It appears that the great foreclosure rush of the late aughts and early teens is about to be stifled. News came out a few weeks ago that GMAC was putting its foreclosures in twenty two states on hold pending an internal investigation. More recently, Bank of America has decided to suspend its foreclosures in all fifty states based upon a similar query. Now Congress is jumping into the fray (not because its election time, oh no dont be that cynical), asking lenders to stop all of their foreclosures everywhere.
Why? Did everybody at once begin to pay their mortgages? Not quite.
You see, in the case of GMAC, and, Im sure, Bank of America, it turns out that quite a few, if not all, bankruptcy filings were flawed. From state to state, the foreclosure procedures are wildly different.
Some states are judicial states, which means the court gets involved in the matter from start to finish, soup to nuts. Others have a quasi-judicial process, where the courts get involved just to ensure that everyone does what theyre supposed to be doing, and, if theyre satisfied that each party has behaved, the court approves the sale (Maryland is one of these types). And yet others have no intersection with the courts at all (this would describe Virginia and Washington, DC).
To get to that point, however, the bank has to cross all of its 't's and dot its 'i's. There are procedures that must be followed, regardless of which type of foreclosure state you want to file.
One of the early steps is to ensure the bank reviewed the mortgagees file and determine that said mortgagee had not upheld its requirements under the note. If the mortgagee hasnt satisfied its requirements, the foreclosure is able to proceed. Once completed, the bank signs off on the file, before a notary public, and then ships the file off to the law office that will handle the foreclosure from there.
In a deposition, the individual in charge of the above-mentioned steps for GMAC stated he only reviewed parts of some files, and scanned others. He then signed all of the documents, sometimes hundreds in a day, and shipped his work off to a notary to have them signed. This was a bad move.
You see, he was required to review all of the files in their entirety and sign them in the presence of a notary, both of which he failed to do. Ergo, we see all of the foreclosure stoppages, calls for investigations and requests for congressional hearings. Is this the right thing to do?
As always in these instances, Im conflicted. As a regular person, I think, heck these people havent paid their mortgages, just foreclose already. But as an attorney, there are rules to follow, and these banks clearly didnt follow them. Rights have to be preserved and the procedure must be followed and respected. Thus, in a legal sense, the foreclosures should be stopped.
However, this shouldnt seem like the victory over the big bad banks, as it is currently being portrayed. The foreclosures will be stopped, to be sure, but once the banks have a more balanced system in place (i.e., more than one person signing off on tens of thousands of these per year yes, Im looking at you GMAC), the legal actions will gin right back up, and the pace will be faster than ever.
This situation is merely a lull in the action halftime, if you will. A beneficial lull, as it will give time to some homeowners that are looking to continue loan modifications or short sales or to even look for somewhere else to live.
However, for the vast majority of the homeowners that are given this slight reprieve, they will blithely go about their lives, certain that it is the last time theyll hear from the big bad banks. Then, in a few months, theyll again find themselves right where they are now staring down the barrel of the foreclosure gun. And make no mistake this time, the banks will do it correctly.
Chris Markham writes a weekly column for fredericknewspost.com.