What In The World Is Happening to Mortgage Foreclosures?

By Kenneth Lenz, Board Certified Consumer Bankruptcy Attorney
In September, 2010 the floodgates broke open. In several courts judges held “fraud on the court” hearings ..., and lenders and their lawyers were fined and sanctioned.

                The subject of foreclosures is one we deal with daily at the Lenz Law Firm.  After all, we represent many homeowners who we are working with to save their homes from foreclosure or to modify their mortgages.  We know first-hand how poorly organized many lenders are, how often they claim they did not receive faxes that we transmitted and have delivery receipts for, how many times their customer “service” reps tell us a letter is in the mail to us, only to have it never arrive, and how many times we are diverted to Call Centers in South Asia, whose sole function seems to be not to actually communicate in a meaningful way. 

                In the Fall of  2007 a recession began in the United States, with home foreclosures on the rise within a month thereafter.  Many of the foreclosure cases had odd captions: “Deutsche Bank, Trustee for MLN Trust Series 2007-10 vs. our client.  We educated ourselves how the mortgage securitization industry sliced and diced mortgages, sending the principal back to the original lender, the servicing rights to a mortgage servicing agency, and the mortgage deed purportedly to the Mortgage Electronic Registration Services, Inc. (“MERS”).  In Connecticut, the same two high-volume law firms represented virtually all the lenders, which became known as "foreclosure mills".  When we searched the titles of the properties being foreclosed, the mortgage holder of record was rarely the plaintiff who began the foreclosure. 

                As the crisis deepened nationally, the federal government announced programs it claimed would allow homeowners to save their homes by modifying their mortgages.  We applied for these programs on behalf of our clients, only to hear we need more time, we need more documents, or there’s no decision yet, or (worst of all) a prompt and cryptic “not qualified” response.  When we called, no one could ever explain why our client was not qualified.  We were told that long-term unemployment or the death of a family member were not  hardships, or that our self-employed clients could not qualify if their income was not reported on last year’s tax return, even though they only started the business this year.  Government programs came out, each claiming to be the solution to the mortgage crisis, but none of them worked.  Even the Conn. legislature jumped in, creating a mandatory foreclosure mediation program, which succeeded only in slowing down, but not preventing foreclosures.

                Last year we heard from a law professor out West that MERS was a shell organization which was created to cheat state and municipal governments of filing fees for transfers, and that it does not actually hold or transfer any mortgages, and that it has over 20,000 “officers” who are authorized to sign documents, virtually one in every foreclosure attorney’s and foreclosing lender’s offices.

                Earlier this year, we read case decisions coming from courts in Louisiana, California and   a few other states, that questionable affidavits and assignments of mortgage were being submitted in some courts, that were the basis of denials of foreclosure.  Yet in Connecticut, no judge had yet ruled in favor of a homeowner in any recorded case.

                In September, 2010 the floodgates broke open.  In several courts judges began examining challenges to “standing” or “fraud on the court” hearings were conducted, and lenders and their lawyers were being called on the carpet.  Standing is a legal concept that only the real party in interest can bring a suit.  In a mortgage foreclosure, that means only the lender that actually holds the mortgage note, properly endorsed to it, and a mortgage deed assigned to it (and the assignment recorded in the Land Records) has standing to begin a foreclosure.   We heard that these legal documents were “robo-signed” by lender agents who never read the documents and signed thousands of them each month.  Some of these sworn documents were forged, some documents had the signature pages of other documents attached to them, and some of the signers were actually members of the high volume foreclosure law firms masquerading as lenders representatives.  These fraudulent and forged documents were presented to courts to support foreclosures, where ordinary folks were ordered out of their homes, which were turned over to these lying lenders.  It was a horror story!

                In late September, 2010 several large banks (including Bank of America, JP Morgan Chase, and Citi) suspended all their pending foreclosures while their legal departments conducted extensive file reviews to make sure they were not using tainted documents. 

                On Oct. 13, 2010 it was publically announced that several States’ Attorneys General’s offices were beginning a coordinated investigation into this web of falsehoods.  Where it will end up is not certain at this time, but it is a scandal, and a black eye on the mortgage banking industry.    We expect that individuals who committed perjury will be indicted, that some lawyers may be disbarred or suspended, and that fines and damage suits may follow.  We are concerned however, that many if not most homeowners who were kicked out of their houses as a result of these fraudulent practices may never receive justice. 

For more information contact Attorney Lenz at ken@lenzlawfirm.com