[October 12, 2010] Dubious documents may snarl foreclosures, which are on rise in Whatcom County Tweet Oct 12, 2010 (The Bellingham Herald - McClatchy-Tribune Information Services via COMTEX) -- As foreclosure rates rise in Whatcom County and elsewhere, potential challenges to the legal validity of some mortgage-related documents could add a new level of confusion to the process. Two big lenders--GMAC and JP Morgan Chase--have announced suspension of foreclosures on their home loans in 23 states, not including Washington, while they sort out the problem. Bank of America went a step further Friday, Oct. 8, extending its suspension to all 50 states. Washington Attorney General Rob McKenna said his office is tracking the situation, in cooperation with other state attorneys general, but it's too soon to say how serious the problem will turn out to be. He said the loan documentation issue illustrates widespread difficulties in the loan servicing industry, swamped by the paperwork required for both loan modifications and foreclosures that affect millions of borrowers. "The problem is, the system has really been overwhelmed by the volume of the problem," McKenna said. "The loan servicers have not been able to keep up with the demand for their services." While foreclosures in Whatcom County are nowhere near the levels experienced in the hardest-hit parts of Florida and California, they may be at record levels. In September, future foreclosure auctions were scheduled on 87 properties in the county. Another 44 properties were transferred to lenders or other buyers in actual foreclosure sales, and 29 more properties were sold by financial institutions that had acquired them in foreclosure. The recent legal controversy centers on the validity of documents signed or notarized by so-called "robosigners" -- employees of loan servicing companies who sign seemingly routine property documents by the thousand. While the documents -- usually just a page or two -- might seem insignificant, they are a necessary part of the legal chain that demonstrates a mortgage holder's right to foreclose on a property. One such document is the "reconveyance" that must be signed and notarized when the original mortgage lender sells a mortgage to another lender or to a trust that issues mortgage-backed securities. If the homeowner defaults on such a reconveyed mortgage, the present-day mortgage holder needs that documentation to show the legal authority to seize the home in a foreclosure sale. In many states, lenders need a judge's approval to proceed with a foreclosure. In some cases, judges are holding up foreclosure sales when debtors' attorneys argue that the "robosigner" could not possibly have read or understood the documents he or she was signing. But in Washington, California and a number of other states, the lenders need not go to a judge. They turn the legal paperwork over to a trustee who proceeds with the sale, notifying the debtor and scheduling the foreclosure auction. In Whatcom County, those auctions occur in the courthouse rotunda every Friday morning. The debtor who suspects irregularities has a chance to stop the process by hiring an attorney who can try to convince a judge to intervene. But that's no simple matter. "You have to initiate a judicial process to do it, and you have a short timeline to do it," Bellingham attorney Tom Mumford said. And people in foreclosure may not be in a position to pay lawyers. Mumford said the attorney's hope for payment often rests on convincing a judge to order the lender to pay his client's attorney's fees, if he prevails in the case. "It has to be a pretty egregious case for a lot of attorneys to take that case on contingency," Mumford said. "The problem we have in Bellingham is there aren't enough consumer protection attorneys. ... There's a lot of potential abuse out there." Bellingham attorney Tom Resick agreed that the mortgage documentation situation is a mess in many cases. It is often difficult for borrowers and their lawyers to find out the present-day owner of a mortgage, or to get that owner to respond to a borrower's inquiries once the owner is located. But Resick doubts that robosigner issues are going to save anyone's home. "The person who made the debt still owes the debt," Resick said. Assistant Washington Attorney General David Huey, in charge of consumer protection issues, said the robosigner problem could be more than a mere nuisance for lenders. Asked whether he would characterize the issue as a glitch or a catastrophe for the lenders, Huey said it appeared to be somewhere in between. Reach JOHN STARK at 715-2274 or [email protected] . Read his Consumer Protection Blog at blogs.bellinghamherald.com/consumer. To see more of The Bellingham Herald or to subscribe to the newspaper, go to http://www.bellinghamherald.com. Copyright (c) 2010, The Bellingham Herald, Wash. Distributed by McClatchy-Tribune Information Services. For more information about the content services offered by McClatchy-Tribune Information Services (MCT), visit www.mctinfoservices.com, e-mail [email protected], or call 866-280-5210 (outside the United States, call +1 312-222-4544). [ Back To TMCnet.com's Homepage ]