When New Jersey tightened its rules for foreclosures in response to the crisis over false loan documents, it took the unprecedented step of ordering the six largest servicers -- Ally Bank/GMAC, Bank of America (BAC), Citibank (C), JPMorgan Chase (JPM), Wells Fargo (WFC) and OneWest -- to explain why they should be allowed to continue with their foreclosures. If any of them couldn't adequately justify itself, New Jersey would suspend all the foreclosure actions by that bank in the state and appoint a special master to investigate its past and proposed processes.

On Jan. 5, the banks responded, and in essence each said: Look judge, we're good guys committed to keeping people in their homes whenever possible, and while we admit that in the past we had problems -- teeny-tiny problems -- we've fixed them already.

Most of the banks' briefs then argued, with varying degrees of aggressiveness, that the court doesn't have the power to impose a foreclosure moratorium or appoint a special master because that would break court rules, violate New Jersey's Constitution and the U.S. Constitution -- including the banks' due process rights -- and overstep the judiciary's role. They also claimed it was generally wrong because the banks were regulated federally. Only Chase declined to challenge the court's authority to impose the moratorium or appoint a special master.

Systematic Rule-Breakers

However strong these challenges to a potential moratorium and special master may be, the irony of banks arguing that halting foreclosures would break court rules and violate their due process rights is richer than New York cheesecake. After all, the banks' actions in the foreclosure process have systematically involved documents that break court rules and violate homeowners' due process rights, which is what led New Jersey to act in the first place. Irony aside, the banks are essentially saying: If you suspend our foreclosures or appoint a special master to investigate us, we'll sue to stop you.

Although the banks vigorously assert that their document problems never led them to foreclose wrongly and that their records are in impeccable shape, they do admit to errors in their documents, at least to some degree.

Citi conceded the most mistakes:
"Of the 4,023 active foreclosures in New Jersey serviced by Citi, only 613 involve affidavits that were prepared under our pre-strengthened processes -- which review is ongoing -- Citi has determined that foreclosure affidavits need to be corrected in 210 cases. Of those 210 cases, a significant percentage contained errors that were actually in the borrowers' favor."
Citi's statement means that using its original procedures, at least one-third of all of its New Jersey foreclosure filings were problematic. Since Citi's review is ongoing, that percentage could rise. Moreover, if some errors were in the borrowers' favor, those errors had to be substantive, not simply a matter of perfect documents signed by someone who "technically" shouldn't have been signing them.

A Pretty Weak Defense

BoA, Chase and Ally/GMACM were more vague. All noted that they are replacing documents, but they assert their foreclosures were appropriate. Each says their records are generally accurate and add something like Ally's statement: "We note that, to the best of our current understanding, GMACM has found no evidence of any loans referred to foreclosure where the borrower was not in default." (Bold in the original.)

"The borrower was always in default" is a pretty weak defense to the legal issues with their court filings, however, because whether or not a borrower is in default isn't the only key fact in a foreclosure case. (Moreover, not every bank could accurately make that claim, particularly BofA.)

For example, if the amount of money the homeowner is supposedly in arrears is incorrectly listed, that affects the borrower's ability to make up the default and become current. Similarly, courts might care if homeowners are told by the bank to default so they can qualify for a home loan modification, and then the bank fails to record their payments and forecloses. Finally, even if a homeowner is in default, the foreclosing company still has to have the right to foreclose.

Unhelpful Numbers

If a bank lacks the right to foreclose but forecloses anyway, big problems can result. Many recent Massachusetts homebuyers are discovering that they don't really own their homes, because the banks that foreclosed on them and then resold them didn't have the right to foreclose in the first place. That's a nightmare affecting innocent purchasers of foreclosed properties caused purely by the banks carelessness.

The fact that all the borrowers were in default -- as best as the banks can tell -- doesn't mean the foreclosures were proper.

OneWest and Wells Fargo were more aggressive. OneWest proudly emphasized that nationally, 98% of its affidavits in cases were accurate -- meaning that 2% were not. It also asserts that its average error was just 1% of total indebtedness. But that statistic is unhelpful in understanding the impact of the errors on individual homeowners because, by definition, some of the errors were greater than that.

