked by another. A so-called defective title means the person who paid for and moved into a house may not be the legal owner.
"It's a nightmare scenario,” said John Vogel, a professor at the Tuck School of Business at Dartmouth College in Hanover, New Hampshire. “There are lots of land mines related to title issues that may come to light long after we think we’ve solved the housing problem.” Almost one-fourth of U.S. home sales in the second quarter involved properties in some stage of mortgage distress, RealtyTrac Inc. said yesterday. In August, lenders took possession of record 95,364 homes and issued foreclosure filings to 338,836 homeowners, or one out of every 381 U.S. households, according to the Irvine, California-based data seller.
The biggest deficiency in foreclosure suits is missing or improperly handled documents, Kessler found in his study of court filings in Florida’s Sarasota County. When home loans are granted, borrowers sign a promissory note outlining payment obligations and a separate mortgage that puts an encumbrance on the property in the lender’s name. If mortgages are resold, both documents must be properly conveyed to prevent competing claims.
Mortgage Bonds
Most of the document errors involved mortgages that had been bundled into securities sold to investors, Kessler said. At the end of the U.S. real estate boom in 2005 and 2006, about 70 percent of the $6.1 trillion in mortgage lending was packaged into bonds, according to the Securities Industry and Financial Markets Association in New York. Typically, bundling a mortgage involved three transactions: originators sold loans to companies that packaged them, those firms sold the loans to interim trusts, and then they were put into bonds, Kessler said. “A mortgage has to follow the proper trail every step of the way, or you have title problems,” he said.
In some cases, mortgages were conveyed using the Reston, Virginia-based Mortgage Electronic Registration System, or MERS, designed to cover transfers among system members. Promissory notes also often were endorsed as payable to the bearer to avoid the need for multiple transfers. Both practices have been challenged in court.
Issue With Copies
Copies of documents aren’t enough to establish rights, just as copies of dollar bills wouldn’t be honored by a bank, said Geoff Walsh, an attorney with the National Consumer Law Center in Boston. In cases of lost or mishandled paperwork, attorneys may file affidavits and other evidence to correct omissions and establish a claim, Walsh said. Given the volume of mortgage securitization, it was easy for paperwork to get lost, said Kathleen Engel, a financial services law professor at Suffolk University in Boston. “Wall Street was very good at packaging loans and making sure the money flowed to the right people, but not so good at keeping track of mortgage documents,” Engel said. As a result, “we have a growing number of toxic titles,” she said.
GMAC, based in Detroit, told brokers and agents in a Sept. 17 memo there might be issues with “judicially required forms” tied to home repossessions. An employee said in a December 2009 deposition that he signed thousands of documents without verifying their accuracy.
“If I were in the title industry, or a mortgage holder, or someone who bought a foreclosed property, this is something I would be very worried about,” said Michael Carliner, a Potomac, Maryland-based economic consultant specializing in housing. Attorneys general in Florida, Texas, Iowa, Illinois, North Carolina and Connecticut have started their own investigations into GMAC. In addition, Florida investigators have issued subpoenas to three law firms after homeowners facing eviction said the firms pursued foreclosures without following proper procedure.
“This is the most important issue of the whole mortgage mess because families are being thrown out of their homes by people who may not have the right to do that,” said Glenn Russell, a Fall River, Massachusetts, real estate attorney who won a case last year that reversed a foreclosure because of faulty paperwork. Mark and Tammy LaRace, his clients, were able to move back into their Cape Cod-style house in Springfield, Massachusetts, more than two years after they were evicted.
Attempts to Clear Title
In February, Judge Keith Long of the Massachusetts Land Court reaffirmed his 2009 decision to return the house to the LaRaces. San Francisco-based Wells Fargo & Co., which initiated the suit in an attempt to clear the property’s title after it foreclosed on it, has appealed the decision. The case now is under consideration by the state’s Supreme Judicial Court.
The costs for title insurers to defend customers and reimburse for lost properties rose 14 percent to $480.5 million in 2010’s first half from a year earlier, according to American Land Title Association, a Washington-based industry group. Fidelity National Financial Inc. of Jacksonville, Florida, is the largest insurer, with 38 percent of the market in the second quarter, the association said. Santa Ana, California- based First American Title Insurance Co. is No. 2, with a 27 percent share. Title insurers use their records and public documents to verify a seller is the home’s true owner and that the property is free from liens. They collect a one-time premium and pay costs that may arise if someone challenges a new owner’s right to the property. To obtain a mortgage, buyers are required to purchase a policy to protect the lender. Many people also get a so-called owners policy to protect themselves. “Title is everything,” said Susan Wachter, a real estate professor at the University of Pennsylvania’s Wharton School in Philadelphia. “There’s no collateral without possession, and that is title.”
U.S. courts are clogged with a record number of foreclosures. Next, they may be jammed with suits contesting property rights as procedural mistakes in those cases cloud titles establishing ownership. Defective documentation has created millions of blighted titles that will plague the nation for the next decade,” said Richard Kessler, an attorney in Sarasota, Florida, who conducted a study that found errors in about three-fourths of court filings related to home repossessions.
Attorneys general in at least six states are investigating borrowers’ claims that some of the nation’s largest home lenders and loan servicers are making misstatements in foreclosures. JPMorgan Chase & Co. is asking judges to postpone foreclosure rulings, while Ally Financial Inc. said Sept. 21 its GMAC Mortgage unit would halt evictions. The companies said employees may have completed affidavits without confirming their accuracy.
Such mistakes may allow former owners to challenge the repossession of homes long after the properties are resold, according to Kessler. Ownership questions may not arise until a home is under contract and the potential purchaser applies for title insurance or even decades later as one deed researcher catches errors overlooked by another. A so-called defective title means the person who paid for and moved into a house may not be the legal owner.
"It's a nightmare scenario,” said John Vogel, a professor at the Tuck School of Business at Dartmouth College in Hanover, New Hampshire. “There are lots of land mines related to title issues that may come to light long after we think we’ve solved the housing problem.” Almost one-fourth of U.S. home sales in the second quarter involved properties in some stage of mortgage distress, RealtyTrac Inc. said yesterday. In August, lenders took possession of record 95,364 homes and issued foreclosure filings to 338,836 homeowners, or one out of every 381 U.S. households, according to the Irvine, California-based data seller.
The biggest deficiency in foreclosure suits is missing or improperly handled documents, Kessler found in his study of court filings in Florida’s Sarasota County. When home loans are granted, borrowers sign a promissory note outlining payment obligations and a separate mortgage that puts an encumbrance on the property in the lender’s name. If mortgages are resold, both documents must be properly conveyed to prevent competing claims.
Mortgage Bonds
Most of the document errors involved mortgages that had been bundled into securities sold to investors, Kessler said. At the end of the U.S. real estate boom in 2005 and 2006, about 70 percent of the $6.1 trillion in mortgage lending was packaged into bonds, according to the Securities Industry and Financial Markets Association in New York. Typically, bundling a mortgage involved three transactions: originators sold loans to companies that packaged them, those firms sold the loans to interim trusts, and then they were put into bonds, Kessler said. “A mortgage has to follow the proper trail every step of the way, or you have title problems,” he said.
In some cases, mortgages were conveyed using the Reston, Virginia-based Mortgage Electronic Registration System, or MERS, designed to cover transfers among system members. Promissory notes also often were endorsed as payable to the bearer to avoid the need for multiple transfers. Both practices have been challenged in court.
Issue With Copies
Copies of documents aren’t enough to establish rights, just as copies of dollar bills wouldn’t be honored by a bank, said Geoff Walsh, an attorney with the National Consumer Law Center in Boston. In cases of lost or mishandled paperwork, attorneys may file affidavits and other evidence to correct omissions and establish a claim, Walsh said. Given the volume of mortgage securitization, it was easy for paperwork to get lost, said Kathleen Engel, a financial services law professor at Suffolk University in Boston. “Wall Street was very good at packaging loans and making sure the money flowed to the right people, but not so good at keeping track of mortgage documents,” Engel said. As a result, “we have a growing number of toxic titles,” she said.
GMAC, based in Detroit, told brokers and agents in a Sept. 17 memo there might be issues with “judicially required forms” tied to home repossessions. An employee said in a December 2009 deposition that he signed thousands of documents without verifying their accuracy.
“If I were in the title industry, or a mortgage holder, or someone who bought a foreclosed property, this is something I would be very worried about,” said Michael Carliner, a Potomac, Maryland-based economic consultant specializing in housing. Attorneys general in Florida, Texas, Iowa, Illinois, North Carolina and Connecticut have started their own investigations into GMAC. In addition, Florida investigators have issued subpoenas to three law firms after homeowners facing eviction said the firms pursued foreclosures without following proper procedure.
“This is the most important issue of the whole mortgage mess because families are being thrown out of their homes by people who may not have the right to do that,” said Glenn Russell, a Fall River, Massachusetts, real estate attorney who won a case last year that reversed a foreclosure because of faulty paperwork. Mark and Tammy LaRace, his clients, were able to move back into their Cape Cod-style house in Springfield, Massachusetts, more than two years after they were evicted.
Attempts to Clear Title
In February, Judge Keith Long of the Massachusetts Land Court reaffirmed his 2009 decision to return the house to the LaRaces. San Francisco-based Wells Fargo & Co., which initiated the suit in an attempt to clear the property’s title after it foreclosed on it, has appealed the decision. The case now is under consideration by the state’s Supreme Judicial Court.
The costs for title insurers to defend customers and reimburse for lost properties rose 14 percent to $480.5 million in 2010’s first half from a year earlier, according to American Land Title Association, a Washington-based industry group. Fidelity National Financial Inc. of Jacksonville, Florida, is the largest insurer, with 38 percent of the market in the second quarter, the association said. Santa Ana, California- based First American Title Insurance Co. is No. 2, with a 27 percent share. Title insurers use their records and public documents to verify a seller is the home’s true owner and that the property is free from liens. They collect a one-time premium and pay costs that may arise if someone challenges a new owner’s right to the property. To obtain a mortgage, buyers are required to purchase a policy to protect the lender. Many people also get a so-called owners policy to protect themselves. “Title is everything,” said Susan Wachter, a real estate professor at the University of Pennsylvania’s Wharton School in Philadelphia. “There’s no collateral without possession, and that is title.”
Saturday, October 2, 2010
'Robo-signing' scandal heats up, could derail recovery
After some of the largest U.S. lenders admitted to signing off on tens of thousands of foreclosures a month, both state and national law enforcement are taking a closer look at how they do business.
As mortgage defaults skyrocketed the past few years, some of the biggest lenders appear to have cut corners in their haste to process thousands of foreclosure documents.
GMAC Mortgage Co., JPMorgan Chase and now Bank of America all have suspended foreclosures in 23 states while they review whether documents were processed correctly, after employees of all three admitted signing off on tens of thousands of foreclosures a month without actually reviewing the cases, also known as "robo-signing."
And although this gives the homeowners whose foreclosures are being halted a little more time in their homes, The New York Times says it's also likely to create "paralysis and confusion" in a housing market already in turmoil, as the millions of homeowners who have lost their homes to foreclosure wonder if they were evicted by a robo-signer.
