The Foreclosure Mess: It’s Even Worse in ‘Nonjudicial’ States

From Daily Finance by Abigail Field who has been writing some excellent articles on the foreclosure crisis.  Boot Campers Walter Hackett, Pam Stewart and Thad Bartholow are quoted in the story.  Emphasis added by us.

In 23 states, before a lender can foreclose on a homeowner for defaulting on a mortgage, it must take the homeowner to court. As we’ve seen, even with judicial review that process has still been shot through with problems. But for a troubled homeowner in California, Texas and 25 other “nonjudicial” states, the robo- signing scandal and foreclosure mess are even more dangerous because the lender doesn’t have to go to court to foreclose. Fraudulent paperwork can be used with impunity unless the homeowner is in bankruptcy, which is a judicial process, or unless the homeowner is represented in the foreclosure by an attorney who knows what to look for. …

I spoke with Walter Hackett, an attorney with Inland Counties Legal Services who had over 20 years of experience in the banking industry before going to law school. Hackett explains that in recent years the foreclosure process has become tainted in several ways. The first issue is unique to California: The declarations that are filed claiming the homeowner was contacted to try to avoid foreclosure have become meaningless:

“The undersigned declares that the beneficiary or its authorized agent has declared that they have complied with California [law] by making contact with the borrower or tried with due diligence to contact the borrower as required by California [law].

Translation: “Somebody talked to the homeowners and couldn’t work anything out, or maybe didn’t talk to them, but tried. We don’t know who called or when, but really, we’re sure somebody did what they’re supposed to do.”

This meaningless filing — that language doesn’t mean the homeowner was really called, much less that the bank tried in any way to avoid foreclosure — reflects the volume of foreclosures and banks’ unwillingness to staff up to do foreclosures well, two primary reasons for robo-signing. Like robo-signed documents, this filing doesn’t reflect personal knowledge by the person signing it. At least, the California declarations are explicit about that lack of knowledge. …

Hackett explains that the second place the document mess shows up is during the cure period, and it’s classic robo-signing and document fraud. In the mass securitization era, the deed of trust for any given home may have changed hands multiple times, but typically none of those transactions were recorded in the land records. As a result, when the bank that claims to have the right to foreclose decides to do so, the land records almost never show it owning the deed of trust, and thus the bank lacks the right to foreclose. If that problem isn’t fixed, a completed foreclosure could be successfully challenged and undone.

Enter the fraudulent documents.

During the cure period, the bank records an assignment of the deed of trust that gives it the right to foreclose. Sometimes a “substitution of trustee” is recorded, too, replacing the original trustee (traditionally, a neutral third party) with a “trustee” that’s now typically a subsidiary of the foreclosing bank. Or it could be one of the other foreclosure players, such as Lender Processing Services (LPS).

That change is just another way foreclosing entities try to capture every last trickle of the stream of fees that flow from foreclosure. Just as the assignments of mortgage filed in judicial states are routinely robo-signed and otherwise flawed, these assignments of the deeds of trust and substitutions of trustees are often fraudulent. In fact, in Hackett’s experience, less than 5% of these documents are correct. He adds: “This is not about ‘sloppiness’ or ‘cutting corners.’ It’s about a complete disregard for due diligence and accountability for one’s actions, on both a personal and corporate level.”