2010 United States foreclosure crisis
Encyclopedia
The 2010 United States foreclosure crisis, sometimes referred to as Foreclosure-gate or Foreclosuregate, is an ongoing and unresolved issue in the United States
and refers to an apparently widespread epidemic of improper foreclosure
s initiated by large banks and other lenders. The foreclosure crisis was extensively covered by news outlets beginning in October 2010, and several large banks, including Bank of America
, JP Morgan, Wells Fargo
, and Citigroup
temporarily responded by halting their foreclosure proceedings in some or all states. The foreclosure crisis has caused significant investor fear in the U.S.
In an October 21, 2010 Wall Street Journal Article titled "Niche Lawyers Spawned Housing Fracas" the Journal reports that foreclosure lawyer/advocates, Thomas Ice and Matthew Weidner, were discussing the deposition testimony of employees of mortgage employees. "Tom and I were talking, and it was, 'Jesus, they're like robots!'" Mr. Weidner says. Mr. Weidner, a blogger, on January 8, 2010 wrote a blog post with an appellation for the routine signers. "We know from depositions taken of these 'robo signers,'" he wrote, "that they don't even read the documents placed in front of them and the notaries and witnesses that are supposed to watch them as they sign are not present." This conclusion paralleled Lavalle's findings a decade earlier.
The terms robo-signing and robo-signers then gained wider exposure by other mortgage fraud activists Michael Redman and Lisa Epstein via their blogs. Robo-signing is a term used by consumer advocates to describe the robotic process of the mass production of false and forged execution of mortgage assignments, satisfactions, affidavits and other legal documents related to mortgage foreclosures and legal matters being created by persons without knowledge of the facts being attested to. It also includes accusations of notary fraud wherein the notaries pre and/or post notarize the affidavits and signatures of so-called robo-signers.
On July 18, 2011, the Associated Press and Reuters released two reports that robo-signing continued to be a major problem in U.S. courtrooms across America. The AP defined robo-signing as a "variety of practices. It can mean a qualified executive in the mortgage industry signs a mortgage affidavit document without verifying the information. It can mean someone forges an executive's signature, or a lower-level employee signs his or her own name with a fake title. It can mean failing to comply with notary procedures. In all of these cases, robo-signing involves people signing documents and swearing to their accuracy without verifying any of the information."
Beginning in 2009, the allegations of robo-signing by Lavalle, Epstein and Redman were proven by local Palm Beach Attorney, Tom Ice of Ice Legal, who proved up the wide-scale practice of robo-signing in depositions taken of GMAC's Jeffrey Stephan and other robo-signers. News outlets have reported that on September 14, 2010, Jeffrey Stephan testified that he had signed affidavits which he hadn't actually reviewed on behalf of Ally Financial Inc. This revelation led to increased scrutiny of foreclosure documentation. The practice was apparently common practice in the mortgage industry, and was given the term Robo-signing. In the weeks following the robo-signing revelation other large banks have come under fire for employing robo-signers as well, including JPMorgan Chase and Bank of America.
A Washington Post article about the robo-signing foreclosure crisis on October 7, 2010 wrote "several years ago (2003), on a message board still active on the MERS
Web site, one participant (Lavalle) accused the company of participating in fraud and concealing the transfer of loans from public scrutiny." "The company's president and chief executive, R.K. Arnold, responded by insisting that MERS
actually increased the transparency of the mortgage system and reduced the cost of homeownership by making the industry more efficient."
that operates an electronic registry designed to track servicing rights and ownership of mortgage loans in the United States. As of the crisis 62 million mortgages are held in the name of MERS, and MERS has initiated thousands of foreclosures in the United States, claiming to be the mortgagee of record. Lawyers have contended in court that MERS has no legal right to initiate a foreclosure, because MERS does not own the loans in question. U.S. lending laws state that only the owner of a loan can initiate a foreclosure. Class action law suits against MERS are pending in California
, Nevada
, and Arizona
. State courts remain sharply divided on the propriety of this practice. State supreme courts in Maine
, Arkansas
, and Kansas
have ruled against MERS right to file for foreclosures. MERS has however won court cases in several other states, affirming its right to initiate foreclosures in those states.
and the United States Senate
passed H.R. 3808 which would force courts to recognize out of state and electronic notarizations. The bill passed the Senate through a verbal vote, and wasn't publicly debated. President Barack Obama
, fearing "unintended consequences on consumer protections" utilized his veto
powers, at first using a pocket veto
by simply not signing the bill, and later by issuing a more formal protective-return veto.
