It’s foreclosure Friday at Financial Reform Watch as we take a closer look at one of the groups responsible for the latest scandal to engulf the housing market.
Today’s target: The lawyers who allegedly backdated documents, submitted false affidavits, and forged signatures to ram as many foreclosures as possible through an overburdened court system. Recent news reports suggest that at least five law firms in three states may have engaged in some or all of these tactics, and more revelations are sure to come.
Homeowners have complained for several years that mortgage lenders were cutting corners in processing foreclosures. But the first clear evidence of the scope of the misconduct came after Thomas Cox, a retired lawyer for a nonprofit legal aid organization, deposed an employee of GMAC Mortgage who admitted that he routinely signed off on 400 foreclosure documents a day. The employee quickly earned the nickname “robo-signer.”
Next, Bank of America, JPMorgan Chase and GMAC caused bank stocks to swoon after each suspended foreclosures in 23 states. This week, the attorneys general of all 50 states announced that they were investigating foreclosure practices.
As Financial Reform Watch’s Michael Hudson recently noted, the revelations are shocking, but not surprising to anyone who’s been tracking the recent history of the mortgage machine. Just about every corner of the America’s mortgage industry has been blemished by significant levels of fraud over the past decade, he notes.
Incomplete, missing documents
The role of lawyers in the foreclosure process has garnered less attention, but they play a big role, especially in those states that require banks to go to court to get a foreclosure order. (The same states where the lenders have suspended foreclosures). In these states, banks are required to produce a notarized affidavit of a loan officer and submit the mortgage documents. Those documents, though, are difficult to produce, thanks to the securitization craze.
As CNBC notes in this helpful primer to the foreclosure crisis, every time a mortgage changes hands, the new owners are supposed to receive an “assignment” of the mortgage notes from the buyers. For securitized loans, the mortgages are assigned to a specially created investment vehicle.
During the housing bubble, however, the notes and other critical documents were often either not properly transferred or simply not created. Other records vanished along with failed brokers and lenders. This means that lawyers charged with putting together the paper trail often have a tough job. Over the past few years, some have used shortcuts.
Under the law, a firm must complete, sign, and notarize the document that affirms who holds the mortgage, and is thus legally permitted to seize someone’s home. As