In what’s been dubbed the "robo-signing" scandal, JP Morgan Chase and Co. has joined GMAC Mortgage in temporarily halting foreclosure proceedings in judicial foreclosure states, following allegations that workers the companies employed failed to follow the proper legal procedures in filing paperwork demonstrating that the lenders had the right to foreclose.
In the past, such allegations — often brought by attorneys representing homeowners in disputed foreclosure proceedings — have mostly delayed, not stopped foreclosure proceedings.
But the robo-signing allegations could affect other lenders who rely on a paperless loan registration system developed for the industry by Mortgage Electronic Registration Systems Inc. (MERS), slowing foreclosure proceedings in courts nationwide.
On Sept. 17, GMAC Mortgage temporarily halted foreclosure proceedings on homeowners in 23 states including Florida, New York, Illinois and Ohio. The company has said employees preparing foreclosure filings submitted signed court affidavits that contained information they had not personally verified.
GMAC Mortgage has withdrawn some of the affidavits, and the Treasury Department, which owns a majority of parent company Ally Financial Inc. thanks to a $17 billion bailout, has ordered the company to correct its procedures, the New York Times reported.
Now, JP Morgan Chase has put the brakes on 56,000 foreclosure proceedings, following similar allegations against a team of Chase workers in Ohio that was allegedly signing off on 18,000 documents a month.
According to Ohio Secretary of State Jennifer Brunner, a team of eight employees at Chase Home Finance may have improperly notarized thousands of affidavits in foreclosure proceedings, stating that they had reviewed loan files and documents demonstrating a loan’s chain-of-ownership, when they were in fact relying on the work of subordinates.
Brunner detailed those allegations in a letter last month asking the U.S. Attorney for the Northern District of Ohio to look into the matter.
"For too long, thousands of homes have been taken from consumers without proof that the foreclosing party actually has that right," Brunner said in a press release. She said lenders are abusing the notary process "to concoct a chain of title they never had."
Chase spokesman Tom Kelly said the company believes the information in the affidavits was accurate, and not affected by whether or not the signer had personal knowledge of the precise details.
"The affidavits were prepared by appropriate personnel with knowledge of the relevant facts based on their review of the company’s books and records," Kelly told Inman News.
"We are working with independent outside counsel to review our affidavit preparation and signature process to confirm that it satisfies all documentary and evidentiary standards."
Chase has requested that the courts not enter judgments in pending matters until the company finishes its review, which Kelly said should be completed "in a few weeks."
GMAC Mortgage parent company Ally Financial has made similar statements, characterizing the issue as technical.
But Brunner, citing a deposition of a Chase Home Finance employee taken by lawyers who are suing Chase on behalf of homeowners in foreclosure, thinks the problem is more than technical and may be widespread.
In the deposition, Brunner said that in order to process documents needed to file foreclosure actions, the employee admitted to signing documents "in multiple capacities" — such as the assistant secretary or vice-president of various companies — in order to assign interests between companies including Deutsch Bank, JP Morgan, Chase Home Finance, and MERS.
The way the system works today is "not fair to consumers or to the employees who, by virtue of their jobs, are signing these documents," Brunner said, urging the Department of Justice to take up an investigation "to protect consumers and hold financial institutions to the standards of scrutiny and exactitude required by law, even if it means prosecuting some of our largest corporations."
MERS was created by the lending industry in 1997 to make it easier for lenders and companies that securitize mortgages to buy and sell loans. Brunner said over half of all new U.S. mortgages are registered with MERS and recorded in the MERS name, rather than in the name of the actual noteholder.
That can make it difficult for homeowners — or their attorneys — to determine who actually owns their loan, critics say.
MERS has won a number of court decisions upholding its right to be the mortgagee of record — a right borrowers give the company when they sign their closing documents. The company launched a new service this summer that allows borrowers to look up which company services and which company owns their loan, although investors who buy mortgage loans can opt out of the system.
The "robo-signing" scandal has also attracted the attention of attorneys general in California, Florida, Colorado, Illinois, Iowa, and North Carolina.
Last month, the Florida attorney general’s office said it was investigating whether documents produced in court by attorneys representing lenders have been "fabricated" by affiliated companies outside of the U.S.