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Re-Foreclosure, Counterfeit Notaries, and Petrified Lawyers: Tales of Foreclosure Fraud

But is it a re-repo? (photo: TheTruthAbout on Flickr)

The other day, someone alerted me to this Boston Globe article about “re-foreclosures.” In some cases, the banks can obtain a successful eviction and control the property, but find themselves unable to obtain title insurance that they need to sell the property. So they go back to the previous homeowner, give them back the home, and try to foreclose on them again. Welcome to America circa 2010.

Zepheniah Taylor lost his Dorchester three-decker to foreclosure two times in 17 months. Now the 59-year-old grandfather has returned home to stay. The scenario, once implausible, is becoming more common in the crazed and fast-changing world of foreclosures.

Hundreds — and possibly thousands — of Massachusetts homeowners are facing back-to-back foreclosures as lenders realize there were problems with property titles the first time around. Those lenders, often unable to obtain title insurance, are opting to start from scratch with what is being called a “re-foreclosure.’’

The prospect of going through a foreclosure all over again may seem nightmarish for homeowners, but in a growing number of cases the do-overs are creating opportunities for them to repossess their homes.

Such was the case with Taylor, who decided to fight the second foreclosure. The tactic paid off: He won the right to repurchase the home at current market value.

Not everybody is as fortunate as Taylor. Despite the fact that the notice of “re-foreclosure” should be a pretty powerful sign that the bank is on shaky legal ground to evict the homeowners, many of them lack the resources or know-how to fight the foreclosure the second time around. This is another reason why Congress has to pass the appropriation for legal aid for borrowers facing foreclosure.

But just imagine the circumstances. You’ve been kicked out of your home. You’re trying to put your life back together. Suddenly you get a letter (probably months late, as it’s unclear how the bank knows where to find you) saying you own the home again but will have to get current on your mortgage payment immediately to keep it. Do you have any idea how to react to this?

A state Supreme Court ruling in Massachusetts will soon determine whether banks with improper or inaccurate paperwork can foreclose on a borrower before clearing up the chain of title confusion. The result could put into motion thousands of re-foreclosures, or give opportunities to borrowers to defend their homes, putting the burden on the banks to prove ownership of the property and standing to foreclose.

[Cont’d]

I don’t know how you can think Congress is going to be able to offer a global solution to this mess. Officials outside of Congress have a lot more authority over the situation, for one, because it’s typically governed by state and local laws. Second, the re-foreclosure issue arose over banks being unable to obtain title insurance. Maybe Congress could make a certain entity, like MERS, legal in terms of title, but that wouldn’t end the uncertainty and would have to be tested in court, which means the title insurer would remain reluctant to sell a policy. And you would still have incidents like this, where Prommis Solutions created a flat-out counterfeit notary seal of the former Superior Court Clerk in Fulton County, Georgia to sign off on foreclosure paperwork. Where exactly will Congress go to make that activity legal?

This story is extremely telling:

Bank lawyers prosecuting the 80,000 foreclosure cases in New York are all but admitting that the cases they have filed over the past number of years have been riddled with fraud.

In the three weeks-plus since New York State Chief Judge Jonathan Lippman put the foreclosure lawyers on notice that any fraud in foreclosure paperwork would be met with severe penalties — he is making lawyers sign affirmations promising they took “reasonable” steps to make sure the legal papers are true — practically no new foreclosure cases have been filed, The Post has learned.

And existing cases have ground to a halt, a source close to the state’s foreclosure practice said.

“Banks do not want to be the first to test the new rules,” the source said.

Basically, the lawyers prosecuting these cases bailed as soon as they realized they could be held personally liable for all the errors in the paperwork. They’re still processing foreclosures, but they’re afraid to take them to court.

If more states follow Lippman’s stance; if more cases of outright fraud, like what the investigators in Georgia turned up, are found; if the Massachusetts Supreme Court rules in favor of holding banks liable for illegal foreclosures, you’re going to see the foreclosure stream completely seize up. That would be good news for homeowners.

