Chicago IL – Gainesville FL – The nation’s big banks have gotten themselves into how water over the last few weeks over allegedly fraudulent foreclosure paperwork. Two of the largest US Banks, Bank of America and JP Morgan Chase have paused foreclosures in around half of the states.
The banks are taking pause over allegations of forged documents and signatures. One news story is titled “Bank exec checked only date on foreclosure docs.”  According to the story in USA Today, a Wells Fargo acknowledged that he signed foreclosure documents without verifying all the information.
Many fear that homeowners could use these developments to contest and stop foreclosures. An attorney that we know said that lawyers could put run ads saying “Did your lender wrongfully foreclose on you?” They could expect calls from homeowners in foreclosure and people who had already lost their home to foreclosure.
Because of these problems, some title companies have decided to stop writing policies on foreclosed homes.  According to the story in USA Today, Old Republic Title Insurance will no longer write new policies for homes foreclosed upon by JP Morgan Chase.
These title companies guarantee the title for the new homeowner. If the foreclosure were to be reversed they would be stuck in a bad place, both financially and legally. “I want my house back!”, the foreclosed homeowner demands. “You better defend these legal problems. After all, you guaranteed that this would be my house!”, howls the new homeowner.
But, what started this fiasco? It all started because the so called lenders do not own the loans they are handling. They are actually working as a “servicer” on behalf of the real owners of the loan. Who owns the loan?
All sorts of different entities. Uncle Sam has ownership interest through ownership of Fannie Mae and Freddie Mac. Those two entities combined own around 50-60% of all US Mortgages.
They purchase a mortgage from a company like Bank of America. Because Bank of America no longer owns the mortgage, they are now a “servicer.” They “service” the loan for Fannie Mae. That means they accept payments, do all the accounting, manage escrow accounts, and all the other things involved with managing a loan.
But, that also means they handle problems when someone stops paying. It’s their job to negotiate loan modifications. It is their job to manage the foreclosure process. The underlying problem is that they get paid the same money, whether they do a great job or a lousy job.
There is no incentive to do a better job. The actual owners of the loans hardly ever follow up and review their files. They don’t realize that the servicers are doing a lousy job on many different things. As a result the owners of the loans are losing money. But, they don’t realize it.
A source who wants to remain unnamed alleges that the banks have had problems with forged documents for over 8 years. Here is his explanation of what is happening.
“Let me give you a scenario. ABC Bank loans money to Joe Homeowners. ABC Bank then wants to get their money back to relend to someone else.
So they sell their loan to Fannie Mae. But, they continue to collect the payments and handle the tax escrow. The forward all payments to Fannie Mae, minus a small fee to themselves for the servicing work.
For one reason or another Fannie Mae decides to have another lender take over for them. The new bank, let’s call it XYZ Bank starts collecting the payments. Then the homeowners stop paying.
Here’s where it gets tricky. XYZ has to prove they have the right to foreclose. But, the original mortgage was given to ABC Bank. So technically only ABC has the right to foreclose. ABC Bank is no longer in business. So XYZ can’t really prove they have the right to foreclose.
But, don’t tell that to Fannie Mae, the owner of the loan. XYZ has to foreclose. They use a legal loophole that allows them to do so. They often file an affidavit with the court stating that they own the loan.
I saw these affidavits used in foreclosure lawsuits 8 years ago. The problem starts when the employees signing these affidavits don’t actually research the files. In one news story in a Bank of America exec acknowledged that she signed up to 8,000 foreclosure documents a month and normally did not read them. 
In other words their foreclosure case was based on faulty logic. I am not going to go into all the issues, but there are a lot of issues there. I’ve seen homeowners get a loan from ABC Bank. They stop paying on their mortgage.
Several months later they get a foreclosure filing. But, is ABC Bank foreclosing on them? No! XYZ Bank is foreclosing on them. Even more crazy is that XYZ has no paper trail to prove they own the loan. Nothing is provided. It’s insane!
That’s what my unnamed source told me about this situation. It sounds kind of crazy. I just don’t know how these banks got away with this for so long. Makes me wonder what would happen if we reversed the scenario. What would the hypothetical XYZ bank think if I tried to cash a check that was written from an ABC Bank checking account? What do you think would happen? Leave your comment in the comments section below.
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Thanks for reading this, Phil Buoscio.
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