Foreclosures: Frustration, Fear...And Now Fraud?

By
Real Estate Agent with Baird&Warner Fox Valley

Fraud? This week's news about delaying foreclosures and evictions in 23 states due to bank officials' admissions of fraud has been astonishing. If you've been involved in a foreclosure or a short sale, you have almost certainly experienced frustration with the banks involved. But are those frustrating or even inexplicable processes the same as fraud? They may be related. Fraud is intentional deception designed to harm an individual. States that require judicial foreclosure have lengthy and detailed processes for repossessing a home due to payment default...but if those procedures aren't strictly followed, the foreclosure could be fraudulent.

Coming at a time when housing sales have slowed and election rhetoric is heating up, it's going to be hard to sort out the truth from the posturing.

Many people who purchased REOs (bank owned properties) are now worried about the legal status of their ownership. The homes they thought they owned may not have clear title if the home was illegally foreclosed on.

Title companies may seek to avoid paying claims by REO home owners and their lenders by pointing back to fraudulent foreclosure procedures if the previous homeowners claim that they were victims of foreclosure fraud and seek to reclaim those homes.

New buyers will be reluctant to purchase homes that may be caught up in years of dispute. Neighborhoods with vacant foreclosures will suffer as those homes continue to deteriorate.

Ally Financial, formally called GMAC, said on September 21 that they would halt evictions on foreclosures after bank executives admitted in Florida that 1000s of foreclosures may not have been conducted with regard to due procedure.

"Defective documentation has created millions of blighted titles that will plague the nation for the next decade," said Richard Kessler, an attorney in Sarasota, Florida, who conducted a study that found errors in about three-fourths of court filings related to home repossessions (Bloomberg).  

Such mistakes may allow former owners to challenge the repossession of homes long after the properties are resold, according to Kessler. Homes that were purchased as REOs may not have clear title. Previous owners could pursue reclaiming their home due to fraudulent foreclosure practices. Some title companies are quickly responding by raising rates and holding up approval of title polices for new sales of REOs.

Right on the heels of the Ally Financial halt to new evictions, JP Morgan Chase stated that it would ask judges in judicial foreclosure states to postpone rulings on new foreclosures.  

On October 1, Acting Comptroller of the Currency John Walsh asked the nations' seven largest lenders to review its foreclosure processes for any sign of faulty documents (Housing Wire).  

On October 2 the Chicago Tribune wrote that Bank of America is delaying foreclosures in 23 states as it examines whether it rushed the foreclosure process for thousands of homeowners without reading the documents. "A document obtained Friday by the Associated Press showed a Bank of Americaofficial acknowledging in a legal proceeding that she signed up to 8,000 foreclosure documents a month and typically didn't read them. The official, Renee Hertzler, said in a February deposition that she signed 7,000 to 8,000 foreclosure documents a month. "

Fannie Mae and Freddie Machave issued new directives to their lenders and servicers to review their foreclosure processes to make sure they are in compliance with each state's laws (Housing Wire).  

Banks are expected to take over a record 1.2 million homes this year, up from about 1 million last year and just 100,000 as recently as 2005, according to Realty Trac.

The state Attorney Generals enforce foreclosures and many responded this week with orders to halt new foreclosures, evictions on current foreclosures and launch reviews of past foreclosures. Among the many AG actions, on September 30 Illinois Attorney General Lisa Madigan issued a letter to the mortgage lender JP Morgan Chase demanding a meeting to address concerns the company has violated the state's Consumer Fraud Act in its pursuit of Illinois homeowners in foreclosure.

"With JP Morgan now acknowledging possible abuses in preparing court documents, the impact on homeowners in our state and across the country could be great," Madigan said. "As with Ally Bank, if I determine JP Morgan was recklessly signing off on foreclosure filings in our courts, I will hold them accountable. These struggling homeowners deserve better." This letter comes less than a week after demanding a similar meeting with Ally Bank.

In IL concerned homeowners can call the Attorney General's Homeowners' Referral Helpline toll free at (866) 544-7151.  

The Chicago Tribune reported that "In some states, lenders can foreclose quickly on delinquent mortgage borrowers. By contrast, the 23 states in which Bank of America is delaying foreclosures use a lengthy court process. They require documents to verify information on the mortgage, including who owns it.

Those states are:

Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nebraska, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont and Wisconsin."

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This post was written by Leslie Ebersole of Baird & Warner Real Estate.
Use or reproduction of the material published on this site is expressly prohibited
without the express written permission of the author.

