= Subscriber content; or subscribe now to access all American Banker content.

Robo-Signing Redux: Servicers Still Fabricating Foreclosure Documents

Some of the largest mortgage servicers are still fabricating documents that should have been signed years ago and submitting them as evidence to foreclose on homeowners.

The practice continues nearly a year after the companies were caught cutting corners in the robo-signing scandal and about six months after the industry began negotiating a settlement with state attorneys general investigating loan-servicing abuses.

Several dozen documents reviewed by American Banker show that as recently as August some of the largest U.S. banks, including Bank of America Corp., Wells Fargo & Co., Ally Financial Inc., and OneWest Financial Inc., were essentially backdating paperwork necessary to support their right to foreclose.

Some of documents reviewed by American Banker included signatures by current bank employees claiming to represent lenders that no longer exist.

Many banks are missing the original papers from when they securitized the mortgages, in some cases as long ago as 2005 and 2006, according to plaintiffs' lawyers. They and some industry members say the related mortgage assignments, showing transfers from one lender to another, should have been completed and filed with document custodians at the time of transfer.

"It's one thing to not have the documents you're supposed to have even though you told investors and the SEC you had them," says Lynn E. Szymoniak, a plaintiff's lawyer in West Palm Beach, Fla. "But they're making up new documents."

The banks argue that creating such documents is a routine business practice that simply "memorializes" actions that should have occurred years before. Some courts have endorsed that view, but others, such as the Massachusetts Supreme Judicial Court, have found that this amounts to a lack of sufficient evidence and renders foreclosures invalid.

According to a document submitted in a Florida court by Bank of America Corp., bank assistant vice president Sandra Juarez signed a mortgage assignment on July 29 of this year that purported to transfer ownership of a mortgage from New Century Mortgage Corp. to a trustee, Deutsche Bank. Two problems with that: New Century, a subprime lender, went bankrupt in 2007; and the Deutsche Bank trust that purported to hold the loan was created for a securitization completed in 2006 — about five years before Juarez signed it over to the trust. (Bank of America, as the servicer of the loan, was seeking to foreclose on behalf of the trust and its bondholders.)

Most of the pooling and servicing agreements governing securitizations require a complete chain of endorsements. This means the promissory note (the piece of paper the borrower signs promising to pay the loan) and all intervening mortgage assignments showing transfers from one lender to another must be delivered to a trust within 60 days of the securitization closing date.

Jumana Bauwens, a spokeswoman for B of A, says such mortgage assignments are simply "procedural steps" to prove to a court that a trust has the right to foreclose on a borrower. In the Juarez case, B of A had power of attorney to sign on New Century's behalf, she says.

But other mortgage industry members argue that the burden of proof is on the banks to show their legal right to enforce a debt, and that servicers are supposed to audit the loan before proceeding with a foreclosure.

"They're supposed to make sure the trust is the correct trust, that the loan was properly assigned to the trust and that the debtor is genuinely in default," says Michael Olenick, the chief executive of Legalprise Inc., a West Palm Beach, Fla., research firm that tracks foreclosure filings and other court records for attorneys.

Several other documents reviewed this month by American Banker were signed in July by Tonya Hopkins, who identified herself as an assistant secretary for Sand Canyon Mortgage, also known as Option One Mortgage Corp., the former subprime lending unit of H&R Block Inc.

Sand Canyon quit the mortgage business in 2009 and sold the loans to American Home Mortgage Servicing Inc., where Hopkins now works — but she still signed the documents as an officer of Sand Canyon. An H&R Block spokesman calls Sand Canyon a "discontinued business."

Philippa Brown, a spokeswoman for American Home, says the transfer of the loan took place at the closing of the securitization in 2006 and the assignment that was recorded in 2010 was a "confirmatory assignment, memorializing the transfer that had previously occurred while Sand Canyon was still in business."

She adds, "The practice of executing assignments to confirm for the public record that mortgages were previously assigned to the trust reflects standard industry practice."

