false affidavits in foreclosures what the robo

7/30/2019 False Affidavits in Foreclosures What the Robo

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False Affidavits in Foreclosures What the Robo-

Signing Mess Means for Homeowners

The robo-signing scandal is an opportunity for homeowners to

challenge foreclosures in court, negotiate with lenders, and buy time.

The media and courts have slammed the mortgage lending industry for using false affidavits in thousands of

foreclosure cases. Because of the "robo-signing" scandal, several large banks temporarily froze all pendingforeclosures. For some homeowners, the robo-signing mess may create opportunities to challenge their

foreclosures in court or negotiate with lenders to avoid foreclosure.

Read on to learn about the massive robo-signing problem and what it means for homeowners.

What Is Robo-Signing?

As part of the foreclosure process in the 25 or so states that require judicial foreclosure (the lender must go to

court), the lender must demonstrate that the homeowner has defaulted on a mortgage and that the lender ownsthe mortgage. (To learn more about the foreclosure process in judicial foreclosure states, see Nolo's article HowForeclosure Works.)

Typically, in a judicial foreclosure state, the lender proves the requisite facts by submitting documents and a

written statement signed under oath (called an affidavit) by a person (usually a bank employee) who hasreviewed the documents and who is supposed to have some personal basis for believing the facts to be true. The

idea is to prevent foreclosures on homes where the foreclosing bank cannot prove that it actually owns themortgage (which is more common than you might think) or where the homeowner is not actually in default to

the degree asserted in the foreclosure papers.

It came to light that several large banks routinely used affidavits signed by employees who did not personallyreview the documents and had no basis for believing that the homeowner was in default or that the bank owned

the loan. Employees for financial giants like Bank of America, JP Morgan Chase, Wells Fargo, and GMAChave all testified that they signed many thousands of affidavits a month, spending about 30 seconds on eachaffidavit, and that they didn't have a clue regarding the veracity of the affidavit or the documents in question --

hence the name "robo-signers."

What Effect Does a False Affidavit Have on the Foreclosure Process?

Banks cannot legally foreclose on a house if the foreclosure paperwork is not in order. This means that if theaffidavit a bank submits is false -- as any affidavit completed by a robo-signer would be -- the foreclosure

should not go through. Of course, the reality is that banks have foreclosed on thousands of properties based onjust such false affidavits. But now that the issue has come to light, business is not always as usual. Here's what'shappening:

In states where foreclosure must go through the court system, more and more judges are taking a closerlook at the affidavits and paperwork and refusing to sign off on the foreclosure.

In states where foreclosure does not go through court, some homeowners are bringing lawsuits to stopthe foreclosure on the ground that false affidavits have been recorded as part of the non-judicialforeclosure process.


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What Happens if the Lender Cannot Foreclose?

For all practical purposes, the only way to enforce the terms of a mortgage is to foreclose on the property.Through foreclosure, the lender gains ownership of the property and the right to force the ex-homeowner to

move out. If the lender is prevented from foreclosing, it could sue the homeowner for breach of contract if thehomeowner falls behind on mortgage payments. However, except in rare circumstances, a lawsuit for breach of

contract against the homeowner is not a viable remedy because:

lawsuits are expensive the lender can get only a money judgment (not possession of the property), and the likelihood of

collecting this judgment from the homeowner is small, and

the homeowner can avoid personal liability for such a judgment by filing for bankruptcy.In addition, in California and a few other states, the lender is not permitted to sue for breach of contract on firstmortgages (called "nonrecourse loans").

The bottom line: If the lender cannot foreclose on a property, it does not have a good method for getting

mortgage payments, or their equivalent, from defaulting homeowners.

The proliferation of false affidavits, and the subsequent media attention, means that an ever-greater number ofhomeowners will be able to challenge foreclosures in court. In addition, the robo-signing fiasco provides moreleverage for homeowners to negotiate with banks, and it may allow some homeowners to stay in their homes

longer due to freezes or delays in processing paperwork.

Challenging a Foreclosure Based on a Faulty Affidavit

Because the robo-signing mess has called into question the integrity of lender paperwork, courts will be more

likely to scrutinize bank foreclosure affidavits and documentation and be more willing to entertain homeownerclaims that documentation is faulty or false. If you want to challenge the foreclosure of your home based on a

faulty affidavit, the process depends on whether you live in a state where foreclosures go through court or not.

