Real Estate & Property Law

Freeze Foreclosures in All 50 States, Lawmaker Urges Big Banks, as 40 State AGs Plan Joint Probe

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Updated: Following news earlier today that Bank of America has called a temporary halt to foreclosures in all 50 states as it reviews paperwork to make sure it’s accurate, Sen. Majority Leader Harry Reid (D-Nev.) is urging other major mortgage servicers to follow suit, reports the Washington Post.

“I thank Bank of America for doing the right thing by suspending actions on foreclosures while this investigation runs its course,” said Reid, who has written to lenders. “I urge other major mortgage servicers to consider expanding the area where they have halted foreclosures to all 50 states as well.”

Meanwhile, the attorneys general of approximately 40 states are talking about working together on a joint probe of how major banks and mortgage firms are handling foreclosures, reports Bloomberg.

An announcement of such a joint probe could be made as early as Tuesday.

Sen. Chris Dodd (D-Conn.), who chairs the Senate Banking Committee, is to hold hearings on Nov. 16 concerning what the Post calls the “mortgage paperwork morass.”

Additionally, the Post reports, the Federal Housing Administration said today that it had told FHA-approved mortgage servicers—a list which apparently includes most or all of the same major lenders addressed by Reid–to audit their foreclosure practices.

On another front, title companies are stepping in to insure that foreclosure paperwork is proper, putting the brakes on pending transactions even as buyers, in some transactions, have already wired their money for all-cash purchases from the banks now holding title to the properties, the Palm Beach Post reported yesterday in its Money blog.

In at least one halted sale, ironically, the transaction on which the title company, New House Title, was refusing to proceed resulted from a foreclosure handled by the Florida Default Law Group, which essentially owns New House Title, the newspaper recounts.

However, the title company, in an e-mail, blamed another bank: “We have become aware of potential defects with affidavits submitted by the servicer, JPMorgan Chase or an affiliate, in foreclosure actions, which raise concerns about the insurability of the subject property.”

An earlier Palm Beach Post article in the newspaper’s Money blog recounts the story of Norman Lachance, who was informed by Fannie Mae 90 minutes before his scheduled closing that it had been canceled.

At that point, he tells the newspaper, he’d given up his apartment, turned on the electric service at the home he was to buy—and wired $75,000 for the purchase. While he can get his money back, he apparently would have to cancel the contract to do so.

My lawyer asked how long this situation would take. There was no answer to that,” Lachance says.

A spokeswoman for Fannie Mae said she couldn’t discuss Lachance’s specific case but in general closings are postponed when there is a concern about the accuracy of the paperwork.

Related coverage:

Bloomberg: “Florida Foreclosure Firm Fudged Forms, Ex-Paralegal Claims”

Updated at 6:25 p.m. to include information from Bloomberg articles.

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