Return of the Robo-Signers
As indicated in the previous post, foreclosures in judicial states, which all have to be approved by a judge, are starting to run into rough waters as homeowners, frustrated beyond belief at the lack of help from the banks, are increasingly turning to litigation.
One sign of trouble was the “robo-signing” disclosures which began in Florida and quickly spread to a temporary nationwide moratorium on foreclosures. Concerned banks did a quick self-investigation, and, not surprisingly, hastily determined that while a few “robo-signers” had fraudulently approved foreclosures, that all others were good to go. Foreclosures then resumed.
But, wait. Just last week, Ally Financial suspended 250 foreclosures in Maryland because they had been processed by a robo-signer who had been rubber-stamping as many as 10,000 mortgages per month. Even though Ally expects to eventually refile the foreclosures, the legal challenges will slow the process — which could conceivably give some homeowners the chance to avoid foreclosure.
Show Me The Deed: Real Estate Law Is Still The Law
Not so fast, big banks. Traditional real estate law, which as far as I know is still the law of the land, requires that banks have to to produce physical deeds to show that they own the properties they are seizing. Electronic blips need not apply. If the recent Massachusetts Supreme Court ruling, insisting the banks produce the physical deeds, spreads nationwide, banks are in for a rough ride. Because most mortgages over the past decade were sold to multiple owners on the global marketplace, it is no longer clear who is the rightful owner of the loan. How inconvenient that some judges turn out to be sticklers for the actual law!
“The vast majority of these loans have been diced and sliced and sold to multiple owners in investment tranches, which are likely to be owned by people who don’t even live in this country, so if courts rule that the banks have to get the real owners’ signatures to foreclose, the banks are stuck,” said one industry commentator. “That becomes very surreal, since you’re talking about millions of loans where you don’t know who the owner is.”
Surreal for the banks, that is, but highly convenient for the millions of upside down homeowners now stuck in mortgage hell and foreclosure limbo.
Jerry Brown’s Win For California v. Wells Fargo
Because California does not require the same judicial review as other states, courts here have typically rubber-stamped foreclosures. But the wide-ranging questions about the foreclosure process are having an effect even here.
Last month, Jerry Brown — in one of his final acts as attorney general before becoming the state governor — inked a settlement with Wells Fargo to provide $2 billion in loan modifications to homeowners who were struggling to pay off adjustable-rate loans, as well as $32 million in restitution to borrowers who have already lost their homes.
“Customers were offered adjustable-rate loans with payments that mushroomed to amounts that ultimately thousands of borrowers could not afford,” Brown said. “Recognizing the harm caused by these loans, Wells Fargo accepted responsibility and entered into this settlement with my office.”
So far, foreclosures in California, which do not need a judge’s approval, are proceeding apace. It is extremely encouraging, though, that in the judicial states the law is starting to be applied. The faster that spreads the better for all of us. The California judiciary and the legal profession in general are eagerly eying developments. Beleaguered homeowners, too, until now dependent mainly upon the banks’ good will to avoid foreclosure, may finally have found in our long-established law the very tools they need to keep their homes.