 

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Re-Blogged 8 times:

Re-Blogged By Re-Blogged At
  1. Troy Funk 10/03/2010 04:14 PM
  2. Bob & Leilani Souza 10/04/2010 12:47 AM
  3. Joe Feinhandler 10/04/2010 04:15 PM
  4. Craig Frazer 10/05/2010 11:21 AM
  5. Steve Davis 10/05/2010 11:18 PM
  6. Judy Greenberg 10/06/2010 08:53 PM
  7. Ruthmarie Hicks 10/11/2010 01:18 AM
  8. Lisa Orme 10/11/2010 03:00 PM
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Rainmaker
103,346
Robert Slick
Beach and River Homes - Georgetown, SC
NRBA, RDCPro, Trident/CCAR MLS

Someone explain to me how stopping foreclosures will help restore normalcy to the market?
There is an underlying problem that no one is addressing and that is the borrowers that cannot or will not pay. Their reason for not paying is irrelevant. Stacking up properties in default and keeping them filled with non-paying occupants or empty with unknown transient occupants does not help us as professionals.

October 04, 2010 03:39 PM #42
Ambassador
1,229,122
Erica Ramus
Erica Ramus - Ramus Realty Group - Pottsville, PA - Pottsville, PA
MRE, Schuylkill County PA Real Estate

Defective documentation?

We all know that's true. They cannot keep short sale files straight and you have to fax something 12 times to 5 different phone numbers before they even acknowledge they received it. 

October 04, 2010 04:42 PM #43
Rainmaker
146,982
Carol Pease
Pacesetter Properties - Cedar Park, TX
CRS, Broker-Associate 512-721-6320

Wow!!! I agree with Erica.  I'm having a problem with Chase right now.  I have faxed and refaxed the short sale package and somehow have ended up with someone in loan modifications.  I keep calling and telling them to move the file but we've been stuck for 4 weeks.  Defective documentation?  Foreign country imaging.  Equator disasters.  It looks like it is only going to get worse. 

October 04, 2010 06:03 PM #44
Rainmaker
421,295
Leslie Ebersole
Baird&Warner Fox Valley - Saint Charles, IL
REALTOR - Chicagonulls Western Suburbs

Carol: in your case, silence isn't golden...good luck in getting your deal done.

Erica: But you really have to wonder where the paperwork actually went. It's got to be somewhere!

Robert: Stopping foreclosures won't help, but illegal foreclosures are frightening because a future buyer may not be able to get clear title. Such a mess.

Stephanie: I heard about that, too and I know someone who tried that. Citibank ignored them and foreclosed. But who knows what the future will bring on that account?

October 05, 2010 01:30 AM #45
Rainmaker
421,295
Leslie Ebersole
Baird&Warner Fox Valley - Saint Charles, IL
REALTOR - Chicagonulls Western Suburbs

Bob: Wouldn't that be nice? I hope some legislators take this approach and call for more and more quick loan mods. 

Todd: I'm thinking of a nice gulag somewhere. Thanks.....

Mike: First, thanks for a detailed comment. I seem to be banging my pots in the dark on the "money" issue. Money isn't free, money represents valuation of assets, the government backs most of the mortgage loans, and either "letting banks fail" or cramming down mortgages has consequences. Write off are not the simple answer. Devaluation of assets would have enormous consequences. But you know, we Realtors can certainly continue to admire one another's photos and gripe about poor phone habits....sheeesh. 

Richie: I wonder if there are any quickie law schools.....thanks for commenting.

October 05, 2010 01:39 AM #46
Rainmaker
421,295
Leslie Ebersole
Baird&Warner Fox Valley - Saint Charles, IL
REALTOR - Chicagonulls Western Suburbs

Eugene: Slam them = slam us....unfortunately.

Erick: There is a lot of talk over "produce the note", but homeowners are still on the hook. Hope your friends work out their situation soon.

Doug: A friend of mine owns a title company and has been calling this the MERS problem for a couple of years.

October 05, 2010 01:43 AM #47
Rainer
101,993
Kevin Dwyer
SellState Next Generation - San Diego, CA

Leslie, thanks for the well written post. I can NOT for the life of me undersatnd why what these banks are doing are not getting more press coverage. This fraud makes the Enron scandal look like a college prank. These bankers should be tried for fraud, conspiracy, etc.

October 05, 2010 02:10 AM #48
Rainer
77,858
Mike Morrison
Will & Will Real Estate Brokers, The Woodlands, Texas - Houston, TX

Lesllie, thanks for getting it ! MERS was set up to securitize mortgages, better description Ponzi Scheme. I think this will spell the end for MBS. A friend at a stock/bond brokerage tells me that the requests for re-purchase of MBS from buyers is unbelievable.

October 05, 2010 11:37 AM #49
Rainmaker
1,253,565
Carla Muss-Jacobs, Principal Broker/Owner
BuyersAgentPortland.com | (503) 810-7192 Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% o... - Portland, OR
Buyer Focused ~ Buyer Results

Great post Leslie!!   And there are some foreclosures that have occured because homeowners went for the Loan Mod, made payments per their "trial" only to have their Loan Mod denied months later, with the banksters requiring "balance due" of the previous months! 

I wish Mike #49 would write a post and expand of this.

