Bank of America latest to put hold on foreclosures amid paperwork concerns

By Ariana Eunjung Cha
Washington Post Staff Writer
Friday, October 1, 2010; 11:40 PM

Bank of America, the nation's largest bank, on Friday became the latest lender to put foreclosures on hold in 23 states because of concerns that court documents it submitted were improperly prepared.

Bank of America 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, they hadn't had the time to read the documents, much less check them for accuracy.

"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," spokesman Dan Frahm said in a statement.

A Bank of America executive, Renee Hertzler, said in a February deposition in Massachusetts 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 over the past week. The statements were taken by lawyers for homeowners contesting the seizure of their homes.

J.P. Morgan and Ally have said they believe in the factual accuracy of the documents they submitted. Bank of America said it was still conducting a review.

On Wall Street, the stocks of companies that insure titles for homes were down Friday on fears of the worst-case scenario: that flawed paperwork could be used in court cases by those who have been evicted to reclaim resold properties. At least one such company, Old Republic Title, has stopped insuring homes that were foreclosed on by Ally Financial or its GMAC mortgage unit.

Heightened scrutiny

Bank of America's announcement comes as federal and state law enforcement officials have stepped up their scrutiny of foreclosure practices.

Connecticut Attorney General Richard Blumenthal (D) announced a 60-day moratorium on foreclosures by all banks in the state, making it the first jurisdiction to take such wide-ranging action.

Blumenthal called the actions of J.P. Morgan and Ally a "possible fraud on the court undermining the integrity of the legal process and consumers' ability to fight foreclosures." He added, "This freeze should stop a foreclosure steamroller based on defective documents and enable effective remedies."

J.P. Morgan and Ally declined to comment on Blumenthal's remarks.

Meanwhile, California broadened its moratorium on foreclosures by Ally Financial to include those by J.P. Morgan Chase. Calling the companies' review of key foreclosure documents a "ruse," California Attorney General Jerry Brown (D) ordered J.P. Morgan to prove it is following the law before it resumes foreclosures in the state.

The 23 states where Bank of America, J.P. Morgan and Ally suspended some foreclosures require a court order before a home can be seized. This approach is considered favorable for homeowners because mortgage companies must submit more extensive documentation before they can foreclose. Connecticut is on that list, but California is not.

Federal officials' reaction

At the federal level, officials in the patchwork of agencies responsible for policing banks and the home loan market said they were also disturbed by the use of "robo-signers" at mortgage companies.

The Federal Housing Finance Agency, which oversees mortgage finance giants Fannie Mae and Freddie Mac, said it had asked the companies to work together to make sure the loan servicer companies they contract with to manage their loans are complying with the law. Fannie and Freddie both use Bank of America, J.P. Morgan and Ally to service some of their loans.

Fannie and Freddie together own or guarantee more than half of the $11 trillion mortgage market.

Over the past week, the Treasury Department's Office of the Comptroller of the Currency ordered some of the country's largest banks to review their foreclosure procedures. Several companies moved to distance themselves from the growing scandal.

Wells Fargo said in statement Friday that it believes its affidavits are correct. Citibank said it has rigorous training, supervision and review so employees who work with foreclosures know to review the documents they sign and do so in front of a notary.

The Treasury's Office of Thrift Supervision, which supervises savings associations and their holding companies, said Friday that it, too, had ordered some of the banks it oversees to review their foreclosure procedures. Office spokesman William Ruberry declined to comment on specific companies, but an administration official said OneWest Bank is on that list.

Eyes on OneWest

In a sworn deposition taken in July in a disputed foreclosure case, Erica Johnson-Seck, an Austin, Tex.-based vice president for bankruptcy and foreclosure for OneWest, said she and her team of seven others sign 6,000 documents a week, or about 24,000 a month, without reading all of them. Johnson-Seck estimated that she spent no more than 30 seconds to sign each document.

She explained that while she does not check everything, she does check some information, "which is why I said 30 seconds instead of two seconds."

In the past, the company had a quality control process that required signatories to check 100 percent of the debts and any figures for loans and bankruptcy, Johnson-Seck said. But the error rate was low, so now they check only about 10 percent of the documents.

Johnson-Seck also said in the deposition that she had signing authority for Deutsche Bank, Bank of New York and U.S. Bank, among others.

A spokeswoman for OneWest, the successor to IndyMac, a Pasadena-based bank that collapsed in July 2008, declined to comment.

Dustin Zacks, the lawyer in Florida who took the deposition, said that the document problem was industry-wide and that he expected more banks to follow suit.

John Ennis, a lawyer in Rhode Island who defends homeowners, also predicted that the fallout from document problems would hit other banks.

"The fraud in paperwork for foreclosures is highly pervasive," he said. "I would say 99 percent of the documents I am seeing have some sort of problem."

Some judges have already begun to reprimand banks that have submitted faulty documents. In Maine last week, a state judge vacated his own decision to allow Fannie Mae to foreclose on a house after learning that the GMAC employee who signed the affidavit had said in a deposition that he wasn't reading the legal documents. Citing the companies' "careless approach" to handling foreclosure documents, District Court Judge Keith Powers ordered Fannie to pay some attorney's fees. The case will now go to trial.

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