Posted on Wednesday, October 13, 2010
California officials are considering joining a multistate investigation of whether lenders have violated foreclosure laws when seizing houses from delinquent borrowers.
The investigation, which is expected to be publicly announced Wednesday, is spearheaded by Iowa Atty. Gen. Tom Miller. Under his leadership, coalitions of states have won lending-abuse settlements of $484 million from Household International Inc. and $325 million from Ameriquest Mortgage Co.
The probe stems from disclosures that some major lenders filed faulty paperwork in the 23 judicial foreclosure states — the states in which foreclosures are handled by the courts.
In these so-called robo-signing cases, employees signed thousands of legal affidavits assuring judges of facts regarding the defaulted loans — without reading the documents. The banks have described the problems as procedural, saying the foreclosures were justified even if the paperwork was botched.
"If servicers have robo-signers, it suggests they might not be complying with other state laws as well," Jim Finefrock, a spokesman for California Atty. Gen. Jerry Brown, said Monday.
Finefrock said officials in Brown's office had spoken to their counterparts in other states and were discussing whether to join the multistate investigation or to proceed separately. A decision was expected Tuesday, he said.
Foreclosures don't normally go before judges in California. But it and other non-judicial foreclosure states could join the coalition of states because the investigation is expected to go beyond the affidavit issue to determine whether major loan servicers observed other state foreclosure laws.
In California, for example, servicers must attempt to confer with delinquent borrowers about alternatives such as loan modifications before they foreclose, and the lenders must sign statements attesting that they have done so. Brown called last week for lenders to voluntarily call off foreclosures in the state until it is determined that they are meeting those requirements.
Neal Dudovitz, executive director of Neighborhood Legal Services of Los Angeles County, said he suspected that the foreclosure laws may have been violated in California. An investigation would be appropriate, he added.
Dudovitz said his organization has seen an increasing number of California borrowers foreclosed upon even as their lenders continued to accept payments on a trial loan modification. In some cases, he said, his group has been successful in getting foreclosure sales rescinded.
"My personal hope is that the California attorney general's office will participate in this effort," Dudovitz said.
Kevin Stein, associate director of the California Reinvestment Coalition, a San Francisco-based advocacy group, said California's participation in the investigation is "very important."
"The servicers are saying it is really just the narrow set of circumstances with these robo-signers, or whatever they call them, and it is in the judicial foreclosure states and not in California, and everything else is fine," Stein said. "We don't think it's fine. The public is not convinced it's fine. And so what we need is that there be some investigation."
Amid the greatest foreclosure crisis since the Great Depression and doggedly high unemployment, many consumer advocates and some political leaders have called for a national moratorium on evictions until the issues are sorted out.
U.S. Atty. Gen. Eric Holder said last week that his office was looking into the reports of improper foreclosures. But David Axelrod, a senior advisor to President Obama, indicated during a "Meet the Press" interview Sunday that the administration is leaning against trying to impose a wholesale freeze on home seizures.
"I'm not sure about a national moratorium because there are, in fact, valid foreclosures that … probably should go forward," Axelrod said. "But we are working closely with these institutions to make sure that they expedite the process of going back and reconstructing these and throwing out those that don't work."
An official briefed on the multi-state effort, who spoke on condition of anonymity because the investigation hasn't yet been publicly announced, said 38 states participated last week in a conference call on the topic.
It wasn't clear Monday how many states would participate, this official said. An official announcement of the investigation was planned for Wednesday.
JPMorgan Chase & Co. of New York and Detroit-based Ally Financial Inc. (formerly GMAC Inc.) have acknowledged that employees signed thousands of affidavits certifying facts underlying home seizures without reading the documents.
JP Morgan Chase and Ally — the third- and fifth-largest U.S. loan servicers, respectively — have suspended evictions in the judicial foreclosure states to ensure that paperwork is correct.
Bank of America Corp., the No. 1 loan servicer, announced last week that it would stop taking over homes in all 50 states while it makes sure it is in compliance with state laws. BofA spokesman Dan Frahm said that the Charlotte, N.C.-based bank had in some cases found procedural errors that could be corrected but that it found no problems with the data supporting the foreclosures. "We intend to complete the review and begin scheduling foreclosure sales again within weeks," he said.
Wells Fargo & Co., the San Francisco bank that is the second-largest mortgage servicer, has said it is satisfied that it has handled home seizures properly. It has not suspended any foreclosures.