Feds Expanding Probes in Foreclosure Frauds

Federal Reserve Seeks to Fine Firms Over Foreclosures
The New York Times by Jessica Silver-Greenberg  -  April 1, 2012

Federal regulators are poised to crack down on eight financial firms that are not part of the recent government settlement over home foreclosure practices involving sloppy, inaccurate or forged documents.  Last week, a senior Federal Reserve official recommended fines for these additional firms, raising questions about how deep foreclosure problems run through the banking industry.  In addition, judges, lawyers and advocates for homeowners say that people are still losing their homes despite improper documentation and other flaws in the foreclosure process often involving these firms.  The eight firms cited by the Federal Reserve — HSBC’s United States bank division, SunTrust Bank, MetLife, U.S. Bancorp, PNC Financial Services, EverBank, OneWest and Goldman Sachs — should be fined for “unsafe and unsound practices in their loan servicing and foreclosure processing,” Suzanne G. Killian, a senior associate director of the Federal Reserve’s Division of Consumer and Community Affairs, told lawmakers last month in a House Oversight Committee hearing in Brooklyn.  The recommendation is the culmination of an investigation begun nearly two years ago over accusations that bank representatives had been churning through hundreds of documents a day in foreclosure proceedings without reviewing them for accuracy, a practice known as robo-signing.  Some see the Fed’s recommendation as an attempt to push these firms to agree to the terms of the broader mortgage settlement involving the state attorneys general and federal officials. During those settlement talks, federal regulators contacted other institutions in hopes that they would also agree to the terms, according to people briefed on the negotiations.  Much of the foreclosure attention has focused on the five largest mortgage servicers — Bank of America, Citigroup, JPMorgan Chase, Wells Fargo and Ally Financial — which agreed to the $25 billion settlement this year without admitting wrongdoing.  Despite the pledges of the giant servicers to amend their practices, there are signs that foreclosure cases with other companies remain problematic. An examination of dozens of court cases by The New York Times found questionable documents involving some of the eight institutions cited by the Fed.

Arthur M. Schack, a New York State Supreme Court judge in Brooklyn, has cracked down on fraudulent documentation and said he was concerned that foreclosures moving through the courts continued to be flawed. Even after mortgage servicers have been excoriated by a judge in one state, they still use similar documents in other cases in other states, according to the examination.  For example, last December, Judge Schack tossed out a foreclosure lawsuit filed by U.S. Bancorp after determining that a bank employee, Kim Stewart, had identified herself in two conflicting ways in documents throughout the lawsuit.  In 2008, Ms. Stewart signed an assignment of mortgage — which gives the mortgage servicer the right to foreclose — to U.S. Bancorp, identifying herself as assistant secretary of Mortgage Electronic Registration Systems. Yet in 2009, Ms. Stewart signed a separate document in the lawsuit as vice president of U.S. Bancorp, court records show.  The judge, in a derisive tone, suggested that perhaps the bank and its law firm “do not want the court to confront the conflicted Ms. Stewart,” according to a transcript. U.S. Bancorp strongly disagreed with the judge’s ruling and planned to appeal the decision, said Teri Charest, a spokeswoman for the bank. She added that Ms. Stewart was an officer of the bank and had “signed all documents appropriately.”

George Babcock, a lawyer in Pawtucket, R.I., who represents homeowners, estimated that roughly 300 of his clients were being threatened with foreclosures that included documents signed by Ms. Stewart.  A similar problem has cropped up on the West Coast, where an employee of a mortgage servicing firm whose signature appeared in a lawsuit filed by one of the eight firms had already been flagged as problematic.  Phillip Bennett, a retired schoolteacher in California, was evicted last month from the home he shared with his wife in Rancho Cucamonga.  Mr. Bennett said he thought he might be able to save his home, despite falling behind on his loan payments, because the mortgage assignment was signed by a mortgage company employee, Marti Noriega, who was previously involved in a foreclosure that had been halted.

In October 2010, Garr M. King, a senior judge with the United States District Court in Oregon, blocked a foreclosure after spotting a suspicious document from Ms. Noriega. In that lawsuit, Ms. Noriega, acting as vice president of Mortgage Electronic Registration Systems, signed an assignment of mortgage.  The problem, court records show, was with the date. Ms. Noriega’s signature transferring the mortgage from Mortgage Lenders Network USA to LaSalle National Bank (now part of Bank of America) was dated 15 months after Mortgage Lenders Network halted its operations.  Some foreclosures include documents from people who have testified to being robo-signers in other courts.  In July 2010, Erica Johnson-Seck, whose signatures appeared in foreclosure cases filed by OneWest, acknowledged, in a deposition in state court in Palm Beach County in Florida, having signed 750 mortgage documents a week, usually with only a cursory review.  Yet Carla Duncan, a social worker, is fighting a lawsuit over the foreclosure on her three-bedroom home in Cleveland Heights, Ohio. The lawsuit, which was filed in March 2010 in Ohio state court, includes a document signed by Ms. Johnson-Seck.  “It’s so totally unfair,” said Ms. Duncan. A spokesman for OneWest declined to comment on Ms. Duncan’s lawsuit.  Last November, federal banking regulators forced the nation’s largest servicers, including the eight cited by the Fed, to comb through foreclosure records and to rectify any problems.  As part of that process, consumers who believe that they have experienced “financial injury” have until July 31 to request an independent review of their foreclosure and potentially receive compensation.  But Matt Englett, a lawyer in Orlando, Fla., who defends struggling homeowners, said that many people who had already lost their homes were focusing on simply staying afloat and did not realize they could ask for an independent review.  So far, more than 128,000 people have requested a review, according to the Office of the Comptroller of the Currency.  “These are the forgotten homeowners,” Mr. Englett said.

See Related/Background Stories:

Clone Judge Schack
Brooklyn Judicial Don Quixote
Judge Sanctions Bank, Law Firm in Foreclosure Case
NY Judges Chastise Banks, Finally.