Banks and mortgage services have been under scrutiny lately with questions about whether they have fully complied with legal requirements in seeking to foreclose on property securing mortgage loans.
“With the downturn in the market, there was a massive surge in foreclosures,” says William A. “Mac” McBride, a litigation attorney at Baker, Donelson, Bearman, Caldwell & Berkowitz, PC. “The systems at banks and mortgage servicers were not designed to deal with the tsunami that hit them. They had systems in place designed to deal with X number of foreclosures and were suddenly dealing with X to the 100th power.”
Smart Business spoke with McBride about how the industry fell apart and the steps it is taking to put itself back together.
How did the problem regarding affidavits in mortgage foreclosures come to light?
It came to light this summer when an employee for a lender/servicer stated in a deposition that he had not taken all the steps necessary to verify the information in affidavits he was signing. Out of that came the term ‘robo-signing,’ which refers to the situation where a large number of documents are allegedly placed on an employee’s desk and he signs them without fully investigating their accuracy.
The problem is that when one signs an affidavit, the signer, or affiant, is stating under oath that he or she has personal knowledge or has made sufficient investigation to swear and affirm that the information in the affidavit is accurate, that the borrower is, indeed, in default on the underlying loan and the parties pursuing foreclosure own the note or otherwise have the right to pursue the foreclosure.
What was the result of the disclosure of ‘robo-signing’?
Virtually all banks undertook reviews of their internal systems. A number of banks instituted temporary moratoriums on foreclosures, halting them while they reviewed their systems, while others looked at their systems and determined a moratorium was not necessary. In addition, in an increasing number of foreclosure proceedings, borrowers are contesting the foreclosure by challenging the associated affidavit.
Although you are seeing a lot of these cases among plaintiffs, in the overwhelming majority of these cases the affidavits are factually accurate and reflect the state of affairs at the time they were signed. The borrowers are in default and, generally, by the time they get to foreclosure, they are as many as 12 to 18 months in arrears, and it’s safe to say the foreclosure is going to happen once the paperwork is sorted out.
The problem is not that homes are being taken from innocent people because other people are making things up. The problem is that if you are signing an affidavit, you are testifying you have personal information or have made sufficient investigation to confirm that what you are signing is accurate, when, in some cases, the signers were simply relying on their underlings to do their jobs properly without verifying it. That is not a trivial thing; filing documents under oath with a court is serious business. But to the extent inaccurate affidavits were filed, the inaccuracies related to the knowledge of the affiant rather than to the default status of the borrower.