The Legal Missteps of Big Lenders in Foreclosure

The last two weeks have brought new revelations to light about how some of the nation’s largest lenders have cut legal corners to foreclose on and evict homeowners. The problem seems to be in the basic legal proceedings. Lenders need to file an affidavit when they seek a summary judgment in a foreclosure case stating facts like how much is owed, which the signer must state that they have knowledge of.

Where GMAC and Chase get in trouble is that lawyers for angry homeowners are claiming that they signed over 10,000 affidavits every month- clearly not enough time to actually review each case. Executives are signing documents for cases they didn’t really review. The lawyers call it everything from carelessness to fraud.

GMAC flat out said that there had been “legal missteps” in their foreclosure processing, and JPMorgan Chase said that there is a possibility of the same in their processes. In response, title insurance companies, including Old Republic National Title, are putting a halt to all insurance on titles to properties foreclosed on by GMAC Mortgage. They’re the 4^th largest mortgage company in the country. JPMorgan Chase put all 56,000 of their foreclosures in the court system on hold. Moody’s has both of their servicer ratings up for review- the federal government is already the majority shareholder in GMAC…

There are a few voices that sound cautiously optimistic that this will push lenders to start looking for positive ways to resolve mortgage problems that don’t involve foreclosure, and that will gradually lead to a floor to the real estate crisis. For now, of course, things are likely to get more confusing- especially with the number of foreclosures in process and the time it takes for that processing both still rising.

The time between an owner’s first missed payment and their eviction has ballooned with the sheer volume of foreclosure cases. In January of 2009 it was 319 days; In August of 2010 it was 478. Lenders are also putting defaulting homeowners into the formal foreclosure process: 283,000 in August, up from 220,000 in April.

The bottom line is that lenders were looking for a way to speed up the foreclosure process and they cut legal corners. It seems we’ve hit the critical mass of angry homeowners with lawyers on the case, and the truth is coming to light.

Photo Credit: respres

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