Law Suits & Courts

Bank of American Responds to Robo Signer

Posted on Monday, October 4, 2010

Bank of America to Freeze Foreclosure Cases
By DAVID STREITFELD NYT

Bank of America, the country’s largest mortgage lender by assets, said on Friday that it was reviewing documents in all foreclosure cases now in court to evaluate if there were errors.

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It is the third major lender in the last two weeks to freeze foreclosures in the 23 states where the process is controlled by courts.

But Bank of America went further than the first two lenders, GMAC Mortgage and JPMorgan Chase, which have said they will amend paperwork only in cases they think were improperly done. So far, that has amounted to only a handful of cases.

Bank of America, in an e-mailed statement, said it would “amend all affidavits in foreclosure cases that have not yet gone to judgment.”

That could mean tens of thousands of foreclosure cases would be in limbo for months or, if the consumers in default hire lawyers, years.

Spokesmen for the bank said that they were uncertain how many cases the lender currently had in court. They provided no timeline or explanation for the freeze, saying only that the bank planned to eventually resubmit all the cases.

The moratorium is likely to further fuel the uproar over the foreclosure tactics of the big lenders, which continued to have political ramifications on Friday.

Before Bank of America’s announcement, Richard Blumenthal, the Connecticut attorney general, asked judges in his state to put a halt to all foreclosures for 60 days. Connecticut is one of the 23 states where foreclosure is a judicial matter. Others include Illinois, Florida, New Jersey and New York.

Mr. Blumenthal, who is running for senator in Connecticut, said the freeze “should stop a foreclosure steamroller based on defective documents and enable effective remedies.”

California’s attorney general, Jerry Brown, said that Chase should stop any foreclosures in the state until it proved that it was following the law. Mr. Brown, who is a candidate for governor, earlier made the same demand of GMAC.

In California, lenders generally pursue foreclosures outside of the court system, so they are presumably still proceeding with evictions. Chase declined to say whether it would comply with Mr. Brown’s comments.

Chase said this week that it had frozen 56,000 foreclosure cases. GMAC, which is largely owned by the Treasury after receiving $17 billion in federal bailout money to prevent its collapse, has repeatedly declined to say how many cases it is halting.

The nation’s two other major lenders, Citi and Wells Fargo, have issued statements maintaining they have no problems with their cases.

The problem for all the lenders that have announced moratoriums stems directly from their attempt to deal with an unprecedented number of foreclosures.

According to LPS Applied Analytics, a mortgage data firm, 2 million households are in foreclosure. Another 2.37 million households are seriously delinquent and waiting for their lender to take action.

Sometimes these loans are still owned by the lender but often, the banks are merely the loan servicer acting on behalf of the owner. Many of the loans are owned by Fannie Mae and Freddie Mac, the mortgage holding companies now controlled by the Treasury. In other cases the loans have been sold to private investment pools.

Confronted with so many cases, the lenders tried to process them on a wholesale basis, with the goal of avoiding the expense of a full trial and instead getting summary judgments.

The tool for doing this was the so-called robo-signers, in which midlevel bank executives would sign thousands of affidavits a month attesting that they had personal knowledge that the facts of the case were as presented. The affidavits were prepared by lawyers who were paid a flat fee, which also placed a premium on volume.

When defense lawyers started deposing these robo-signers, they acknowledged that they could not possibly have knowledge of all the cases. The banks say this is a technicality and they will refile the proper affidavits. The defense lawyers say the practice calls the cases, and indeed the entire process, into question.

Thomas Lawler, a housing economist, said the current mess was predictable and probably inevitable. Lenders made their money by making loans and then simply and efficiently servicing them by collecting the checks every month. They were never prepared to deal with the labor-intensive problems of delinquency and foreclosure.

“However, the foreclosure crisis is now almost three years old, and not having staffed up sufficiently to deal with the problems with inadequate staffing borders on criminal,” Mr. Lawler said. “I mean, jeepers, look at the unemployment rate; how hard would it have been to hire more folks?”

Mark Stopa, a Florida lawyer who represents defaulting homeowners, said the magnitude of the current troubles depends on how title insurance companies react. If those firms begin to shy away from insuring foreclosed properties because they think those properties are vulnerable to claims, he said, the entire housing market could suffer.

“Judges have to force banks to do foreclosures correctly,” Mr. Stopa said. But he noted that would require a significant increase in staff. “I’ll believe it when I see it,” he said.

Stocks of the major title insurance companies dropped on Friday amid concern that their business would suffer as a result of the foreclosure freezes. Fidelity National Financial fell more than 4 percent, while First American Financial dropped 3 percent.

One firm, Old Republic National Title, said this week it would not issue policies on GMAC foreclosures until further notice.


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