FACTBOX-U.S. foreclosure problems snowball

Wed Oct 13, 2010 6:18pm EDT

Oct 13 (Reuters) - Questions over the accuracy of legal documents submitted by mortgage lenders have significantly slowed U.S. foreclosure proceedings in recent weeks.

The growing controversy has forced at least three banks to temporarily halt foreclosure or eviction proceedings and prompted lawmakers and state attorneys general to demand a moratorium on home seizures until the problems are resolved.

HOW FORECLOSURES WORK

To foreclose on a house, a lender must prove it has a valid claim.

That means it must certify through an affidavit and other documentation that it clearly holds the right to enforce the terms of the loan, and that the borrower has actually defaulted.

Judges approve foreclosures in 23 states. Otherwise, lenders use an out-of-court process.

Banks are expected to take over a record 1.2 million homes this year, up from about 1 million last year and 100,000 in 2005, real estate data company RealtyTrac Inc said last month.

WHY "ROBO-SIGNERS" ARE A PROBLEM

Emerging evidence of so-called "robo-signers" has thrown a wrench into the foreclosure process. These are mid-level bank executives who signed thousands of affidavits a month claiming they were knowledgeable of the cases.

An official of GMAC, Jeffrey Stephan, acknowledged signing an affidavit supporting a foreclosure without reading it or being in the presence of a notary. That disclosure led a Maine judge to reprimand GMAC, now known as Ally Financial Inc, although the court accepted an amended affidavit in the case.

Stephan has testified to signing some 10,000 documents a month.

Consumer attorneys say they have obtained evidence of similar practices by other servicers.

BANK OF AMERICA, OTHER FIRMS UNDER THE MICROSCOPE

Last week Bank of America Corp (BAC.N) announced a temporary, nationwide halt to foreclosures.

Other lenders have announced more limited responses. GMAC was the first company to publicly address the document problems last month when it halted evictions and post-foreclosure proceedings in the 23 states where judges sign off on foreclosures.

JPMorgan Chase and Co (JPM.N) has halted some foreclosure proceedings and said it is reviewing 115,000 mortgage affidavits. On Wednesday the company said it identified some issues in its review of foreclosures, but was "pretty comfortable" its decisions had been proper.

Wells Fargo & Co (WFC.N) affirmed the accuracy of its affidavits on Tuesday, saying it had no plans for a foreclosure moratorium.

Citigroup (C.N) had no plans to suspend foreclosures as of earlier this month.

PUBLIC OFFICIALS STEP IN

All 50 U.S. states launched a joint investigation of the mortgage industry on Wednesday.

Several lawmakers and state attorneys general have also called for a suspension of foreclosures in all 50 states.

The White House, however, has rebuffed those demands, fearing it would harm the economy.

The U.S. Department of Justice is examining whether financial institutions improperly foreclosed on houses, Attorney General Eric Holder said last week.

That announcement followed a letter signed by lawmakers including U.S. House of Representatives Speaker Nancy Pelosi urging the Justice Department to look into the situation.

Ohio Attorney General Richard Cordray sued Ally Financial and Stephan last week, alleging fraud and violations of Ohio's consumer laws. (Reporting by Dan Levine, editing by Dave Zimmerman and Leslie Adler)

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