The 2010 United States foreclosure crisis, sometimes referred to as Foreclosure-gate or Foreclosuregate,[1][2] is an ongoing and unresolved issue in the United States and refers to an apparently widespread epidemic of improper foreclosures initiated by large banks and other lenders. The foreclosure crisis was extensively covered by news outlets beginning in October 2010, and several large banks, including Bank of America, JP Morgan, Wells Fargo, and Citigroup temporarily responded by halting their foreclosure proceedings in some or all states.[3][4] The foreclosure crisis has caused significant investor fear in the U.S.[5]
Contents |
In spring 2010 news stories begin to emerge detailing erroneous foreclosures and evictions, including banks variously foreclosing on homes which were paid for without a mortgage, accidentally foreclosing on the wrong home, and providing fraudulent documentation in courts.[6]
In the fall of 2010, major U.S. lenders such as JP Morgan Chase,[7] Ally Financial f/k/a GMAC, and Bank of America[8] suspended judicial and non-judicial foreclosures across the United States over the potentially fraudulent practice of robo-signing. The term robo-signer was first coined by attorney Matthew Weidner of Florida.
In an October 21, 2010 Wall Street Journal Article titled "Niche Lawyers Spawned Housing Fracas" the Journal reports that foreclosure lawyer/advocates, Thomas Ice and Matthew Weidner, were discussing the deposition testimony of mortgage company employees. "Tom and I were talking, and it was, 'Jesus, they're like robots!'" Mr. Weidner says. Mr. Weidner, a blogger, on January 8, 2010 wrote a blog post with an appellation for the routine signers. "We know from depositions taken of these 'robo signers,'" he wrote, "that they don't even read the documents placed in front of them and the notaries and witnesses that are supposed to watch them as they sign are not present."[9]
The terms robo-signing and robo-signers then gained wider exposure by other mortgage fraud activists Michael Redman and Lisa Epstein via their blogs.[10] Robo-signing is a term used by consumer advocates to describe the robotic process of the mass production of false and forged execution of mortgage assignments, satisfactions, affidavits and other legal documents related to mortgage foreclosures and legal matters being created by persons without knowledge of the facts being attested to. It also includes accusations of notary fraud wherein the notaries pre and/or post notarize the affidavits and signatures of so-called robo-signers.
On July 18, 2011, the Associated Press and Reuters[11] released two reports that robo-signing continued to be a major problem in U.S. courtrooms across America. The AP defined robo-signing as a "variety of practices. It can mean a qualified executive in the mortgage industry signs a mortgage affidavit document without verifying the information. It can mean someone forges an executive's signature, or a lower-level employee signs his or her own name with a fake title. It can mean failing to comply with notary procedures. In all of these cases, robo-signing involves people signing documents and swearing to their accuracy without verifying any of the information."[12]
In 2009, attorney Tom Ice pointed out the wide-scale practice of robo-signing in depositions taken of GMAC's Jeffrey Stephan and other robo-signers.[13] News outlets reported that on September 14, 2010, Jeffrey Stephan testified that he had signed affidavits which he hadn't actually reviewed on behalf of Ally Financial Inc.[6][14] This revelation led to increased scrutiny of foreclosure documentation. The practice was apparently common in the mortgage industry.[6] In following weeks, the robo-signing revelation other large banks have come under fire for employing robo-signers as well, including JPMorgan Chase and Bank of America.[15]
The Mortgage Electronic Registration Systems, known as MERS, is a privately held company that operates an electronic registry designed to track servicing rights and ownership of mortgage loans in the United States.[16][17] As of the crisis 62 million mortgages are held in the name of MERS,[18] and MERS has initiated thousands of foreclosures in the United States, claiming to be the mortgagee of record. Lawyers have contended in court that MERS has no legal right to initiate a foreclosure, because MERS does not own the loans in question. U.S. lending laws state that only the owner of a loan can initiate a foreclosure.[17][18] Class action law suits against MERS are pending in California, Nevada, and Arizona. State courts remain sharply divided on the propriety of this practice. State supreme courts in Maine, Arkansas, and Kansas have ruled against MERS right to file for foreclosures. MERS has however won court cases in several other states, affirming its right to initiate foreclosures in those states.[17]
