40 states plan foreclosure investigation

Posted: 7:47 pm Mon, October 11, 2010
By Ben Mook
Daily Record Business Writer

Pressure on banks and processing firms to suspend foreclosures over concerns of paperwork errors continues to mount as a group of as many as 40 state attorneys general — including Maryland’s Douglas F. Gansler — plans to announce a multi-jurisdictional investigation on Wednesday.

Iowa Attorney General Tom Miller is heading up the bipartisan multistate group that will undertake a coordinated probe of potentially flawed foreclosures nationwide. At issue is whether employees at banks and foreclosure processing firms signed court documents that had unverified or false information in an attempt to speed up the process.

Geoff Greenwood, a spokesman for Miller, said Bank of America’s decision last week to temporarily halt foreclosures nationwide showed that the industry needed to slow down.

JPMorganChase and GMAC have also halted foreclosures in the 23 states where a court reviews the case. (Maryland is not one of those states.) According to news reports, PNC Financial Services Group Inc. said it would halt sales of foreclosed homes for a month as it reviewed documents. On Friday, Houston-based Litton Loan Servicing LP, owned by Goldman Sachs, agreed to also halt some foreclosures.

“The mortgage industry is getting the message that this is serious, it’s wrong, and we will stop it,” Miller said in a prepared statement.

In some states, lenders can foreclose quickly on mortgage borrowers who are delinquent. But other states — including Ohio, Connecticut, New York, New Jersey and Illinois — use a lengthy court process for foreclosures. They require documents to verify the accuracy of the loan information including who owns the mortgage.

In what has become known as “robo-signing,” some employees have admitted under oath to signing thousands of affidavits and documents without fully reading or understanding them. The affidavits verify the accuracy of the loan information, including who owns the mortgage. The practice has sparked action from states concerned people have lost their homes to sloppy paperwork.

Raquel Guillory, spokeswoman for Gansler, said Maryland would be part of the multi-state group to make sure the state’s residents have not been affected by the practice.

“We don’t know if there is robo-signing going on in Maryland, but there might be,” Guillory said. “Halting these foreclosures will give the banks time to figure it out.”

Ben Wogsland, a spokesman for Minnesota Attorney General Lori Swanson, said the state was joining the probe. He said the bottom line, as it is for states attorneys everywhere, is to protect the rights of state residents facing foreclosure.

“We’ve been investigating some of these financial institutions as early as late September,” Wogsland said. “We need to get to the bottom of this and find out if it’s affecting the process here in Minnesota, as well as in other states. We’d like to have everyone slow down and make sure the process is fair and untainted.”

Sharon Kleinpeter, a spokeswoman for Louisiana Attorney General James D. “Buddy” Caldwell, said that state would also be part of the multi-state effort. Louisiana has seen an increase in foreclosures related to a moratorium on deepwater drilling in place since May.

“Right now we are aggressively pursuing an investigation into what role do we play and what actions could be taken,” Kleinpeter said.

A number of states are also taking state level action in addition joining the multi-state effort. Holly Hollingsworth, spokeswoman for Ohio Attorney General Richard Cordray, said the state will take part in the probe while pursuing a separate lawsuit against GMAC. The state is seeking $25,000 per violation or every violation of Ohio’s Consumer Sales Practices Act.

North Carolina Attorney General Roy Cooper did not return calls for comment on Monday. Cooper last week sent letters and launched an inquiry to 14 lenders, including Bank of America, which is headquartered in Charlotte, N.C., asking the companies to suspend foreclosures in North Carolina until they can show that their affidavit procedures have been reviewed and are in compliance with the law.

“If mortgage companies are using potentially unlawful practices to push through foreclosures in North Carolina, that needs to stop,” Cooper said in a prepared statement. “Foreclosures have to happen when people don’t pay, but homeowners deserve a fair shot at keeping their homes when possible.”

A spokesman for Connecticut Attorney General Richard Blumenthal, a Democrat who is running for the U.S. Senate, would not say whether the office planned to participate in the multi-state effort. Blumenthal though is seeking a statewide 60-day moratorium on foreclosures. On Oct. 1, he asked the Connecticut judiciary to consider the two-month halt on foreclosures.

“Banks that lured consumers into loans they couldn’t afford now seek to stampede them into foreclosure,” Blumenthal said in a statement at the time. “We must stop this runaway foreclosure train, restoring proper procedure and property owner rights.”

Some, though, are concerned a widespread moratorium could have a negative impact on the economy.

White House adviser David Axelrod said Sunday that the administration is pressing lenders to accelerate their reviews of foreclosures to determine which ones have flawed documentation. Axelrod said flawed paperwork was hurting the nation’s housing market as well as lending institutions, but said there are valid foreclosures that probably should go forward because there were not problems with the documents.

Rick Sharga, a senior vice president at foreclosure listing service RealtyTrac Inc., agreed that it was easy to see where the public outcry against the banks and processing firms came from. But, he said a blanket moratorium could hinder a housing market trying to recover.

“Clearly the kind of shortcuts they were taking were inexcusable, especially five years into this mess,” Sharga said. “It’s easy to understand the outrage, but you have to be a little careful of overreacting that could have some serious unintended consequences for the economy.

“The last thing this economy needs is a moratorium of any sort,” Sharga added. “It would be disastrous for the housing market.”