Mortgage Fraud - First in Making Loans, Now in Foreclosures
They just keep digging themselves in deeper. Bankers and lenders have taken a huge beating to their image since the crash of the housing market, attributed to their greed and negligence. The latest tarnish is a slew of lawsuits against Ally Financial Inc. (formerly GMAC) and JPMorgan Chase & Co. for unlawfully processing foreclosures.
Ally officially suspended eviction proceedings on existing foreclosures in 23 states in mid-September after being sued by the state of Maine in multiple cases. The company has been accused of allowing employees to sign foreclosure paperwork without a notary and without having reviewed the information to know if the documents reflected true facts and figures.
"We're exercising an abundance of caution to preserve the integrity of the process," Ally spokeswoman Gina Proia said as quoted in a Reuters article. "We're confident that the processing errors did not result in any inappropriate foreclosures."
But now another lender is on the hot seat as well. Chase is facing similar charges across the country and it has also ceased evictions and post-foreclosures proceedings on 56,000 cases in 23 states (the ones that have the strictest foreclosure laws.) Ohio is about to open an investigation on the company for its abuses.
"Mortgage foreclosure documents must be notarized according to the law," Ohio Secretary of State Jennifer Brunner said in a statement on Thursday. "Requiring this is not an afterthought or an exercise of form over substance – the law must be followed when taking away someone's home, regardless of the circumstances."
The problems are a product of the sheer number of mortgages in foreclosure, prompting Ally and Chase to look for corners to cut in order to speed up the process.
“The way the plaintiffs’ lawyers have handled this has corrupted our legal system,” said Thomas Cox, a Maine lawyer, as quoted in the New York Times. “They tried to manufacture foreclosures the way you’d manufacture cars, on an assembly line. It can’t be done that way.”
The implications of the many investigations and pending lawsuits could be wide spread. Even though Ally says it is sure that no homes have been wrongly foreclosed on, just the fact that Ally and Chase have suspended foreclosures signals to the market that there may be something amiss.
If some foreclosures have been processed in error, that could lead to all sorts of litigation, creating great chaos for those who have purchased foreclosures in the recent past as the previous owners may now have cause to claim those homes again.
Because of this possibility, one major title insurance company, Old Republic National Title, has instituted a new policy to refuse insurance to any properties that have been foreclosed on by GMAC Mortgage. GMAC/Ally is the fourth-largest lender in the country, so if more title companies start adopting this policy, it could seriously hamper foreclosure sales.
At the very least, the admission of error by two major companies will slow the sale of newer foreclosures as they are heavily background checked, even if they were mortgaged by other companies.
Let's just hope that this latest of scandals helps return our mortgage system to sound lending principals, where cut corners are met with immediate scrutiny.