Shortcuts and Forgeries Mar the Foreclosure Process and Should There be a National Blanket Moratorium on Foreclosures?

December 24, 2010

By John J. Scura II

It was reported in the Washington Post on September 23, 2010, that the already overburdened foreclosure system is now buried in problems due to increased volume, leading to forged signatures, lenders who take shortcuts reviewing borrowers' files, and even judges signing off on foreclosure papers prematurely, deserting their role as final gate keeper. As an attorney, given the fact that we are talking about whether or not people's homes will be saved, I am appalled that such things are happening.

Over the last ten years, we have run the gamut from no-doc loans to requiring more paperwork than any one person could read during the entire foreclosure process itself. This has lead to fraud and other serious problems. The article, written by Adriana Cha and Brady Dennis, reported that a large chunk of the nation's foreclosures are being initiated by three companies owned by the federal government: Fannie Mae, Freddie Mac and Ally Financial.

The American Bankruptcy Institute Update reported on September 23, 2010, that Ally Financial halted all of its home evictions in twenty-three states. This was done after it uncovered a single employee at GMAC Mortgage who signed off on over 10,000 foreclosure papers a month without confirming whether or not the information justified an eviction. It also reported that a representative from JP Morgan Chase, in a sworn deposition in May, 2010, admitted to signing off on thousands of foreclosures a month without verifying the accuracy of the information. In one particular case, there were two loan documents showing conflicting balances owed on the mortgage.

It is clear from this process that the borrower is going to have the ability to contest these foreclosures, and the more information that becomes available from current criminal investigations and law suits as to the actions of various responsible individuals, the more juries and courts are going to award punitive damages to the borrowers, on top of whatever compensatory damages the borrower is able to show.

The New York Times Digest, on October 18, 2010, quoted Shaun Donovan, Secretary of the Department of Housing and Urban Development, in a piece on the Huffington Post website, of the opinion that, "a national blanket moratorium on all foreclosure sales would do far more harm than good, hurting homeowners and homebuyers alike at a time when foreclosed homes make up 25% of home sales". I think that this quote sums up the answer to the question that I raised at the beginning of the article. Although in extreme cases this action may be necessary, it is my opinion that the public should let the legal system play out and compensate the homeowners and other affected third parties.

My firm has done a substantial number of consumer bankruptcies in both Chapter 7 and Chapter 13 cases over the last thirty-five years. In the appropriate cases, the firm does loan modifications for qualified borrowers; in egregious cases, we have brought suit against the lenders for the kind of activity described above. Hopefully, the legal system will respond in an appropriate manner, with final verdicts coming in at sufficient amounts to gain the attention of the large lenders, encouraging them to initiate appropriate safeguards and muster more concern about homeowners' rights rather than the bottom line on their income statements. A measure of balance must be introduced, and the present debacle must be corrected before we find ourselves in another recession.

*Former Chapter 13 Trustee for the Northern Vicinage of New Jersey for twenty-three years, appointed by the United States Trustee under the Bankruptcy Code.

Article provided by Scura, Mealey, Wigfield & Heyer LLP
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