In another document, Wells Fargo assistant secretary Nancy D. Sorensen recently acted as a nominee of Fremont Investment and Loan, which went out of business in 2008. On Aug. 11 of this year, she assigned a mortgage from the Mortgage Electronic Registration Systems registry on behalf of Fremont to a Deutsche Bank trust — for a bond issue that was completed in 2006.

Wells Fargo spokesman Tom Goyda says the document is "a routine and fully authorized assignment of the [mortgage] note," on behalf of Fremont "and its successors."


(15) Comments



Comments (15)
Whether we agree with the content of Kate Berry's article or not, there is one thing that impresses me: She is so thourough and professional in her writing. Almost everything we read these days is opinion. Kate lays ut the facts which allow us to fomulate a more educated opinion FOR OURSELVES as readers. I find that very refreshing. She seems to be the only true "Journalist" out there. She has to dig for facts and compile them and idetnify the source. Very Refreshing, Ms. Berry. Thank you.
Posted by Joe A | Thursday, September 08 2011 at 8:08PM ET
^THIS post by richard i

Brian L. If a lender has a valid POA, they are free to present that it court and it will be given due consideration. A document executed within the terms of a POA would not qualify for "fabrication", I would agree. A POA however does not provide for "backdating" documents, signing off as a party one is not authorized to represent (vs. legitimate POA for party), or bypassing NY trust laws which require the deposit of documents into trusts within 60 days of closing, as some examples, anymore than if the documents had been executed by the party who had granted POA. Personally, I'm unfamiliar of valid POA executions being claimed (within guidelines you mentioned, and conforming to existing statutory law) and subsequently denied by courts, resulting in awards to borrowers.

It is not sufficient to claim a debt is owed to collect on that debt. If it were, just imagine the chaos that would ensue. Enforcing collection MUST require proof that one is owed the debt. Considering the sums of money involved, it is hard to understand, for me, how the lenders could have been so reckless in ensuring they maintained the necessary proof. It absolutely blows my mind. And these are our banks to whom we entrust our money? It boils down to should they be given undue consideration in light of their failures? Reality is that if you or I should destroy a bond as some of these were, or lose a bearer bond and be unable to document ownership, there would be no claims heard of paperwork or technicality issues. Whether money was borrowed and owed would become irrelevant. We would be told we had no recourse under the law and admonished to be more careful in the future.
Posted by LucyLulu | Wednesday, September 07 2011 at 6:30PM ET
I have been on both sides of the fence - Banker and Consumer Attorney trying to stop foreclosures. In Massachusetts, which is a non-judicial/statutory power of sale foreclosure state, if there isn't STRICT ADHERENCE to the law granting the right to foreclose, the mortgagor has almost no recourse short of hiring an attorney and asking for injuctive relief.

Look, I realize the flood of paper with which the servicers have to contend, and I undertsand the desire to move paper and conduct sales, but if we abandon the laws and just allow foreclosures when someone is delinquent regradless of the paper, why bother with paper at all. "YOU'RE LATE - WE ARE TAKING YOUR HOUSE". "You are late so you have no rights".

In the run-up to the collapse of the housing market, which was caused by a manageable rise in delinquency but a non-manageable drop in the value of Mortgage-Backeds caused by the delinquency numbers being outside of expectations and panic setting in, lenders and securitizers did not care about such niceties as documentation. It was simply about delivering $X billion in new loans to feed the monster and to make commissions. Paperwork detailing who owned what and when transfers were made, gave way to the documentation of the percentage each tranche would be paid.

Homeowners who feel behind because of the spiral should be given an opportunity to save their home. Those who did not pay, but spent the money on non-essential other "stuff" should lose. But there is no way to make that determination by looking at a payment history, or even modification documents.

A bank would be first in line to state that even though your claim of hardship sounds good, and you have sent 100 pages of documents, without the one missing sheet of paper we are taking your house - because we can. Or ask a bank if it's okay for a borrower to back-date a Verification of Employment - afterall the borrower was working there. Or a VOM - just because a payment was late doesn't mean it wasn't sent so please alter the record.

