Robo-Signing Fraud Investigation Delays Foreclosures

Recently, allegations that banks are furnishing fraudulent paperwork to justify foreclosures have caught the eye of the mainstream media. Luckily, the fiasco has provided a silver lining to many homeowners facing foreclosure. All 50 states have announced initiatives to investigate the fraud. Some banks-including Bank of America, JPMorgan Chase & Co., Ally Financial’s GMAC Mortgage unit and PNC Financial-have even halted foreclosures altogether in certain states until the mess is cleared up.

What Led up to the Foreclosure Fraud?

A lack of oversight and organization by banks and lenders seemingly is to blame for the debacle.

First, a person wishing to buy a house takes out a mortgage (called a note). This note is held by the buyer’s mortgage or bank until the buyer pays off the mortgage.

In the event of a foreclosure, the bank or mortgage company would simply present the note to the judge as proof of the borrower’s promise to pay. Then the judge would authorize the foreclosure. (Currently, 23 states require a judge to sign off on a foreclosure before it’s allowed to proceed.)

However, banks that gave mortgages to numerous borrowers bundled them together, transferred them to a trust, and sold them off to free up more capital to lend. The notes were also entered into an electronic database (known as MERS or Mortgage Electronic Registration System).

Now, banks wishing to foreclose can’t seem to locate the original note to provide to the judge. To improvise, banks are offering judges’ affidavits (referred to as robo-signing) to prove they issued the note for the mortgage in question.

Allegations that some of these affidavits are fraudulent are now causing public concern.

The Result? Postponed Foreclosures for Many Homeowners

Amid the controversy, judges are reluctant to accept these affidavits in lieu of the original note. Fortunately for homeowners, some say, the interruption has allowed borrowers (in the 23 states that require foreclosure authorization) to stay in their homes for a while longer until the mess is sorted out.

Bank of America has even halted foreclosures in all 50 states in order to investigate the problem.

For the 27 other states-including Washington D.C.-that do not require a judge’s signature, many lenders are still moving forward with foreclosures despite the robo-signing fraud allegations. Unfortunately, California (along with the other three states with the highest number of foreclosures) is among the 27 states where lenders are still pursuing the foreclosures.

U.S. Bank-the nation’s largest bank and servicer of 1 in 5 American mortgages-plans to continue foreclosure proceedings in every state.

A Bankruptcy Attorney can Help

If you are facing a foreclosure, speaking with an experienced bankruptcy attorney can be extremely useful. A bankruptcy lawyer can offer solutions to your crisis and help you find a way to stay in your home.