Article by Erik Smith. Published on Wednesday, October 13, 2010 EST.
Tells 52 Companies to Stop Until They Get They Get Their Paperwork in Order – Warns of Consumer Protection Lawsuits
By Erik Smith
Staff writer/ Washington State Wire
OLYMPIA, Oct. 13.—Attorney General Rob McKenna is telling foreclosure companies to stop until they get their papers in order — or else they’re going to be facing lawsuits from his office and enormous fines.
At a Seattle news conference Wednesday, McKenna announced that his office has sent letters to every foreclosure trustee in the state, asking them to suspend foreclosures until they can be sure they have dotted all the ‘i’s and crossed all the ‘t’s. Plenty of evidence suggests they are taking illegal shortcuts and violating consumer rights, he said.
It is the first action by the state of Washington to respond to a growing national furor over the processing of mortgage foreclosures. Several large lenders, including GMAC, Bank of America and JP Morgan Chase, have already suspended most or all foreclosures because of the processing problems, mainly in the 23 states where foreclosure actions must go through the courts.
But Washington isn’t one of them. In this state mortgage holders can foreclose without going to court and send property straight to auction. Foreclosure trustees are the ones who process the actions, and McKenna doesn’t have the authority to order them to suspend their efforts. But with his announcement Wednesday he put them on notice that even without court involvement somebody in this state is going to be looking over their shoulder.
Joins National Investigation
At the same time, his office is joining those in 49 other states in an investigation into the practices of mortgage servicers. The group, convened by the National Association of Attorneys General, will investigate whether mortgage servicers have improperly submitted affidavits or other documents related to foreclosures in their states.
“Foreclosure is traumatic enough for someone losing their home, but finding out legal procedures have not been followed makes it even worse,” McKenna said. “As part of our ongoing investigation, we have received complaints and information that indicate the Washington foreclosure process frequently includes inaccurate documents, conflicts of interest, faulty chains of title and failure to provide the disclosures and to conduct mediations required by law.
“Some of these practices can deprive homeowners of their legal right to assert legitimate defenses in an action to save their homes.”
Investigation Reveals Fraud
McKenna said his office has received about a dozen complaints from homeowners who have been foreclosed upon in Washington state, and his office has been investigating since May. The investigation revealed precisely the same sorts of problems that have emerged nationally in the last few weeks.
They include:
n Signatures that appear to be fraudulent.
n Certifications from notaries who apparently weren’t in the room when documents were signed.
n Back-dated documents.
n Foreclosures on properties despite a lack of clear title.
n Failures to notify homeowners of their rights, as required by law.
n Default notices that fail to disclose who owns the loan and the name of the company acting as the foreclosure servicer.
Funny Handwriting
McKenna said his office noticed one thing right off the bat when it started going through the paperwork. If you looked closely at the documents, you could tell that some officials of lending agencies had wildly different signatures from one document to the next. That suggests employees of mortgage trustees are completing paperwork that was supposed to have been done by banks and mortgage servicers.
And if the paperwork is a shambles, homeowners don’t have a chance, McKenna said. When legal documents fail to indicate who is behind a foreclosure, homeowners don’t know to contact. In this state, those who obtained mortgages between 2003 and 2007 have the right to request mediation and seek to establish alternate payment plans. Lenders are supposed to tell them about it. But many don’t.
“We believe it is likely that most of them, if not all of them, have been cutting corners,” McKenna said.
System Overwhelmed
The problem is really the fruit of the wild lending spree of just a few years ago, when banks made credit easy and a superheated market made it easy for financial institutions to bundle mortgages and resell them as securities. These days it’s hard to tell precisely who owns the typical mortgage issued five years ago. And now, with the economy in the doldrums, house prices sinking, and homeowners defaulting in large numbers, the businesses that process foreclosures are swamped, McKenna said.
Trustees are paid based on the number of foreclosures they process, and they have an incentive to move the paperwork fast.
“The number of foreclosures in our country has overwhelmed our system,” he said. “We have never experienced the number of foreclosures we are seeing right now.”
Asks for Suspension
In his letter to 52 Washington state foreclosure trustees, McKenna makes a stern observation. Washington law allows them to take action without court oversight, and that means they better do everything right. Several trustees already are under investigation. And he advises them all to suspend foreclosures until they are certain they are complying with the law.
“I ask you to suspend all foreclosures in which you have not yet confirmed that all foreclosure related documents were lawfully signed, that the chain of ownership is clear and has been revealed to you in full, and that state consumer protection requirements have been followed.”
Or Else What?
McKenna pointed out that foreclosure trustees face big penalties – $2,000 for every letter that isn’t processed in accordance at law. Because the problems are so widespread, every single one of them could face penalties in the hundreds of thousands of dollars. He said he thinks most, if not all, will take heed of his warning.
McKenna noted that the suspension of foreclosure actions doesn’t mean they’re going to be stopped. For homeowners it might just mean a little breathing space before the wheels of the law bear down on them again. But when the process restarts, their rights might be a little more clear.
McKenna was joined in his announcement by Scott Jarvis, director of the Washington Department of Financial Institutions.
“Such failures potentially injure not just the homeowners denied the protections afforded to them under our laws, but also subsequent purchasers of foreclosed properties, financial institutions who might be inclined to lend on such properties and the title insurance companies who insure the chain of title to those properties,” he said. “The last thing we need in these difficult times is to further damage our already struggling real estate industry.”
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