The flawed practices that GMAC Mortgage, JPMorgan Chase and Bank of America have recently begun investigating are so prevalent, lawyers and legal experts say, that additional lenders and loan servicers are likely to halt foreclosure proceedings and may have to reconsider past evictions.
Problems emerging in courts across the nation are varied but all involve documents that must be submitted before foreclosures can proceed legally. Homeowners, lawyers and analysts have been citing such problems for the last few years, but it appears to have reached such intensity recently that banks are beginning to re-examine whether all of the foreclosure papers were prepared properly.
In some cases, documents have been signed by employees who say they have not verified crucial information like amounts owed by borrowers. Other problems involve questionable legal notarization of documents, in which, for example, the notarizations predate the actual preparation of documents — suggesting that signatures were never actually reviewed by a notary.
Other problems occurred when notarizations took place so far from where the documents were signed that it was highly unlikely that the notaries witnessed the signings, as the law requires.
What really scares me about this story is that a lot of it is deja vu. Many of the problems in the foreclosure problems were problems in the closing process during the refinancing boom. Forgery, using a notary that likely didn't witness the signature (the purpose of a notary), and not verifying documents were all things that mortgage professionals did on a mass scale. Now that foreclosures are booming many of the same people are doing the same things.
The consequences will likely be that many foreclosures will not go forward and people will stay in homes.