While these three lenders have admitted questionable practices, the list of culprits could go on and on, according to an article in Bloomberg BusinessWeek:
"The suspicion is that there might have been shortcuts taken by every mortgage servicer who had extraordinary numbers of foreclosure documents to go through," says Rick Sharga, senior vice president at RealtyTrac, a housing data provider in Irvine, Calif.
JPMorgan Chase alone plans to review 56,000 foreclosure documents that it suspended, and although GMAC and Bank of America haven't revealed how many foreclosures they've halted, the number could easily reach six digits.
And potentially, every one of those reviews could end up in a courtroom, which might help some homeowners get their homes back. But in the process it also could make new victims out of homebuyers who have purchased foreclosed homes. The Times says that if former homeowners can prove their foreclosure was incorrectly processed, the new buyers of their foreclosed properties could get stuck in the middle of a legal mess that we can't even fathom at this point. One thing's for sure: We're going to be seeing a lot fewer homebuyers willing to consider buying foreclosed homes.
Sharga also told The Wall Street Journal that putting all of these foreclosures on hold also will artificially quell the wave of foreclosures that has been threatening to flood the market since banks starting taking back record numbers of homes. Now he thinks foreclosures will peak in 2011, and homeowners know what that means: Home prices will remain depressed for longer as lower-priced foreclosures force sellers to slash their prices.
Or it could have the opposite effect. From The Times:
"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." It certainly is putting more of a spotlight on the way foreclosures are processed, which means that even companies that aren't accused of rubber-stamping foreclosure documents may be more likely to look for another solution beyond foreclosure.
At least a half-dozen state attorneys generals as well as the Treasury Department are investigating this new development, but this is likely just the beginning of a brand-new mortgage mess that will do little to help the record-low new home sales and barely-better existing home sales the real-estate market is now facing.
As mortgage defaults skyrocketed the past few years, some of the biggest lenders appear to have cut corners in their haste to process thousands of foreclosure documents.
GMAC Mortgage Co., JPMorgan Chase and now Bank of America all have suspended foreclosures in 23 states while they review whether documents were processed correctly, after employees of all three admitted signing off on tens of thousands of foreclosures a month without actually reviewing the cases, also known as "robo-signing."
And although this gives the homeowners whose foreclosures are being halted a little more time in their homes, The New York Times says it's also likely to create "paralysis and confusion" in a housing market already in turmoil, as the millions of homeowners who have lost their homes to foreclosure wonder if they were evicted by a robo-signer.
While these three lenders have admitted questionable practices, the list of culprits could go on and on, according to an article in Bloomberg BusinessWeek:
"The suspicion is that there might have been shortcuts taken by every mortgage servicer who had extraordinary numbers of foreclosure documents to go through," says Rick Sharga, senior vice president at RealtyTrac, a housing data provider in Irvine, Calif.
JPMorgan Chase alone plans to review 56,000 foreclosure documents that it suspended, and although GMAC and Bank of America haven't revealed how many foreclosures they've halted, the number could easily reach six digits.
And potentially, every one of those reviews could end up in a courtroom, which might help some homeowners get their homes back. But in the process it also could make new victims out of homebuyers who have purchased foreclosed homes. The Times says that if former homeowners can prove their foreclosure was incorrectly processed, the new buyers of their foreclosed properties could get stuck in the middle of a legal mess that we can't even fathom at this point. One thing's for sure: We're going to be seeing a lot fewer homebuyers willing to consider buying foreclosed homes.
Sharga also told The Wall Street Journal that putting all of these foreclosures on hold also will artificially quell the wave of foreclosures that has been threatening to flood the market since banks starting taking back record numbers of homes. Now he thinks foreclosures will peak in 2011, and homeowners know what that means: Home prices will remain depressed for longer as lower-priced foreclosures force sellers to slash their prices.
Or it could have the opposite effect. From The Times:
"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." It certainly is putting more of a spotlight on the way foreclosures are processed, which means that even companies that aren't accused of rubber-stamping foreclosure documents may be more likely to look for another solution beyond foreclosure.
At least a half-dozen state attorneys generals as well as the Treasury Department are investigating this new development, but this is likely just the beginning of a brand-new mortgage mess that will do little to help the record-low new home sales and barely-better existing home sales the real-estate market is now facing.
Bank of America freezes evictions in 23 states
The bank cites concerns over whether its foreclosure paperwork was handled properly.
By E. Scott Reckard
Los Angeles Times Staff Writer
Citing concerns over whether its foreclosure paperwork was handled properly, Bank of America Corp. on Friday put evictions on hold in 23 states — joining two rivals that have taken similar steps. The freeze is taking place in states where courts have jurisdiction over foreclosures, Bank of America said. It will not apply to California and 26 other states where foreclosures usually take place without a court order, but the action could put added pressure on banks to ease back on foreclosures more broadly amid high unemployment and continued turmoil in the housing market.
Detroit-based Ally Financial Inc. halted evictions in the 23 states last month after the head of Ally's document processing team acknowledged in a deposition that he signed thousands of affidavits certifying that foreclosure paperwork was correct even though he hadn't read the documents. JPMorgan Chase & Co., the giant New York bank, suspended its evictions this week after problems surfaced with signatures on some of its affidavits.
Charlotte, N.C.-based Bank of America — which became the largest mortgage customer-service provider when it acquired Countrywide Financial Corp. in 2008 — followed suit Friday. "To be certain affidavits have followed the correct procedures, Bank of America will delay the process in order to amend all affidavits in foreclosure cases that have not yet gone to judgment in the 23 states where courts have jurisdiction over foreclosures," the bank said in a statement. The affidavits are required to be filed in court when banks make motions for summary judgment to obtain foreclosure orders from judges. The bank didn't disclose how many borrowers were affected by the eviction freeze.
The banks have said they believe the information in the affidavits — such as how much is owed and when the mortgages went into default — is accurate even if the affidavit signers didn't take the time to read them thoroughly because of the glut of foreclosures. Ally, formerly known as GMAC, includes Ally Bank and Residential Capital. It is the fourth-largest originator of mortgages and the fifth-largest mortgage servicer. Chase is third in both categories.
Wells Fargo issued a statement saying it was satisfied that "the affidavits we sign are accurate," but it stopped short of certifying that they were all properly signed. "We audit, monitor and review our affidavits under controlled standards on a daily basis. We will stand by our affidavits and, if we find an error, we will take the appropriate corrective action," Wells said.
By E. Scott Reckard
Los Angeles Times Staff Writer
Citing concerns over whether its foreclosure paperwork was handled properly, Bank of America Corp. on Friday put evictions on hold in 23 states — joining two rivals that have taken similar steps. The freeze is taking place in states where courts have jurisdiction over foreclosures, Bank of America said. It will not apply to California and 26 other states where foreclosures usually take place without a court order, but the action could put added pressure on banks to ease back on foreclosures more broadly amid high unemployment and continued turmoil in the housing market.
Detroit-based Ally Financial Inc. halted evictions in the 23 states last month after the head of Ally's document processing team acknowledged in a deposition that he signed thousands of affidavits certifying that foreclosure paperwork was correct even though he hadn't read the documents. JPMorgan Chase & Co., the giant New York bank, suspended its evictions this week after problems surfaced with signatures on some of its affidavits.
Charlotte, N.C.-based Bank of America — which became the largest mortgage customer-service provider when it acquired Countrywide Financial Corp. in 2008 — followed suit Friday. "To be certain affidavits have followed the correct procedures, Bank of America will delay the process in order to amend all affidavits in foreclosure cases that have not yet gone to judgment in the 23 states where courts have jurisdiction over foreclosures," the bank said in a statement. The affidavits are required to be filed in court when banks make motions for summary judgment to obtain foreclosure orders from judges. The bank didn't disclose how many borrowers were affected by the eviction freeze.
The banks have said they believe the information in the affidavits — such as how much is owed and when the mortgages went into default — is accurate even if the affidavit signers didn't take the time to read them thoroughly because of the glut of foreclosures. Ally, formerly known as GMAC, includes Ally Bank and Residential Capital. It is the fourth-largest originator of mortgages and the fifth-largest mortgage servicer. Chase is third in both categories.
Wells Fargo issued a statement saying it was satisfied that "the affidavits we sign are accurate," but it stopped short of certifying that they were all properly signed. "We audit, monitor and review our affidavits under controlled standards on a daily basis. We will stand by our affidavits and, if we find an error, we will take the appropriate corrective action," Wells said.
Wednesday, September 29, 2010
JPMorgan Suspending Foreclosures
September 29, 2010
The New York Times
DAVID STREITFELD
In a sign that the entire foreclosure process is coming under pressure, a second major mortgage lender said that it was suspending court cases against defaulting homeowners so it could review its legal procedures.
The lender, JPMorgan Chase, said on Wednesday that it was halting 56,000 foreclosures because some of its employees might have improperly prepared the necessary documents. All of the suspensions are in the 23 states where foreclosures must be approved by a court, including New York, New Jersey, Connecticut, Florida and Illinois.
The bank, which lends through its Chase Mortgage unit, has begun to “systematically re-examine” its filings to verify that they meet legal standards, a spokesman, Tom Kelly, said.
Last week, GMAC Mortgage said it was suspending an undisclosed number of foreclosures to give it time to take a closer look at its own procedures. GMAC simultaneously began withdrawing affidavits in pending court cases, throwing their future into doubt.
Chase and GMAC, in their zeal to process hundreds of thousands of foreclosures as quickly as possible and get those properties on the market, employed people who could sign documents so quickly they popularized a new term for them: “robo-signer.” In depositions taken by lawyers for embattled homeowners, the robo-signers said they or their team had signed 10,000 or more foreclosure affidavits a month.
Now that haste has come back to haunt them. The affidavits in foreclosures attest that the preparer personally reviewed the files, which those workers acknowledge they had no time to do. GMAC and Chase say that their lapses were technical and will soon be remedied with new filings. But defense lawyers are seizing on these revelations and say they will now work to have their cases thrown out.
Beyond the relative handful of foreclosure cases being contested are many more in which the homeowner did not have legal counsel. Potentially, hundreds of thousands of cases could be in doubt. GMAC’s initial disclosures prompted challenges or investigations from attorneys general in Iowa, Illinois, Colorado, California and North Carolina. The Treasury Department, which became the majority owner of GMAC after providing $17 billion in bailout money, has directed the lender to correct its procedures.
The pressure on the lender, which began as the auto financing arm of General Motors, is continuing to increase. Senator Al Franken, Democrat of Minnesota, asked Wednesday for the Treasury, the Justice Department and other regulators to collaborate on “a thorough investigation into the alleged misconduct.”
Defense lawyers have consistently complained that the lenders’ law firms were sending through cases that were at best sloppy. The Florida attorney general’s office says it is investigating four so-called foreclosure mills. “The GMAC announcement was the mushroom cloud,” said one Florida defense lawyer, Matthew Weidner. “The fallout will burn through the entire mortgage servicing industry.”
