In the newest twist on the ever-growing foreclosure crisis, up to 23 states are either in the process of – or considering – suspending foreclosure evictions and sales due to “procedural errors” associated with Robo-signers.
Large mortgage lenders with tens of thousands of defaulted loans to deal with have been turning to “Robo-signers” to help with the backlog. Basically it works like this…every home that is in a state of foreclosure is supposed to have a professional review the documents for accuracy including whether or not the bank actually owned the property, foreclosure affidavits and other documents. Not only was each property portfolio to be reviewed and signed off on in the presence of a notary public, but without proper documentation, lenders do not have legal standing to foreclose.
A Big Problem
The problem is a big one. According to GMAC (a subsidiary of Ally Financial which is now 56% owned by the U.S. Treasury), just one of their Robo-signers has processed in excess of 10,000 foreclosures a month – or an estimated 120,000 per year. GMAC has currently stopped foreclosures in judicial states where procedural errors may prove to have significant repercussions. Attorneys representing homeowners and former homeowners are already contemplating mass action litigation due to the potential widespread abuse of the system which may have led to thousands or even tens of thousands being evicted and foreclosed upon erroneously. GMAC is not the only lender to engage in Robo-Signers; JPMorgan Chase is also under scrutiny as a former Robo-Signer reports having signed off on up to 18,000 foreclosures in one month.
According to recent testimony from ex-employees, it wasn’t unusual to sign-off on up 750 foreclosure related documents each week. With a standard work week that would represent roughly 30 seconds per document with some of the most notorious robo signers putting in far less time per document. Concerns over the quality of review and evaluation are expected to further contribute to the questionable practices and documentation errors plaguing the industry. What’s the likely outcome for real estate investors? Long, slow processing times.
Just when you thought it couldn’t get any worse comes the news that robo signers may have inadvertently cost many homebuyers to lose their tax credits just days before the deadline due to the suspension in foreclosure sales. Ally Financial (aka GMAC) has eventually stopped foreclosures in roughly half the states due to robo-signing irregularities. Meanwhile, the extension for tax credits expired as of Sept 30th, costing buyers between $6,500 and $8,000 in tax credits.
On the Horizon
As news of the robo-signers continues to escalate, politicians and legal professionals alike are calling for further investigations. California Attorney General Edmund Brown is demanding that JPMorgan prove they are able to comply with state law or cease foreclosures. Senator Al Franken is asking regulators to investigate Ally/GMAC foreclosures both present and past. Massachusetts Attorney General Coakley has called on BoA and other lenders to halt all foreclosures until investigations are performed. Rep Alan Grayson seems to be using it as part of his platform rally and the banks…well, the banks just keep telling everyone it will be okay since it is unlikely to have significant impact on business. Hmmm…..where have we heard that before?
The ramifications of this ongoing turn is expected to have profound impact.
Investors – Expect a dramatic slowing of properties as legal eagles and politicians alike closely scrutinize records of all current transactions.
Lenders – potential for litigation increases but perhaps of even more concern is the threat of having to reveal all pending and/or “off the books” properties in the shadow inventory. Keep a close eye on the financials of these banks as the story unfolds.
Title Insurance Woes – Old Republic, a national insurance underwriter, has already directed agents to stop writing policies on GMAC foreclosed properties…a position which will immediately halt the sales of impacted properties. Other title insurance providers are expected to follow. A precursory examination of Florida titles has already indicated up to 75% contain material irregularities, prompting officials to proclaim the problem will have far reaching implications for at least the next decade.
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- Paperwork Fuels Foreclosure Fights (online.wsj.com)
- GMAC’s ‘Robo-Signers’ Draw Concerns About Faulty Process, Mistaken Foreclosures (propublica.org)
- Biggest Banks Ensnared as Foreclosure Paperwork Problem Broadens (propublica.org)
- Paperwork Problems Fuel Foreclosure Fights (online.wsj.com)
- ‘Robo-signer’ plays quiet role in huge number of foreclosures (seattletimes.nwsource.com)