For example, even a small error in the amount needed to bring the loan current can prevent a homeowner from curing the default. Moreover, OneWest's accuracy boast is limited to financial information -- it doesn't address whether or not OneWest always was the bank with the right to foreclose in the case when it did.

Wells Fargo was positively defiant: "Wells Fargo respectfully states that there is no basis for the Court to presume that the data in any, let alone all, the affidavits submitted by Wells Fargo are, or were, factually inaccurate." That's a very bold attitude for Wells to take, given that it has not only used robo-signers but also has failed to prove its standing to foreclose in ongoing court cases.

In one Connecticut case, the judge noted that questions kept "popping out" of Wells Fargo's documents and has demanded more evidence showing Wells really has the right to foreclose. In a Texas case, a Wells Fargo employee swore in a court filing that Wells owned the loan -- until the homeowner's attorney pointed out that Freddie Mac claimed ownership, at which point the Wells person swore that Freddie owned the loan, and Wells just serviced it. Ultimately, the judge concluded Wells could not prove the homeowner owed it anything.

When Wells makes its "respectful" statement to New Jersey, is it counting its affidavits and testimony in these cases as factually accurate? If not, is there some reason Wells thinks its New Jersey documents are so pristine that the court has "no basis" to question them?

Previously Overlooked Criticism

The banks' claims that their past document problems were very limited and technical aren't credible. And it's not just the recent news of foreclosure problems that destroys the banks' credibility: For years, foreclosure defense and bankruptcy attorneys, as well as academics, have pointed out flaws with bank foreclosure documents. All that's new -- new in the last six months or so -- is that the media has been paying attention.

University of Iowa law professor Katherine M. Porter used 1,700 bankruptcy cases as the database for her seminal 2008 paper, Misbehavior and Mistake in Bankruptcy Mortgage Claims. Based on the data, she wrote: "mortgage servicers frequently do not comply with the law. . . . The bankruptcy data reinforce concerns about the overall reliability of the mortgage service industry to charge homeowners only the correct and legal amount of the debt."

In her congressional testimony on Oct. 27, Porter noted that before she stopped updating her database more than a year earlier, she had identified some 50 decisions in which judges found "inappropriate foreclosure practices or misbehavior by mortgage servicers or their agents." She gave as an example a bank that had charged a debtor more than $2,000 in "penalty interest" that wasn't owed. The judge found the bank had made identical improper charges in about 50 other cases and as a result, fined the bank $95,000.

Or take the work of Kurt Eggert, professor of law at Chapman University and director of the Elder Law Clinic. Eggert documented problems with mortgage servicing back in 2004, as he explained in his recent congressional testimony. Eggert said:
"In 2004, I documented the widespread misbehavior of mortgage servicers, and defined "servicer abuse" as follows:

Abusive servicing occurs when a servicer, either through action or inaction, obtains or attempts to obtain unwarranted fees or other costs from borrowers, engages in unfair collection practices, or through its own improper behavior or inaction causes borrowers to be more likely to go into default or have their homes foreclosed. . . . Servicing can be abusive either intentionally, when there is intent to obtain unwarranted fees, or negligently, when, for example, a servicer's records are so disorganized that borrowers are regularly charged late fees even when mortgage payments were made on time.

The types of servicer abuse that my 2004 article discussed are still quite present today."
Or consider the sworn testimony from a former employee of one big Florida foreclosure mill that it used inaccurate documents, including documents listing wrong amounts owed.

And then there are the lawsuits against the banks and their attorneys.

New Jersey separately ordered the 24 companies that have filed at least 200 foreclosure actions in the state in 2010 to show that their processes are sound. If they can't, the state will take further steps. The 24 include 22 private finance companies, Mortgage Electronic Registration System (MERS), and the New Jersey Housing and Mortgage Finance Agency. They have a few more weeks to reply to the court. So, we'll have to wait to see how effectively they defend their practices.

And we'll probably have to wait longer than that to see what New Jersey does in response to the big banks' brushoff.

