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Legal issues slow foreclosures

November 6, 2011 1 comment

Legal issues slow foreclosures

SUNDAY, NOVEMBER 6, 2011    LAST UPDATED: SUNDAY NOVEMBER 6, 2011, 10:22 AM
BY KATHLEEN LYNN
STAFF WRITER
THE RECORD

In a small Bergen County courtroom one recent Friday, a sheriff’s officer auctioned off two foreclosed properties in a matter of minutes, as a handful of investors kept their eyes open for bargains.

Few buyers attended a foreclosure auction of two properties at the Bergen County Courthouse.

DAVID BERGELAND/STAFF PHOTOGRAPHER
Few buyers attended a foreclosure auction of two properties at the Bergen County Courthouse.

It was a far cry from the typical sheriff’s auction of mid-2010, when 15 or more properties were auctioned weekly and up to 100 investors crowded the courthouse’s large jury room.

Sheriff’s auctions are among the most visible symbols of the housing crisis, which left many homeowners saddled with mortgages they couldn’t afford. But foreclosure auctions have slowed dramatically since questions arose more than a year ago about “robo-signing” — that is, sloppy paperwork by mortgage lenders and servicers.

Requesting a review

Homeowners who lost their homes to foreclosure in 2009 and 2010 can have their cases reviewed to see if their mortgage companies did anything wrong, the federal Office of the Comptroller of the Currency said last week.

Mortgage servicers were to begin mailing letters last week to borrowers, telling them how to request an independent review if they believe they were injured by flawed foreclosure proceedings. If the reviewer finds they were harmed, the customer may receive compensation or another remedy.

The companies are America’s Servicing Co., Aurora Loan Services, Bank of America, Beneficial, Chase, Citibank, CitiFinancial, CitiMortgage, Countrywide, EMC, Everbank/Everhome, First Horizon, GMAC Mortgage, HFC, HSBC, IndyMac Mortgage Services, Metlife Bank, National City, PNC, Sovereign Bank, SunTrust Mortgage, U.S. Bank, Wachovia, Washington Mutual and Wells Fargo.

Requests for review must be received by April 30, 2012. For more information, visit IndependentForeclosureReview.com.

Though lenders were given the go-ahead in August to start foreclosing again in New Jersey after showing a judge they were following the rules, they have been slow to resume activity.

The reason: an August appellate court decision, Bank of New York v. Laks, according to Kevin Wolfe, head of the state’s Office of Foreclosure. In that case, the court dismissed a foreclosure, finding the lender violated the state Fair Foreclosure Act because it didn’t properly identify itself in a notice sent to the troubled homeowners.

Under new state court rules, lawyers working for foreclosing plaintiffs have to personally certify that they have checked the facts behind a foreclosure filing with an employee of the lender or the lender’s servicer. Many have indicated to Wolfe that they are reluctant to sign such a certification, because they’re concerned that the lender’s paperwork may not meet the requirements set out in the Laks decision.

E. Robert Levy, executive director of the Mortgage Bankers Association of New Jersey, said he believed there was no “real question about the validity of the loans being put through the foreclosure process.”

“The money is still owed; it’s just a matter of making sure you meet the procedural requirements, and we agree the requirements should be met,” Levy said.

Advocates for distressed homeowners say it’s only reasonable to ask lenders to get the paperwork right when it involves a matter as serious as taking someone’s home.

“Any delay that there is in New Jersey is occurring only because lenders haven’t followed the law,” said Margaret Lambe Jurow, a lawyer with Legal Services of New Jersey, who has represented homeowners in foreclosure cases. “Had they filed these things properly, they’d be in and out.”

The implications go beyond the losses suffered by homeowners and lenders. Housing analysts say the troubled real estate market can’t recover until the large number of distressed properties are finally sold. The properties make up a so-called “shadow inventory” — not on the market yet, and likely to ultimately sell at a large discount to other properties, pulling down housing values. Foreclosed homes typically sell at a discount of 20 percent or more, according to research.

Mortgage paperwork issues stem from the fact that most mortgages are not held by the local bank; they’re bundled into securities and resold to investors. In these cases, the company that a homeowner writes monthly checks to — the mortgage servicer — probably does not actually own the loan.

In the Laks case, for example, Sarah Laks’ mortgage was serviced by Countrywide Home Loans, but the actual owner was a trust managed by the Bank of New York. When Laks, of Lakewood, defaulted on the loan, she got a notice of intention to foreclose from Countrywide, but it did not mention the real owner, as required by the state’s 1995 Fair Foreclosure Act.

A lender’s attorney who spoke on condition of anonymity said that in the years since the Fair Foreclosure Act was passed, it’s been very common for these notices to name only the servicer, not the actual holder of the loan, as required by the Laks decision.

When mortgages were being written and sold to investors at a furious pace during the housing boom, the mortgage machine allegedly cut corners on recording who actually owns a mortgage and, therefore, has the right to foreclose.

 

 

Federal investigation

 

The questions over robo-signing slowed foreclosures to a trickle this year in New Jersey, after the state’s chief justice ordered six big lenders to show they were following the rules last December.

As a result, New Jersey homeowners are staying in their homes, on average, for more than 2 1/2 years without paying their mortgages before they are evicted, according to RealtyTrac, a California company that tracks the foreclosure market.

On a national level, the mortgage servicers’ questionable foreclosure practices are under investigation by the federal government and most of the nation’s attorneys general. The investigation is expected to result in a settlement reported at $25 billion; in exchange, lenders would be released from some legal claims.

Ira Rheingold of the National Association of Consumer Advocates predicted that the attorneys general’s settlement will include a road map for how lenders can establish ownership of a mortgage in cases where the transfer was poorly documented.

For example, he said, lawyers sometimes use a “lost note affidavit,” where a lender’s employee with knowledge of the loan signs an affidavit certifying that the lender actually owns it, even if the documentation is missing.

“How are you going to prove ownership — that really is the big question,” Rheingold said. “At some point people really need to be able to sell their houses. … If there’s a mortgage, somebody is owed the money. How do you straighten out this mess?”

Questions about this chain of ownership are being watched by the title insurance industry. In a recent case in Massachusetts, a court ruled that a buyer who purchased a property after an improper foreclosure was not the legal owner.

So far, there haven’t been enough such cases to make title insurance companies back off from writing policies, according to the American Land Title Association. But the industry is continuing to watch the issue, an ALTA official said.

It’s not clear when the foreclosure pipeline will start moving again in New Jersey, though foreclosure lawyers are watching another case that brings up issues similar to the Laks case. That case, U.S. Bank v. Guillaume, is scheduled to be heard by the Supreme Court soon. In the Guillaume case, an appellate court made the opposite decision as was made in the Laks case, and upheld a foreclosure action against an East Orange homeowner who said the notice of intention to foreclose didn’t properly identify the lender.

The lender’s lawyer, speaking anonymously, said the Supreme Court could get the pipeline moving again by requiring that the lender be identified in notices going to troubled homeowners, as the Laks ruling requires — but only in the future, not in cases already filed.

“We’re hoping the Guillaume case clears this up,” said the lawyer.

E-mail: lynn@northjersey.com

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