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Foreclosure Freeze

Written By:
October 13, 2010 at 1:24 AM

Like a tourniquet to the hemorrhaging foreclosure bleed; several banks are freezing the foreclosure process and re-evaluating to determine if procedures and processes were followed correctly.

In September, national lenders such as JP Morgan Chase, Ally Financial and Bank of America have put a halt to foreclosures in 23 states as it sifts through the mountainous piles of paperwork to determine if every claim is valid. For Bank of America, foreclosure processing cessation not only applies to properties the bank takes back, but also to Fannie Mae and Freddie Mac transfers.

However, overwhelmed by growing concern of mass foreclosure documentation error; Bank of America decided to halt foreclosure proceedings in all 50 states as of October 8, 2010. After the bank mulled over documents in the 23 judicially bound states it decided to freeze all foreclosures as it investigates where the foreclosure process took a nasty turn.

Senator and chairman of the Senate Banking Committee, Christopher Dodd felt that Bank of America made the right decision. "American families should not have to worry about losing their homes to sloppy bureaucratic mismanagement or fraud. Regulators at the federal, state and local levels have a responsibility to uphold the law and protect consumers from unfair foreclosure, and lenders have a duty to not cut corners around the law."

The foreclosure freeze was prompted by Ally Financial when, on September 20, 2010, a corporate whistleblower admitted to approving 10,000 pieces of paperwork in one month without even reading them. Ally Financial ceased processing foreclosures in 23 states until further investigation.

Eight days later JP Morgan Chase followed suit when it suspended processing 56,000 mortgages within the same 23 states after executives believed several employees made errors on foreclosure documentation.

By early October, 2010 Bank of America, Citibank, HSBC, PNC Bank, U.S. Bank and Wells Fargo hopped on the foreclosure blockade.

The Washington Post reported that paperwork errors ran the gamut from “potentially forged documents to bank employees who never read borrowers' files before signing off on an eviction.”

The foreclosure machine may start up again, but it will be weeks (possibly months) before homeowners will know if they are out on the street or not. Chase said that it is meeting with attorneys to review its processes and standards over the coming weeks, whereas other financial institutions have not revealed a specific game plan. While the big banks put on their “thinking caps” homeowners will continue to live their lives in limbo.

Why 23 States and What Does that Mean to the Rest of Us?

Although Bank of America has called for foreclosure action to stop in all 50 states, the White House expressed concerns. Top White House advisor, David Axelrod admitted that the country had a serious foreclosure problem, but wondered if a national moratorium was the solution to the dilemma.

As Bank of America digs through its piles of foreclosure documents in all 50 states, the initial 23 states still continue to be examined. However, why did this recall begin with only 23 states, which states and why? Initially, foreclosures being examined in these states:

  • Connecticut
  • Delaware
  • Florida
  • Hawaii
  • Illinois
  • Indiana
  • Iowa 
  • Kansas 
  • Kentucky 
  • Louisiana 
  • Maine 
  • Nebraska
  • New Jersey
  • New Mexico
  • New York
  • North Dakota
  • Ohio
  • Oklahoma
  • Pennsylvania
  • South Carolina
  • South Dakota
  • Vermont
  • Wisconsin

What makes these 23 states so “special” is that every foreclosure in the aforementioned states must be approved by the court before finalized, which ends up creating a more lengthy foreclosure process. Quite the contrast, the remaining 27 non judicial foreclosure states allow foreclosure through a power of sale clause in a deed of trust, which allows them to bypass having to go to court--making foreclosure a speedy process. In plain English, this means that foreclosures in the non judicial states do not have to be proved before the court and can proceed.

What Can Non Judicial States Do?

Although Bank of America is checking into inaccuracies and blatant errors in every state, not all lenders are following suit. Senate Majority Leader Harry Reid released a statement applauding Bank of America’s efforts and urging other lenders to follow its example.

Thus far PNC Financial Services Group, Inc. plans to freeze sales of foreclosed homes for one month while reviews foreclosure documentation and procedures.

In the meantime, representatives in the other 27 states are already taking action. One of the largest states in the union, California, is a non judicial state but California Attorney General, Jerry Brown isn’t taking the news lying down. Brown has requested that JP Morgan Chase and Ally Financial to show proof that it complied with state consumer protection laws. Otherwise Brown demands that the lender suspend foreclosures on properties state-wide.

California State Assemblyman, Ted Lieu is also calling for a moratorium on all California foreclosures. Lieu wrote many mortgage-related bills and says that he suspects false document signings are occurring in California, just like what happened in the other states.

Some individual homeowners in non judicial states are insisting that mortgage lenders must produce the original promissory note signed by the borrower before foreclosure proceedings can begin. However, that notion may be difficult because the previously explosive mortgage business ensured that notes were traded among international financial institutions so tracking the original promissory note may be nearly impossible.

One Las Vegas homeowner sued JP Morgan Chase hurling accusations that the bank misrepresented its authority to collect his mortgage payment after Chase consumed Washington Mutual. The homeowner explained that Chase was collecting on mortgage notes that were no longer there and that the financial giant had nothing to do with his mortgage.





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