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VOL. 125 | NO. 205 | Thursday, October 21, 2010

New Revelations Could Alter Foreclosure Suit

By Andy Meek

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Widespread disruptions in the foreclosure assembly line around the country may impact a lawsuit against one particular lender filed on behalf of Memphis and Shelby County governments.

The city-county predatory lending lawsuit against Wells Fargo filed in late 2009 is still at an early stage. But one of the attorneys said he can foresee an expansion of its focus to include questions that have dogged other lenders around the country, some of which were letting their foreclosure efforts outpace their back office paperwork operations.

“We were initially going to sue more defendants, but we decided to approach it in a more sequential way,” said Webb Brewer, one of the attorneys representing the city and county against Wells. “And then a big part of what we were setting about to do was to get an injunction against foreclosures going forward and an order that the court would have to essentially approve any foreclosures initiated by Wells Fargo or other defendants.

“We haven’t gotten to that point yet. But that does then take you into the servicing issues and why a court should issue an injunction to stop foreclosing. So yes, I do see that could become a focus, and we wouldn’t really be changing fields, we would be just going on to the next phase.”

That larger issue has come to the forefront across the country in a big way over the last several weeks, with the revelation that some mortgage employees were signing foreclosure documents without reading them.

The revelations make the issue a unique confluence of the law, real estate and finance that emerged as yet another unpleasant product of the housing market’s boom years.

The problem was particularly acute in states where lenders are required to go before a judge to be allowed to foreclose.

Tennessee is a non-judicial foreclosure state. But Brewer said similar documentation and chain of title problems could exist here even though they don’t come to the surface in front of a judge.

“I think there are probably a lot of foreclosures going through the pipeline that may have some significant defect in the paperwork that just never comes to anybody’s attention or the issue’s never forced,” Brewer said.

Getting to the bottom of the mess is a tall order, thanks partly to the explosion of mortgage securitization in recent years. Unlike an earlier time when the relationship between banks and homeowners who borrowed money for a mortgage was simpler and more linear, mortgages eventually came to be packaged into securities and sold to investors. Often, the pools were then separated into multiple pools.

Attention wasn’t always given to keeping a clean handle on who owned what, according to a joint statement from state attorneys general now looking into the problem – one of which is Tennessee’s.

Sharon Curtis-Flair, a spokeswoman for the Tennessee AG’s office, said the office is “still in the process of gathering information and fact-finding to determine what action might be necessary” to address the issue.

“Tennessee is part of a multistate group of mortgage regulators working with attorneys general that is reviewing this issue with respect to certain non-bank mortgage loan servicer licensees,” said Greg Gonzales, commissioner of the Tennessee Department of Financial Institutions.

“Moreover, the department is reviewing this issue in our own independent ongoing examinations. We are going to be monitoring the results from the working group and from our examinations to determine what impact there may be on certain non-bank licensee’s operations in Tennessee.”

It remains to be seen what they’ll find. Bankruptcy professionals contacted by The Daily News said they’d rarely come across the problem, if ever. A bankruptcy filing can pause a foreclosure, and bankruptcy court would presumably be a way in Tennessee to get such an issue before a judge.

Bank of America, which had voluntarily delayed foreclosure proceedings in all 50 states, earlier this week restarted foreclosure actions in the 23 judicial foreclosure states. The lender is continuing to delay foreclosure sales in the remaining 27 states, although it anticipates that will ultimately result in the delay of less than 30,000 foreclosure sales.

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 0 133 1,342
MORTGAGES 0 131 1,047
FORECLOSURE NOTICES 20 39 190
BUILDING PERMITS 0 305 3,056
BANKRUPTCIES 17 135 753
BUSINESS LICENSES 0 53 329
UTILITY CONNECTIONS 0 0 0
MARRIAGE LICENSES 0 0 0