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Robo-Signing Scandal Could Have Worse Effects in Non-Judicial States Like California

November 4, 2010

As Ontario foreclosure lawyers, we have followed the unfolding robo-signing scandal with interest. In essence, this scandal comes from the revelation that mortgage lenders have been submitting legal documents without verifying them, causing the testimony in those documents to be false and putting homeowners at risk of an incorrect foreclosure. However, unlike much of the housing crisis, this scandal has not been centered on California because we are not one of the 23 states that requires a court case to foreclose. On Oct. 30, AOL's Daily Finance ran an article suggesting that while non-judicial states like California may not be directly involved, the underlying problems with robo-signing could be much harder to correct in those states.

Judicial foreclosure is often done in a perfunctory way, but it does require review by a human judge. By contrast, lenders can foreclose without any judicial review in California and other non-judicial states. Here in California, the article explains, a lender that's decided to foreclose simply files a notice of default and a record of its attempts to stop the foreclosure, with the local land use office. No one has to verify that the lender has actually made a good-faith effort to work it out with the borrower. After a three-month cure period that gives the homeowner another chance to pay up, the house goes to a foreclosure auction. At this point, the article explains, lenders typically realize that due to securitization, they do not have a physical record of owning the deed to the home. So the lender enters a new record showing ownership within a few weeks of the foreclosure auction. It may also add a trustee that's a subsidiary of the lender so it can recoup any extra fees.

These documents can be fraudulent, the article says -- with names of robo-signers, names of defunct companies, incorrect dates and no one verifying that ownership was transferred correctly. And -- importantly -- in a non-judicial foreclosure, none of this is ever likely to be checked for correctness by a judge or a lawyer, much less the borrower. That means there's no one guaranteeing that these documents are correct unless the borrower has an attorney for another reason. In some cases, that reason is bankruptcy. More rarely, the borrower can hire a foreclosure attorney to scrutinize the records.

Our Norwalk foreclosure attorneys have only scratched the surface of the potential problems with mortgage documentation. Because we've represented clients fighting foreclosure since the beginning of the mortgage crisis, we are confident that this article is right to be cynical about the quality of banks' documentation. Over and over, we hear about lenders losing documents repeatedly, giving contradictory instructions and foreclosing on people who were in the middle of a loan modification, often without notice. That this sloppiness extends to the paperwork side of foreclosure is not at all surprising. However, it is surprising that they would go so far as to submit incorrect documents to courts in judicial foreclosure states, because those documents are perjury. Judges do not appreciate being defrauded, and some lenders are already finding out that they're willing to punish lenders who perpetuate fraud out of sloppiness or eagerness to make a buck.

From the start, Howard Law PC has helped California homeowners fight mortgage lenders who denied a loan modification or simply refused to give it fair consideration. As we noted, many of lenders' tactics echo the sloppy behavior evident in the robo-signing scandal. Our Fountain Valley loan modification lawyers have come to believe that banks don't give loan workouts a fair chance because they don't want to -- they believe they'll make more money by drawing out the foreclosure process, then loading on fraudulent and incorrect fees and fines to squeeze extra money out of the borrower. You have the right to fight back and protect your home, and we can help by bringing a keen legal eye to the lender's paperwork and behavior. Whenever we find fraud, false testimony, incorrect fees, predatory lending or other serious problems, we will use it to stop an unfair foreclosure and try to negotiate a fair, sustainable loan modification.

If you're facing foreclosure and you're tired of excuses and unfair dealing from your lender or servicer, you should call Howard Law for help. To tell us your story and learn more about us, contact us through our website or call 1-800-872-5925 toll-free.