Documents submitted to a court are supposed to be true as submitted. As an attorney, if I file with a court a document in which I swore that I personally verified the information contained within the document is true, but I didn't actually do that, I'd get in real trouble. It's simple: That's fraud in the eyes of the court.
GMAC, JPMorgan Chase (JPM), Bank of America (BAC) and One West Bank employees routinely sign hundreds of documents without verifying what they're signing. Those documents are then submitted to courts as if the documents were true, to enable the banks to foreclose on delinquent properties. Wells Fargo (WFC) and Citigroup's (C) CitiMortgage told The New York Times their employees do not engage in similar practices. Yet, new evidence I've found shows they have. At deadline, I was still awaiting a response from CitMortgage.
Confusion at Wells Fargo
For example, in one case I reviewed, Herman John Kennerty of Wells Fargo gave a deposition describing the department he oversees for Wells Fargo. It's a department dedicated to simply signing documents. Kennerty testified that he signs 50 to 150 documents a day, verifying only the date on each. Although the foreclosure in that case was upheld, Wells Fargo did not dispute Kennerty's signing practices.
What else might Kennerty want to verify? Well, in one document he signed that I've reviewed, he supposedly transferred the mortgage from Washington Mutual Bank FA to Wells Fargo on July 12, 2010. But that's impossible because Washington Mutual Bank FA changed its name in 2004, and by any name WaMu ceased to exist in 2008, when the Federal Deposit Insurance Corp. took it over. Making the document even less comprehensible, the debtor had declared bankruptcy a month earlier, according to consumer bankruptcy attorney Linda Tirelli, who represents the debtor. Why would Wells Fargo want a mortgage from someone in bankruptcy?
Finally, Tirelli points out that the papers Wells Fargo filed included a different transfer of the mortgage dated three days before the debtor took out the loan. The documents are a mess, yet Kennerty signed them regardless. Wells Fargo flatly stands behind its practices:
"Wells Fargo policies, procedures and practices satisfy us that the affidavits we sign are accurate. We audit, monitor and review our affidavits under controlled standards on a daily basis. We will stand by our affidavits and, if we find an error, we will take the appropriate corrective action.
As a standard business practice we continually review, reinforce and strengthen our policies and procedures."
Wells offered no explanation of the document Kennerty signed in Tirelli's case.
Legal Nonsense at CitiMortgage
In a similar example, one M. Matthews signed a number of documents that CitiMortgage has used to try to foreclose on properties. While Matthews may or may not sign hundreds of documents a day -- I have not yet found a deposition in which he swears that he does -- he certainly does not seem to verify the contents of the documents he's signing.
For example, he signed a document supposedly transferring a mortgage from Lehman Brothers to Citi in 2009. It's hard to see how that's possible because Lehman had already ceased to exist. When confronted with its nonsensical filing, Citigroup decided not to foreclose. Instead, it gave the homeowner a meaningful mortgage modification -- $15,000 principal reduction, plus a 30-year fixed mortgage at 3%. Tirelli, who represented the debtor in this case, too, notes that she sees bad documents in the vast majority of cases, and she keeps files of "robo-signed" documents.
I want to note that in both the WaMu and Lehman Brothers documents, the signers were officially representing an entity called MERS, which was acting as the "nominee" of WaMu and the "nominee" of Lehman Brothers. But that doesn't change the problems with the documents as filed. MERS can't continue to be the nominee of an entity that doesn't exist. Moreover, MERS can't assign something it doesn't have, and MERS itself doesn't own the underlying note or mortgage.
Wells Fargo and CitiMortgage aren't the only big banks to apparently misrepresent their practices in the media. JPMorgan Chase told The New York Times that it had not withdrawn any documents in a pending case. However, Chase has in fact withdrawn robo-signed documents in a case Tirelli is currently defending. Chase now faces possible sanctions in the case.
Why are the big, sophisticated banks submitting such problematic documents to the courts? The key reason is that sometimes when a bank wants to foreclose, it has to prove it actually has the right to foreclose -- that it owns the note and accompanying mortgage. Unfortunately for the banks, the securitization of mortgages and the changes in property-ownership documentation that accompanied such deals can make it hard for the banks to establish clean chains of title and produce original documents. That's especially difficult in an environment where a massive number of foreclosures must be started and completed in a timely manner.
Bankruptcy attorney O. Max Gardner explains that the time pressures to get these foreclosures done is overwhelming. One major foreclosure company, Lender Processing Services, actually rates attorneys on how quickly they complete each part of the foreclosure process for its mortgage-servicer clients, giving lawyers green, yellow or red labels to reflect their "Attorney Performance Rate." If an attorney fails to keep pace and lands in the red long enough, that attorney won't get any more business from LPS, or rather, from the banks LPS works for. Gardner calls it "stopwatch justice."
So rather than take the time to generate the correct documentation, it seems the banks cut corners. Yet these are not small nicks off the end of the corners, despite protests from the banks that the documents are essentially true, just signed badly.
Documents like those cited in this article -- which are common -- falsify the chain of title for the underlying properties. Clean title is so crucial for real estate deals that they won't close if a seller can't give good title. In fact, one major title insurer, Old Republic National Title Insurance, will no longer insure titles for GMAC foreclosures because of the document problem. The stock market is weighing in, too, as shares of title insurers have taken a hit.
The chain-of-title problems has other practical consequences. Banks sometimes don't know which properties they can foreclose on. For example, banks have foreclosed on homes bought with cash. Two banks have tried to foreclose on the same property. And so on. The "mistakes" have been many.
Beyond the title problem is the fundamental issue of the integrity of the court system. When attorneys file false documents, it's called a fraud on the court for a reason: Courts can't function when lawyers do that.
The Bright Light of Bankruptcies
According to attorneys who assist clients facing foreclosure, bad documents have been turning up for years. So why is the practice only coming to light now? Because most people facing foreclosure don't have attorneys to check the documents. Most don't even contest the foreclosure.
Bankruptcy court is where most of the fraud comes out because in bankruptcy, to prove the bank is owed money and that its claim is "secured" -- meaning it should get paid first -- a bank has to prove it has the right to foreclose. It has to produce the necessary documents. Indeed, the reason that the banks are halting foreclosures in only 23 states is that in those states, judges are involved in the foreclosure process, meaning somebody might actually start looking at the documents.
Not all debtors in bankruptcy have attorneys, and not all those attorneys know what to look for. But enough attorneys have caught on to the bank's practices that robo-signer fraud is finally getting exposure on the same scale as it's being committed.
Caveats All Around
Title companies take note: It's increasingly obvious that GMAC's foreclosure problems are the tip of the iceberg. The title you insured on the resale of any foreclosed property -- particularly on mortgages that were included in securitizations -- might be clouded. Better double-check those documents.
Purchasers of foreclosed properties: I hope you bought title insurance. And you might want to get your lawyer to look at the foreclosure file.
Homeowners facing foreclosure: Make sure you or your attorney scrutinizes bank documents carefully because if anything is amiss, you may be able to get a meaningful modification of your mortgage instead of losing your home.
Banks submitting these documents: You could face big sanctions if courts notice you make the same kind of bad filings over and over.
Attorneys submitting these documents: If state bar associations start paying attention, you could risk your professional license on the robo-signed dotted line.