Judges who oversee a lot of foreclosure cases increasingly agree that there is a serious problem. “I don’t want to say that every one of these cases is wrong and a fraud on the court, but it is a big concern for us,” J. Thomas McGrady, chief judge of the Sixth Judicial Circuit in Florida, said in an interview last week after GMAC’s announcement. Judge McGrady predicted that the foreclosure process in Florida, which the Legislature has been trying to speed up, would have to slow down. “Everyone is going to have to look at these cases more closely,” said Judge McGrady, whose circuit includes St. Petersburg.
The foreclosure process in many states is already torpid. This benefits delinquent homeowners, who can live in their properties free for years, as well as lenders who do not have to write down the value of the original loan. But it also threatens to prolong the housing crisis for many years.
Chase said that unlike GMAC, it had not withdrawn any affidavits in pending cases. It also said that if foreclosures were completed, it was allowing its agents to proceed with the sale of the properties. GMAC has stopped its sales. Chase followed the lead of GMAC in playing down the impact of the situation. “Affidavits were prepared by appropriate personnel with knowledge of the relevant facts based on their review of the company’s books and records,” the spokesman, Mr. Kelly, said.
But many questions are unresolved. One is whether completed foreclosures will be vulnerable to what GMAC is calling “corrective action.” If those former homeowners press their claims, they could conceivably dislodge the new buyers. Such cases are probably not imminent. The more immediate consequences for the lenders using robo-signers will be determined by the homeowners who are fighting their cases in court.
The New York Times
DAVID STREITFELD
In a sign that the entire foreclosure process is coming under pressure, a second major mortgage lender said that it was suspending court cases against defaulting homeowners so it could review its legal procedures.
The lender, JPMorgan Chase, said on Wednesday that it was halting 56,000 foreclosures because some of its employees might have improperly prepared the necessary documents. All of the suspensions are in the 23 states where foreclosures must be approved by a court, including New York, New Jersey, Connecticut, Florida and Illinois.
The bank, which lends through its Chase Mortgage unit, has begun to “systematically re-examine” its filings to verify that they meet legal standards, a spokesman, Tom Kelly, said.
Last week, GMAC Mortgage said it was suspending an undisclosed number of foreclosures to give it time to take a closer look at its own procedures. GMAC simultaneously began withdrawing affidavits in pending court cases, throwing their future into doubt.
Chase and GMAC, in their zeal to process hundreds of thousands of foreclosures as quickly as possible and get those properties on the market, employed people who could sign documents so quickly they popularized a new term for them: “robo-signer.” In depositions taken by lawyers for embattled homeowners, the robo-signers said they or their team had signed 10,000 or more foreclosure affidavits a month.
Now that haste has come back to haunt them. The affidavits in foreclosures attest that the preparer personally reviewed the files, which those workers acknowledge they had no time to do. GMAC and Chase say that their lapses were technical and will soon be remedied with new filings. But defense lawyers are seizing on these revelations and say they will now work to have their cases thrown out.
Beyond the relative handful of foreclosure cases being contested are many more in which the homeowner did not have legal counsel. Potentially, hundreds of thousands of cases could be in doubt. GMAC’s initial disclosures prompted challenges or investigations from attorneys general in Iowa, Illinois, Colorado, California and North Carolina. The Treasury Department, which became the majority owner of GMAC after providing $17 billion in bailout money, has directed the lender to correct its procedures.
The pressure on the lender, which began as the auto financing arm of General Motors, is continuing to increase. Senator Al Franken, Democrat of Minnesota, asked Wednesday for the Treasury, the Justice Department and other regulators to collaborate on “a thorough investigation into the alleged misconduct.”
Defense lawyers have consistently complained that the lenders’ law firms were sending through cases that were at best sloppy. The Florida attorney general’s office says it is investigating four so-called foreclosure mills. “The GMAC announcement was the mushroom cloud,” said one Florida defense lawyer, Matthew Weidner. “The fallout will burn through the entire mortgage servicing industry.”
Judges who oversee a lot of foreclosure cases increasingly agree that there is a serious problem. “I don’t want to say that every one of these cases is wrong and a fraud on the court, but it is a big concern for us,” J. Thomas McGrady, chief judge of the Sixth Judicial Circuit in Florida, said in an interview last week after GMAC’s announcement. Judge McGrady predicted that the foreclosure process in Florida, which the Legislature has been trying to speed up, would have to slow down. “Everyone is going to have to look at these cases more closely,” said Judge McGrady, whose circuit includes St. Petersburg.
The foreclosure process in many states is already torpid. This benefits delinquent homeowners, who can live in their properties free for years, as well as lenders who do not have to write down the value of the original loan. But it also threatens to prolong the housing crisis for many years.
Chase said that unlike GMAC, it had not withdrawn any affidavits in pending cases. It also said that if foreclosures were completed, it was allowing its agents to proceed with the sale of the properties. GMAC has stopped its sales. Chase followed the lead of GMAC in playing down the impact of the situation. “Affidavits were prepared by appropriate personnel with knowledge of the relevant facts based on their review of the company’s books and records,” the spokesman, Mr. Kelly, said.
But many questions are unresolved. One is whether completed foreclosures will be vulnerable to what GMAC is calling “corrective action.” If those former homeowners press their claims, they could conceivably dislodge the new buyers. Such cases are probably not imminent. The more immediate consequences for the lenders using robo-signers will be determined by the homeowners who are fighting their cases in court.
JPMorgan Suspending Foreclosures
September 29, 2010
The New York Times
DAVID STREITFELD
In a sign that the entire foreclosure process is coming under pressure, a second major mortgage lender said that it was suspending court cases against defaulting homeowners so it could review its legal procedures.
The lender, JPMorgan Chase, said on Wednesday that it was halting 56,000 foreclosures because some of its employees might have improperly prepared the necessary documents. All of the suspensions are in the 23 states where foreclosures must be approved by a court, including New York, New Jersey, Connecticut, Florida and Illinois.
The bank, which lends through its Chase Mortgage unit, has begun to “systematically re-examine” its filings to verify that they meet legal standards, a spokesman, Tom Kelly, said.
Last week, GMAC Mortgage said it was suspending an undisclosed number of foreclosures to give it time to take a closer look at its own procedures. GMAC simultaneously began withdrawing affidavits in pending court cases, throwing their future into doubt.
Chase and GMAC, in their zeal to process hundreds of thousands of foreclosures as quickly as possible and get those properties on the market, employed people who could sign documents so quickly they popularized a new term for them: “robo-signer.” In depositions taken by lawyers for embattled homeowners, the robo-signers said they or their team had signed 10,000 or more foreclosure affidavits a month.
Now that haste has come back to haunt them. The affidavits in foreclosures attest that the preparer personally reviewed the files, which those workers acknowledge they had no time to do. GMAC and Chase say that their lapses were technical and will soon be remedied with new filings. But defense lawyers are seizing on these revelations and say they will now work to have their cases thrown out.
Beyond the relative handful of foreclosure cases being contested are many more in which the homeowner did not have legal counsel. Potentially, hundreds of thousands of cases could be in doubt. GMAC’s initial disclosures prompted challenges or investigations from attorneys general in Iowa, Illinois, Colorado, California and North Carolina. The Treasury Department, which became the majority owner of GMAC after providing $17 billion in bailout money, has directed the lender to correct its procedures.
The pressure on the lender, which began as the auto financing arm of General Motors, is continuing to increase. Senator Al Franken, Democrat of Minnesota, asked Wednesday for the Treasury, the Justice Department and other regulators to collaborate on “a thorough investigation into the alleged misconduct.”
Defense lawyers have consistently complained that the lenders’ law firms were sending through cases that were at best sloppy. The Florida attorney general’s office says it is investigating four so-called foreclosure mills. “The GMAC announcement was the mushroom cloud,” said one Florida defense lawyer, Matthew Weidner. “The fallout will burn through the entire mortgage servicing industry.”
Judges who oversee a lot of foreclosure cases increasingly agree that there is a serious problem. “I don’t want to say that every one of these cases is wrong and a fraud on the court, but it is a big concern for us,” J. Thomas McGrady, chief judge of the Sixth Judicial Circuit in Florida, said in an interview last week after GMAC’s announcement. Judge McGrady predicted that the foreclosure process in Florida, which the Legislature has been trying to speed up, would have to slow down. “Everyone is going to have to look at these cases more closely,” said Judge McGrady, whose circuit includes St. Petersburg.
The foreclosure process in many states is already torpid. This benefits delinquent homeowners, who can live in their properties free for years, as well as lenders who do not have to write down the value of the original loan. But it also threatens to prolong the housing crisis for many years.
Chase said that unlike GMAC, it had not withdrawn any affidavits in pending cases. It also said that if foreclosures were completed, it was allowing its agents to proceed with the sale of the properties. GMAC has stopped its sales. Chase followed the lead of GMAC in playing down the impact of the situation. “Affidavits were prepared by appropriate personnel with knowledge of the relevant facts based on their review of the company’s books and records,” the spokesman, Mr. Kelly, said.
But many questions are unresolved. One is whether completed foreclosures will be vulnerable to what GMAC is calling “corrective action.” If those former homeowners press their claims, they could conceivably dislodge the new buyers. Such cases are probably not imminent. The more immediate consequences for the lenders using robo-signers will be determined by the homeowners who are fighting their cases in court.
The New York Times
DAVID STREITFELD
In a sign that the entire foreclosure process is coming under pressure, a second major mortgage lender said that it was suspending court cases against defaulting homeowners so it could review its legal procedures.
The lender, JPMorgan Chase, said on Wednesday that it was halting 56,000 foreclosures because some of its employees might have improperly prepared the necessary documents. All of the suspensions are in the 23 states where foreclosures must be approved by a court, including New York, New Jersey, Connecticut, Florida and Illinois.
The bank, which lends through its Chase Mortgage unit, has begun to “systematically re-examine” its filings to verify that they meet legal standards, a spokesman, Tom Kelly, said.
Last week, GMAC Mortgage said it was suspending an undisclosed number of foreclosures to give it time to take a closer look at its own procedures. GMAC simultaneously began withdrawing affidavits in pending court cases, throwing their future into doubt.
Chase and GMAC, in their zeal to process hundreds of thousands of foreclosures as quickly as possible and get those properties on the market, employed people who could sign documents so quickly they popularized a new term for them: “robo-signer.” In depositions taken by lawyers for embattled homeowners, the robo-signers said they or their team had signed 10,000 or more foreclosure affidavits a month.
Now that haste has come back to haunt them. The affidavits in foreclosures attest that the preparer personally reviewed the files, which those workers acknowledge they had no time to do. GMAC and Chase say that their lapses were technical and will soon be remedied with new filings. But defense lawyers are seizing on these revelations and say they will now work to have their cases thrown out.
Beyond the relative handful of foreclosure cases being contested are many more in which the homeowner did not have legal counsel. Potentially, hundreds of thousands of cases could be in doubt. GMAC’s initial disclosures prompted challenges or investigations from attorneys general in Iowa, Illinois, Colorado, California and North Carolina. The Treasury Department, which became the majority owner of GMAC after providing $17 billion in bailout money, has directed the lender to correct its procedures.
The pressure on the lender, which began as the auto financing arm of General Motors, is continuing to increase. Senator Al Franken, Democrat of Minnesota, asked Wednesday for the Treasury, the Justice Department and other regulators to collaborate on “a thorough investigation into the alleged misconduct.”