CommunityThe Bullpen

Re-Foreclosure, Counterfeit Notaries, and Petrified Lawyers: Tales of Foreclosure Fraud

The other day, someone alerted me to this Boston Globe article about “re-foreclosures.” In some cases, the banks can obtain a successful eviction and control the property, but find themselves unable to obtain title insurance that they need to sell the property. So they go back to the previous homeowner, give them back the home, and try to foreclose on them again. Welcome to America circa 2010.

Zepheniah Taylor lost his Dorchester three-decker to foreclosure two times in 17 months. Now the 59-year-old grandfather has returned home to stay. The scenario, once implausible, is becoming more common in the crazed and fast-changing world of foreclosures.

Hundreds — and possibly thousands — of Massachusetts homeowners are facing back-to-back foreclosures as lenders realize there were problems with property titles the first time around. Those lenders, often unable to obtain title insurance, are opting to start from scratch with what is being called a “re-foreclosure.’’

The prospect of going through a foreclosure all over again may seem nightmarish for homeowners, but in a growing number of cases the do-overs are creating opportunities for them to repossess their homes.

Such was the case with Taylor, who decided to fight the second foreclosure. The tactic paid off: He won the right to repurchase the home at current market value.

Not everybody is as fortunate as Taylor. Despite the fact that the notice of “re-foreclosure” should be a pretty powerful sign that the bank is on shaky legal ground to evict the homeowners, many of them lack the resources or know-how to fight the foreclosure the second time around. This is another reason why Congress has to pass the appropriation for legal aid for borrowers facing foreclosure.

But just imagine the circumstances. You’ve been kicked out of your home. You’re trying to put your life back together. Suddenly you get a letter (probably months late, as it’s unclear how the bank knows where to find you) saying you own the home again but will have to get current on your mortgage payment immediately to keep it. Do you have any idea how to react to this?

A state Supreme Court ruling in Massachusetts will soon determine whether banks with improper or inaccurate paperwork can foreclose on a borrower before clearing up the chain of title confusion. The result could put into motion thousands of re-foreclosures, or give opportunities to borrowers to defend their homes, putting the burden on the banks to prove ownership of the property and standing to foreclose.

I don’t know how you can think Congress is going to be able to offer a global solution to this mess. Officials outside of Congress have a lot more authority over the situation, for one, because it’s typically governed by state and local laws. Second, the re-foreclosure issue arose over banks being unable to obtain title insurance. Maybe Congress could make a certain entity, like MERS, legal in terms of title, but that wouldn’t end the uncertainty and would have to be tested in court, which means the title insurer would remain reluctant to sell a policy. And you would still have incidents like this, where Prommis Solutions created a flat-out counterfeit notary seal of the former Superior Court Clerk in Fulton County, Georgia to sign off on foreclosure paperwork. Where exactly will Congress go to make that activity legal?

This story is extremely telling:

Bank lawyers prosecuting the 80,000 foreclosure cases in New York are all but admitting that the cases they have filed over the past number of years have been riddled with fraud.

In the three weeks-plus since New York State Chief Judge Jonathan Lippman put the foreclosure lawyers on notice that any fraud in foreclosure paperwork would be met with severe penalties — he is making lawyers sign affirmations promising they took “reasonable” steps to make sure the legal papers are true — practically no new foreclosure cases have been filed, The Post has learned.

And existing cases have ground to a halt, a source close to the state’s foreclosure practice said.

“Banks do not want to be the first to test the new rules,” the source said.

Basically, the lawyers prosecuting these cases bailed as soon as they realized they could be held personally liable for all the errors in the paperwork. They’re still processing foreclosures, but they’re afraid to take them to court.

If more states follow Lippman’s stance; if more cases of outright fraud, like what the investigators in Georgia turned up, are found; if the Massachusetts Supreme Court rules in favor of holding banks liable for illegal foreclosures, you’re going to see the foreclosure stream completely seize up. That would be good news for homeowners.

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