Second Lender Halts Foreclosures Over Document Issues
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- Kirk Haverkamp | September 30, 2010
JP Morgan Chase has announced it is temporarily suspending foreclosures, becoming the second major bank to do so over concerns about improperly signed affidavits.
About 56,000 ongoing foreclosures in 23 states are affected. The problem arises from thousands of sworn statements that employees routinely signed off on without personally verifying the information in them was correct.
Impact in judicial foreclosure states
The states involved all require what is known as a judicial foreclosure process, where foreclosure evictions must be ordered by a court. In such cases, the lender seeking foreclosure must submit a sworn statement attesting that the information backing its claim is accurate.
In a sworn deposition last May, a Chase supervisor said she and seven other employees routinely signed off on as many as 18,000 foreclosure affidavits a month, relying on other employees to verify their accuracy.
A JP Morgan spokesman said the company is undertaking a systematic review of foreclosure filings to ensure they meet legal standards, a process he said is expected to take several weeks.
Whole industry could be affected
The situation is one that could grind foreclosures to a halt in the affected states, or at least severely slow down the process. With the great volume of foreclosures currently working through the process, most major lenders are believed to be in a similar situation, with employees routinely signing off on tens of thousands of foreclosure affidavits without properly vetting them.
Last week, Ally Financial, parent company of GMAC Mortgage, was the first to announce that it was suspending foreclosures in certain states while it reviewed documentation issues. Other major lenders are expected to follow suit.
What isn’t clear is how quickly the problem can be cleared up, if the lenders find the claims were improperly authorized. Lenders are already struggling to process a flood of foreclosures, and if each claim in question must be separately examined, the process could become greatly more congested than it already is.
That could be good news for homeowners facing foreclosure, who might find lenders more willing to work out loan modifications or other foreclosure alternatives. At the same time, it could also tighten credit, with lenders even more reluctant to offer new mortgages than they already are. It could also discourage investors from purchasing foreclosed properties for fear of legal entanglements, which could drive down the price of distressed properties and home values in general.
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