Defense lawyers have consistently complained that the lenders’ law firms were sending through cases that were at best sloppy. The Florida attorney general’s office says it is investigating four so-called foreclosure mills. “The GMAC announcement was the mushroom cloud,” said one Florida defense lawyer, Matthew Weidner. “The fallout will burn through the entire mortgage servicing industry.”
Judges who oversee a lot of foreclosure cases increasingly agree that there is a serious problem. “I don’t want to say that every one of these cases is wrong and a fraud on the court, but it is a big concern for us,” J. Thomas McGrady, chief judge of the Sixth Judicial Circuit in Florida, said in an interview last week after GMAC’s announcement. Judge McGrady predicted that the foreclosure process in Florida, which the Legislature has been trying to speed up, would have to slow down. “Everyone is going to have to look at these cases more closely,” said Judge McGrady, whose circuit includes St. Petersburg.
The foreclosure process in many states is already torpid. This benefits delinquent homeowners, who can live in their properties free for years, as well as lenders who do not have to write down the value of the original loan. But it also threatens to prolong the housing crisis for many years.
Chase said that unlike GMAC, it had not withdrawn any affidavits in pending cases. It also said that if foreclosures were completed, it was allowing its agents to proceed with the sale of the properties. GMAC has stopped its sales. Chase followed the lead of GMAC in playing down the impact of the situation. “Affidavits were prepared by appropriate personnel with knowledge of the relevant facts based on their review of the company’s books and records,” the spokesman, Mr. Kelly, said.
But many questions are unresolved. One is whether completed foreclosures will be vulnerable to what GMAC is calling “corrective action.” If those former homeowners press their claims, they could conceivably dislodge the new buyers. Such cases are probably not imminent. The more immediate consequences for the lenders using robo-signers will be determined by the homeowners who are fighting their cases in court.
Sunday, September 26, 2010
Amid mountain of paperwork, shortcuts and forgeries mar foreclosure process
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.
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.
Read the entire story here
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.
Read the entire story here
Amid mountain of paperwork, shortcuts and forgeries mar foreclosure process
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.
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.
Read the entire story here
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.
Read the entire story here
Ally Financial legal issue with foreclosures may affect other mortgage companies
One guy may have screwed up the entire foreclosure process in this country opening up almost every banking entity to a lawsuit by foreclosed homeowners...amazing!
http://www.washingtonpost.com/wp-dyn/content/article/2010/09/21/AR2010092105872.html
http://www.washingtonpost.com/wp-dyn/content/article/2010/09/21/AR2010092105872.html
Ally Financial legal issue with foreclosures may affect other mortgage companies
One guy may have screwed up the entire foreclosure process in this country opening up almost every banking entity to a lawsuit by foreclosed homeowners...amazing!
http://www.washingtonpost.com/wp-dyn/content/article/2010/09/21/AR2010092105872.html
http://www.washingtonpost.com/wp-dyn/content/article/2010/09/21/AR2010092105872.html
Democratic Representatives Ask Treasury to Rethink Strategy on Pursuing Underwater Homeowners
Apparently, Democratic representatives are worried about the GSE’s plans to pursue underwater homeowners who walk away from their homes.
Representative Conyers (D-Michigan) wrote the following letter to Tim Geithner and Edward Demarco asking them to exercise their authority as conservator and “suspend the implementation of this policy until Fannie, the Administration, and the Congress, seriously consider the many problems associated with this policy and determine whether it conflicts with the Administration’s efforts to help keep homeowners in their homes.”
Here’s the text of that letter:
Representative Conyers (D-Michigan) wrote the following letter to Tim Geithner and Edward Demarco asking them to exercise their authority as conservator and “suspend the implementation of this policy until Fannie, the Administration, and the Congress, seriously consider the many problems associated with this policy and determine whether it conflicts with the Administration’s efforts to help keep homeowners in their homes.”
Here’s the text of that letter:
Democratic Representatives Ask Treasury to Rethink Strategy on Pursuing Underwater Homeowners
Apparently, Democratic representatives are worried about the GSE’s plans to pursue underwater homeowners who walk away from their homes.
Representative Conyers (D-Michigan) wrote the following letter to Tim Geithner and Edward Demarco asking them to exercise their authority as conservator and “suspend the implementation of this policy until Fannie, the Administration, and the Congress, seriously consider the many problems associated with this policy and determine whether it conflicts with the Administration’s efforts to help keep homeowners in their homes.”
Here’s the text of that letter:
Representative Conyers (D-Michigan) wrote the following letter to Tim Geithner and Edward Demarco asking them to exercise their authority as conservator and “suspend the implementation of this policy until Fannie, the Administration, and the Congress, seriously consider the many problems associated with this policy and determine whether it conflicts with the Administration’s efforts to help keep homeowners in their homes.”
Here’s the text of that letter:
Saturday, September 25, 2010
Lawmakers are starting to see the light
In the wake of the foreclosure debacle at GMAC Mortgage LLC, Florida's top court is being asked to halt around 80 percent of all foreclosures in the state. The practices at three law firms are at issue. One foreclosure defense attorney estimates "thousands and "thousands" of final judgements could be reopened.
A Florida congressman has asked the state Supreme Court to stop all foreclosures being handled by three major law firms under investigation by the Florida Attorney General over questions about slipshod paperwork practices involving thousands of cases. U.S. Rep. Alan Grayson (D-Fla.) pressed the court to halt foreclosures being handled by the law offices of David J. Stern, Marshall C. Watson, and Shapiro & Fishman.
A Florida congressman has asked the state Supreme Court to stop all foreclosures being handled by three major law firms under investigation by the Florida Attorney General over questions about slipshod paperwork practices involving thousands of cases. U.S. Rep. Alan Grayson (D-Fla.) pressed the court to halt foreclosures being handled by the law offices of David J. Stern, Marshall C. Watson, and Shapiro & Fishman.
Lawmakers are starting to see the light
In the wake of the foreclosure debacle at GMAC Mortgage LLC, Florida's top court is being asked to halt around 80 percent of all foreclosures in the state. The practices at three law firms are at issue. One foreclosure defense attorney estimates "thousands and "thousands" of final judgements could be reopened.
A Florida congressman has asked the state Supreme Court to stop all foreclosures being handled by three major law firms under investigation by the Florida Attorney General over questions about slipshod paperwork practices involving thousands of cases. U.S. Rep. Alan Grayson (D-Fla.) pressed the court to halt foreclosures being handled by the law offices of David J. Stern, Marshall C. Watson, and Shapiro & Fishman.
A Florida congressman has asked the state Supreme Court to stop all foreclosures being handled by three major law firms under investigation by the Florida Attorney General over questions about slipshod paperwork practices involving thousands of cases. U.S. Rep. Alan Grayson (D-Fla.) pressed the court to halt foreclosures being handled by the law offices of David J. Stern, Marshall C. Watson, and Shapiro & Fishman.
Thursday, September 23, 2010
Ally's GMAC Mortgage Halts Home Evictions in 23 States
The tide is turning as the bank screw ups become overwhelming
Bloomberg News
By Denise Pellegrini - Sep 20, 2010
Ally Financial Inc.’s GMAC Mortgage unit told brokers and agents to halt foreclosures on homeowners in 23 states including Florida, Connecticut and New York.
GMAC Mortgage may “need to take corrective action in connection with some foreclosures” in the affected states, according to a two-page memo dated Sept. 17 and obtained by Bloomberg News. Ally Financial spokesman James Olecki confirmed the contents of the memo. Brokers were told to stop evictions, cash-for-key transactions and lockouts, regardless of occupant type, with immediate effect, according to the document, addressed to GMAC preferred agents.
The company will also suspend sales of properties on which it has already foreclosed. The letter tells brokers to notify buyers that the company will extend the closing date on all sales by 30 days. Buyers will be able to cancel their agreement to purchase and get their deposit back, according to the letter.
Here is the actual memo GMAC sent out to its brokers.
Bloomberg News
By Denise Pellegrini - Sep 20, 2010
Ally Financial Inc.’s GMAC Mortgage unit told brokers and agents to halt foreclosures on homeowners in 23 states including Florida, Connecticut and New York.
GMAC Mortgage may “need to take corrective action in connection with some foreclosures” in the affected states, according to a two-page memo dated Sept. 17 and obtained by Bloomberg News. Ally Financial spokesman James Olecki confirmed the contents of the memo. Brokers were told to stop evictions, cash-for-key transactions and lockouts, regardless of occupant type, with immediate effect, according to the document, addressed to GMAC preferred agents.
The company will also suspend sales of properties on which it has already foreclosed. The letter tells brokers to notify buyers that the company will extend the closing date on all sales by 30 days. Buyers will be able to cancel their agreement to purchase and get their deposit back, according to the letter.
Here is the actual memo GMAC sent out to its brokers.
Ally's GMAC Mortgage Halts Home Evictions in 23 States
The tide is turning as the bank screw ups become overwhelming
Bloomberg News
By Denise Pellegrini - Sep 20, 2010
Ally Financial Inc.’s GMAC Mortgage unit told brokers and agents to halt foreclosures on homeowners in 23 states including Florida, Connecticut and New York.
GMAC Mortgage may “need to take corrective action in connection with some foreclosures” in the affected states, according to a two-page memo dated Sept. 17 and obtained by Bloomberg News. Ally Financial spokesman James Olecki confirmed the contents of the memo. Brokers were told to stop evictions, cash-for-key transactions and lockouts, regardless of occupant type, with immediate effect, according to the document, addressed to GMAC preferred agents.
The company will also suspend sales of properties on which it has already foreclosed. The letter tells brokers to notify buyers that the company will extend the closing date on all sales by 30 days. Buyers will be able to cancel their agreement to purchase and get their deposit back, according to the letter.
Here is the actual memo GMAC sent out to its brokers.
Bloomberg News
By Denise Pellegrini - Sep 20, 2010
Ally Financial Inc.’s GMAC Mortgage unit told brokers and agents to halt foreclosures on homeowners in 23 states including Florida, Connecticut and New York.
GMAC Mortgage may “need to take corrective action in connection with some foreclosures” in the affected states, according to a two-page memo dated Sept. 17 and obtained by Bloomberg News. Ally Financial spokesman James Olecki confirmed the contents of the memo. Brokers were told to stop evictions, cash-for-key transactions and lockouts, regardless of occupant type, with immediate effect, according to the document, addressed to GMAC preferred agents.
The company will also suspend sales of properties on which it has already foreclosed. The letter tells brokers to notify buyers that the company will extend the closing date on all sales by 30 days. Buyers will be able to cancel their agreement to purchase and get their deposit back, according to the letter.
Here is the actual memo GMAC sent out to its brokers.
Tuesday, September 21, 2010
The Tampa Tribune: Walking away from mortgage gets easier when neighbors do it
By SHANNON BEHNKEN
Some of Tampa Bay's underwater homeowners may have to wait 15 years or longer to break even on a sale. Others simply won't wait that long. They're cutting their losses now, defaulting on purpose, even though they can afford to make their mortgage payments.
