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Foreclosure mess prompts growing number of public officials to slow down process

By Ariana Eunjung Cha
Washington Post Staff Writer
Thursday, November 11, 2010; 10:23 PM

One month ago, the city of Chicago and the surrounding suburbs of Cook County became a foreclosure-free zone. It wasn't the banks or judges that instituted the moratorium, because they were still moving cases forward at a rapid clip. The holdup was elsewhere: at the sheriff's office.

Sheriff Thomas J. Dart, whose office is responsible for physically evicting delinquent homeowners, announced Oct. 19 that his deputies would "no longer be doing the banks' work for them anymore."

"I can't possibly be expected to evict people from their homes when the banks themselves can't say for sure everything was done properly," he explained.

After reading about problems such as banks "robo-signing" foreclosure documents without verifying their accuracy, Dart asked that attorneys for mortgage companies sign something personally confirming that evictions are justified. None did. So Dart has refused to honor their requests.

There's now a backlog of over 1,000 evictions in his office, and the pile is growing each day.

Frustrated by the banks' response to the foreclosure mess, a growing number of public officials - including chief judges, attorneys general and sheriffs from jurisdictions big and small - are pushing the boundaries of their powers to slow down foreclosures in their areas.

The new challenges are throwing a wrench into the plans of mortgage companies, which in recent weeks have tried to put the robo-signing mess behind them by rapidly reviewing or fixing their paperwork and resuming foreclosures. Such challenges, experts say, are likely to further prolong a foreclosure process that already takes an average of 16 months to complete - helping homeowners facing eviction but hurting the still-fragile housing market.

The allegations of improper foreclosures "have incited something of a populist revolt, and it's become a political issue," said Clifford Rossi, a former Citigroup lending official who teaches business at the University of Maryland. While there seemed to be some optimism in the industry that the worst of the crisis has passed, the new roadblocks are "again creating an air of uncertainty," he said.

In D.C. and Maryland

In the District, for example, Attorney General Peter Nickles said on Oct. 27 that the law requires every transfer of a mortgage from one party to another to be recorded within 30 days of the transaction. That created an opening for foreclosure challenges; such transfers often went unrecorded when mortgages were packaged and resold as investments on Wall Street through the securitization process.

In Maryland, the state's highest court adopted an emergency rule on Oct. 19 allowing judges to appoint experts to study paperwork in foreclosure proceedings and to require lawyers to swear to their accuracy.

And in New York state, the chief judge on Oct. 20 issued an order similar to Dart's, requiring that attorneys for mortgage companies sign affidavits saying they had verified the accuracy of the documents submitted, under "penalties of perjury." Ohio's Cuyahoga County, which includes Cleveland, followed suit last week. The county's judges also said they would give mortgage servicers 30 days to ensure their paperwork is sound - or their cases would be dismissed.

"Because the court is now on notice of the potential flaw in the system, we decided that we couldn't turn a blind eye toward that," Judge Eileen P. Gallagher, head of the Cuyahoga County court system's foreclosure committee, said in an interview.

The role of MERS

The biggest legal challenges to banks go beyond the robo-signing problem, to the issue of whether the companies bringing foreclosure actions have the standing to do so.

In Kentucky, the chief judge in Kenton County issued an order requiring that every transfer of a mortgage from the original lender be documented for foreclosure cases filed on or after Nov. 15 to proceed. That order, like the similar assertion from the District's attorney general, presents a time-consuming problem for mortgage companies because many mortgages were bought and sold at least three times, and all that paperwork must be tracked down.

Some of that paperwork might not exist. Many of the country's biggest mortgage companies list Mortgage Electronic Registration Systems (MERS) as the mortgage holder - rather than the actual owner of the mortgage - in local deed offices.

MERS is a computer tracking system set up by Wall Street to help speed the process of transferring mortgages as they were bundled, sold and then resold in the securitization process. That allowed the companies to track their ownership of loans electronically rather than having to go through the labor-intensive and expensive process of filing paperwork each time a mortgage was resold.

There have been numerous legal challenges regarding the role of MERS in the mortgage assignment and foreclosure process across the country, but the issue remains unresolved. Some courts have upheld the right of MERS to conduct certain transactions; others have ruled that it has no standing.

Nickles explicitly stated that, in the District, the requirement for recording every transfer of mortgage "is not satisfied by private tracking of mortgage interests through the Mortgage Electronic Registration Systems."

"A homeowner should not be misled into believing that a threatened foreclosure is supported by the District's public records when it is not," Nickles said in a statement, explaining that such practices are a violation of the jurisdiction's consumer protection law.

MERS said in a statement that, because its name was on the original documents at the time the loans were made and recorded, it believes the transfers were valid.

In Illinois, Dart said in an interview that, after hearing about improperly prepared paperwork at major lenders, he and his deputies pulled an admittedly unscientific sample of 400 foreclosure cases processed by the courts. He said they found that only 20 of them had the proper paperwork and that the others were missing "very significant" documents.

While not carrying out evictions could land Dart in trouble if a judge decides to bring contempt-of-court charges, he said he thinks his actions have been "just and legal."

"When I have the lending institutions themselves admitting to problems, what are we supposed to do?" Dart said. "All I'm asking them to do is certify that what they are doing is legal. The fact that they are not racing to do this makes the case for us."

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