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I personally think that bankruptcy is much better than foreclosure. You seem to bounce back from bankruptcy a lot faster now days. They have secured credit cards and all kinds of ways to rebuild you credit. But foreclosure is more like an event that even with recovered credit, could keep you from buying another home.


July 18 2013 at 2:01 PM Report abuse rate up rate down Reply

I paid my debt when the President gave the TARP cash to the banks that was taken from me and all the other tax paying American citizens. Chase my new lender has taken over WaMu my old lender and I helped pay the bill so where's my end or does that not matter because I am just a another jerk that doesn't have a voice in our great country. No , enough , the govt and the banks were in on this scam and everyone knows it and if your saying that were bad guys because we dont want to pay the bill twice than something is wrong with you. The whole scam is jail worthy and I hope from the bottom of my heart those scumbag bankers an elected sob's that put this scam together rot in hell with there families instead of hard working jobless citizens suffering any more.

February 05 2011 at 10:45 PM Report abuse rate up rate down Reply

Lets see if the GOP will help the the State or will it side with the Big Banks?
I bet that the GOP will start crying. Its the Party of no's and cry babies! GO NEW JERSEY!!!!!!!!!!

January 11 2011 at 2:28 PM Report abuse +1 rate up rate down Reply

Two major problems politicians face if they interfere with the business of banking.

First, if lenders don't believe they can collect their collateral on default, they won't lend any more... That is obvious, no one would.

Second, if borrowers believe that they don't risk foreclosure... they will stop making any effort to pay back loans. Families are always forced to prioritize their budget. If they don't risk foreclosure... paying the bank back goes down on the priority list.

January 11 2011 at 9:35 AM Report abuse -2 rate up rate down Reply
2 replies to tsafa's comment

tsafa: You make a very valid point, however the banks have to follow the Law. It is very simple with Land Transactions yet they wanted to make more money in by passing over with the recordings of the Promissory Note. I don't know about you, but to me, I would like to know who holds my Note. I want to be able to talk with the person who holds my note. Right now I don't know who holds my note and Bank of America can't tell me. Nothing and I mean nothing was recorded from my Original Lender to Countrywide. I have no idea who I am to pay. Bank of America says I am to pay them but I won't and they can't foreclose on me. I did not take a loan out with Bank of America and I have absolutely NO contract with them what so ever, yet they keep sending me a bill and I keep throwing it away. The only two people on my Deed of Trust is myself and the Original Lender. Now the Original Lender made promises to me yet they did not keep them ... Oh it wasn't written down it was verbal .. by Law it should have been written down so their promises to me is invalid .. should that not go both ways? If they did not record the transactions and follow the Law of Recording should that Promissory Note then be invalid? You see I was under the impression that my Lender was going to hold the Note for two years and give me a Low Fixed Rate before it adjusted. This is what they told me, Not once but a dozen times. I was shocked when they pooled the mortgage and sold it to Country wide. Or did they? The original lender says they did but it was never recorded. I never got back a release from my original lender .. I just started getting bills from Countrywide. When I found out Countrywide did not have my Promissory Note, I stopped paying them. So I stopped paying Countrywide and now why would I pay Bank of America? Now comes the Fraud and the deceit. I was more then willing and able to make a new contract with Bank of America, for I should pay someone, Right! No, Bank of America tried sending me a "Modification" at 9.5% when the intrest was down around 4% and lower. I did not want a modification ... I wanted a new contract. That 9.5% was more then I was Paying to start with. A Modification, means it is modifing a contract. How could they posibly modify a Contract they don't have in the first place. FRAUD!!! simple as that. I have actually Begged Bank of America to Foreclose on Me ... and they haven't, I am now going on 25 months of not paying ... and I am not comfortable with it either .. but I will go hell paying someone who does not deserve it. State of Arizona Here!!!!

