The spate of foreclosures in the U.S. might be coming to a halt. Homeowners have long been complaining that banks use improper documentation to seize their homes. Their clamoring became so loud that lawmakers and banks have finally taken notice. Now, several of the big guns in banking have declared a nation-wide moratorium on foreclosure action.
Bank of America, GMAC Mortgage, and JP Morgan Chase have suspended foreclosures while they investigate the situation. Under duress from lawyers and judges, banks have admitted to unlawful behavior. Flooded with foreclosure affidavits, banks allowed their employees to sign documents without reading them. For example, GMAC admitted that employees signed thousands of affidavits without knowing their contents.
The underlying problem is the verification process. Before banks can submit documents for legal foreclosure proceedings, they have to check the information contained within the documents. Bank employees have reported that they failed to verify information such as amounts owed by borrowers, and names of banks currently holding the mortgage. Additionally, lawmakers have uncovered suspicious circumstances such as clear forgeries of officials’ names and notarizations of signatures by out-of-state notaries.
Housing experts expect the foreclosure suspensions to strongly affect the market. While the legal system sorts out the problems, properties involved in foreclosure will probably not be sold.
The banks attribute their sloppy paperwork to the rapid pace at which they have been processing foreclosures. Now, as they backtrack and reassess the particulars of each foreclosure, both the foreclosure rate and the housing economy should slow significantly.
Sources:
The New York Times
The Wall Street Journal