Some of the country's biggest mortgage servicers have suspended foreclosure actions in states where courts oversee foreclosures. The reason: Flawed documents were filed in court.
Bank of America, Ally Financial, PNC Financial Services Group and JPMorgan Chase all have halted foreclosure cases while they check the truthfulness of court documents filed on the servicers' behalf.
At issue are legal documents that were signed by people who swore that they had personal knowledge that the foreclosures were justified. Some signers have testified that they affixed their signatures assembly line-style, without reading the underlying legal documents.
"I don't know how they got those people to sign that," says Matt Hackett, underwriting manager for Equity Now, a direct mortgage lender in New York City. He says the issue would never have come to light if people hadn't signed foreclosure papers where "the numbers are wrong."
As the scandal unfolded, observers wondered about the long-term effects. Will it result in an enormous overhang of unsellable houses? Will legal paralysis allow borrowers to remain in their foreclosed homes indefinitely?
"People are sitting there," says Michael Moskowitz, president of Equity Now. "People are not paying and sitting and paying and sitting. We're going to have foreclosure overhang."