October 05, 2010 03:02 PM #50
Rainmaker
211,587
Yvette Chisholm
Long & Foster Real Estate, Inc. - Rockville, MD
Associate Broker - Rockville, MD 301-758-9500

What a mess!  The thought that even purchasing title insurance won't help the "new" owners is scary.  We always tell our buyers that buying foreclosures is a risk and this just adds more fuel to the risk pile.

October 05, 2010 11:24 PM #51
Rainmaker
421,295
Leslie Ebersole
Baird&Warner Fox Valley - Saint Charles, IL
REALTOR - Chicagonulls Western Suburbs

Kevin: it's hard to understand the many moving parts in this situation. Just writing a summary took me a day of-off again tries. It's not an easily digestible story when you start. Florida attorney Richard Zaretsky had a great post today explaining some of the terms.

 

October 06, 2010 12:45 AM #52
Rainmaker
279,636
Jerry Murphy
Long Real Estate - Anthem, AZ
Anthem AZ Real Estate

I was reading through all of the comments/responses to your post here saying to myself, "hmmm, thus far no one's blaming the government for this mess." When, wham there is was! From Mike Morrison.  Of course.  When will people realize that it's not the government that causes these banks to be greedy, careless, and arrogant.  It's their executives.  Many of which should be serving jail time for what they have done to this economy.  And hopefully, now that they have been exposed for the frauds they are, many will be put in jail to ponder thier ill advised decisions.  I wish there was a way our economy could function without banks, but unfortunately we are stuck with them.  We all need to pull our money from the large banks and start doing business with the local community banks and credit unions.  Great post and best of luck to you Leslie.

October 06, 2010 04:36 PM #53
Rainmaker
421,295
Leslie Ebersole
Baird&Warner Fox Valley - Saint Charles, IL
REALTOR - Chicagonulls Western Suburbs

Jerry: I agree, if people want a greater stake in their futures, more involvement is necessary. A small but important move could be for consumers to use more local financial organizations that are managed and measured locally.

Yvette: so liability continues to lap at out feet.....thanks for commenting.

Carla: I wish I understood better what Mike #49 is writing about. I know just enough to know that the MERS system is part of the problem. 

Kevin: to most people, this sounds like another esoteric bank regulatory issue. Education of our clients will require us to understand and synthesize the information.

October 06, 2010 08:40 PM #54
Rainmaker
332,875
Judy Greenberg
Coldwell Banker Buffalo Grove- 350 Half Day Road - Buffalo Grove, IL
Coldwell Banker - Buffalo Grove - Long Grove Homes

This is truly a mess and you have done a great job as you usually do explaining all the facts.  I am going to reblog it  Thanks for the info!

October 06, 2010 08:50 PM #55
Rainmaker
302,066
Margaret C. Taylor
Century 21 New Millennium MD - Mechanicsville, MD
St Marys/Calvert/Charles MD Real Estate Agent

Great summary.  I've been surprised to see so little discussion on this.  I thought the impact might be that if there are less foreclosures on the market and less Buyers wanting to trust them will more Buyers turn to Short Sales and will the Banks become more cooperative?  Margaret C.

October 06, 2010 09:49 PM #56
Rainmaker
421,295
Leslie Ebersole
Baird&Warner Fox Valley - Saint Charles, IL
REALTOR - Chicagonulls Western Suburbs

Judy: Thanks. In our office, it seems like only a few clients have help off on reo transactions so far, and as long as we can get title insurance, all is ok? Who knows?

Margaret: broker Bryant thinks it's a great time to buy a short sale. If the seller is preapproved and the LA knows what he is doing I agree.

October 07, 2010 11:32 PM #57
Rainmaker
1,037,123
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

This is quite disappointing.  I don't know why these lenders think they are above the law!  First they make the crummy loans and then they engage in this type of thing and create yet another mess!  This is quite disappointing.  So, some of the politicos want NO regulations .. I won't name names here... but this whole thing is very troubling.

October 11, 2010 01:28 AM #58
Rainer
171,989
Lisa Orme
The Master's Key Realty LLC -Windsor, CT - HARTFORD COUNTY - Windsor, CT
Broker/Realtor, ABR, CRS,GRI, PSCS, SFR, Notary Pu

Leslie, I kept coming back to this post to review it and all the comments it received, and I've re-blogged it -with thanks!

October 11, 2010 03:53 PM #59
Anonymous
Anonymous
Illinois Lemon Law

Unfortunately, when an individual is faced with such a vital issue as a house foreclosure, he is an easy prey for highly vocal companies or individuals who sell them promises and illusions about securing their loans. They offer to conduct mortgage audits without having the experience and the expertise to do it.

http://www.illinoislemonlaw.com/

September 12, 2011 09:18 AM #60
Rainmaker
421,295
Leslie Ebersole
Baird&Warner Fox Valley - Saint Charles, IL
REALTOR - Chicagonulls Western Suburbs

Disabled comments due to spam.

October 02, 2011 12:08 PM #61
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Rainmaker
421,295

Leslie Ebersole

REALTOR - Chicagonulls Western Suburbs
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