A third option is to challenge the foreclosure in a Chapter 13 bankruptcy.

Judicial foreclosure states. In about half the states, the foreclosures go through court -- called "judicial

foreclosures." In these states, to challenge a foreclosure based on a fraudulent affidavit you simply raise theissue in court at the first opportunity -- in a summary judgment proceeding or at the actual trial, if the more

expeditious summary judgment procedure fails.

Non-judicial foreclosure states. In states where foreclosures are completed without going to court (called

"non-judicial foreclosures"), the process is not as easy -- the homeowner must file a lawsuit in court to stop theforeclosure. In a number of these non-judicial foreclosure states, a bank cannot foreclose without recording the

appropriate documents accompanied by an affidavit attesting to their truth, so the ground for challenging the

foreclosure would be similar to that used in judicial foreclosure states.

To find out if there is an affidavit requirement for foreclosure in your state, check your state's statute regarding

the foreclosure process. (Look for a requirement that the lender must submit a statement under oath or anaffidavit as part of the paperwork.) To learn how to research your state law, see Nolo's Legal Research Center.

Also, see Nolo's Best Foreclosure Websites for a list of helpful foreclosure websites. A number of these sitessummarize state foreclosure statutes.

Chapter 13 bankruptcy. Homeowners may also challenge foreclosures in Chapter 13 bankruptcy. In Chapter

13 bankruptcy, creditors (including mortgage lenders) must file a claim in order to secure payments on their


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mortgage under the debtor's Chapter 13 repayment plan. As with all other creditor claims, a homeowner inChapter 13 may oppose the claim based on the lender's inability to provide the correct documents establishing

the debt and sworn testimony to their truth. (To learn more about what happens to your home in Chapter 13bankruptcy, see Nolo's article Your Home in Chapter 13 Bankruptcy.)

Delays in Processing Foreclosures

As mentioned above, the robo-signing mess has forced some banks to temporarily freeze all foreclosures. And

even if the foreclosing bank hasn't stopped foreclosures, or has resumed foreclosures, the process may bedelayed. Banks are scrambling to gather the correct documentation, and going forward it will take longer to geta foreclosure affidavit signed if banks can no longer use robo-signers and, instead, must require bank officers to

actually spend time reviewing the property file, loan papers, and other documents before signing the affidavit.And, despite what some banks have said, this is not a mere technicality. There are many instances of

demonstrably false or legally faulty paperwork being submitted, and it may be that the banks will simply not beable to demonstrate the veracity of the necessary documents.

Opportunities to Negotiate

Because of the mounting evidence of robo-signing and sloppy bank paperwork, courts may be more inclined to

believe that foreclosure paperwork in any given case is faulty. As a result, if a homeowner is able to castuncertainty regarding the required foreclosure paperwork, banks may be more willing to go further than theyhave in negotiating some type of mortgage modification -- such as reducing principal, interest rates, or

payments -- rather than risk having to prove the accuracy of their documents in court.

Of course, if you can point out a defect in the paperwork, your leverage will increase. But even if you can't finda defect, you may still get the lender to negotiate by raising the possibility of faulty paperwork. The lender may

discover that its paperwork is less than stellar or that it would rather negotiate with you than prove the oppositein court.

More Bad News for Mortgage Lenders: Class Actions and Criminal Prosecutions

The robo-signing scandal may bring more bad news to the mortgage lending industry in the form of class actionlawsuits and even criminal prosecutions. Attorneys general in all 50 states have launched investigations to see

what laws, if any, have been broken. In addition, people whose home foreclosures were based on false affidavitsmay be able to get their homes back if those homes are still in the possession of the foreclosing bank.

Getting Help

Challenging a foreclosure in court in a judicial foreclosure state, bringing a lawsuit to stop a foreclosure in anon-judicial foreclosure state, or even alleging documentation problems in an effort to negotiate with a lender

can be tricky. You may want to talk with an attorney about your case -- especially an attorney who has

experience in foreclosure law. You can use Nolo's Lawyer Directory to locate and talk to a foreclosure attorneyin your area.

To learn about the ins and outs of foreclosure, including how bankruptcy can help, how to challenge a

foreclosure in court, and options for negotiating with your lender, get The Foreclosure Survival Guide, byStephen Elias (Nolo).

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