Lender’s Poor Documentation Can Halt Foreclosure Proceedings

RIO GRANDE — While few homeowners make an attempt to fight foreclosure, a local attorney has had success stopping the process, particularly since the paperwork on many loans is missing information or contains false data.
Attorney Eric C. Garrabrant, of Flaster/Greenberg, of Linwood, said he doesn’t find the questionable documentation in the “traditional bank setting” but more from loan servicers, all stemming from the housing boom.
He said outfits like Bear Stearns or Lehman Brothers and other large investment houses began making money from selling bonds and stocks that were backed by mortgage pools.
“They began almost soliciting underwriters or outfits like Countrywide Mortgage to actually write mortgages and place orders for mortgages,” said Garrabrant. “They would tell an outfit like Countrywide, we need this many mortgages by this date.”
The investment houses were buying mortgages and pooling them together and selling as bonds and stocks. He said a lot of people that should not have received a mortgage, got one and in order to satisfy federal underwriter standards, the lenders came up with more and more “exotic qualifications” so that anybody could get a mortgage.
“They were selling mortgages and underwriting loans so quickly, that a lot of the underlying paperwork got fudged and not all the steps in the securitization were followed,” said Garrabrant. “So when banks went to foreclose, they couldn’t always prove ownership of the loan.”
He said there are competing claims for the same mortgage.
“There have been many instances that I’ve seen of documents that are contradictory,” said Garrabrant.
He said he has seen a mortgage with a bank filing for foreclosure in the name of one lender. The person then went into bankruptcy and a proof of claim for the same mortgage was filed in bankruptcy court in the name of a different lender.
He said all of that information is contradicted by information which appears in the Mortgage Electronic Registration System (MERS). Garrabrant said he has seen documents signed in the name of Washington Mutual in the summer of 2010 even though the FDIC shut down the firm in 2008.
He said he has seen assignments signed on behalf of American Home Mortgage in 2009 even though it was dissolved in 2007. Garrabrant said he also seen items that indicate “real sloppiness,” such as trusts that don’t identify any of the loans that are assets of the trust.
A Congressional Oversight Committee Report was issued Nov. 16 about the irregularities in foreclosure paperwork. It calls the irregularities substantial violations of the law.
The report notes: In the fall of 2010, reports began to surface alleging that companies servicing $6.4 trillion in American mortgages may have bypassed legally required steps to foreclose on a home. Employees or contractors of Bank of America, GMAC Mortgage, and other major loan servicers testified that they signed, and in some cases backdated, thousands of documents claiming personal knowledge of facts about mortgages that they did not actually know to be true.”
Garrabrant said if a homeowner is being foreclosed on by a bank that did not loan them the money, the property owner should in the very least have the ability to get the peace of mind that the firm collecting the debt is entitled to the debt. He said if your mortgage was securitized, they may have been insured and the investors in that loan may have already been paid by an insurance policy.
It is also possible that the entity that wrote the loan has been dissolved by a bankruptcy proceeding and no longer exists, said Garrabrant. He said he has seen indications there are groups seeking claims to debt that they may not have any right to collect.
When a pool of mortgages gets securitized, it goes from the entity that loaned the money to a company that they formed called a Bankruptcy Remote Entity to transfer all the loans into one entity. A trust is then created and the loans are deposited into the trust with various trustees of the trust.
“Rather than re-record an assignment with the county clerk of every county where a mortgage was registered, the banks created their own registry system, the MERS, so that they could track their own mortgages or assignments internally on an industry-wide basis,” said Garrabrant.
He said the mortgages were written in the name of MERS, making it easy for a bank that is a member of MERS to sign an assignment of mortgage without a clear claim to the loan. He said it opens up the opportunity for “claim jumping,” where a firm will find bad debt and assign it without a right take that action.
“A lot of what I do is try to demonstrate to the court that the entity instituting the foreclosure doesn’t have the right to institute the foreclosure,” said Garrabrant.
Even assuming the best, he said there are plenty of mistakes made in the process of assignment that he has been able to uncover.
Garrabrant said a foreclosure complaint was dismissed by Judge William C. Todd. In that case, the bank foreclosing on a property was not the bank that loaned the money. In question, how did that bank get the right to foreclose the mortgage?
Garrabrant said judges in a number of counties in this state that hear foreclosure cases are permitting the foreclosing banks to rely on just the MERS assignment as proof they validly hold the mortgage. He said the mortgage may not be included in the pool of securities that the plaintiff claims.
In this state, a foreclosure will not go before a judge unless it is contested. It is processed through the office of foreclosures with a judge signing the final judgment but there is no examination of the lender’s right to foreclose. If a property owner contests a foreclosure, it goes to the chancery division of Superior Court where the homeowner can request the lender produce all the documentation that shows the assignment of the loan, said Garrabrant.
Garrabrant said he has seen underwriting guidelines from some lenders from 2005 to 2007, which have specific guidelines for unemployed people.
“When it was at its height, they were called Ninja Loans, no income, no job loans,” he said. “Banks actually had programs that determined whether or not you could give somebody a loan who didn’t have an income or a job, based almost exclusively of the value of the property itself.”
Garrabrant said the value of the property had to be very high so the bank had enough security to sell the loan. So many of the loans went bad, banks could not keep up with the paperwork and the value of the properties has fallen much lower than when the loan was written, he said.
There is currently litigation between the originators of the loans and the investors who are attempting to put the loan back on the underwriters because they may have committed fraud to get anyone qualified for a mortgage.
Garrabrant said the third party that suffered was the pension funds and others who invested in mortgage-backed securities on the representation that the mortgages that backed the pool where of a certain quality.
Homeowners and investors are both suffering as a result, he said.
Garrabrant said even if you can’t feel sympathy for someone who borrowed more than should, and can’t feel sympathy for the banks that received a government bailout, there are people whose savings and investment money was used to buy securities backed by bad mortgages.