Banks Continue 'Robo-Signing' Foreclosure Practices In Spite Of Promises To Contrary: Investigation [UPDATED]
This post has been updated.
NEW YORK/IMMOKALEE (Scot J. Paltrow) - America's leading mortgage lenders vowed in March to end the dubious foreclosure practices that caused a bruising scandal last year.
But a Reuters investigation finds that many are still taking the same shortcuts they promised to shun, from sketchy paperwork to the use of "robo-signers."
In its effort to seize the two-bedroom ranch house of 87-year-old Margery Gunter in this down-on-its-luck Florida town, OneWest Bank recently filed a court document that appears riddled with discrepancies. Mrs. Gunter, who has lived in the house for 40 years and gets around with the aid of a walker, stopped paying her loan back in 2009, her lawyer concedes. To foreclose, the bank submitted to the Collier County clerk's office on March 3 a "mortgage assignment," a document essential to proving who owns a mortgage once the original lender sells it off.
But OneWest's paperwork is problematic. Among the snags: state law permits lenders to file to foreclose only if they already legally own a mortgage. Yet the key document establishing ownership wasn't signed and officially recorded until months after OneWest filed to foreclose on Mrs. Gunter. OneWest declined to comment on the case.
Reuters has found that some of the biggest U.S. banks and other "loan servicers" continue to file questionable foreclosure documents with courts and county clerks. They are using tactics that late last year triggered an outcry, multiple investigations and temporary moratoriums on foreclosures.
In recent months, servicers have filed thousands of documents that appear to have been fabricated or improperly altered, or have sworn to false facts.
Reuters also identified at least six "robo-signers," individuals who in recent months have each signed thousands of mortgage assignments -- legal documents which pinpoint ownership of a property. These same individuals have been identified -- in depositions, court testimony or court rulings -- as previously having signed vast numbers of foreclosure documents that they never read or checked.
Among them: Christina Carter, an employee of Ocwen Loan Servicing of West Palm Beach, Florida, a "sub-servicer" which handles routine mortgage tasks for banks. Her signature -- just two "C"s -- has appeared on thousands of mortgage assignments and other documents this year.
In a case involving a foreclosure by HSBC Bank USA, a New York state court judge this month called Carter a "known robo-signer" and said he'd found multiple variations of her two-letter signature on documents, raising questions about whether others were using her name. That and other red flags prompted the judge to take the extraordinary step of threatening to sanction HSBC's chief executive officer.
In a phone interview, Carter acknowledged signing large numbers of mortgage assignments this year, but said they all were legally done. To her knowledge, she added, no one else used her name.
One of the industry's top representatives admits that the federal settlements haven't put a stop to questionable practices.
Some loan servicers "continue to cut corners," said David Stevens, president of the Mortgage Bankers Association. Nearly all borrowers facing foreclosure are delinquent, he said, but "the real question is whether the servicer complied with all legal requirements." The loss of a home is "the most critical time in a family's life," and if foreclosure paperwork is faulty homeowners should contest it. "Families should be using every opportunity they can to protect their rights."
Federal bank regulators signed settlements in March with 14 loan servicers -- banks and other companies that perform tasks for mortgage investors such as collecting payments from homeowners and when necessary, filing to foreclose. The 14 firms promised further internal investigations, remediation for some who were harmed and a halt to the filing of false documents. All such behavior had stopped by the end of 2010, they said.
Of these companies, Reuters has found at least five that in recent months have filed foreclosure documents of questionable validity: OneWest, Bank of America, HSBC Bank USA, Wells Fargo and GMAC Mortgage.
So have half a dozen large servicers that weren't party to the agreements, including Ocwen Financial Corp and units of Credit Suisse Group AG.
Spokesmen for the banks and servicers named in this article said that they halted any wrongdoing after disclosures last autumn of robo-signing led them to revise their practices, and they denied filing false documents since then.
In general, they said their foreclosure cases were legitimate, but for a small number of exceptions, and that criticism by defense lawyers and judges of some types of documentation is based on misinterpretation of the law.
The persistence of the paperwork mess poses a dilemma for American policymakers and society at large.
The vast majority of homeowners in foreclosure are in fact delinquent on their mortgage payments. Many bankers and judges view the issue as a technicality. Regardless of legal niceties, they say, people should pay up or lose the collateral on the loans -- their houses and condos.
Increasingly, though, courts are holding that the trusts suing to foreclose don't actually own the mortgages. Judges have ruled that foreclosing based on flawed or missing evidence violates longstanding laws meant to protect all Americans' property rights.
In a landmark decision in January, the Massachusetts Supreme Judicial Court overturned a foreclosure because of a lack of proper documentation.
"The holder of an assigned mortgage needs to take care to ensure that his legal paperwork is in order," wrote Justice Robert Cordry in a concurring opinion. "Although there was no apparent actual unfairness here to the (homeowners), that is not the point. Foreclosure is a powerful act with significant consequences, and Massachusetts law has always required that it proceed strictly in accord with the statutes that govern it."
(U.S. Bank National Association, trustee, vs. Antonio Ibanez, 458 Mass. 637.)
A THOUSAND QUESTIONS
Reuters reviewed records of individual county clerk offices in five states -- Florida, Massachusetts, New York, and North and South Carolina -- with searchable online databases. Reuters also examined hundreds of documents from court case files, some obtained online and others provided by attorneys.
