Have you heard about the Robosigning scandal and wonder how it might affect you if your mortgage, especially if you are looking to avoid foreclosure?
Robo-signing, a term first identified by consumer and investor advocate Nye Lavalle in 1999, refers to the automatic generation and signing of documents. In the case of the Robosigning scandal, these documents refer to Mortgage and Foreclosure affidavits and documents.
The result has been that many people may have lost their homes or been threatened with the loss of their homes without their lender having either read the relevant foreclosure documents, ascertained that the bank actually owned the mortgage, and certainly without a notary being present, although a notary seal appears on the relevant documents. This is important because they are requirements for how the system is supposed to work.
In order to begin the foreclosure process on a defaulting mortgage, lenders must, by law, be able to produce a sworn affidavit verifying that the trust (bank) owns the mortgage in question, and that the mortgage is at least six months in arrears. In fact, at every transfer of property, it is vital to establish a clear chain of title against future claims. If a clear chain of title cannot be established (or is broken) claims may be rendered void, or in the alternative a property may seem to have a clear title when in fact someone has a legitimate claim against it.
There has been testimony in recent depositions, that some lenders and trusts are robotically pursuing foreclosure proceedings against mortgage loans which they do not actually own, and that some homeowners do not, in fact, know what institution owns their mortgage, and to whom they need to pay the money required to prevent the loss of their home.
In the olden days, pre 2005, the your Local Bank on whomever you applied to for a mortgage, would hold your mortgage for the full 15 or 30 year term. Just as historically, real estate prices in the United States were driven by supply and demand, and generally tracked the rate of inflation. However, something called Securitization changed all that. A mortgage can be a rather risky asset to hold on its own and has the potential to make money for investors
Securitization means that your Local Lender sold your loan to an Investment Bank, such as JPMorgan Chase or Bear Sterns, which ‘sponsored’ the loan. These banks acted as middle men. They packaged your mortgage together with hundreds of others into Mortgage-Backed Securities (MBS) and sold these securities to investors. 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 and sold by trusts (aka banks in finance jargon) to investors.
The trust is hands-off: it hires a Servicer to collect your monthly loan payment on your mortgage, and other maintenance duties. The idea is that if you default no one company or investor is out- that risk is spread out across multiple investments
All of the signed, dated and notarized legal documentation accompanying a transfer of a mortgage should follow the loan at every step. For each round that your mortgage is sold, there should also be additional pieces of paperwork, saying the loan has been legally sold. Investors who bought MBS did so with the promise that the underlying mortgages conformed to basic underwriting standards, and that proper procedures were followed in the chain of securitization. But we are now finding out that they weren’t.
Why is this important? Let’s say you get sick and can’t work so you are unable to make your mortgage payments. Eventually, the Servicer comes knocking: “You haven’t paid us. We want our money or this house.” To support the complaint that the mortgage hasn’t been paid, the servicer must have an affidavit that verifies the trust actually does own the mortgage, and thus is owed six months of payments. The Servicer starts foreclosure proceedings.
In order to do so, someone at the Servicer company had to personally swear on an affidavit in front of a notary that the mortgage’s ownership had been verified (and was owned by the Servicer’s principal) and that you, the homeowner, owed back mortgage payments. This process is supposed to be done for each and every foreclosure.
And that is the problem. With all the foreclosures from the financial downturn, “robo-signers” from the banks were robotically signing off on literally hundreds of thousands of affidavits. And this is where the verification process loses its credibility.
First, the servicer’s robo-signer signing off on these affidavits may not have been checking every single one to see that the trust indeed owned the mortgage note. Second, the notarization was not conducted by a human being who verified that the information was what it purported to be, but was done electronically.
Bryan Bly a “robo- signer” at Nationwide Title Clearing Inc. (which helps banks with paperwork), signed his name on an average 5,000 mortgage documents a day for companies such as Citigroup Inc. and JPMorgan Chase & Co. Of course, Mr. Bly wasn’t sitting at his desk signing his name. Nationwide Title employs a computer system that automatically inserts a copy of Bly’s signature on thousands of digital files that he never saw. The system also affixed an electronic notary seal.
What does this mean for you now that you are jobless with health problem riddens? You don’t know who owns your mortgage, which means your payments could have been going to the wrong company. And now that you’re in trouble and need help, such as a loan modification, you don’t know which company to turn to. Worse, if the original sale of your mortgage was never processed correctly and never verified at each step it was sold, then the trust cannot lawfully claim that it owns that mortgage.
Lawsuits fighting some of the more than 4 million foreclosures since 2006 have exposed sloppy recordkeeping and raised questions about the validity of documents used to seize properties. So when the Servicer starts foreclose proceedings on your home, does it have the authority to do so? Not if the loan was not correctly sold at each and every step. We now know so many of these parties foreclosing have no contractual right to foreclose. And, the plot thickens.
The “robo-signing of affidavits and Assignments of Mortgage and all other mortgage foreclosure documents served to cover up the fact that loan servicers cannot demonstrate the facts required to conduct a lawful foreclosure. If it turns out that robo-signers did indeed sign off on loans without review, they committed fraud by claiming knowledge of a financial matter of which they had no personal knowledge. It could also mean that some people have been wrongly evicted from their houses because the foreclosure is based on fraudulent documents.
A second problem has been the lack of original paperwork required by judges in foreclosure proceedings. At JPMorgan Chase & Co. from 2005 to November 2008, about a third of foreclosure files were missing mortgage assignments. Servicers would often write new assignments when judges requested proof that the party seeking to repossess a property had the right to do so.
The foreclosure crisis opened up this process to scrutiny, as banks claimed to have lost thousands of promissory notes and were instead showing judges “copies.” Missing or incomplete paperwork has forced lenders to routinely recreate documents to show courts they have standing to seize properties.
To the extent that these transfers are not “copies” but new documents and were completed retroactively, raises issues about honesty in the creating and dating of the assignments/transfers and about what parties can do, if anything, if an entity in the securitization chain, such as Lehman Brothers or New Century, is no longer in existence. So another legal issue for the courts, centers on whether assignments can be created to show transfers between banks that happened years earlier.
Spurred by descriptions of these practices in depositions of employees involved in robo signing and the potential for abuse, the attorneys general in all 50 states last month opened an investigation into whether banks and loan servicers used false documents and signatures or improper practices to justify hundreds of thousands of foreclosures.
Several large banks like Bank of America, GMAC, JPMorgan Chase and Co have all suspended foreclosures or evictions in recent weeks after these allegations surfaced of shoddy loan documents in foreclosure cases. Citigroup, another large player had failed to do so, but has been ordered by a federal court to defend a lawsuit alleging that it foreclosed using questionable documents.
If you are facing foreclosure or are considering options to avoid foreclosure, the most important thing is to realize that you have options and not give up hope! Then contact an attorney licensed in your state who has experience with loan modifications, short sales and other avoiding foreclosure options. Or you can contact me at [emailprotected]