Paperwork Problems Stall Foreclosures, Serve As Wake Up Call To Lenders

The NY Times has run a series of articles recently about the decisions by two of the nation's largest home loan providers to halt all foreclosure proceedings because of problems with the paperwork used to prosecute these actions.  The paper notes that both GMAC and JPMorgan have halted all, or nearly all, pending foreclosure proceedings.  The problem centers around so-called robo-signers – employees who signed thousands of certifications per month in support of foreclosure complaints, without ever having reviewed the underlying loan or title documents about which they were certifying.  Another article Foreclosures Slow as Document Flaws Emerge highlights the collateral impact these revelations have had on the industry at large.  Among other things, the Times notes that homeowners will be more likely to challenge foreclosures in court, which has led at least one title insurer to refuse to issue policies in connection with GMAC foreclosures.  Although GMAC and JPMorgan are the only entities that have taken the drastic step of halting all foreclosure proceedings thus far, all lenders can expect increased push back from both debtors and courts in light of these revelations.   As a result, lenders should make sure that their paperwork is in order before filing a foreclosure complaint, and be prepared to defend their documents in court. 

In another article by The Washington Post Connecticut halts all foreclosures for all banks notes that Connecticut has ordered a 60-day moratorium on all foreclosures for all banks, and California has ordered a moratorium on all foreclosures initiated by GMAC and JPMorgan in light of the issues discussed above.  Other states may follow California's and Connecticut's lead, particularly in states where such actions might allow politicians to curry favor with the electorate in advance of the upcoming elections.

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