And as more fed-up homeowners walk away, it becomes more likely their neighbors will too, according to a new survey from Fannie Mae, one of the nation's largest providers of mortgages. The study suggests mortgage holders are more likely to consider defaulting if they know someone who has defaulted. Of those who are already delinquent and think defaulting on purpose is OK, 40 percent said they know someone who has done the same thing.
Contrast that with mortgage holders who are current on payments and disapprove of defaulting on purpose. Just 2 percent of those respondents said they knew someone who defaulted even though they could afford their mortgage.
Fannie Mae considers states like Florida, which has a rising foreclosure rate, to be at a higher risk for so-called strategic default. That's when consumers let homes fall into foreclosure even though they can afford to make mortgage payments.
Nearly 50 percent of Tampa Bay area homeowners with a mortgage owe more than their property is worth. The number of "strategic defaults" more than doubled, to 588,000, from 2007 to 2008, according to the group's study. In the second quarter of 2009, the group said such defaults accounted for 19 percent of all mortgage delinquencies.
A separate study by college professors at the Chicago's Booth School of Business and Northwestern University's School of Business estimated 36 percent of the nation's defaults were "strategic" in December. That was up from 25 percent in March 2009.
Before the housing bust, walking away from a mortgage you could afford was unthinkable for most. But as more people realize they are stuck in houses worth tens of thousands less than they borrowed, many consider defaulting as an option. Homeowner Jim Rojas said he's known several people who let their homes slip into foreclosure, even though they could make payments. They were underwater on their mortgages, and when banks wouldn't modify their loans, they walked away. Rojas said he ordinarily wouldn't think homeowners are right to do this, but his opinion changed when lenders received government bailouts. "I think if banks are allowed to walk away from their responsibility, then why can't we," said Rojas, who recently paid off his own mortgage. "You can't have it both ways. You have to understand where these people are coming from. Homes were made artificially high."
"People are using the excuse of "everybody's doing it" to justify walking away. They're banking on the fact that the government will lower standards of credit scores. So many people are defaulting, and a foreclosure doesn't have the same stigma it used to."
Homeowners face continuing price declines as thousands of foreclosed properties followed a real estate bubble that burst three years ago. The median sales price in Hillsborough County jumped from $140,000 in 2002 to $225,000 in 2007. The median so far this year is $155,000, about what it was in 2003, according to the county property appraiser. Moody's Economy.com predicts prices in the Tampa-St. Petersburg-Clearwater metro area will fall 9 percent more until the third quarter of 2011. Prices have already fallen 42 percent since they peaked in 2006.
Those who bought at the peak will have to wait until 2024 for prices to rebound, according to Moody's.
Some of Tampa Bay's underwater homeowners may have to wait 15 years or longer to break even on a sale. Others simply won't wait that long. They're cutting their losses now, defaulting on purpose, even though they can afford to make their mortgage payments.
And as more fed-up homeowners walk away, it becomes more likely their neighbors will too, according to a new survey from Fannie Mae, one of the nation's largest providers of mortgages. The study suggests mortgage holders are more likely to consider defaulting if they know someone who has defaulted. Of those who are already delinquent and think defaulting on purpose is OK, 40 percent said they know someone who has done the same thing.
Contrast that with mortgage holders who are current on payments and disapprove of defaulting on purpose. Just 2 percent of those respondents said they knew someone who defaulted even though they could afford their mortgage.
Fannie Mae considers states like Florida, which has a rising foreclosure rate, to be at a higher risk for so-called strategic default. That's when consumers let homes fall into foreclosure even though they can afford to make mortgage payments.
Nearly 50 percent of Tampa Bay area homeowners with a mortgage owe more than their property is worth. The number of "strategic defaults" more than doubled, to 588,000, from 2007 to 2008, according to the group's study. In the second quarter of 2009, the group said such defaults accounted for 19 percent of all mortgage delinquencies.
A separate study by college professors at the Chicago's Booth School of Business and Northwestern University's School of Business estimated 36 percent of the nation's defaults were "strategic" in December. That was up from 25 percent in March 2009.
Before the housing bust, walking away from a mortgage you could afford was unthinkable for most. But as more people realize they are stuck in houses worth tens of thousands less than they borrowed, many consider defaulting as an option. Homeowner Jim Rojas said he's known several people who let their homes slip into foreclosure, even though they could make payments. They were underwater on their mortgages, and when banks wouldn't modify their loans, they walked away. Rojas said he ordinarily wouldn't think homeowners are right to do this, but his opinion changed when lenders received government bailouts. "I think if banks are allowed to walk away from their responsibility, then why can't we," said Rojas, who recently paid off his own mortgage. "You can't have it both ways. You have to understand where these people are coming from. Homes were made artificially high."
"People are using the excuse of "everybody's doing it" to justify walking away. They're banking on the fact that the government will lower standards of credit scores. So many people are defaulting, and a foreclosure doesn't have the same stigma it used to."
Homeowners face continuing price declines as thousands of foreclosed properties followed a real estate bubble that burst three years ago. The median sales price in Hillsborough County jumped from $140,000 in 2002 to $225,000 in 2007. The median so far this year is $155,000, about what it was in 2003, according to the county property appraiser. Moody's Economy.com predicts prices in the Tampa-St. Petersburg-Clearwater metro area will fall 9 percent more until the third quarter of 2011. Prices have already fallen 42 percent since they peaked in 2006.
Those who bought at the peak will have to wait until 2024 for prices to rebound, according to Moody's.
The Tampa Tribune: Walking away from mortgage gets easier when neighbors do it
By SHANNON BEHNKEN
Some of Tampa Bay's underwater homeowners may have to wait 15 years or longer to break even on a sale. Others simply won't wait that long. They're cutting their losses now, defaulting on purpose, even though they can afford to make their mortgage payments.
And as more fed-up homeowners walk away, it becomes more likely their neighbors will too, according to a new survey from Fannie Mae, one of the nation's largest providers of mortgages. The study suggests mortgage holders are more likely to consider defaulting if they know someone who has defaulted. Of those who are already delinquent and think defaulting on purpose is OK, 40 percent said they know someone who has done the same thing.
Contrast that with mortgage holders who are current on payments and disapprove of defaulting on purpose. Just 2 percent of those respondents said they knew someone who defaulted even though they could afford their mortgage.
Fannie Mae considers states like Florida, which has a rising foreclosure rate, to be at a higher risk for so-called strategic default. That's when consumers let homes fall into foreclosure even though they can afford to make mortgage payments.
Nearly 50 percent of Tampa Bay area homeowners with a mortgage owe more than their property is worth. The number of "strategic defaults" more than doubled, to 588,000, from 2007 to 2008, according to the group's study. In the second quarter of 2009, the group said such defaults accounted for 19 percent of all mortgage delinquencies.
A separate study by college professors at the Chicago's Booth School of Business and Northwestern University's School of Business estimated 36 percent of the nation's defaults were "strategic" in December. That was up from 25 percent in March 2009.
Before the housing bust, walking away from a mortgage you could afford was unthinkable for most. But as more people realize they are stuck in houses worth tens of thousands less than they borrowed, many consider defaulting as an option. Homeowner Jim Rojas said he's known several people who let their homes slip into foreclosure, even though they could make payments. They were underwater on their mortgages, and when banks wouldn't modify their loans, they walked away. Rojas said he ordinarily wouldn't think homeowners are right to do this, but his opinion changed when lenders received government bailouts. "I think if banks are allowed to walk away from their responsibility, then why can't we," said Rojas, who recently paid off his own mortgage. "You can't have it both ways. You have to understand where these people are coming from. Homes were made artificially high."
"People are using the excuse of "everybody's doing it" to justify walking away. They're banking on the fact that the government will lower standards of credit scores. So many people are defaulting, and a foreclosure doesn't have the same stigma it used to."
Homeowners face continuing price declines as thousands of foreclosed properties followed a real estate bubble that burst three years ago. The median sales price in Hillsborough County jumped from $140,000 in 2002 to $225,000 in 2007. The median so far this year is $155,000, about what it was in 2003, according to the county property appraiser. Moody's Economy.com predicts prices in the Tampa-St. Petersburg-Clearwater metro area will fall 9 percent more until the third quarter of 2011. Prices have already fallen 42 percent since they peaked in 2006.
Those who bought at the peak will have to wait until 2024 for prices to rebound, according to Moody's.
Some of Tampa Bay's underwater homeowners may have to wait 15 years or longer to break even on a sale. Others simply won't wait that long. They're cutting their losses now, defaulting on purpose, even though they can afford to make their mortgage payments.
And as more fed-up homeowners walk away, it becomes more likely their neighbors will too, according to a new survey from Fannie Mae, one of the nation's largest providers of mortgages. The study suggests mortgage holders are more likely to consider defaulting if they know someone who has defaulted. Of those who are already delinquent and think defaulting on purpose is OK, 40 percent said they know someone who has done the same thing.
Contrast that with mortgage holders who are current on payments and disapprove of defaulting on purpose. Just 2 percent of those respondents said they knew someone who defaulted even though they could afford their mortgage.
Fannie Mae considers states like Florida, which has a rising foreclosure rate, to be at a higher risk for so-called strategic default. That's when consumers let homes fall into foreclosure even though they can afford to make mortgage payments.
Nearly 50 percent of Tampa Bay area homeowners with a mortgage owe more than their property is worth. The number of "strategic defaults" more than doubled, to 588,000, from 2007 to 2008, according to the group's study. In the second quarter of 2009, the group said such defaults accounted for 19 percent of all mortgage delinquencies.
A separate study by college professors at the Chicago's Booth School of Business and Northwestern University's School of Business estimated 36 percent of the nation's defaults were "strategic" in December. That was up from 25 percent in March 2009.
Before the housing bust, walking away from a mortgage you could afford was unthinkable for most. But as more people realize they are stuck in houses worth tens of thousands less than they borrowed, many consider defaulting as an option. Homeowner Jim Rojas said he's known several people who let their homes slip into foreclosure, even though they could make payments. They were underwater on their mortgages, and when banks wouldn't modify their loans, they walked away. Rojas said he ordinarily wouldn't think homeowners are right to do this, but his opinion changed when lenders received government bailouts. "I think if banks are allowed to walk away from their responsibility, then why can't we," said Rojas, who recently paid off his own mortgage. "You can't have it both ways. You have to understand where these people are coming from. Homes were made artificially high."
"People are using the excuse of "everybody's doing it" to justify walking away. They're banking on the fact that the government will lower standards of credit scores. So many people are defaulting, and a foreclosure doesn't have the same stigma it used to."
Homeowners face continuing price declines as thousands of foreclosed properties followed a real estate bubble that burst three years ago. The median sales price in Hillsborough County jumped from $140,000 in 2002 to $225,000 in 2007. The median so far this year is $155,000, about what it was in 2003, according to the county property appraiser. Moody's Economy.com predicts prices in the Tampa-St. Petersburg-Clearwater metro area will fall 9 percent more until the third quarter of 2011. Prices have already fallen 42 percent since they peaked in 2006.
Those who bought at the peak will have to wait until 2024 for prices to rebound, according to Moody's.
Monday, September 6, 2010
New York Times: Florida’s High-Speed Answer to a Foreclosure Mess
Florida’s High-Speed Answer to a Foreclosure Mess
By GRETCHEN MORGENSON and GERALDINE FABRIKANT
TEN days from now, a four-bedroom house on a cul-de-sac in Middleburg, Fla., is scheduled to be auctioned off at the Clay County courthouse, 25 miles south of Jacksonville.