The Interstate Recognition of Notarizations (IRON) Act of 2010 would have required “any Federal or State court to recognize any notarization made by a notary public licensed by a State other than the State where the court is located when such notarization occurs in or affects interstate commerce.” The bill, written by U.S. Rep. Robert Aderholt
(R-AL) to help court stenographers in his district alleviate issues with getting courts in other states to accept depositions notarized in Alabama, came under criticism in October 2010 from homeowner advocates who said it would have made it easier for mortgage processors to foreclose on homeowners without proper documentation or chain of title
.
The first version of the IRON Act (H.R. 1979), sponsored by Aderholt in 2005, passed the House of Representatives in December 2006. The same bill was later sponsored by U.S. Sen. Tom Carper (D-DE) and introduced in the U.S. Senate Judiciary Committee as S.2083 in 2007, but it ultimately stalled. The bill was again sponsored by Aderholt (R-AL) and introduced in the U.S. House of Representatives as H.R. 3808 on October 14, 2009. It passed by voice vote in the House on April 27, 2010. The bill was co-sponsored by Rep. Bruce Braley
(D-IA), Rep. Mike Castle (R-DE) and Rep. Artur Davis
(D-AL). The bill was voted on in the U.S. Senate on Sept. 27 at the urging of Senate Judiciary Chairman Patrick Leahy
(D-VT). Leahy’s staff said that they had received calls from “constituents” pressing for passage of the bill. But Leahy may have supported the bill after being lobbied by notaries at a September event in D.C. honoring President Calvin Coolidge.
Sen. Robert Casey
(D-PA), who was ushering through many pieces of last-minute legislation on behalf of the Democratic leadership on the final day before the Senate adjourned for recess, moved the bill from the Judiciary committee for a vote. Sen. Jeff Sessions
(R-TX) helped gather Republican support for the bill. The Senate then passed the bill by unanimous consent without debate. Aderholt said that he and supporters “were surprised that it came through at the eleventh hour there” in the Senate. President Obama vetoed the bill on Oct. 8, following outcry from homeowner advocates and increased scrutiny from the press.
Ohio’s Secretary of State, Democrat Jennifer Brunner
, emerged as one of the earliest critics of the bill, calling the timing of its passage “suspicious.” Brunner organized opposition to the bill, urging citizens to call and email the President and tell him not to sign the act. CNBC
senior editor John Carney called the bill “mysterious” and wrote that the bill “might bail out banks such as GMAC, JP Morgan Chase and Bank of America from their foreclosure gate troubles.”
Aderholt defended his bill in a statement: “There is absolutely no connection whatsoever between the Interstate Recognition of Notarizations Act of 2010 and the recent foreclosure documentation problems… The bill expressly requires lawful notarizations, and in no way validates improper notarizations. Enforcement of legal notarizations is a state responsibility and I fully support each state attorney general vigorously prosecuting all notarization fraud.”
, Connecticut
, Illinois
, Iowa
, Maryland
, Massachusetts
, North Carolina
and Texas
have contacted lenders and mortgage services demanding answers. As of October 14, 2010, all 50 states have entered a joint investigation into the mortgage industry. The joint investigation aims to determine the veracity of allegations that banks have not reviewed foreclosure documents properly or have falsified documents in order to evict homeowners.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
and refers to an apparently widespread epidemic of improper foreclosure
Foreclosure
Foreclosure is the legal process by which a mortgage lender , or other lien holder, obtains a termination of a mortgage borrower 's equitable right of redemption, either by court order or by operation of law...
s initiated by large banks and other lenders. The foreclosure crisis was extensively covered by news outlets beginning in October 2010, and several large banks, including Bank of America
Bank of America
Bank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...
