As mentioned here previously, the “robo-signing” scandal of last fall has had consequences for the banks which were all too eager to begin once again foreclosing on defaulting borrowers. The “robo-signing” scandal, we remember, had to do with third-parties, hired by the banks to deal with the voluminous foreclosure paperwork. In judicial states where judges have to adjudicate each foreclosure, the more astute judges noticed that the paperwork for every single loan was identical. That occurred because the hired hand signers were merely rubber-stamping all the paperwork. Very few foreclosures were actually checked and verified, resulting in hundreds, maybe thousands and even hundreds of thousands of error-ridden foreclosures.
Most of the big banks halted their foreclosures while they investigated the issue. Then, after an amazingly short time while declaring the process now repaired, resumed foreclosures. But the controversy would not go away.
California Litigation Settled
Perhaps some or many of these foreclosures should not have taken place at all. Did the foreclosing bank have actual legal authority to do so? Here in California, which does not require a judge to oversee foreclosures, authorities took note and as his last act as Attorney General Jerry Brown signed a deal with Wells Fargo to help California homeowners.
50 States Sue The Banks
These questions arose and stubbornly refused to go away because of another, related issue. The banks had all been using an electronic system called MERS which enabled them to transfer title and servicing rights to the loans originated in a rapid fashion. That is how so many home buyers , for instance, were shocked to find they had not even made their first payments and the loans had already been sold. Often, the loans were sold numerous times even during one or two years.
But, once the robo-signing scandal led some legal eagles to start scrutinizing the foreclosure process of big banks, the attorneys general of many states got into the act as well. Each time the title to a property transfers, the state is entitled to a transfer fee. Guess what? MERS had comfortably eliminated that fee for the banks as they transferred titles internally and electronically. Now, it gets even more murky because MERS also enabled the banks to sell these mortgages to gigantic funds which then “sliced and diced” individual loans into many parts which they then packaged as mortgage-backed securities and sold worldwide.
A Settlement Is Imminent: Who Benefits?
Realizing the vast extent of the loss in transfer fees to the states, the attorneys general as a group sued the banks. That group includes the AGs of all 50 states. And, they have been negotiating with the major banks. A settlement is in the works. Will it be $5 billion or $20 billion? Will individual homeowners who lost their homes despite the ineptitude of the banks benefit? Or, will the funds disbursed to individuals go to new home buyers?
Other options include giving cash payments to those who have already lost their homes. Or, maybe they will be offered special loans to buy another one. Another option under discussion is for the banks to offer principal reductions to underwater homeowners.
Whatever is finally decided, the goal of the settlement is to aid homeowners without further damaging the battered housing market.
This matter is going to be resolved soon. Individual distressed homeowners should not count on any help, though it may come. Mortgage litigation is the best option for homeowners today offering the option to join in many class action suits against the big banks.