A judge who recently took over their foreclosure case has ordered Rodney Waters; his fiancée, Terri Reese; and their four children to leave the home they bought in 2006. Mr. Waters, a supervisor at a local packaging company and the family’s sole breadwinner, fell behind on his mortgage two years ago after his property taxes jumped unexpectedly. He now owes $264,000 on the house; a similar home down the street sold for $138,500 in February.
The predicament of the Waters-Reese family is common in Florida today. The state routinely sets new records for foreclosures — in the second quarter, 20.13 percent of its mortgages were delinquent or in foreclosure, a national high, according to the Mortgage Bankers Association. And with housing prices still in a free fall, almost half of all borrowers in Florida owe more on their mortgages than their properties are worth, says CoreLogic, a data firm.
While the Waters-Reese case may not be unusual in Florida, the coming auction of the home is still notable: it will be a result of the Florida Legislature’s new effort to cut the number of foreclosures inching their way through the state’s courts. Earlier this year, Florida earmarked $9.6 million to set up foreclosures-only courts across the state, staffed by retired judges. The goal of the program, which began in July, is to reduce the foreclosures backlog by 62 percent within a year.
No one disputes that foreclosures dominate Florida’s dockets and that something needs to be done to streamline a complex and emotionally wrenching process. But lawyers representing troubled borrowers contend that many of the retired judges called in from the sidelines to oversee these matters are so focused on cutting the caseload that they are unfairly favoring financial institutions at the expense of homeowners.
Lawyers say judges are simply ignoring problematic or contradictory evidence and awarding the right to foreclose to institutions that have yet to prove they own the properties in question.
“Now you show up and you get whatever judge is on the schedule and they have not looked at the file — they don’t even look at the motions,” says April Charney, a lawyer who represents imperiled borrowers at Jacksonville Area Legal Aid. “You get a five-minute hearing. It’s a factory.”
But Victor Tobin, chief judge in the 17th Judicial Circuit, which includes Broward County, defended the effort. “There are more assets devoted to those three foreclosure divisions in Broward than to any other division in the building in terms of case managers and that sort of thing to help the general public,” he said. “The people who come get fully, fully heard.”
In any event, huge numbers of cases are being handled. In an article last week in The Florida Bar News, Belvin Perry Jr., chief judge for the state’s Ninth Judicial Circuit, said that during July, 1,319 cases had been closed by three senior judges in the district’s two counties, Orange and Osceola.
Florida’s foreclosure mess is made murkier by what analysts and lawyers involved in the process say are questionable practices by some law firms that are representing banks. Such tactics, these people say, have drawn out the process significantly, making it extremely lucrative for the lawyers and more draining for troubled homeowners.
Doctored or dubious records presented in court as proof of a bank’s ownership have become such a problem that Bill McCollum, the Florida attorney general, announced last month that his office was investigating the state’s three largest foreclosure law firms representing lenders.
“Thousands of final judgments of foreclosure against Florida homeowners may have been the result of the allegedly improper actions of these law firms,” said Mr. McCollum in an interview. “We’ve had so many complaints that I am confident there is a great deal of fraud here.”
To be sure, adjudicating foreclosure cases is difficult, complicated by multiple transfers of mortgages and notes when a loan is sold, bewildering paperwork submitted by loan servicers and shoddy record-keeping by the many institutions that touched the mortgages during the byzantine securitization process that fueled the housing boom.
Nevertheless, Florida law requires that before a financial institution can foreclose on a borrower, it must prove to the court that it actually has the standing to do so. In other words, it has to show that it is truly the owner. And this is done by demonstrating ownership of the note underlying the mortgage.
The Waters case offers an example of how wrong things can go in complex foreclosure cases. While AmTrust, a failed Ohio bank that is now a division of New York Community Bank, said it owned the note and could foreclose, Mr. Waters’s lawyer produced documents showing that Fannie Mae, the taxpayer-owned mortgage finance giant, was really the owner.
In spite of the conflicting evidence, Aaron Bowden, the retired judge overseeing the case, made a summary judgment on Aug. 3, ruling that the property should go back to AmTrust. Mr. Bowden did not return phone calls seeking comment.
Chip Parker, managing partner at Parker & DuFresne in Jacksonville, which represents Mr. Waters, said: “The threshold issue in any foreclosure case is who has the right to foreclose. We presented evidence to the judge that Fannie Mae owns the note and mortgage, and yet the judge ignored this crucial evidence.”
Mr. Parker is concerned that some homeowners are victimized by the system. “What we are talking about is railroading homeowners through the rocket docket,” he added.
When contacted by a reporter on Thursday, a spokeswoman for Fannie Mae confirmed that it owned the note. David Tong, the lawyer representing AmTrust in the case, declined to comment on the matter. But on Friday, he did an about-face, filing papers with the court acknowledging that Fannie Mae owns the note.
Clearing the Backlog
Florida law requires that banks argue their cases before a judge if they want to recover property from borrowers in default, and 471,000 such cases were pending in Florida at the end of July, according to the Florida State Courts administration.
Setting up discrete foreclosure courts statewide was seen as a way to help deal with the issue; consumer law experts say they aren’t aware of any other state that has set up a temporary court to work down such a backlog.
But it is paradoxical, say lawyers representing homeowners in the cases, that Florida’s attorney general acknowledges problems in the cases while retired judges, intent on reducing caseloads, seem unconcerned about those same problems — like flaws in the banks’ documentation of ownership.
“The most shocking thing of all is the A.G.’s office understands the problem and yet the court system turns a blind eye to the fact that mortgage servicers are the problem,” says Margery Golant, a lawyer in South Florida and a former executive at Ocwen, a large mortgage servicing company. “In the meantime, neighborhoods are being destroyed, homeowners’ associations are being destroyed, and the tax base is being clobbered.”
Steven P. Combs, a lawyer at Combs, Greene, McLester, who formerly was general counsel to the Fourth Judicial Circuit as well as a family law magistrate, says the entire process may be unconstitutional. The Florida Supreme Court has consistently recognized the need to hire retired judges on a temporary basis, Mr. Combs said, and has ruled that such a “temporary” use is constitutional.
But because the retired judges are being given foreclosure assignments “repeatedly and consecutively” to the point of usurping the elected judges’ jurisdiction over all residential foreclosure cases, he said, their use may not qualify as temporary and could thus violate the Florida constitution.
The fact that these judges are being paid to reduce the court’s case load creates a perception among homeowners that the judges have a financial interest in dispensing cases prematurely, Mr. Combs said, creating a potential bias against borrowers and possibly violating their right to due process.
He pointed to a recent case in Broward County in which a retired judge refused to postpone a borrower’s foreclosure sale even though the bank had agreed to it. The judge stated that she was there to “dispose of cases.”
“If you are an individual whose house is being foreclosed and you hear these judges are being paid to clean out the backlog, under a realistic appraisal of human tendencies, do you think that the average judge would be biased in favor of prematurely terminating your case to clean out the backlog?” Mr. Combs asked.
J. Thomas McGrady, chief judge in the Sixth Judicial Circuit, said in a press release announcing the program: “We have to clear these cases because of the negative impact they are having on other civil litigation. The real estate crisis has placed a tremendous burden on our judges, and people with other types of pending litigation are also entitled to their day in court.”
Who Owns the Notes?
A foreclosure crisis that has forced millions of delinquent borrowers from their homes across Florida and elsewhere has also created enormous profits for the law firms and foreclosure servicers that represent banks and financial services in these actions.
Among the busiest of these firms are the three under investigation by Florida’s attorney general: the Law Offices of Marshall C. Watson; Shapiro & Fishman; and the Law Offices of David J. Stern.
“These law firms appear to be mills,” says Mr. McCollum. “They submit false documents, fabricate the documents, or the documents actually don’t exist. They wanted to speed the process up because the faster they get the foreclosures done the better.”
But Mr. Stern said: “I can’t speak for the other firms, but I can assure you there has not been submission of fraudulent documents. We feel a lot of it is politically motivated. We have done nothing wrong and are going to cooperate fully.”
Lawyers for the other two firms also disputed the attorney general’s contentions, maintaining that they work diligently on behalf of their clients. Borrowers’ lawyers say they confront dubious practices, often involving false documentation “proving” who owns the note on a given property.
Typically, they say, this involves questionable affidavits asserting ownership of a note because the actual document has been lost or cannot be produced. Because the affidavits are often signed by bank representatives who have a stake in the outcome, they should not be allowed as evidence, borrowers’ lawyers say. Yet they routinely are introduced as evidence; the Waters case involves such an affidavit signed by an AmTrust official.
The problem of who owns the note is a result of the process of bundling home loans into securities and selling them to investors — a common practice in the housing boom. This meant that notes documenting ownership on a property were repeatedly transferred, blurring the identity of exactly who controlled the note.
Documents showing that a note has been assigned to a foreclosing bank are often dated after a foreclosure, meaning that the bank bringing the case may not have the right to foreclose.
Other questions arise involving documents with improper notary stamps and wildly different signatures on legal papers supposedly prepared by the same person, borrowers’ lawyers say.
In a case in May 2009, Thomas E. Ice, a defense lawyer at Ice Legal in Royal Palm Beach, Fla., took the deposition of Cheryl Samons, an operations manager at the David J. Stern law firm. He asked her about instances at the firm of backdating the assignment of mortgages to allow foreclosures to go forward.
Mr. Ice and his wife, Ariane, who works with him, had found problems with notary stamps on mortgage assignments. “Many assignments of mortgages were signed and notarized with a stamp that had not been issued at the time of the signing, reflecting that the assignment was backdated,” Mr. Ice says.
In her court deposition with Mr. Ice, Ms. Samons testified that she was both an executive of the entity that handles the mortgage transfers and an officer at the Stern firm. Mr. Ice says that this creates a conflict of interest because clients of the Stern firm — most of the nation’s major banks — benefit from the transfer.
The law firm helps its own clients by “creating an illusion that the signing took place before and it did not,” says Mr. Ice. Mr. Stern attributed any backdating to sloppiness on the part of paralegals and said that it had since been corrected.
As for Ms. Samons’s dual roles at the mortgage transfer registry and the law firm, he responded that, “We believe it is a solid practice.” Ms. Samons did not return phone calls seeking comment.
Another popular practice that ties up courts’ calendars occurs after a foreclosure is granted and the property is scheduled to be returned to the bank. As ownership shifts from borrower to bank, so do all the obligations associated with it, like payment of homeowners’ association dues.
But few banks want to pay these bills, so firms representing them move to delay the final step in the process by canceling the sale of a foreclosed property at the last minute, court officials say. This does not require the banks to restart the foreclosure process, but it keeps the property in the hands of the borrower, who remains responsible for maintenance and association dues.
Earlier this year, Jennifer D. Bailey, administrative judge in Miami-Dade County, said such cancellations were occurring in 55 percent of cases in her district. In July, she instituted new rules to reduce last-minute cancellations, including a requirement that a judge hear the reason.
