The Attorneys General of all 50 states, including Alabama, have started an investigation into whether sloppiness or deceit led to the latest episode of the national foreclosure drama, further threatening the recovery of the U.S. housing market. Iowa Attorney General Tom Miller, who is heading the bipartisan investigation, said:

This is not a silver bullet to keep millions of Americans in their homes. This is a chance to right the law and get the process right, a chance to have some extra time … and maybe a chance to do some modifications.

Attorneys General are investigating allegations concerning the accuracy and legitimacy of documents that lenders use to evict people from the homes. Employees of four large lenders have acknowledged in depositions that they signed off on foreclosure documents without reading them. The initial focus will be on whether industry employees – so-called “robo-signers” – signed off on thousands of foreclosures every month without reviewing the files as legally required. While robo-signing is one problem, other issues should be examined. The immediate goals of the investigation appear to be a halt of improper foreclosures and a review of the past and present mortgage service practices.

There are over 400,000 homeowner foreclosures ongoing at present. In courts throughout the nation, lawyers for homeowners have alleged that lenders forged signatures and improperly notarized documents in the rush to foreclose on homeowners. Connecticut Attorney General Richard Blumenthal said in a statement:

Banks blatantly broke the law, papering the courts with defective documents to railroad consumers into fast, possibly fraudulent foreclosures. At the best, banks engaged in careless negligence, at worst, outright fraud.

Such practices might have violated laws against unfair and deceptive trade practices, which could result in civil penalties. Ohio Attorney General Richard Cordray, who recently filed the nation’s first lawsuit against a mortgage servicer over allegedly fraudulent affidavits, said:

This is the clearest signal yet to the major mortgage lenders and servicers that they need to take serious measures to fix problems with affidavits. What we have seen are not mere technicalities, as some suggest. Rather, this is about the private property rights of homeowners facing foreclosure and the integrity of our court system, which cannot enter judgments based on fraudulent evidence.

The joint investigation into the practices of the booming mortgage-servicing industry could pressure financial institutions to rewrite a sea of corrupt paperwork. Previous calls for a nationwide foreclosure moratorium had industry insiders worried but the states stopped short of requesting such a measure.

On October 11th the Obama Administration rejected calls for a nationwide moratorium on foreclosures amid growing concerns about the market’s recovery. A moratorium would have helped families on the verge of losing their homes. But the banking industry claimed it would lead to a backlog of homes on the market and further depress prices. It appears the latter group has more clout in the White House.

In recent weeks, major lenders such as JPMorgan Chase, Ally Financial’s GMAC Mortgage unit and Bank of America have conceded that paperwork supporting an unknown number of foreclosures contain errors ranging from wrong dates to forged or inconsistent signatures. In some instances, mortgage company employees signed foreclosure documents without first verifying the information in them. In response, the banks have suspended tens of thousands of pending foreclosures. Bank of America, for example, has suspended all its foreclosures in 23 states.

Source: ABC News

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