Short Sale Blogger

On October 3rd, I wrote about the stoppage of foreclosures across the country as a result of the discovery lender’s use of “robo-signers” in preparing fraudulent foreclosure documents.  As expected, the lenders’ pro-active stoppage removed any pressure on the Federal government to impose a foreclosure moratorium and soon, as the lenders realized that there would not be any consequences, the foreclosures resumed in full.  But as they may soon come to learn, there are consequences in life when we do something wrong.

Although the Fed has not acted, the Attorneys General of many States have stepped up and are threatening criminal prosecutions of lenders. As reported in today’s Wall Street Journal, Ohio’s Attorney General has criticized a number of banks and loan-servicing companies, including Wells Fargo & Co.; Ally Financial Inc.’s GMAC Mortgage; Bank of America Corp.; and J.P. Morgan Chase & Co. Mr. Cordray said the banks are trying to paper over fraud committed in foreclosures with temporary fixes that don’t address underlying problems in the banks’ practices: “It is not acceptable for a party who believes they submitted false court documents to merely replace those documents. Wells Fargo and any other banks are not simply allowed a ‘do-over”…..”The banks are committing fraud on the court, essentially perjury, and then saying ‘Whoops! You caught me! Here’s some different evidence and use that instead.”   In an interview Friday, Mr. Cordray said the banks would “be well-served to work out a settlement with the borrowers to modify the loans and work out payments.”

Here in California, Attorney General Jerry Brown called on lenders to stop foreclosures while the robo-signer issue is investigated. But no stoppage has been ordered. Further, he has announced that California has joined a coalition of 50 attorneys general and dozens of state banking regulators in a multi-state effort to demand that lenders find solutions to serious and potentially widespread problems in the foreclosure process across the country.  This might signal a concerted effort to push lenders to modify loans as a way of possibly avoiding legal action against them for fraud.

The big question for everyone is whether this is a sign of real action at the State level to assist upside-down property owners or whether this is just election year rhetoric.  With the election tomorrow, perhaps we’ll learn more after the push for votes goes away.

Of course the problem for most people seeking modification will be finding help with the modification process. Due to the extent of loan modification scams nationwide, most States (including California) have essentially outlawed loan modifiers. Jerry Brown has called consumer fraud prevention a top priority but by this he specifically means “Loan Modification Fraud” not fraud by lenders.  For example, in October he filed a $60 million lawsuit to shut down companies offering “forensic audits” of loans which might reveal defective or fraudulent loan docs.  Without private sector assistance, those seeking loan modifications will be at the mercy of whatever the lender’s representatives tell them. That may not necessarily be truthful or in the borrower’s best interest.

Meanwhile don’t expect anything from Washington. Presidential advisor Elizabeth Warren has been charged with setting up a new Consumer Financial Protection Bureau. Although the title is encouraging, she has already suggested the agency may not become deeply entangled with the issue. She said, State attorney generals likely will take the lead in dealing with the latest U.S. foreclosure mess.  So to continue, don’t look for help from Washington.