Revelations of bank errors and allegations of fraud have created a "total mess" surrounding today's foreclosures, says Walter Dees, a housing counselor for ClearPoint Credit Counseling Solutions in Los Angeles.
"It's a huge paperwork problem," he says. "Banks are overwhelmed, and so are homeowners."
Overwhelmed might be an understatement. Lawyers who work with homeowners to fight foreclosure say there are more questions than answers right now.
Problems with foreclosure documents run the gamut from mistakes to outright fraud, according to Chicago attorney Joseph McCaffery.
To untangle the mess, a number of banks have temporarily halted foreclosures across the country. In the meantime, homeowners wonder what the errors and allegations of fraud mean for them.
The issue of so-called "robosigners" has gotten the most attention lately. Robosigners are low-level bank employees who signed hundreds of foreclosure documents without doing the necessary due diligence.
Lawyers say there are numerous other recurring issues. Bankrate spoke with nearly a dozen lawyers around the country, and they mentioned errors such as:
- Failure of the foreclosing party to show clear title to the note.
- Misapplication of funds submitted by homeowners.
- Mortgage notes without proper endorsements.
- Backdating of paperwork, especially with respect to assignments.
- Forging key documents, such as assignments and affidavits of bank officers.
- Filing affidavits without signatures.
- Inflated legal fees associated with foreclosure.
- Lost or missing promissory notes.
Can you spot them?While some errors are relatively simple to spot, identifying others -- especially technical deficiencies -- will require a lawyer, McCaffery says.
Nonetheless, homeowners can do preliminary assessments on their own -- and in many cases, they should be able to spot egregious errors.
For example, homeowners should be wary if the party suing in the foreclosure action is not the same entity as the company demanding payment from the homeowner, says David Shaev, a lawyer in New York City.
"Homeowners may also have reason to think that something is amiss when the supporting documents name companies and entities of which the homeowner has no prior knowledge," Shaev says. "(And) an absence of supporting documentation may be cause for concern in and of itself."
Foreclosure laws vary by state, but broadly speaking there are two systems: nonjudicial and judicial foreclosure. For the most part, revelations of improprieties and errors affect troubled homeowners in judicial foreclosure states, where lenders must foreclose by going to court.
Borrowers who live in judicial foreclosure states can look at court papers filed against them to check names and dates on those documents against their mortgages.
Charles P. Castellon, an attorney in Orlando, Fla., says that even if the names and dates check out, "No assignment should be accepted at face value, and that document may be challenged."
But, he says, doing so means hiring a lawyer.
No free rideIt's hard to generalize outcomes, but uncovering errors can produce real results for troubled homeowners. According to McCaffery, homeowners may be able to make a good case for halting a foreclosure if the bank can't show it has the right to foreclose.
However, Shari Olefson, a lawyer with Fowler White Boggs in Fort Lauderdale, Fla., says that although technical deficiencies on the bank's part are serious, they often can be remedied.
Once the bank manages to put its paperwork in order, homeowners are likely to see any reprieve come to an end as foreclosure proceedings resume.
And Dees says a period of delay cannot solve all problems of troubled homeowners.
"Sometimes six months can be a real lifesaver," he says. But he also says, "if you can't afford the house, a delay doesn't really help."
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