Foreclosure by Rubber Stamp? State Attorney Generals Investigate

Oct. 18, 2010 — -- In one month, thousands of documents were pushed through the system by one man.

An estimated 10,000 mortgage documents -- affidavits and mortgage assignments -- made it by the desk of 42-year-old Jeffrey Stephan, according to his deposition at the Circuit Court of the 15th Judicial Circuit in Palm Beach, Fla.

As the team leader in the documentation unit of mortgage company GMAC in Horsham, Pa., Stephan spent his days going through what amounts to 2,500 documents over a four-week period, or 625 documents a day -- perhaps too many even for the most highly skilled analysts, in the eyes of some critics.

Those 600-plus daily documents were expected to be vetted for proper paperwork before kicking off the foreclosure process.

Now there are increasing questions about the qualifications of people like Stephan who were handling those documents at such a blinding rate -- even as the country's foreclosure epidemic continues to spiral out of control.

In September, banks repossessed more than 102,000 homes, according to online mortgage tracking company Realtytrac -- the first time the monthly total has exceeded 100,000. The amount of homes experiencing foreclosure filings in the third quarter was a whopping one in every 139 households.

Because of the sheer volume of foreclosures, some companies employed "robo signers," individuals whose job was to sign off on the bulk of paperwork. Such people were dubbed "The Burger King Kids" at J.P. Morgan and Chase, according to The New York Times.

The fast-food conveyor belt culture of bulk signing, and the admission by some signers that they rushed through their work, has called into question the entire foreclosure process.

Xee Moua, an employee of Wells Fargo, a lender that decided against delaying the foreclosure process, told a court in March that she only identified her own name and title when going over the 500 mortgage documents she viewed each day, according to a report by the Financial Times.

When Stephan was asked if he received training from Mortgage Electronic Registration System (MERS), a mortgage tracking service, he responded with a simple no.

Instead of being motivated by bad intentions, employees may have been pushed to just complete or sign documents to get the job done, real estate experts say.

"The rationale behind hiring low-skilled people is to spend as little money as possible, said Steve Horne, president of Wingspan Portfolio Advisors. "It saves the servicer money, although it costs the lender more money."

What is turning into a widespread problem led Florida Attorney General Bill McCollum to send out identical letters of concern to Bank of America, JP Morgan Chase, GMAC, PNC Financial Group and Litton Loan Servicing.

"I was distressed to learn from media reports that your company may have engaged in faulty affidavits in foreclosure cases in Florida courts with regard to ownership of promissory notes and affidavits that attested to personal knowledge of facts when, in fact, the affiant had no such personal knowledge," McCollum wrote in a letter addressed to the five companies dated Oct. 12.

To proceed with the foreclosure documents, employees were expected to review and identify who owned a promissory note on a mortgage.

Joining McCollum in a probe of the foreclosure process are attorney generals in the other 49 states.

The investigation led by AGs and bank regulators seeks to identify if servicers or employers falsified documents during the largest mortgage market implosion this nation ever has seen.

What's creating the scandal is "the lenders are basically saying they actually own the note, when they don't have it in their presence or don't have the original note," said Jason Biro, co-founder and director of Saving Your American Dream, a non-profit group that assists individuals hurting from the mortgage crisis. "But, in order to foreclose, you have to have the original promissory note."

By not properly identifying a promissory note or affidavits, property could be seized improperly and sold by a lender that does not own the mortgage.

Perhaps adding to the confusion, the mortgage industry leans heavily on a paper system during an all-digital age.

"The dominant technology in the industry is very dated," Horne said. "It's 1960s-era technology."

While foreclosure laws vary from state to state, proper paperwork is required. Depending on the property location, there is a judicial or non-judicial process that lenders or servicers must follow.

The question is: Did Stephan and Moua adequately pore over the 625 or 500 documents they signed off on each day.

As the foreclosure documentation process comes under intense examination, many areas of the real estate business could be impacted.

"It affects people that have purchased these homes that may have clouds on their titles now because of fraudulent foreclosure measures," said Biro.

There also could be "title insurance problems because title insurance companies don't want to insure [property] because they worry about [future] liens on property or being sued," Biro said.

There's worry in the industry that a freeze on foreclosure sales will stall the real estate market recovery. As some banks grind foreclosures to halt, the slowdown can affect neighborhoods and communities across the country.

In September, foreclosed homes accounted for more than 30 percent of property sales.

"It's the worst of both worlds," said Peter J. Henning, professor of law at Wayne State University Law School. "You're not going to slow down people that can't pay, but you are going to slow down people that can pay.

"It will have an impact on neighborhoods because houses will sit longer," Henning said. "If I was a buyer, I'd be very leery of buying a home under foreclosure."

Problem is, more "robo signers" keep popping up. In May, according to the Financial Times, another Wells Fargo employee swore in a deposition that he failed to review the 150 documents a day he was given to sign.