Last year's robo-signing scandals delayed tens of thousands of foreclosures in the 23 states where the process is handled in court. A new controversy could complicate foreclosures in the other 27 states.
At issue is the notice of default, the first letter that a mortgage lender or servicer sends to a homeowner who has fallen behind on payments. The notice typically starts the formal foreclosure process in nonjudicial states such as California, Arizona and Nevada.
Every notice of default has a signature on it. But just like the infamously rubber-stamped affidavits in the robo-signing cases, default notices, in at least some instances, have been signed by employees who did not verify the information in them, court papers show. In several lawsuits filed in nonjudicial states, borrower attorneys are arguing that this is grounds to stop a foreclosure.
"Whoever signs the NOD needs to have knowledge that there is in fact a default," said Christopher Peterson, an associate dean and law professor at the University of Utah.
The suits also argue that the default notices are invalid because the employees who signed them worked for companies that did not have standing to foreclose.
In a lawsuit against Wells Fargo & Co. in Nevada, an employee for a title company who signed default notices admitted in a deposition this month that he did not review any documents or know who had the right to foreclose.
"They are starting foreclosures on behalf of companies with no authority to foreclose," said Robert Hager, an attorney with the Reno, Nev., law firm Hager & Hearne, representing the borrower in the case. "The policy of these companies is to just have a signer execute a notice of default starting foreclosure without any documentation to determine whether they are starting an illegal foreclosure."
The Nevada nonjudicial foreclosure statute requires that the company signing a notice of default have the authority to foreclose, Hager said.
In a deposition on Jan. 4, Stanley Silva, a title officer at Ticor Title of Nevada Inc., said he "technically signed" default notices for clients, which were often acting as agents of other parties, which in turn worked for others.
"The person at the bottom of the chain, by executing the document, has taken an action on behalf of all of them through their various agency agreements," Silva said. In one case, for example, he said he had signed "on behalf of Ticor Title of Nevada, who is agent for LPS Title, who is agent for National Default Servicing."
"Who is agent for Fidelity National?" Hager asked. "Apparently, yes," Silva replied.
"Which is a servicer for Wilshire?"
Silva said under oath that he never reviewed any documents or knew what company was the holder of the original note at the time he signed the notice of default. He said he signed about 200 default notices over a four-year period.
When asked by Hager if he signed notices of default "without verifying the accuracy of the information," Silva replied: "Correct."
Representatives for Wells Fargo did not return calls seeking comment. The intermediaries that Silva mentioned in his testimony either did not return calls or declined to comment.
Walter Hackett, a lawyer with Inland Counties Legal Services, in San Bernardino, Calif., and a former banker with Bank of America Corp. and Union Bank, has filed several cases contesting notices of default, on the grounds that the employees signing such notices were working for companies that are not the noteholders — or even their appointed agents.