The only answer is to hold all parties to an equal degree of accountability

Richard Isacoff
Posted by riisacoff | Tuesday, September 06 2011 at 6:42PM ET
The point is not only the wrong doing on consumers and homeowners. Bankers argue by making homeowners look bad and bankers look good. A document is forged when the person signing it is signing someone else's name, or if a document is backdated to make judges think it was signed within legal time frames. It is forged and fbricated when somebody states in writing that the suitor's documents of proof are original and true. If this is not wrong doing and if this is how banker lovers think that punishment must come over those suckers who fell for the easy mortgages and equity loans which allowed those bankers cash millions of dollars, then something is completely wrong with what our society is doing in the name of money and retribution.
Posted by mauriciott | Friday, September 02 2011 at 8:05PM ET
Apart from all the whining and attempting to justify their behavior by the banks, it is time to own up to the mistakes and do the right thing.

Private property and the right to it are core to our economic system. The burden to take it SHOULD be high and the standards of evidence should be strict.

The facts seem to support the position that the banks performed thier duties in an incompetent and manner, trustees were criminal in certifying assets they did not have, and that the work around has been the application of forgery and criminal fraud on the courts and the undermining of our legal and property systems.

If the banks or trustees lack standing to foreclose then sue the owners of the property for the debt OR reach a new agreement with them. In the former case, the owners will (in all probability) declare bankruptcy and a judge can then determine whether to restructure the debt or liquidate the asset. This of course is going to mean dealing with the investors in the RMBS's, but again, either pay them off or work out a deal to get the loan performing. This is going to cost the borrower, the banks and the investors. The first their credit rating and money, the banks a lot of money, and the investors who should have looked more closely at what they were buying a lot of money. NOBODY gets over. EVERYBODY pays. But the rule of law and the idea that bad decisions in personal finance and business investment should be penalized is maintained.
Posted by DanP1966 | Friday, September 02 2011 at 4:56PM ET
Brian L - the consumer is harmed if they are foreclosed by the wrong party, and lose their home... then years later, the correct party appears with the original note and attempts to collect the debt a second time. This is called double jeopardy. The homeowner has already lost their home, all of their equity, and perhaps even faced a deficiency judgment. And now they're held liable for the entire loan amount yet again from the REAL owner of their note. The borrower's only recourse is to attempt to sue the party who originally foreclosed... and what are the chances of success, especially with the number of lenders going out of business?
Posted by JL1965 | Friday, September 02 2011 at 2:57PM ET
There is no fabrication, and certainly no forgery if the signer holds a power of attorney, so you can't simply ignore that. Nor is the consumer harmed by that document in any way. There are dire consumer issues that need to be addressed in the market, but this isn't one of them. We should focus on real legal and moral issues for banks. For example, if you are a victim of predatory lending or a servicer that gives you the run-around you may have been harmed and entitled to legal redress. People who get wrongfully foreclosed are deserving of the full protection of the law as well. People who continue to pay their loans even though they are underwater with no hope of getting any equity back deserve something too, just for being great citizens. But if your biggest problem is that your lender signed an assignment of your loan from the seller pursuant to a power of attorney confirming that sale after the fact...., you have no legal or moral claim to anything.
Posted by Brian L. | Friday, September 02 2011 at 9:11AM ET
I would argue that the term "fabrication" is accurate, POA notwithstanding, if documents are backdated, include descriptions of events and actions that did not take place, are executed by individuals under titles they do not hold, etc. Or, perhaps, "forgery" is a more appropriate label. Power of attorney does not confer the authority to falsify information.
Posted by MrPotter | Thursday, September 01 2011 at 6:42PM ET
