One of the worst loan servicing abuses to come to light during the foreclosure crisis was "robosigning." The media and courts slammed the mortgage servicing industry for using false affidavits in thousands of foreclosure cases. Following the robosigning scandal, several large banks temporarily froze all pending foreclosures. For some homeowners, the robosigning mess created opportunities to challenge their foreclosures in court or negotiate with banks to avoid foreclosure.
Now, robosigning happens much less often, but your case might be the exception. Read on to learn about robosigning and what it could mean for you as a homeowner.
As part of the foreclosure process in the 25 or so states that require judicial foreclosure, which means the foreclosure goes through court, the foreclosing bank must demonstrate that the homeowner has defaulted on the mortgage and that the bank owns the mortgage (that is, the bank has "standing").
Typically, the bank proves these requisite facts by submitting documents and a written statement signed under oath (called an affidavit) by a person, usually a bank employee or representative, who has reviewed 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 the mortgage—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.
In 2010, it was revealed that several large banks routinely used affidavits signed by employees who did not personally review 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, JPMorgan Chase, Wells Fargo, and GMAC have all testified that they signed many thousands of affidavits a month, spending about 30 seconds on each affidavit, and that they didn't have a clue regarding the veracity of the affidavit or the documents in question—hence the name "robosigners."
Since the time this scandal broke, it has been revealed that servicers' employees also robosigned all kinds of foreclosure documents besides affidavits, like assignments of mortgage and other documents needed to foreclose. Robosigning occurred in both judicial and nonjudicial foreclosures.
A $25 billion settlement among 49 state attorneys general, federal regulators, and five banks was announced in 2012 (the national mortgage settlement) and, in early 2013, federal regulators announced a $9.3 billion settlement with 13 banks over the robosigning scandal and other abuses (the independent foreclosure review settlement).
One company that was involved in the scandal, Bank Processing Services Inc., agreed in 2013 to pay $35 million in fines to resolve allegations over the company’s involvement in the robosigning of documents from 2003 to 2009 and one person plead guilty to criminal charges relating to the scandal.
Banks cannot legally foreclose on a property if the foreclosure paperwork is not in order. This means that if the affidavit or other foreclosure document a bank submits is false—as any document completed by a robosigner would be—the foreclosure should not go through.
Of course, the reality is that banks foreclosed on thousands of properties based on just such false affidavits and other documents. Once the issue was revealed, here's what happened:
Because the robosigning mess called into question the integrity of foreclosure paperwork, courts are more likely to scrutinize bank foreclosure affidavits and documentation, and are more willing to entertain homeowner claims that documentation is faulty or false. If you want to challenge the foreclosure of your home based on a faulty affidavit or other document, 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. In about half the states, a foreclosure must go through the state court system. In these states, to challenge a foreclosure based on a fraudulent affidavit you simply raise the issue in the foreclosure case.
Nonjudicial foreclosures. In other states the foreclosure may be nonjudicial or judicial. Nonjudicial foreclosures are completed without going to court. So, the process of raising a claim that the foreclosure documentation is faulty is not as easy. The homeowner must file a lawsuit to stop the foreclosure. In a number of these nonjudicial 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.
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 mortgage under the debtor's Chapter 13 repayment plan. As with all other creditor claims, a homeowner in Chapter 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.
Because banks can't use robosigners now, it takes longer to get a foreclosure affidavit signed. Instead, bank officers and representatives must 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 have been many instances of demonstrably false or legally faulty paperwork being submitted, and it might be that the banks simply can't demonstrate the veracity of the necessary documents.
As a result of the robosigning scandal and sloppy bank paperwork, courts are more inclined to believe that foreclosure paperwork in any given case is faulty. As a result, if a homeowner is able to cast uncertainty regarding the required foreclosure paperwork, banks might be more willing to go further than they have in negotiating some type of mortgage modification, rather than risk having to prove the accuracy of their documents in court.
While robosigning is much less likely to occur today than it was in the past, your case might be the exception. Or the foreclosure documentation in your case could be faulty in another way.
But challenging a foreclosure in court or alleging documentation problems in an effort to negotiate with a bank can be tricky. If you believe the bank robosigned documents in your foreclosure—or that there's some other problem with the paperwork—consider talking with a foreclosure attorney about your case.