A Sloppy Foreclosure Plague Will Destroy America
Often incompetent and sometimes shady handling of foreclosure paperwork by lending giants Bank of America, J.P. Morgan Chase and Ally’s GMAC is creating a giant legal monster that threatens to keep the U.S. housing market in the muck for years to come.
J.P. Morgan Chase and GMAC have already halted foreclosures in 23 states, and now Michigan politicians are joining the growing ranks of officials calling for a foreclosure moratorium until the legality of this paperwork gets sorted out. Attorneys general in North Carolina, Texas and Connecticut have also called for moratoriums, and California and Massachusetts have told lenders to suspend foreclosure activity on their turf. On Wednesday, the issue went national, as Attorney General Eric Holder said the Justice Department would be examining the foreclosure mess.
The legal entanglements may ensnare not just delinquent borrowers who are being forelcosed on, but also people who have bought foreclosed homes that were improperly seized and resold.
The banks, meanwhile, are taking the position that although the way in which the paperwork was processed skirted some legal rules, for practical purposes the foreclosures are by and large valid. Given some of the big banks’ recent foreclosure history, which includes locking out homeowners who owned their houses outright, it’s not clear that additional leeway for banks is the optimal solution. Bloomberg BusinessWeek got spokespeople for Ally and J.P. Morgan on the record:
“We don’t believe the procedural errors in these affidavits led to inappropriate foreclosures,” Gina Proia, a spokeswoman for Ally, says. “We believe the accuracy of the factual loan information contained in the affidavits was not affected by whether or not the signer had personal knowledge of the precise details,” JPMorgan says in a statement.
To similar effect, a bill that essentially codifies the lenders’ position has just hit President Obama’s desk. The bill would make it harder for homeowners to mount legal challenges against improper foreclosures based on shoddy paperwork. On the day before the Senate took a recess for its midterm campaigns, the bill passed by unanimous consent without debate.
It’s unclear whether Obama will veto the bill. The administration has said it’s looking the thing over. Whatever happens, though, there’s a growing legal quagmire emerging around a housing market that has yet to hit bottom after beginning to turn downward three years ago.