The searches found more than 1,000 mortgage assignments that for multiple reasons appear questionable: promissory notes missing required endorsements or bearing faulty ones; and "complaints" (the legal documents that launch foreclosure suits) that appear to contain multiple incorrect facts.
These are practices that the 14 banks and other loan servicers said had occurred only on a small scale and were halted more than six months ago.
The settlements included the four largest banks in the United States -- Bank of America Corp, Wells Fargo, JP Morgan Chase & Co, and Citigroup Inc. The other parties were lending units of Ally Financial Inc, HSBC Holdings PLC, MetLife Inc, PNC Financial Services Group Inc, SunTrust Banks Inc, U.S. Bancorp, Aurora Bank, EverBank, OneWest Bank and Sovereign Bank.
The pacts were struck with the Office of the Comptroller of the Currency, the main regulator of national banks, as well as with the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of Thrift Supervision.
Some state and federal officials have called the settlements weak. Authorities are still working out financial penalties to be imposed on the 14 firms. The banks didn't admit or deny wrongdoing, and many of the practices banned were previously illegal anyway, such as filing false affidavits and making false notarizations. And regulators left it to the banks to oversee their own internal investigations.
The OCC confirmed it has received complaints that questionable practices continue. But spokesman Bryan Hubbard said the settlements "are intended to address many of the root causes of improper foreclosure actions," thus preventing future harm.
WAVE OF FORECLOSURES
The collapse of the housing boom in late 2006 led to a wave of foreclosures. Federal Reserve data show that some 4.5 percent of U.S. mortgages are in foreclosure. In 2010, 2.5 million foreclosures were initiated, with a similar number expected this year.
In the housing boom, lenders created millions of new mortgages, packaged them into pools, and securitized them rapidly for sale to investors in so-called mortgage-securities trusts.
The agreements setting up the trusts, called "pooling and servicing agreements," require that key documents, properly executed and endorsed, be turned over immediately for each mortgage when a trust is established. The two most important ones are a promissory note and mortgage assignment.
A mortgage really has two parts. One is the actual mortgage (in some states called a "deed of trust"). Its purpose is to pledge the home as collateral for the loan. To transfer ownership of this collateral pledge, the seller must issue a document called a mortgage assignment. The other is the promissory note, which is the loan agreement itself. The homeowner signs it, promising to pay principal and interest.
The Reuters examination turned up thousands of instances --more than 2,000 in Florida alone -- involving recently filed mortgage assignments which ostensibly transferred mortgages to these trusts years after they were formed.
The problem, according to Georgetown University law professor Adam Levitin, an expert on securitization: About 80 percent of all trust agreements provide that New York State law applies, and under New York law, any mortgage assignments made later than specified in the agreements would be void.
Reuters has also uncovered problems with the other key document used in foreclosure cases, the promissory note.
To foreclose, a trust, bank or mortgage finance giant such as Fannie Mae or Freddie Mac must possess the original "blue ink" signed promissory note. The crucial parts of the note are at the bottom -- the endorsements, somewhat like those on the back of a check. The agreements establishing trusts require a proper chain of endorsements showing legal transfers of a note from the original lender, through any intermediary owners, and finally to the trust itself.
Attorneys defending homeowners contend that improper endorsements are rife. Reuters obtained from public court records and defense attorneys more than 100 examples of notes that for various reasons appear to be improper.
MYSTERY OF MARY ARTHUR
One example: The attempt by Credit Suisse unit DLJ Mortgage Capital to foreclose on Mary Arthur of Dobbs Ferry, New York. Mrs. Arthur, 63 and legally blind, works part time as an assistant in a doctor's office. Originally from Trinidad, Mrs. Arthur became delinquent on her $427,500 loan after her parents and sister died and she ran up debts traveling home for the funerals, according to her attorney, Linda Tirelli.
The loan servicers, Select Portfolio Servicing of Salt Lake City, threatened to foreclose on DLJ's behalf. Mrs. Arthur arranged with Select Portfolio a trial mortgage modification to see if she could keep up with the reduced payments. She made the payments but, Tirelli said, Select Portfolio filed to foreclose.
DLJ filed in two separate court cases what it said were authentic copies of Mrs. Arthur's promissory note. Because they were supposed to be copies of the same document, the endorsements filed with both courts should be identical.
But a look at the documents shows that the version filed in state court and the one filed in bankruptcy court had completely different endorsements on them -- naming different owner banks and signed by different people. Tirelli said she has brought this to the attention of the bankruptcy judge and is awaiting a ruling.
Credit Suisse, which owns both DLJ Mortgage Capital and Select Portfolio Servicing, declined to comment, as did Casey Howard, the lawyer representing DLJ in the bankruptcy case.
Bank of America, meanwhile, is coming under fire from a New York federal bankruptcy judge.
Last Tuesday, Judge Robert Drain ordered an investigation involving a foreclosure case brought by the bank. Two earlier copies of a promissory note filed in court had lacked any endorsement, but then one appeared on the note when bank lawyers produced the original.
The judge said the sudden appearance of an endorsement, and his own close look at it, raised questions about whether it had been added illegally to make the note look legitimate.
It "raises a sufficiently serious issue as to when and more importantly by whom this note was endorsed," the judge said.
A Bank of America spokesman said the bank will produce evidence that "will demonstrate to the court's satisfaction that the endorsement is proper."
(In re: Priscilla C. Taylor, Debtor, United States Bankruptcy Court, Southern District of New York, Case # 10-22652.)