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More flaws in foreclosure system revealed

Shortcuts, faked documents and forged signatures -- activists uncover evidence of overburdened courts and mortgage processors.

By Karen Datko Sep 23, 2010 5:26PM

This post comes from Marilyn Lewis of MSN Money.

 

This week's mortgage industry revelation -- that one of the country's largest lenders is halting evictions because of concerns that a large number of its foreclosures were improperly processed -- "took the housing industry by surprise and set the foreclosure blogosphere abuzz." That's the assessment from Mother Jones, the muckraking magazine. 

"Could bank's admission about dubious foreclosure documents cast doubt over millions of foreclosures filed by Wall Street banks in the past few years?" MJ asks.

 

The flawed process has created "an opening for borrowers to contest some of the more than 2 million foreclosures that have taken place since the real estate crisis began," says The Washington Post. Post continues after video.

News stories reveal a foreclosure process that's out of control, at least in some places. In an extreme example, the Sun Sentinel told the story of a Fort Lauderdale, Fla., man, Jason Grodensky, who paid cash for his home in December. Yet he "was surprised to learn that Bank of America had foreclosed on the house, even though Grodensky did not have a mortgage."

Grodensky knew nothing about the foreclosure until July, when he learned that the title to his home had been transferred to a government-backed lender. "I feel like I'm hanging in the wind and I'm scared to death," said Grodensky. "How did some attorney put through a foreclosure illegally?"
Bank of America has acknowledged the error and will correct it at its own expense, said spokeswoman Jumana Bauwens. Media stories yesterday revealed that a single employee, Jeffrey Stephan, team leader in the foreclosure department of Ally Financial ... says he approved about 10,000 foreclosures a month without reading them or having a notary witness his signature. He made the disclosures in court depositions in cases brought by homeowners.

These apparently are not isolated incidents. Says a story in the Post:

The nation's overburdened foreclosure system is riddled with faked documents, forged signatures and lenders who take shortcuts reviewing borrower's files, according to court documents and interviews with attorneys, housing advocates and company officials.
The problems, which are so widespread that some judges approving the foreclosures ignore them, are coming to light after Ally Financial, the country's fourth-biggest mortgage lender, halted home evictions in 23 states this week.

Ally, whose GMAC Mortgage unit stopped the evictions, said in a press release that its problems should be resolved soon "without serious consequence."

 

But Bloomberg reports that GMAC was sanctioned for similar practices in 2006. The article, titled "GMAC drew 'false testimony' sanction years before eviction halt," says:

GMAC gave "false testimony" when it justified foreclosures by submitting sworn affidavits signed by a mortgage executive who later said in a deposition she didn't actually review the loan documents or sign in the presence of a notary, according to a 2006 court order filed in Duval County, Florida. In response to the sanctions, GMAC Mortgage directed employees to "read and fully understand" court documents before signing.

The Post, adding to earlier revelations, describes the activities of an employee of a Georgia document-processing company owned by Lender Processing Services.

(The employee) for years claimed to be executives of Bank of America, Wells Fargo, U.S. Bank and dozens of other lenders while signing off on tens of thousands of foreclosure affidavits. In many cases, her signature appeared to be forged by different employees.

Lender Processing Services says the discrepancies were due to processing errors.

 

Activist homeowners in the spotlight

The claims about Jeffrey Stephan's practices at Ally came to light when he was deposed in a couple cases brought by Florida homeowners and their lawyers. The attorneys were from a foreclosure-fighting firm called Ice Legal. ("Your home is your castle. Defend it.") Matthew Weidner, another foreclosure-defense attorney, provides this link to what he says is the Ice firm's deposition of Stephan (.pdf file).

 

Weidner, in a video blog post, chides the courts and government regulators for not speaking up sooner. "This has been widely ignored by judges all around the country."  

 

Homeowner activists in Florida are leaders in helping establish a consumer movement to fight foreclosures. According to The New York Times, a fifth of all mortgages there were delinquent or in foreclosure in the second quarter this year. The state has set up foreclosures-only courts, staffed by retired judges, with the goal of reducing the backlog of foreclosures by 62% in a year.

 

The Daily Business Review covers Florida's Miami-Dade, Broward and Palm Beach counties. It recently told the story of citizen activists who've become authorities on foreclosure law.

 

Lisa Epstein, an unemployed oncology nurse, is trying to save her West Palm Beach home from foreclosure and has "turned it into a full-time cause: being the voice of a group of people she says are largely unrepresented in the worst foreclosure crisis in decades."

 

Michael Redman, a former online salesman for Toyota, got started trying to help his fiancée fight a foreclosure action on her home in Port St. Lucie, Fla. He became so knowledgeable that he was hired as a legal researcher at the Law Offices of Carol C. Asbury in Boynton Beach.

 

Foreclosure-defense attorneys and the state attorney general use Redman's and Epstein's help. Epstein started ForeclosureHamlet.org, where homeowners can register to chat, contribute content and learn how foreclosure works.

 

Redman founded 4closurefraud.org, which logs 1,000 visitors a month. It focuses on providing documentation to foreclosure-defense lawyers. The Daily Business Review says:

For nearly a year, Epstein, 44, and Redman, 35, have spent countless hours in South Florida courthouses scrutinizing foreclosure documents filed by lenders' lawyers.
They have sent copies of filings they consider improper -- including potentially fabricated documents and many with signatures they believe are forged -- to the Florida attorney general, the FBI, Florida legislators, the U.S. attorney, the Florida Bar and other agencies urging probes of the law firms that filed them.

Among other activists is Bruce Marks, a former union activist who is CEO of the nonprofit Neighborhood Assistance Corp. of America. NACA, with 30 offices around the country, counsels homeowners and buyers, helps them get financing, and advocates against predatory lending. Last year The Wall Street Journal described Marks as "one of the loudest scourges of the banking industry in the post-bubble economy."

 

The Portland Press Herald highlighted the work of two lawyers volunteering with a legal defense group called Maine Attorneys Saving Homes, created with help from the Maine Bar Association and the state's attorney general. About 6,000 foreclosures a year have been filed recently in Maine. The advocacy group estimates that only one in 10 homeowners is represented by a lawyer.

 

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