, JP Morgan, Wells Fargo
Wells Fargo
Wells Fargo & Company is an American multinational diversified financial services company with operations around the world. Wells Fargo is the fourth largest bank in the U.S. by assets and the largest bank by market capitalization. Wells Fargo is the second largest bank in deposits, home...
, and Citigroup
Citigroup
Citigroup Inc. or Citi is an American multinational financial services corporation headquartered in Manhattan, New York City, New York, United States. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate...
temporarily responded by halting their foreclosure proceedings in some or all states. The foreclosure crisis has caused significant investor fear in the U.S.
Early signs of trouble
In spring 2010 news stories begin to emerge detailing erroneous foreclosures and evictions, including banks variously foreclosing on homes which were paid for without a mortgage, accidentally foreclosing on the wrong home, and providing fraudulent documentation in courts. Many of the frauds and abuses being investigated in foreclosuregate were first identified over a dozen years ago by consumer advocate, Nye Lavalle.Robo-signing controversy
In the fall of 2010, major U.S. lenders such as JP Morgan Chase, Ally Financial f/k/a GMAC, and Bank of America suspended judicial and non-judicial foreclosures across the United States over the potentially fraudulent practice of robo-signing. The term robo-signer was first coined by attorney Matthew Weidner of Florida.In an October 21, 2010 Wall Street Journal Article titled "Niche Lawyers Spawned Housing Fracas" the Journal reports that foreclosure lawyer/advocates, Thomas Ice and Matthew Weidner, were discussing the deposition testimony of employees of mortgage employees. "Tom and I were talking, and it was, 'Jesus, they're like robots!'" Mr. Weidner says. Mr. Weidner, a blogger, on January 8, 2010 wrote a blog post with an appellation for the routine signers. "We know from depositions taken of these 'robo signers,'" he wrote, "that they don't even read the documents placed in front of them and the notaries and witnesses that are supposed to watch them as they sign are not present." This conclusion paralleled Lavalle's findings a decade earlier.
The terms robo-signing and robo-signers then gained wider exposure by other mortgage fraud activists Michael Redman and Lisa Epstein via their blogs. Robo-signing is a term used by consumer advocates to describe the robotic process of the mass production of false and forged execution of mortgage assignments, satisfactions, affidavits and other legal documents related to mortgage foreclosures and legal matters being created by persons without knowledge of the facts being attested to. It also includes accusations of notary fraud wherein the notaries pre and/or post notarize the affidavits and signatures of so-called robo-signers.
On July 18, 2011, the Associated Press and Reuters released two reports that robo-signing continued to be a major problem in U.S. courtrooms across America. The AP defined robo-signing as a "variety of practices. It can mean a qualified executive in the mortgage industry signs a mortgage affidavit document without verifying the information. It can mean someone forges an executive's signature, or a lower-level employee signs his or her own name with a fake title. It can mean failing to comply with notary procedures. In all of these cases, robo-signing involves people signing documents and swearing to their accuracy without verifying any of the information."
Beginning in 2009, the allegations of robo-signing by Lavalle, Epstein and Redman were proven by local Palm Beach Attorney, Tom Ice of Ice Legal, who proved up the wide-scale practice of robo-signing in depositions taken of GMAC's Jeffrey Stephan and other robo-signers. News outlets have reported that on September 14, 2010, Jeffrey Stephan testified that he had signed affidavits which he hadn't actually reviewed on behalf of Ally Financial Inc. This revelation led to increased scrutiny of foreclosure documentation. The practice was apparently common practice in the mortgage industry, and was given the term Robo-signing. In the weeks following the robo-signing revelation other large banks have come under fire for employing robo-signers as well, including JPMorgan Chase and Bank of America.
A Washington Post article about the robo-signing foreclosure crisis on October 7, 2010 wrote "several years ago (2003), on a message board still active on the MERS
MERS
Mortgage Electronic Registration Systems, Inc. is a privately held company that operates an electronic registry designed to track servicing rights and ownership of mortgage loans in the United States...
Web site, one participant (Lavalle) accused the company of participating in fraud and concealing the transfer of loans from public scrutiny." "The company's president and chief executive, R.K. Arnold, responded by insisting that MERS
MERS
Mortgage Electronic Registration Systems, Inc. is a privately held company that operates an electronic registry designed to track servicing rights and ownership of mortgage loans in the United States...
actually increased the transparency of the mortgage system and reduced the cost of homeownership by making the industry more efficient."
