"Robo-signing" Controversy Continues

The "robo-signing" controversy over lenders' allegedly lax foreclosure procedures is picking up momentum, with the Office of Comptroller of the Currency ordering the nation's largest lenders to review their foreclosure processes.

Attorneys general in California, Florida, Colorado, Ohio, Illinois, Iowa, North Carolina and Connecticut are also looking into lenders' foreclosure procedures. Connecticut Attorney General Richard Blumenthal today asked the state's Judicial Department to freeze all home foreclosures for 60 days.

GMAC Mortgage and JP Morgan Chase have already halted foreclosure proceedings in 23 states, following allegations that workers the companies employed failed to follow the proper legal procedures in filing paperwork related to judicial foreclosure proceedings.

While lawyers representing homeowners in foreclosure proceedings have challenged lenders on such grounds before, they have mostly succeeded only in delaying, not stopping, foreclosure proceedings. The "robo-signing" controversy could slow the foreclosure process for thousands of homeowners, which some analysts say might help stabilize prices in distressed markets.

The Times reported that Old Republic National Title has instructed agents not to issue title insurance policies on properties foreclosed on by GMAC Mortgage (A spokeswoman for Old Republic told Inman News the company has a "policy of not speaking to the press.")

Is it safe to buy a foreclosed home now? Foreclosure laws vary from state to state, so it is difficult to make a blanket statement on issues involved with purchasing foreclosed and REO homes, the spokesman said.

In a statement, the American Land Title Association said flaws in documentation filed in the foreclosure process should ultimately have little adverse impact on new owners of REO properties, or on title insurance claims.

"If a new homeowner’s title is challenged because of a faulty foreclosure, the title insurer may have an obligation to defend the challenge," said Kurt Pfotenhauer, chief executive officer of ALTA. Laws vary from state to state, but homeowners who have purchased properties that have been through foreclosure have "numerous defenses available to assure their continued ownership," ALTA said.

The alleged deficiency in the foreclosure process may not have harmed the previous owner, for example. Mortgage financiers Fannie Mae and Freddie Mac employ loan servicers who are handling hundreds of thousands of delinquent mortgages, and both companies have large inventories of REO properties they are trying to dispose of.

Their regulator, the Federal Housing Finance Agency (FHFA), issued a statement today acknowledging that accounts of problems with GMAC Mortgage and Chase's handling of foreclosures "raise concerns for homeowners and mortgage investors alike."

FHFA said it supports efforts by Fannie and Freddie to remind loan servicers to process foreclosures "in accordance with their seller-servicer agreements and applicable laws and regulations." Terry Edwards, Fannie Mae executive vice president for foreclosure process compliance, said in a statement that the company is disturbed by reports of servicers failing to follow proper procedures in the administration of foreclosure cases.