January 11 2011 at 11:28 AM Report abuse +4 rate up rate down Reply

The reality of the situation is that when the note was signed it said "if you don't pay you don't stay," in a way it dosen't really matter if the banks have all their paper work in order or not. Are you paying your debt, no, then you gotts go, dosent matter if the bank, state, or your brother ownes it. They are not required to "help" anyone and most have given some people lots of leeway, as one guy on here noted he hasn't made a payment in 2 years, must be nice!! You borrowed the money and now you owe it back. That is kind of where it start's and ends. There are always exceptions to the rules and bad things that happen to good people but that is a VERY SMALL percentage. The home was signed as colatoral for the money you borrowed. The sooner people step up and take some responsiablility and are acountable for their actions the sooner we cana get through this mess. The longer this gets drug out through garbage legislation that just stalls the inevitable. There are hundreds of looming vacant propertys unkept and shadow inventory that has to be liqidated will loom over the market continuesly pushing down pricing and competing against fair market sellers.

January 11 2011 at 9:00 AM Report abuse -3 rate up rate down Reply
1 reply to mushmouth3's comment

The law is the law. If you don't register a mortgage claim whether you are a bank or a private lender, you could be out of luck in ever collecting. So where is Gov. Christie on all of this ????

January 11 2011 at 2:15 PM Report abuse +1 rate up rate down Reply

There are really two distinct issues here. The record keeping by banks and mortgage companies are in dismal shape. The packaging and reselling of the mortgages (sometimes even stripping interest versus principal)has created huge questions as to who actually owns the mortgae or who services the mortgage. If you are buying one of these properties make sure you are dealing with a very reputable title company. Secondly and saddly, most people who are or going into the foreclosure process will probably still lose their homes. Ultimately, the mortgage is an obligation to pay and the "paper trail" nightmare just strecthes the process.

January 11 2011 at 8:05 AM Report abuse +2 rate up rate down Reply
1 reply to Frank's comment

This isn't about paper trails, its about legal process for real property ownership and mortgaging of same - banks and other lenders simply cannot "do what they want" because they are wellheeled and well connected, they must follow the law. End of story - bankster are getting their comeupence for failure to follow the state by state requirements for real property encumberance. As usual some "smart" MBA tried to do something they didn't understand and didn't want to understand and the company ( in this case the banksters) will pay the price - stockholders take note and action to punish the execs who failed to oversee your companies business.

January 11 2011 at 2:23 PM Report abuse +1 rate up rate down Reply

Mortgage Rates have hit an all time low! For many, these rates will be the lowest we see in our lifetime. Rates change several times throughout the day, so to get an accurate quote search online for "123 Mortgage Refinance"

January 11 2011 at 2:49 AM Report abuse rate up rate down Reply

What our government has to do is::: REQUIRE the bank and/or servicers that they have to bend over backwards and go the extra mile to find a way for these people to keep their home then if after exhauting ALL possibilities give the homeowner 90 days to SELL the house for the value of the mortgage or the value that the morgager agrees to (short sale) the result of this idea:: more people will keep their homes 2--people will retain their credit standings 3---and the banks will either have a customer paying a mortgage or a "paid off" mortgage win-win

January 10 2011 at 11:31 PM Report abuse +2 rate up rate down Reply

The State judges can slow down and delay the court foreclosure process and force the banks to come up with much better paper work to prove that they in fact hold the mortgage_____but that is just DELAYING the inevitable___It is not going to get anyone off the hook for what they owe.

January 10 2011 at 8:23 PM Report abuse -1 rate up rate down Reply
2 replies to sgentilejr's comment

Off the hook ....? You must work for the bank > LMAO

January 11 2011 at 12:42 AM Report abuse +1 rate up rate down Reply

Don't bet on it with your hard earned money. Stay away from big banks stock until all their mortgage problems are cleared up - could be years and millions in legal fees to establish ownership and encumberances properly.

January 11 2011 at 2:26 PM Report abuse +1 rate up rate down Reply

This entire issue is a Double Edge Sword. While it is true and 100% correct to say the banks have to prove beyond a reasonable doubt they currently 'Hold and Own the mortgage on the homes' they want to foreclose on_____ it is also true and 100% correct that any homeowner who wants to sell thier home that has an outstanding mortgage balance still due___Is also going to have to jump through one hoop after another to show beyond any reasonable doubts that they also legally own their home and that they have also repaid all outstanding debts and claims against it when they have clear title when they want to sell it.

January 10 2011 at 8:19 PM Report abuse +1 rate up rate down Reply