Bank of America said it’s extended its review of foreclosure documents to all 50 states, and will stop all foreclosure sales until the review is completed.
The ongoing assessment, previously confined to 23 states where courts have jurisdiction over foreclosures, "shows the basis for foreclosure decisions is accurate," Bank of America said in a statement.
According to its most recent quarterly report to investors, Bank of America sold $453 million in foreclosed properties during the second quarter, leaving it with an inventory of properties valued at $1.74 billion.
Bank of America had previously identified the 23 states where it was delaying foreclosures as Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nebraska, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont and Wisconsin.
Meanwhile, PNC Financial Services Group Inc. says it’s halting most foreclosures and evictions in 23 states for 30 days, bringing to four the number of lenders who have publicly acknowledged potential problems in their handling of foreclosure paperwork. PNC said it took the step so it can confirm its foreclosure procedures are in compliance with state laws.
In what’s become known as the robo signing scandal, GMAC Mortgage and JP Morgan Chase are also reviewing foreclosure proceedings in judicial foreclosure states, following allegations that workers processing files for the companies signed affidavits that contained information they had not personally verified.
Although attorneys for homeowners have mostly succeeded in delaying, rather than stopping, foreclosures when challenging lenders on such procedural grounds in the past, the robo signing scandal threatens to put the brakes on hundreds of thousands of foreclosures nationwide.
State attorneys general, federal regulators and lawmakers are putting lenders on notice that they should discontinue foreclosures unless they are sure their procedures are in full compliance with the law.
The resulting slowdown in foreclosure actions could slow the flow of properties into bank’s REO (real estate owned) inventories. Lenders have also begun holding back properties they have already foreclosed on from the market, because of fears that their former owners could file lawsuits questioning the legality of the court proceedings in which they lost their homes.
The American Land Title Association, a trade group representing title insurers, has said homeowners who have purchased foreclosed properties have "numerous defenses" against any claims by former owners.
It’s unlikely that a court will take property from an innocent current homeowner and return it to a previous homeowner who failed to make payments on the loan subject to the foreclosure, the group said.
But some lenders and at least one title insurer appear to be seeking more certainty before moving forward with the sale of foreclosed properties.
Old Republic National Title Insurance Co. has reportedly stopped insuring title for properties foreclosed on by JP Morgan Chase and GMAC Mortgage (the company refuses to confirm or deny reports based on internal company memos, citing a "policy of not speaking to the press").
Real estate brokers in Florida, a judicial foreclosure state, told Inman News this week that loan servicers had already begun pulling many foreclosed "REO" (real-estate owned) properties off the market.
Actions by federal regulators and state attorneys general could lead more loan servicers to follow Bank of America’s lead in halting sales of foreclosed properties in non-judicial foreclosure states.
In a letter to subscribers today, Foreclosure Listing Services Inc. President George Roddy Sr. shared his views on how the robo signing scandal could affect Texas, a non-judicial foreclosure state. The Addison-based company tracks about 9,000 foreclosure auction postings a month.
Roddy said that until recently, he hadn’t expected actions taken by lenders in judicial foreclosure states to impact foreclosures in Texas. But that was before Texas Attorney General Greg Abbot sent letters to 30 loan servicers Tuesday, calling on them to halt foreclosures and sales of foreclosed properties until they have completed a review of their foreclosure processes.
Abbot gave loan servicers until Oct. 15 to demonstrate they are complying with state law, and identify any employees or agents who signed affidavits and other foreclosure documents without personal knowledge of what they were signing. Loan servicers were also instructed to identify any foreclosures in which such documents were used.
The next round of Texas foreclosure auctions is set to take place on Nov. 2, Roddy said, and there’s no indication that loan servicers who are able comply with the attorney general’s demands will be barred from putting homes up for auction.
Roddy said postings for the upcoming Nov. 2 auction remain at about the same level as at this time last month, with no signs of weakening.
"Based on many conversations with economists, politicians, lenders, etc. over the past few days, I believe that foreclosure postings will continue at the current pace or very near that level during the coming days in Texas," Roddy said. "So, for those of us involved on the ‘posting’ side of the equation, it should be business as usual or very near it."
Roddy compared fallout from the robo signing scandal to foreclosure moratoriums enacted during the housing downturn.
"Looking back, those moratoriums had very little effect on the volume of foreclosure postings filed during that time," he said. "What we did see were monthly posting levels that remained where they were prior to the start of the moratorium, or very close to that level, followed by a huge spike in postings that led to the current high level of this foreclosure cycle."
In California, another non-judicial foreclosure state, Attorney General Jerry Brown today called on loan servicers to halt foreclosures until they demonstrate they are complying with state law.
Attorneys general in other states including Florida, Massachusetts, Delaware, Connecticut, Ohio, Colorado, Illinois, Iowa and North Carolina are also examining lenders’ foreclosure procedures. Ohio Attorney General Richard Cordray has filed suit against GMAC Mortgage (GMAC Mortgage says it expects to prevail).
Although Democrats have been the most critical of lenders’ foreclosure procedures, the issue cuts across party lines.
Sen. Richard Shelby of Alabama, the ranking Republican on the Senate Banking Committee, has called on federal banking regulators to review the mortgage servicing and foreclosures activities of JP Morgan Chase, Bank of America, and GMAC Mortgage parent company Ally Financial.
Shelby said the Senate Banking Committee should also launch its own investigation, saying he was "highly troubled that once again our federal regulators appear to be asleep at the switch."
The Center for Responsible Lending and civil rights groups including the NAACP and National Council of La Raza on Thursday renewed their call for a national moratorium on foreclosures, citing doubts about procedures followed by lenders filing foreclosure proceedings.
Exercising a "pocket veto" for only the second time in office, President Obama Thursday rejected a bill, HR 3808, that critics said would help banks push homes through the foreclosure process by making courts recognize notarizations made in other states.