In an apparent attempt to resolve some of the issues with missing, lost, and sometimes fraudulent paperwork both the United States House of Representatives and the United States Senate passed H.R. 3808 which would force courts to recognize out of state and electronic notarizations. The bill passed the Senate through a verbal vote, and wasn't publicly debated. President Barack Obama, fearing "unintended consequences on consumer protections"[19] utilized his veto powers, at first using a pocket veto by simply not signing the bill, and later by issuing a more formal protective-return veto.[20]
The Interstate Recognition of Notarizations (IRON) Act of 2010 would have required “any Federal or State court to recognize any notarization made by a notary public licensed by a State other than the State where the court is located when such notarization occurs in or affects interstate commerce.”[21] The bill, written by U.S. Rep. Robert Aderholt (R-AL) to help court stenographers in his district alleviate issues with getting courts in other states to accept depositions notarized in Alabama,[22] came under criticism in October 2010 from homeowner advocates who said it would have made it easier for mortgage processors to foreclose on homeowners without proper documentation or chain of title.[23]
The first version of the IRON Act (H.R. 1979), sponsored by Aderholt in 2005, passed the House of Representatives in December 2006.[24] The same bill was later sponsored by U.S. Sen. Tom Carper (D-DE) and introduced in the U.S. Senate Judiciary Committee as S.2083 in 2007, but it ultimately stalled.[25] The bill was again sponsored by Aderholt (R-AL) and introduced in the U.S. House of Representatives as H.R. 3808 on October 14, 2009. It passed by voice vote in the House on April 27, 2010. The bill was co-sponsored by Rep. Bruce Braley (D-IA), Rep. Mike Castle (R-DE) and Rep. Artur Davis (D-AL). The bill was voted on in the U.S. Senate on Sept. 27 at the urging of Senate Judiciary Chairman Patrick Leahy (D-VT). Leahy’s staff said that they had received calls from “constituents” pressing for passage of the bill.[26] But Leahy may have supported the bill after being lobbied by notaries at a September event in D.C. honoring President Calvin Coolidge.[27]
Sen. Robert Casey (D-PA), who was ushering through many pieces of last-minute legislation on behalf of the Democratic leadership on the final day before the Senate adjourned for recess, moved the bill from the Judiciary committee for a vote. Sen. Jeff Sessions (R-TX) helped gather Republican support for the bill.[28] The Senate then passed the bill by unanimous consent without debate. Aderholt said that he and supporters “were surprised that it came through at the eleventh hour there” in the Senate. President Obama vetoed the bill on Oct. 8, following outcry from homeowner advocates and increased scrutiny from the press.
Ohio’s Secretary of State, Democrat Jennifer Brunner, emerged as one of the earliest critics of the bill, calling the timing of its passage “suspicious.”[28] Brunner organized opposition to the bill, urging citizens to call and email the President and tell him not to sign the act.[29] CNBC senior editor John Carney called the bill “mysterious” and wrote that the bill “might bail out banks such as GMAC, JP Morgan Chase and Bank of America from their foreclosure gate troubles.”[30]
Aderholt defended his bill in a statement: “There is absolutely no connection whatsoever between the Interstate Recognition of Notarizations Act of 2010 and the recent foreclosure documentation problems… The bill expressly requires lawful notarizations, and in no way validates improper notarizations. Enforcement of legal notarizations is a state responsibility and I fully support each state attorney general vigorously prosecuting all notarization fraud.”[31]
On October 6, 2010 Attorney General of Ohio Richard Cordray filed suit against Ally Financial Inc seeking $25,000 in penalties for each instance of fraud, in addition to undisclosed amount of consumer restitution. The action could potentially mean hundreds or thousands of individual penalties for each instance of robo-signing that occurred in the state of Ohio.[14] State Attorney Generals from various other states have also started to react to the controversy. It has been reported that legal authorities in California, Connecticut, Illinois, Iowa, Maryland, Massachusetts, North Carolina and Texas have contacted lenders and mortgage services demanding answers.[14] As of October 14, 2010, all 50 states have entered a joint investigation into the mortgage industry. The joint investigation aims to determine the veracity of allegations that banks have not reviewed foreclosure documents properly or have falsified documents in order to evict homeowners.[5]