Over the past few years we have been hearing stories of phony legal documents used by foreclosure firms. As a bankruptcy attorney I receive a lot of literature about how banks have “lost” thousands of mortgage documents and that many of the foreclosures conducted in the country are illegal since there is no written proof that the foreclosing bank actually owns the loan. Recently I saw a 60-Minutes show on this very issue, and even though I was well acquainted with these stories, I was astounded at the depth–not to mention the incredible stupidity–of the fraud. The 60-Minutes reporter provided interviews of the individuals hired by the largest mortgage firms in America to falsify loan documents so that the banks could foreclose their loans. A single employee would sign thousands of fraudulent mortgage papers per day.
The existence of these phony documents places an additional burden on bankruptcy attorneys to examine the claims filed by mortgage companies in the bankruptcy case. How can we be sure the bank owns the loan? Very commonly a debtor will default on the mortgage payment during the bankruptcy case, especially during Chapter 13 cases which are open from 3 to 5 years, and the bank’s will file a request with the Court to resume the foreclosure process. The question the Court used to ask was what proof did the homeowner have that payments were made. Now the question has become, what proof exists that the bank owns the mortgage?
How do you prove that the bank owns the mortgage? Typically the bank that originates the loan will then sell the loan, along with hundreds of other loans, to an investment trust comprised of thousand of mortgage loans. Frequently, the loans are sold from trust to trust. However, each time the loan is sold the owner must sign a written Assignment of Mortgage to transfer ownership of the mortgage to the new owner. In a rush to sell loans, the banks skipped over the important step of signing mortgage assignments, thus beginning the process of signing phony assignments when those loans defaulted and proof of the assignments were required in the foreclosure proceedings. So, a key job of the bankruptcy attorney is to examine the “chain of title” by reviewing each assignment of the loan. How do you verify that the assignment is not phony? Really, that is an incredibly difficult question, but the 60-Minutes story makes me wonder if we now must require live testimony of each individual that signs a mortgage Assignment document.
Over 30,000 lawsuits have been filed against mortgage companies alleging foreclosure fraud, and recently Bank of America and JP Morgan Chase have offered nearly 20 billion dollars to settle these allegations. Naturally, my concern is that it will be funded with Monopoly money.