NATIONAL MORTGAGE NEWS ONLINE
June 16, 2010
Investigation Highlights Challenges to Foreclosure Docs
By Kate Berry
The backlash is intensifying against banks and mortgage servicers that try to foreclose on homes without all their ducks in a row.
Because the notes were often sold and resold during the boom years, many financial companies lost track of the documents. Now, legal officials are accusing companies of forging the documents needed to reclaim the properties.
Recently, the Florida Attorney General's Office said it was investigating the use of "bogus assignment" documents by Lender Processing Services Inc. and its former parent, Fidelity National Financial Inc. And a state judge in Florida has ordered a hearing to determine whether M&T Bank Corp. should be charged with fraud after it changed the assignment of a mortgage note for one borrower three separate times.
"Mortgage assignments are being created out of whole cloth just for the purposes of showing a transfer from one entity to another," said James Kowalski Jr., an attorney in Jacksonville, Fla., who represents the borrower in the M&T case.
"Banks got away from very basic banking rules because they securitized millions of loans and moved them so quickly," Kowalski said.
In many cases, Kowalski said, it has become impossible to establish when a mortgage was sold, and to whom, so the servicers are trying to recreate the paperwork, right down to the stamps that financial companies use to verify when a note has changed hands.
Some mortgage processors are "simply ordering stamps from stamp makers," he said, and are "using those as proof of mortgage assignments after the fact."
Such alleged practices are now generating ire from the bench.
"The court has been misled by the plaintiff from the beginning," Circuit Court Judge J. Michael Traynor said in a motion dismissing M&T's foreclosure action with prejudice and ordering the hearing.
The Marshall Watson law firm in Fort Lauderdale, Fla., which represents M&T in the case, declined to comment and the bank said it could not comment.
In a notice on its website, the Florida attorney general said it is examining whether Docx, an Alpharetta, Ga., unit of Lender Processing Services, forged documents so foreclosures could be processed more quickly.
"These documents are used in court cases as 'real' documents of assignment and presented to the court as so, when it actually appears that they are fabricated in order to meet the demands of the institution that does not, in fact, have the necessary documentation to foreclose according to law," the notice said.
Docx is the largest lien release processor in the United States working on behalf of banks and mortgage lenders.
Peter Sadowski, an executive vice president and general counsel at Fidelity National in Fort Lauderdale, said that more than a year ago his company began requiring that its clients provide all paperwork before the company would process title claims.
Lender Processing Services, which was spun off from Fidelity National two years ago, did not return calls seeking comment Tuesday. The company disclosed in its annual report in February that federal prosecutors were reviewing the business processes of Docx. The company said it was cooperating with the investigators.
"This is systemic," said April Charney, a senior staff attorney at Jacksonville Area Legal Aid and a member of the Florida Supreme Court's foreclosure task force.
"Banks can't show ownership for many of these securitized loans," Charney continued. "I call them empty-sack trusts, because in the rush to securitize, the originating lender failed to check the paper trial and now they can't collect."
In Florida, Georgia, Maryland and other states where the foreclosure process must be handled through the courts, hundreds of borrowers have challenged lenders' rights to take their homes. Some judges have invalidated mortgages, giving properties back to borrowers while lenders appeal.
In February, the Florida state Supreme Court set a new standard stipulating that before foreclosing, a lender had to verify it had all the proper documents. Lenders that cannot produce such papers can be fined for perjury, the court said.
Kowalski said the bigger problem is that mortgage servicers are working "in a vacuum," handing out foreclosure assignments to third-party firms such as LPS and Fidelity.
"There's no meeting to get everybody together and make sure they have their ducks in a row to comply with these very basic rules that banks set up many years ago," Kowalski said. "The disconnect occurs not just between units within the banks, but among the servicers, their bank clients and the lawyers."
He said the banking industry is "being misserved," because mortgage servicers and the lawyers they hire to represent them in foreclosure proceedings are not prepared.
"We're tarring banks that might obviously do a decent job, and the banks are complicit because they hired the servicers," Kowalski said.
