Bank of America Suspends Foreclosures in All States
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- Kirk Haverkamp | October 08, 2010
Bank of American announced today that it is suspending foreclosures in all 50 states, the first major lender to do so in the wake of the growing foreclosure documentation scandal.
In a statement, Bank of America said it had stopped all foreclosure sales pending an assessment of foreclosure documents in all 50 states. Previously, other major lenders have only halted foreclosures in the 23 “judicial foreclosure” states that require that home repossessions be conducted through the courts.
The Bank of America announcement is the latest development in a controversy over “robo-signing,” a practice where mortgage lender employees reportedly signed off on tens of thousands of foreclosure affidavits and other documents without personally verifying the information was accurate.
Following the announcement, Sen. Majority Leader Harry Reid (D-Nev.) called upon other lenders to follow Bank of America’s example and suspend foreclosures nationwide until the problem can be straightened out.
“I thank Bank of America for doing the right thing by suspending actions on foreclosures while this investigation runs its course," said Reid. "I urge other major mortgage servicers to consider expanding the area where they have halted foreclosures to all 50 states as well."
Bank of America said in its statement that a preliminary investigation showed that the basis for past foreclosure decisions had been accurate.
Judicial foreclosures require that a lender submit an affidavit affirming the facts of the case and demonstrating ownership of the loan. With the flood of foreclosures overwhelming mortgage servicers, there have been reports that bank employees have been routinely signing off on piles of foreclosure affidavits without reading them, a process called “robo-signing.”
In a deposition provided to a Florida court last spring, an employee of Ally Financial, parent company of GMAC, said that she and other employees signed off on as many as 18,000 foreclosure affidavits and other documents a month.
Previously, Bank of America, Ally Financial, JP Morgan Chase and PNC Financial suspended foreclosure operations in the 23 judicial foreclosure states. Attorneys general in Texas, Iowa, Connecticut and Illinois have sought moratoriums in their states and there have been other calls in Congress for a nationwide freeze prior to Reid’s statement today.
The mortgage servicers have said they are confident that the claims they submitted in foreclosure cases are accurate. However, the question is whether they will be able to document those claims. Given the way mortgages are packaged and traded as investments these days, and the sometimes lengthy chains of debt ownership involved, it could turn out to be a major, major problem for the mortgage industry.
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