It is evident that banks want every benefit from a lax judiciary and leave only crumbs to homeowners. To say that all these illegal and irregular actions are "standard practice in the industry" is making the financial industry look pretty bad from a legal standpoint and it calls for more investigations as to the way they process common loans and do their collections. Nobody is above the law and banks certainly can't be an exception to this basic constitutional principle. You can't go to court with forged and fabricated evidence to support your claim because that is illegal behavior that should be punished and exposed by judges hearing these cases. This bank created mess will only be solved when a panel where consumers have a saying, comes out with overall solutions. Recent history tells us that bankers do not have the moral fit necessary to solve the country's mortgage problem.
Posted by mauriciott | Thursday, September 01 2011 at 4:52PM ET
"Jumana Bauwens, a spokeswoman for B of A, says such mortgage assignments are simply "procedural steps" to prove to a court that a trust has the right to foreclose on a borrower."
Among other screwups, B of A recently tried to foreclose on a home purchased without a mortgage. So why should we assume that that they are correct when they allege that New Century wanted to assign a particular mortgage to Deutsche Bank as part of complex securitization deal executed 5 years ago? This is the danger of skipping those pesky "procedural steps" long ago. I am sure they saved money by not carefully making and recording assignments at the time they were meant to occur. Unfortunately, it is not only the banks who are now paying for this. Homeowners with clouded titles are paying too. Procedures matter. American Banking--what an adventure!
Posted by Tony S | Thursday, September 01 2011 at 3:07PM ET
If the servicers would put as much energy into working out mutually acceptable terms with the homeowners, they would not find themselves in such a bind now. The fact remains that the financial industry received huge sums from the government. The intent was for them to work out deals where possible, start to clean up those mortgage-backed instruments, but most of all, keep money moving throughout the economy by keeping it available to consumers. The industry did none of that and are now rightfully vilified because of their role in the collapse and since.
Posted by RSE Journal | Thursday, September 01 2011 at 2:20PM ET
I guess we'll see how it all plays out, but to borrow a term from the
article, from my perspective the whole "robo-signing" issue is a
"fabrication" lacking any legal basis as a consumer issue. The extent that
people have actually been harmed by robo-signing (wrongful foreclosure)
appears to be miniscule (but those folks have very good cases). It is
important, however, because it resonates with people who are facing dire
economic circumstances and who view banks skeptically due to the excesses of
the past. In comparison to the issue of so many people never digging out
from their "underwater" loans who must decide whether to continue to pay or
to throw in the towel, however, I don't think robo-signing is a very
substantive issue for AG's to further policy goals.
Posted by Brian L. | Thursday, September 01 2011 at 1:18PM ET
Kate, I really enjoy receiving and reading your aticles. I think you provide great insight into the challenges and pros/cons of the industry. But I have to tell you, this article is a little disappointing. While it attempts to argue "both sides", the title of the article itself names the servicers/banks as guilty parties. Why would you state servicers are fabricating documents just because of the timing of the assignment recordation? I think a good article in the future would be to highlight, and personally name, those attorneys who clog up the court system with eroneous technicalities knowing their client is responsible for the repayment of the money they freely borrowed using their home as collateral.
Posted by Mike W | Thursday, September 01 2011 at 1:03PM ET
In my experience, most sophisticated mortgage loan sale
agreements have a power of attorney provision that expressly permits the
buyer to sign assignments and other instruments of transfer on behalf of the seller to effectuate the agreement's intent post closing. The purpose of such powers of attorney is to address the kind of issues that can be problematic in the future; i.e., something was missed back at the time of closing and now the seller has been sold, gone out of business, is tough to work with or no longer has good records etc. Assuming the agreements for the documents in question in the article had
such a power of attorney clause, the use of the term "fabrication" to
describe such later created instruments would be a misnomer.
Posted by Brian L. | Thursday, September 01 2011 at 12:44PM ET
When a homeowner is able to foreclose on a bank branch because the bank first tried to foreclose on a home without a mortgage, there is an obvious problem with paperwork procedures. So yes, robo-signing violates due process.
Posted by Mary D | Thursday, September 01 2011 at 10:24AM ET
Add Your Comments:
Not Registered?
You must be registered to post a comment. Click here to register.
Already registered? Log in here
Please note you must now log in with your email address and password.