October 6, 2010 / 7:20 PM / 9 years ago

Factbox: Foreclosure problems snowball

(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 some 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 week.

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.

GMAC official 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 also obtained evidence of similar practices by other servicers.

GMAC, OTHER FIRMS UNDER THE MICROSCOPE

Last month, GMAC was the first company to publicly respond to these problems. GMAC said it would halt evictions and post-foreclosure proceedings in 23 states due to document problems.

JPMorgan Chase and Co has halted 56,000 foreclosure proceedings in the 23 states that require a judge to sign off on foreclosures. Bank of America Corp said it would also suspend some foreclosures in those 23 states.

Wells Fargo & Co says it will stand by its affidavits, and Citigroup had no plans to suspend foreclosures as of last week.

PUBLIC OFFICIALS STEP IN

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

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.

Attorneys general in several states, including California and Connecticut, are investigating.

This week, Texas announced a halt to all foreclosures, sales of foreclosed properties and evictions until loan servicers could review their practices. North Carolina Attorney General Roy Cooper asked the state’s 15 largest mortgage lenders to suspend home repossessions in the state.

Ohio Attorney General Richard Cordray said he would announce a lawsuit against a national loan servicer for fraudulent practices later on Wednesday.

Reporting by Dan Levine; Editing by Tim Dobbyn

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