“There was huge volume to start with and then with this extra bogus stuff going on, the courts were cross-eyed from it,” says Ms. Golant. “There is a certain amount of truth to the gridlock, but the reason for the gridlock is the foreclosure firms are practically running the courtrooms.”
One Firm, Many Cases
The lawyer most closely identified with Florida’s foreclosure morass is David J. Stern. He is something of a mystery man within the foreclosure world; it is impossible to reach him by phone since his name is not in the firm’s voice-mail directory and, until recently, there were no publicly available photographs of him.
Several prominent borrowers’ lawyers who have litigated against his firm say they have never met him. Operating out of a gleaming eight-story office building in Plantation, Fla., Mr. Stern, 50, has come a long way from the South Texas College of Law, from which he graduated in 1986. He spent his early career as a quality-control lawyer for Gerald Shapiro, a lawyer who represented mortgage lenders. He opened his own firm in 1994; Fannie Mae voted him attorney of the year in 1998.
Mr. Stern’s company, which now includes a law firm and ancillary foreclosure support businesses, employs more than 900 people. The firm filed 70,382 foreclosure cases last year. Critics say the Stern firm has been able to handle this high volume because its lawyers frequently refuse to work with borrowers and are very aggressive about pushing cases through the courts even when there are questions about the documentation.
Mr. Stern sees it differently. “I refer to us as an efficient law firm with a specialization in mortgage lending,”’ he responded. “Should I feel ashamed that I have built a successful practice?” he asked. “No one references how committed I am, how I built my firm and how I work 20 hours a day.”
But some question the thoroughness of the firm’s work. Bill Warner, a private investigator in Sarasota, said the Stern firm filed a foreclosure suit against him on behalf of Deutsche Bank Financial Trust in January 2009. But the bank did not own the property and the suit erred by including in its claims a federal tax lien on another person with the same name but a different Social Security number, Mr. Warner said.
Mr. Warner’s mortgage was actually owned by Countrywide, which had sold it to Wells Fargo. “I fought them myself for a year and a half,” he recalls. “In the meantime, we did a loan modification with Wells Fargo but Mr. Stern’s firm pursued the foreclosure on the property anyway.”
Last May, Mr. Warner filed a motion to dismiss the case, alleging submission of a fraudulent document because Deutsche Bank was not owner of the note. He filed another motion questioning the credibility of the Stern firm and the lawyer on the case, he said. On June 14, Deutsche Bank withdrew the case.
Earlier this year Mr. Stern, who has profited handsomely from the foreclosure trade, sold the part of his operation that provides support services for his firm’s foreclosure work — DJS Processing — to a public company called the Chardan 2008 China Acquisition Corporation. The processing company and affiliates generated revenue of $260 million in 2009, financial filings show.
Brian Foley, a compensation consultant in White Plains, concluded that Mr. Stern made $17.8 million in 2008, including $12.64 million in compensation and nonrecurring benefits of $4.36 million. In the deal with Chardan, Mr. Stern and his affiliates were paid $93.5 million: $58.5 million in cash and $35 million after the transaction closed, according to government filings. In addition, Mr. Stern got a promissory note for $52.49 million to be paid out over the next couple of years.
In recent years, Mr. Stern and his wife, Jeanine, have bought nearly $60 million in real estate, mostly in Florida, property records show. Their Mediterranean-style home on Harborage Isle Drive, in a gated community in Fort Lauderdale, faces water on two sides and cost almost $14 million. Not far away, in Hillsboro Beach, the Sterns bought two waterfront properties for $17 million.
Mr. Stern also spent $6.8 million last year on a 9,273-square-foot apartment at the Castillo Grand Residences in Fort Lauderdale, part of a Ritz-Carlton complex. He and his wife own two homes in Beaver Creek, Colo.; one was purchased in 2001 for $4.975 million, and another bought in 2007 for $14.2 million. His automobile collection may be worth $3 million, auto experts said; it includes a 2008 Bugatti, multiple Ferraris, Porsches and Mercedes and a Cadillac.
This being Florida, Mr. Stern also collects boats. A 108-foot Mangusta yacht, Lady J, is for sale at $5.9 million, Web postings show. It was replaced by a 130-foot yacht that cost about $20 million, according to an acquaintance who requested anonymity over concerns about Mr. Stern’s influence in the community.
In a nod to his foreclosure work, according to the acquaintance, Mr. Stern mused about possibly naming the larger yacht Su Casa Es Mi Casa — “Your House Is My House.” But his wife and others cautioned against it, according to this acquaintance, and Mr. Stern named the boat “Misunderstood.” Mr. Stern denies that he considered the “Su Casa Es Mi Casa” name.
Resigned to Moving
While Rodney Waters and Terri Reese are resigned to leaving their home and moving their family into a rental, they still face another problem. Under Florida law, a lender may pursue Mr. Waters for the difference between what it says he owes on the house and what it will fetch in a sale. Thanks to foreclosure fees and other charges, he owes almost double the $138,500 received in February by the seller of a neighboring house.
Included in the amount that Mr. Waters owes is almost $10,000 in fees generated by AmTrust’s lawyers in the case. Mr. Bowden, the retired judge overseeing the case, ordered Mr. Waters to pay the fees. His lawyer, Mr. Parker, had hoped to persuade the owner of the note to offer a new loan to his client in a smaller amount to reflect the reduced value in the property. He argued that this would be a better outcome for the lender and the borrower, since a foreclosure usually ends up costing a lender far more than does a principal write-down that leaves the borrower in the home.
But with the judge ruling in favor of the lender, such a deal is unlikely. Mr. Parker filed an appeal late last week, but Mr. Waters may have to file for bankruptcy to stop the foreclosure sale.
By GRETCHEN MORGENSON and GERALDINE FABRIKANT
TEN days from now, a four-bedroom house on a cul-de-sac in Middleburg, Fla., is scheduled to be auctioned off at the Clay County courthouse, 25 miles south of Jacksonville.
A judge who recently took over their foreclosure case has ordered Rodney Waters; his fiancée, Terri Reese; and their four children to leave the home they bought in 2006. Mr. Waters, a supervisor at a local packaging company and the family’s sole breadwinner, fell behind on his mortgage two years ago after his property taxes jumped unexpectedly. He now owes $264,000 on the house; a similar home down the street sold for $138,500 in February.
The predicament of the Waters-Reese family is common in Florida today. The state routinely sets new records for foreclosures — in the second quarter, 20.13 percent of its mortgages were delinquent or in foreclosure, a national high, according to the Mortgage Bankers Association. And with housing prices still in a free fall, almost half of all borrowers in Florida owe more on their mortgages than their properties are worth, says CoreLogic, a data firm.
While the Waters-Reese case may not be unusual in Florida, the coming auction of the home is still notable: it will be a result of the Florida Legislature’s new effort to cut the number of foreclosures inching their way through the state’s courts. Earlier this year, Florida earmarked $9.6 million to set up foreclosures-only courts across the state, staffed by retired judges. The goal of the program, which began in July, is to reduce the foreclosures backlog by 62 percent within a year.
No one disputes that foreclosures dominate Florida’s dockets and that something needs to be done to streamline a complex and emotionally wrenching process. But lawyers representing troubled borrowers contend that many of the retired judges called in from the sidelines to oversee these matters are so focused on cutting the caseload that they are unfairly favoring financial institutions at the expense of homeowners.
Lawyers say judges are simply ignoring problematic or contradictory evidence and awarding the right to foreclose to institutions that have yet to prove they own the properties in question.
“Now you show up and you get whatever judge is on the schedule and they have not looked at the file — they don’t even look at the motions,” says April Charney, a lawyer who represents imperiled borrowers at Jacksonville Area Legal Aid. “You get a five-minute hearing. It’s a factory.”
But Victor Tobin, chief judge in the 17th Judicial Circuit, which includes Broward County, defended the effort. “There are more assets devoted to those three foreclosure divisions in Broward than to any other division in the building in terms of case managers and that sort of thing to help the general public,” he said. “The people who come get fully, fully heard.”
In any event, huge numbers of cases are being handled. In an article last week in The Florida Bar News, Belvin Perry Jr., chief judge for the state’s Ninth Judicial Circuit, said that during July, 1,319 cases had been closed by three senior judges in the district’s two counties, Orange and Osceola.
Florida’s foreclosure mess is made murkier by what analysts and lawyers involved in the process say are questionable practices by some law firms that are representing banks. Such tactics, these people say, have drawn out the process significantly, making it extremely lucrative for the lawyers and more draining for troubled homeowners.
Doctored or dubious records presented in court as proof of a bank’s ownership have become such a problem that Bill McCollum, the Florida attorney general, announced last month that his office was investigating the state’s three largest foreclosure law firms representing lenders.
“Thousands of final judgments of foreclosure against Florida homeowners may have been the result of the allegedly improper actions of these law firms,” said Mr. McCollum in an interview. “We’ve had so many complaints that I am confident there is a great deal of fraud here.”
To be sure, adjudicating foreclosure cases is difficult, complicated by multiple transfers of mortgages and notes when a loan is sold, bewildering paperwork submitted by loan servicers and shoddy record-keeping by the many institutions that touched the mortgages during the byzantine securitization process that fueled the housing boom.
Nevertheless, Florida law requires that before a financial institution can foreclose on a borrower, it must prove to the court that it actually has the standing to do so. In other words, it has to show that it is truly the owner. And this is done by demonstrating ownership of the note underlying the mortgage.
The Waters case offers an example of how wrong things can go in complex foreclosure cases. While AmTrust, a failed Ohio bank that is now a division of New York Community Bank, said it owned the note and could foreclose, Mr. Waters’s lawyer produced documents showing that Fannie Mae, the taxpayer-owned mortgage finance giant, was really the owner.
In spite of the conflicting evidence, Aaron Bowden, the retired judge overseeing the case, made a summary judgment on Aug. 3, ruling that the property should go back to AmTrust. Mr. Bowden did not return phone calls seeking comment.
Chip Parker, managing partner at Parker & DuFresne in Jacksonville, which represents Mr. Waters, said: “The threshold issue in any foreclosure case is who has the right to foreclose. We presented evidence to the judge that Fannie Mae owns the note and mortgage, and yet the judge ignored this crucial evidence.”
Mr. Parker is concerned that some homeowners are victimized by the system. “What we are talking about is railroading homeowners through the rocket docket,” he added.
When contacted by a reporter on Thursday, a spokeswoman for Fannie Mae confirmed that it owned the note. David Tong, the lawyer representing AmTrust in the case, declined to comment on the matter. But on Friday, he did an about-face, filing papers with the court acknowledging that Fannie Mae owns the note.
Clearing the Backlog
Florida law requires that banks argue their cases before a judge if they want to recover property from borrowers in default, and 471,000 such cases were pending in Florida at the end of July, according to the Florida State Courts administration.
Setting up discrete foreclosure courts statewide was seen as a way to help deal with the issue; consumer law experts say they aren’t aware of any other state that has set up a temporary court to work down such a backlog.
But it is paradoxical, say lawyers representing homeowners in the cases, that Florida’s attorney general acknowledges problems in the cases while retired judges, intent on reducing caseloads, seem unconcerned about those same problems — like flaws in the banks’ documentation of ownership.