Role of MERS
The Mortgage Electronic Registration Systems, known as MERS, is a privately held companyPrivately held company
A privately held company or close corporation is a business company owned either by non-governmental organizations or by a relatively small number of shareholders or company members which does not offer or trade its company stock to the general public on the stock market exchanges, but rather the...
that operates an electronic registry designed to track servicing rights and ownership of mortgage loans in the United States. As of the crisis 62 million mortgages are held in the name of MERS, and MERS has initiated thousands of foreclosures in the United States, claiming to be the mortgagee of record. Lawyers have contended in court that MERS has no legal right to initiate a foreclosure, because MERS does not own the loans in question. U.S. lending laws state that only the owner of a loan can initiate a foreclosure. Class action law suits against MERS are pending in California
California
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...
, Nevada
Nevada
Nevada is a state in the western, mountain west, and southwestern regions of the United States. With an area of and a population of about 2.7 million, it is the 7th-largest and 35th-most populous state. Over two-thirds of Nevada's people live in the Las Vegas metropolitan area, which contains its...
, and Arizona
Arizona
Arizona ; is a state located in the southwestern region of the United States. It is also part of the western United States and the mountain west. The capital and largest city is Phoenix...
. State courts remain sharply divided on the propriety of this practice. State supreme courts in Maine
Maine
Maine is a state in the New England region of the northeastern United States, bordered by the Atlantic Ocean to the east and south, New Hampshire to the west, and the Canadian provinces of Quebec to the northwest and New Brunswick to the northeast. Maine is both the northernmost and easternmost...
, Arkansas
Arkansas
Arkansas is a state located in the southern region of the United States. Its name is an Algonquian name of the Quapaw Indians. Arkansas shares borders with six states , and its eastern border is largely defined by the Mississippi River...
, and Kansas
Kansas
Kansas is a US state located in the Midwestern United States. It is named after the Kansas River which flows through it, which in turn was named after the Kansa Native American tribe, which inhabited the area. The tribe's name is often said to mean "people of the wind" or "people of the south...
have ruled against MERS right to file for foreclosures. MERS has however won court cases in several other states, affirming its right to initiate foreclosures in those states.
Attempted legislative fix
In an apparent attempt to resolve some of the issues with missing, lost, and sometimes fraudulent paperwork both the United States House of RepresentativesUnited States House of Representatives
The United States House of Representatives is one of the two Houses of the United States Congress, the bicameral legislature which also includes the Senate.The composition and powers of the House are established in Article One of the Constitution...
and the United States Senate
United States Senate
The United States Senate is the upper house of the bicameral legislature of the United States, and together with the United States House of Representatives comprises the United States Congress. The composition and powers of the Senate are established in Article One of the U.S. Constitution. Each...
passed H.R. 3808 which would force courts to recognize out of state and electronic notarizations. The bill passed the Senate through a verbal vote, and wasn't publicly debated. President Barack Obama
Barack Obama
Barack Hussein Obama II is the 44th and current President of the United States. He is the first African American to hold the office. Obama previously served as a United States Senator from Illinois, from January 2005 until he resigned following his victory in the 2008 presidential election.Born in...
, fearing "unintended consequences on consumer protections" utilized his veto
Veto
A veto, Latin for "I forbid", is the power of an officer of the state to unilaterally stop an official action, especially enactment of a piece of legislation...
powers, at first using a pocket veto
Pocket veto
A pocket veto is a legislative maneuver in United States federal lawmaking that allows the President to veto a bill indirectly.The U.S. Constitution limits the President's period for decision on whether to sign or veto any legislation to ten days while the United States Congress is in session...
by simply not signing the bill, and later by issuing a more formal protective-return veto.
The Interstate Recognition of Notarizations (IRON) Act of 2010 would have required “any Federal or State court to recognize any notarization made by a notary public licensed by a State other than the State where the court is located when such notarization occurs in or affects interstate commerce.” The bill, written by U.S. Rep. Robert Aderholt
Robert Aderholt
Robert Brown Aderholt is the U.S. Representative for , serving since 1997. He is a member of the Republican Party.The district includes most of the far northern suburbs of Birmingham, as well as the southern suburbs of Huntsville and Decatur.- Early life, education and career :Aderholt was born in...
