Robo-signing has been in the news for many, many months. The collapse of Bear Stearns and Lehman Brothers, and the near implosion of the entire financial system is coming up on 4 years removed. Yet here we still sit, supposedly coming out of the Great Recession, in the midst of continued rampant foreclosure abuse, as reported by Reuters.
A recent audit of 400 foreclosures in San Francisco showed that 84 percent of them appeared to be illegal. A separate study in North Carolina of 6,100 mortgage documents filed with the local county clerk concluded that about 4,500 of them showed signs of “signature irregularities.” Robo-signing, as the rest of the world knows this fraudulent practice.
One reason cited by the Reuters report for the high number of wrongful foreclosures in San Francisco was that California is a non-judicial foreclosure state. That means that there is no court oversight of foreclosures. In nonjudicial foreclosure states, which includes my home state of Texas, all a person has to do is file a notice of foreclosure sale with the county clerk, pay a nominal filing fee (usually in the $20-30 range), mail a few letters, and PRESTO!…you can foreclose on a house. It’s literally that simple. Believe it or not, having actual proof that you are legally entitled to foreclose is NOT a requirement!
The ease of nonjudicial foreclosures is absolutely terrifying. I understand the reason these laws were set up. Lenders wanted a relatively simple, low cost way to resolve a bad debt (which is a secured debt). When the foreclosure laws were written, this made more sense. The most relevant portions of the current Texas foreclosure laws go back at least 30 years, when residential lending was much simpler. You went down to your local bank, you got a loan, and then you paid them back for the next 30 years. If you didn’t make a payment, you knew what company wasn’t getting their money back (and the bank probably knew you by name as well).
Today, however, residential mortgages are sold, packaged, and re-sold to investors through the process known as securitization. Determining who actually owns your loan is much more complex than it used to be. Because of this, declaring a default and foreclosing on a home is a much riskier proposition than it used to be as well. It’s easy for a bank to get it wrong. What are the consequences for them? Practically none. What are the consequences for homeowners? Losing their home. The deck is clearly stacked in one direction.
Well, the deck isn’t totally stacked in favor of the banks. Part of my job is to make sure banks have consequences for getting it wrong. I’ve stopped foreclosures and evictions dead in their tracks with a temporary restraining order/TRO and injunctions. If you think you’re being illegally foreclosed on like the many, many cases in San Francisco and North Carolina that the Reuters report identified, you need to make sure the banks face consequences as well.