“The most shocking thing of all is the A.G.’s office understands the problem and yet the court system turns a blind eye to the fact that mortgage servicers are the problem,” says Margery Golant, a lawyer in South Florida and a former executive at Ocwen, a large mortgage servicing company. “In the meantime, neighborhoods are being destroyed, homeowners’ associations are being destroyed, and the tax base is being clobbered.”
Steven P. Combs, a lawyer at Combs, Greene, McLester, who formerly was general counsel to the Fourth Judicial Circuit as well as a family law magistrate, says the entire process may be unconstitutional. The Florida Supreme Court has consistently recognized the need to hire retired judges on a temporary basis, Mr. Combs said, and has ruled that such a “temporary” use is constitutional.
But because the retired judges are being given foreclosure assignments “repeatedly and consecutively” to the point of usurping the elected judges’ jurisdiction over all residential foreclosure cases, he said, their use may not qualify as temporary and could thus violate the Florida constitution.
The fact that these judges are being paid to reduce the court’s case load creates a perception among homeowners that the judges have a financial interest in dispensing cases prematurely, Mr. Combs said, creating a potential bias against borrowers and possibly violating their right to due process.
He pointed to a recent case in Broward County in which a retired judge refused to postpone a borrower’s foreclosure sale even though the bank had agreed to it. The judge stated that she was there to “dispose of cases.”
“If you are an individual whose house is being foreclosed and you hear these judges are being paid to clean out the backlog, under a realistic appraisal of human tendencies, do you think that the average judge would be biased in favor of prematurely terminating your case to clean out the backlog?” Mr. Combs asked.
J. Thomas McGrady, chief judge in the Sixth Judicial Circuit, said in a press release announcing the program: “We have to clear these cases because of the negative impact they are having on other civil litigation. The real estate crisis has placed a tremendous burden on our judges, and people with other types of pending litigation are also entitled to their day in court.”
Who Owns the Notes?
A foreclosure crisis that has forced millions of delinquent borrowers from their homes across Florida and elsewhere has also created enormous profits for the law firms and foreclosure servicers that represent banks and financial services in these actions.
Among the busiest of these firms are the three under investigation by Florida’s attorney general: the Law Offices of Marshall C. Watson; Shapiro & Fishman; and the Law Offices of David J. Stern.
“These law firms appear to be mills,” says Mr. McCollum. “They submit false documents, fabricate the documents, or the documents actually don’t exist. They wanted to speed the process up because the faster they get the foreclosures done the better.”
But Mr. Stern said: “I can’t speak for the other firms, but I can assure you there has not been submission of fraudulent documents. We feel a lot of it is politically motivated. We have done nothing wrong and are going to cooperate fully.”
Lawyers for the other two firms also disputed the attorney general’s contentions, maintaining that they work diligently on behalf of their clients. Borrowers’ lawyers say they confront dubious practices, often involving false documentation “proving” who owns the note on a given property.
Typically, they say, this involves questionable affidavits asserting ownership of a note because the actual document has been lost or cannot be produced. Because the affidavits are often signed by bank representatives who have a stake in the outcome, they should not be allowed as evidence, borrowers’ lawyers say. Yet they routinely are introduced as evidence; the Waters case involves such an affidavit signed by an AmTrust official.
The problem of who owns the note is a result of the process of bundling home loans into securities and selling them to investors — a common practice in the housing boom. This meant that notes documenting ownership on a property were repeatedly transferred, blurring the identity of exactly who controlled the note.
Documents showing that a note has been assigned to a foreclosing bank are often dated after a foreclosure, meaning that the bank bringing the case may not have the right to foreclose.
Other questions arise involving documents with improper notary stamps and wildly different signatures on legal papers supposedly prepared by the same person, borrowers’ lawyers say.
In a case in May 2009, Thomas E. Ice, a defense lawyer at Ice Legal in Royal Palm Beach, Fla., took the deposition of Cheryl Samons, an operations manager at the David J. Stern law firm. He asked her about instances at the firm of backdating the assignment of mortgages to allow foreclosures to go forward.
Mr. Ice and his wife, Ariane, who works with him, had found problems with notary stamps on mortgage assignments. “Many assignments of mortgages were signed and notarized with a stamp that had not been issued at the time of the signing, reflecting that the assignment was backdated,” Mr. Ice says.
In her court deposition with Mr. Ice, Ms. Samons testified that she was both an executive of the entity that handles the mortgage transfers and an officer at the Stern firm. Mr. Ice says that this creates a conflict of interest because clients of the Stern firm — most of the nation’s major banks — benefit from the transfer.
The law firm helps its own clients by “creating an illusion that the signing took place before and it did not,” says Mr. Ice. Mr. Stern attributed any backdating to sloppiness on the part of paralegals and said that it had since been corrected.
As for Ms. Samons’s dual roles at the mortgage transfer registry and the law firm, he responded that, “We believe it is a solid practice.” Ms. Samons did not return phone calls seeking comment.
Another popular practice that ties up courts’ calendars occurs after a foreclosure is granted and the property is scheduled to be returned to the bank. As ownership shifts from borrower to bank, so do all the obligations associated with it, like payment of homeowners’ association dues.
But few banks want to pay these bills, so firms representing them move to delay the final step in the process by canceling the sale of a foreclosed property at the last minute, court officials say. This does not require the banks to restart the foreclosure process, but it keeps the property in the hands of the borrower, who remains responsible for maintenance and association dues.
Earlier this year, Jennifer D. Bailey, administrative judge in Miami-Dade County, said such cancellations were occurring in 55 percent of cases in her district. In July, she instituted new rules to reduce last-minute cancellations, including a requirement that a judge hear the reason.
“There was huge volume to start with and then with this extra bogus stuff going on, the courts were cross-eyed from it,” says Ms. Golant. “There is a certain amount of truth to the gridlock, but the reason for the gridlock is the foreclosure firms are practically running the courtrooms.”
One Firm, Many Cases
The lawyer most closely identified with Florida’s foreclosure morass is David J. Stern. He is something of a mystery man within the foreclosure world; it is impossible to reach him by phone since his name is not in the firm’s voice-mail directory and, until recently, there were no publicly available photographs of him.
Several prominent borrowers’ lawyers who have litigated against his firm say they have never met him. Operating out of a gleaming eight-story office building in Plantation, Fla., Mr. Stern, 50, has come a long way from the South Texas College of Law, from which he graduated in 1986. He spent his early career as a quality-control lawyer for Gerald Shapiro, a lawyer who represented mortgage lenders. He opened his own firm in 1994; Fannie Mae voted him attorney of the year in 1998.
Mr. Stern’s company, which now includes a law firm and ancillary foreclosure support businesses, employs more than 900 people. The firm filed 70,382 foreclosure cases last year. Critics say the Stern firm has been able to handle this high volume because its lawyers frequently refuse to work with borrowers and are very aggressive about pushing cases through the courts even when there are questions about the documentation.
Mr. Stern sees it differently. “I refer to us as an efficient law firm with a specialization in mortgage lending,”’ he responded. “Should I feel ashamed that I have built a successful practice?” he asked. “No one references how committed I am, how I built my firm and how I work 20 hours a day.”
But some question the thoroughness of the firm’s work. Bill Warner, a private investigator in Sarasota, said the Stern firm filed a foreclosure suit against him on behalf of Deutsche Bank Financial Trust in January 2009. But the bank did not own the property and the suit erred by including in its claims a federal tax lien on another person with the same name but a different Social Security number, Mr. Warner said.
Mr. Warner’s mortgage was actually owned by Countrywide, which had sold it to Wells Fargo. “I fought them myself for a year and a half,” he recalls. “In the meantime, we did a loan modification with Wells Fargo but Mr. Stern’s firm pursued the foreclosure on the property anyway.”
Last May, Mr. Warner filed a motion to dismiss the case, alleging submission of a fraudulent document because Deutsche Bank was not owner of the note. He filed another motion questioning the credibility of the Stern firm and the lawyer on the case, he said. On June 14, Deutsche Bank withdrew the case.
Earlier this year Mr. Stern, who has profited handsomely from the foreclosure trade, sold the part of his operation that provides support services for his firm’s foreclosure work — DJS Processing — to a public company called the Chardan 2008 China Acquisition Corporation. The processing company and affiliates generated revenue of $260 million in 2009, financial filings show.
Brian Foley, a compensation consultant in White Plains, concluded that Mr. Stern made $17.8 million in 2008, including $12.64 million in compensation and nonrecurring benefits of $4.36 million. In the deal with Chardan, Mr. Stern and his affiliates were paid $93.5 million: $58.5 million in cash and $35 million after the transaction closed, according to government filings. In addition, Mr. Stern got a promissory note for $52.49 million to be paid out over the next couple of years.
In recent years, Mr. Stern and his wife, Jeanine, have bought nearly $60 million in real estate, mostly in Florida, property records show. Their Mediterranean-style home on Harborage Isle Drive, in a gated community in Fort Lauderdale, faces water on two sides and cost almost $14 million. Not far away, in Hillsboro Beach, the Sterns bought two waterfront properties for $17 million.
Mr. Stern also spent $6.8 million last year on a 9,273-square-foot apartment at the Castillo Grand Residences in Fort Lauderdale, part of a Ritz-Carlton complex. He and his wife own two homes in Beaver Creek, Colo.; one was purchased in 2001 for $4.975 million, and another bought in 2007 for $14.2 million. His automobile collection may be worth $3 million, auto experts said; it includes a 2008 Bugatti, multiple Ferraris, Porsches and Mercedes and a Cadillac.
This being Florida, Mr. Stern also collects boats. A 108-foot Mangusta yacht, Lady J, is for sale at $5.9 million, Web postings show. It was replaced by a 130-foot yacht that cost about $20 million, according to an acquaintance who requested anonymity over concerns about Mr. Stern’s influence in the community.
In a nod to his foreclosure work, according to the acquaintance, Mr. Stern mused about possibly naming the larger yacht Su Casa Es Mi Casa — “Your House Is My House.” But his wife and others cautioned against it, according to this acquaintance, and Mr. Stern named the boat “Misunderstood.” Mr. Stern denies that he considered the “Su Casa Es Mi Casa” name.
Resigned to Moving
While Rodney Waters and Terri Reese are resigned to leaving their home and moving their family into a rental, they still face another problem. Under Florida law, a lender may pursue Mr. Waters for the difference between what it says he owes on the house and what it will fetch in a sale. Thanks to foreclosure fees and other charges, he owes almost double the $138,500 received in February by the seller of a neighboring house.
Included in the amount that Mr. Waters owes is almost $10,000 in fees generated by AmTrust’s lawyers in the case. Mr. Bowden, the retired judge overseeing the case, ordered Mr. Waters to pay the fees. His lawyer, Mr. Parker, had hoped to persuade the owner of the note to offer a new loan to his client in a smaller amount to reflect the reduced value in the property. He argued that this would be a better outcome for the lender and the borrower, since a foreclosure usually ends up costing a lender far more than does a principal write-down that leaves the borrower in the home.
But with the judge ruling in favor of the lender, such a deal is unlikely. Mr. Parker filed an appeal late last week, but Mr. Waters may have to file for bankruptcy to stop the foreclosure sale.
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