(R-AL) to help court stenographers in his district alleviate issues with getting courts in other states to accept depositions notarized in Alabama, came under criticism in October 2010 from homeowner advocates who said it would have made it easier for mortgage processors to foreclose on homeowners without proper documentation or chain of title
Chain of title
A chain of title is the sequence of historical transfers of title to a property. The "chain" runs from the present owner back to the original owner of the property. In situations where documentation of ownership is important, it is often necessary to reconstruct the chain of title...
.
The first version of the IRON Act (H.R. 1979), sponsored by Aderholt in 2005, passed the House of Representatives in December 2006. The same bill was later sponsored by U.S. Sen. Tom Carper (D-DE) and introduced in the U.S. Senate Judiciary Committee as S.2083 in 2007, but it ultimately stalled. The bill was again sponsored by Aderholt (R-AL) and introduced in the U.S. House of Representatives as H.R. 3808 on October 14, 2009. It passed by voice vote in the House on April 27, 2010. The bill was co-sponsored by Rep. Bruce Braley
Bruce Braley
Bruce Braley is the U.S. Representative for , serving since 2007. He is a member of the Democratic Party. The district lies in northeastern Iowa and includes Davenport, Bettendorf, Cedar Falls, Waterloo, Dubuque, and Clinton....
(D-IA), Rep. Mike Castle (R-DE) and Rep. Artur Davis
Artur Davis
Artur Genestre Davis is a former member of the United States House of Representatives for , serving from 2003 to 2011 when he was succeeded by Terri Sewell, also a member of the Democratic Party....
(D-AL). The bill was voted on in the U.S. Senate on Sept. 27 at the urging of Senate Judiciary Chairman Patrick Leahy
Patrick Leahy
Patrick Joseph Leahy is the senior United States Senator from Vermont and member of the Democratic Party. He is the first and only elected Democratic United States Senator in Vermont's history. He is the chairman of the Senate Judiciary Committee. Leahy is the second most senior U.S. Senator,...
(D-VT). Leahy’s staff said that they had received calls from “constituents” pressing for passage of the bill. But Leahy may have supported the bill after being lobbied by notaries at a September event in D.C. honoring President Calvin Coolidge.
Sen. Robert Casey
Bob Casey, Jr.
Robert Patrick "Bob" Casey, Jr. is the senior U.S. Senator from Pennsylvania and a member of the Democratic Party. He previously served as Pennsylvania Treasurer, and Pennsylvania Auditor General. He is the son of former Governor Bob Casey, Sr..He is the first Democrat elected to a full term in...
(D-PA), who was ushering through many pieces of last-minute legislation on behalf of the Democratic leadership on the final day before the Senate adjourned for recess, moved the bill from the Judiciary committee for a vote. Sen. Jeff Sessions
Jeff Sessions
Jefferson Beauregard "Jeff" Sessions III is the junior United States Senator from Alabama. First elected in 1996, Sessions is a member of the Republican Party...
(R-TX) helped gather Republican support for the bill. The Senate then passed the bill by unanimous consent without debate. Aderholt said that he and supporters “were surprised that it came through at the eleventh hour there” in the Senate. President Obama vetoed the bill on Oct. 8, following outcry from homeowner advocates and increased scrutiny from the press.
Ohio’s Secretary of State, Democrat Jennifer Brunner
Jennifer Brunner
Jennifer Lee Brunner is an American politician of the Democratic Party who served as the Ohio Secretary of State. Brunner was the first woman to serve in this capacity. She took office after sixteen years of Republican control, which included two four-year terms by her predecessor J. Kenneth...
, emerged as one of the earliest critics of the bill, calling the timing of its passage “suspicious.” Brunner organized opposition to the bill, urging citizens to call and email the President and tell him not to sign the act. CNBC
CNBC
CNBC is a satellite and cable television business news channel in the U.S., owned and operated by NBCUniversal. The network and its international spinoffs cover business headlines and provide live coverage of financial markets. The combined reach of CNBC and its siblings is 390 million viewers...
senior editor John Carney called the bill “mysterious” and wrote that the bill “might bail out banks such as GMAC, JP Morgan Chase and Bank of America from their foreclosure gate troubles.”
