Challenges to Foreclosure Docs Reach a Fever Pitch

American Banker | Wednesday, June 16, 2010

ByKate Berry

Correction:

An earlier version ofthis story misidentified the courtwhere Judge J.Michael Traynor presides.Itis a Florida state court,nota federal one.An editing error was to blame.

The backlash is intensifying againstbanks and mortgage servicers thattryto foreclose on homes withoutall their ducks in arow.Because the notes were often sold and resold during the boom years,manyfinancial companies losttrack ofthedocuments.Now,legal officials are accusing companies offorging the documents needed to reclaim the properties.On Monday,the Florida AttorneyGeneral's Office said itwas investigating the use of"bogus assignment" documents byLender Processing Services Inc.and its former parent,FidelityNational Financial Inc.And lastweek a state judge in Florida ordered a hearing to determine whether M&T Bank Corp.should be charged with fraud after itchanged the assignmentofamortgage note for one borrower three separate times."Mortgage assignments are being created outofwhole cloth justfor the purposes ofshowing a transfer from one entitytoanother,"saidJames Kowalski Jr.,an attorneyin Jacksonville,Fla.,who represents the borrower in the M&T case."Banks gotawayfrom verybasic banking rules because theysecuritized millions ofloans and moved them so quickly,"Kowalskisaid.In manycases,Kowalski said,ithas become impossible to establish when a mortgage was sold,and to whom,so theservicers are trying to recreate the paperwork,rightdown to the stamps thatfinancial companies use to verifywhen a notehas changed hands.Some mortgage processors are "simplyordering stamps from stamp makers," he said,and are "using those as proofofmortgage assignments after the fact."Such alleged practices are now generating ire from the bench.In the foreclosure case filed byM&T in February2009,the bank initiallyclaimed itlostthe underlying mortgage note,andthen later claimed the mortgage was owned byFirstNational Bank ofNevada,which theFederal DepositInsurance Corp. shutdown in 2008,before the foreclosure had been started.M&T then claimed Wells Fargo & Co.owned the note,"contradicting all ofits previous claims," according to CircuitCourtJudgeJ.Michael Traynor,who ordered the evidentiaryhearing lastweek into whether M&T perpetrated a fraud on the court."The courthas been misled bythe plaintifffrom the beginning," JudgeTraynorsaid in his order,which also dismissedM&T's foreclosure action with prejudice.The Marshall Watson law firm in FortLauderdale,Fla.,which represents M&T in the case,declined to commentand thebank said itcould notcomment.In a notice on its website,the Florida attorneygeneral said itis examining whether Docx,an Alpharetta,Ga.,unitofLenderProcessing Services,forged documents so foreclosures could be processed more quickly."These documents are used in courtcases as 'real' documents ofassignmentand presented to the courtas so,when itactuallyappears thattheyare fabricated in order to meetthe demands ofthe institution thatdoes not,in fact,have thenecessarydocumentation to foreclose according to law," the notice said.Docxis the largestlien release processor in the United States working on behalfofbanks and mortgage lenders.Peter T.Sadowski,an executive vice presidentand general counsel atFidelityNationalin FortLauderdale,said thatmore