Updated: Bank of America halts foreclosures in all 50 states
On the eve of arguments in the controversial U.S. Bank v. Ibanez foreclosure case before the Massachusetts Supreme Judicial Court on Oct. 7, Bank of America, the nation’s largest bank, became the latest lender to halt foreclosures in 23 states because of concerns that lenders submitted faulty foreclosure court documents. Massachusetts Attorney General Martha Coakley has asked Bank of America to halt foreclosures in Massachusetts, but has not filed a formal action to do so yet.
Robo-Signing
Bank of America, JP Morgan Chase and other mortgage companies have been under pressure to review their paperwork after employees and contractors said in sworn depositions that, because of the enormous volume of foreclosures, they had not had the time to read the documents or check them for accuracy. This practice has been termed “robo-signing” where midlevel bank executives would sign thousands of affidavits a month attesting that they had personal knowledge that the facts of the case were as presented. When defense lawyers started deposing these robo-signers, they acknowledged that they could not possibly have knowledge of all the cases. The banks say this is a technicality and they will refile the proper affidavits. The defense lawyers say the practice calls the cases, and indeed the entire process, into question.
“To be certain affidavits have followed the correct procedures, Bank of America will delay the process in order to amend all affidavits in foreclosure cases that have not yet gone to judgment,’’ B of A spokesman Dan Frahm said in a statement.
A Bank of America executive, Renee Hertzler, said in a February deposition that she signed as many as 8,000 foreclosure documents a month without reviewing them. The deposition is similar to others taken from document processors at J.P. Morgan Chase and Ally Financial, which have also frozen foreclosures in the past week. The statements were taken by lawyers for homeowners contesting the seizure of their homes.
Foreclosures have stopped in these states: 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.
Huge Impact
The net effect of the banks’ halt on foreclosures will be that the current frenzied pace of foreclosures will slow considerably as well as the evictions of defaulting homeowners. Also, the inventory of foreclosed properties will continue to stagnate, and will not be absorbed into the market for many, many months to years to come. This is exacerbated by title insurance companies’ unwillingness to insure over potentially defective foreclosure titles due to the errors in the process. Also, state attorney generals will surely jump on this bandwagon, demanding or suing to slow down foreclosures — a no brainer political move. All of this will have a dramatic impact on the REO market and the market as a whole.
On the flip side, some economists said the breakdown could ultimately lay the groundwork for a real estate recovery. Stricken neighborhoods across the country, for example, could benefit. One big factor undermining home sales is fear of a large number of foreclosed homes coming to the market. If the foreclosures are delayed or never happen, housing prices might find a floor.
“Maybe this is like shock therapy,” said the economist Karl E. Case. “Maybe this will actually get the lenders to the table and encourage them to work out deals that are to the benefit of everybody.”
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