Aderholt defended his bill in a statement: “There is absolutely no connection whatsoever between the Interstate Recognition of Notarizations Act of 2010 and the recent foreclosure documentation problems… The bill expressly requires lawful notarizations, and in no way validates improper notarizations. Enforcement of legal notarizations is a state responsibility and I fully support each state attorney general vigorously prosecuting all notarization fraud.”
Threats of legal action against banks
On October 6, 2010 Attorney General of Ohio Richard Cordray filed suit against Ally Financial Inc seeking $25,000 in penalties for each instance of fraud, in addition to undisclosed amount of consumer restitution. The action could potentially mean hundreds or thousands of individual penalties for each instance of robo-signing that occurred in the state of Ohio. State Attorney Generals from various other states have also started to react to the controversy. It has been reported that legal authorities in CaliforniaCalifornia
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...
, Connecticut
Connecticut
Connecticut is a state in the New England region of the northeastern United States. It is bordered by Rhode Island to the east, Massachusetts to the north, and the state of New York to the west and the south .Connecticut is named for the Connecticut River, the major U.S. river that approximately...
, Illinois
Illinois
Illinois is the fifth-most populous state of the United States of America, and is often noted for being a microcosm of the entire country. With Chicago in the northeast, small industrial cities and great agricultural productivity in central and northern Illinois, and natural resources like coal,...
, Iowa
Iowa
Iowa is a state located in the Midwestern United States, an area often referred to as the "American Heartland". It derives its name from the Ioway people, one of the many American Indian tribes that occupied the state at the time of European exploration. Iowa was a part of the French colony of New...
, Maryland
Maryland
Maryland is a U.S. state located in the Mid Atlantic region of the United States, bordering Virginia, West Virginia, and the District of Columbia to its south and west; Pennsylvania to its north; and Delaware to its east...
, Massachusetts
Massachusetts
The Commonwealth of Massachusetts is a state in the New England region of the northeastern United States of America. It is bordered by Rhode Island and Connecticut to the south, New York to the west, and Vermont and New Hampshire to the north; at its east lies the Atlantic Ocean. As of the 2010...
, North Carolina
North Carolina
North Carolina is a state located in the southeastern United States. The state borders South Carolina and Georgia to the south, Tennessee to the west and Virginia to the north. North Carolina contains 100 counties. Its capital is Raleigh, and its largest city is Charlotte...
and Texas
Texas
Texas is the second largest U.S. state by both area and population, and the largest state by area in the contiguous United States.The name, based on the Caddo word "Tejas" meaning "friends" or "allies", was applied by the Spanish to the Caddo themselves and to the region of their settlement in...
have contacted lenders and mortgage services demanding answers. As of October 14, 2010, all 50 states have entered a joint investigation into the mortgage industry. The joint investigation aims to determine the veracity of allegations that banks have not reviewed foreclosure documents properly or have falsified documents in order to evict homeowners.
See also
- Financial crisis of 2007–2010
- Real Estate Mortgage Investment ConduitReal Estate Mortgage Investment ConduitReal Estate Mortgage Investment Conduits, or "REMICs," are a type of special purpose vehicle used for the pooling of mortgage loans and issuance of mortgage-backed securities...
(REMIC) - Shadow banking systemShadow banking systemThe shadow banking system is the infrastructure and practices which support financial transactions that occur beyond the reach of existing state sanctioned monitoring and regulation. It includes entities such as hedge funds, money market funds and Structured investment vehicles...
- Chain of titleChain of titleA chain of title is the sequence of historical transfers of title to a property. The "chain" runs from the present owner back to the original owner of the property. In situations where documentation of ownership is important, it is often necessary to reconstruct the chain of title...
- Bankruptcy remoteBankruptcy remoteBankruptcy remote is a term that describes the relative position of one company as it relates to bankruptcy vis-a-vis others within a corporate group, whereby the insolvency of the bankruptcy remote entity has as little economic impact as possible on other entities within the group...
– a desired feature of vehicles like REMICS