There are many reasons, happy and sad, to become a self storage tenant, but one of the saddest must be to have to put belongings in self storage because your home has been foreclosed on. But in a recession economy, foreclosures seem to have become the new American experience, with millions of Americans from all walks of life losing their homes. Self storage companies have stepped up to the plate, offering storage to families who are going through a transition from one home to another, providing the first month or two of storage at a discount while families struggle to get back on their feet, and providing discounts to families with special circumstances, such as military families. Families who use self storage typically do so temporarily, while they are in transition, with the average self storage tenancy for an individual or family lasting about 11 months, according to industry statistics published last May in NuWire Investor.
Now it is becoming clear that one subset of self storage customers -- families who have lost their homes to foreclosure -- may have been improperly evicted from their homes in a deeply flawed foreclosure process that does not allow for careful and thorough review of mortgage documents and records to occur before the eviction process begins. Some bank employees are signing off on foreclosure documents without first going through the documents to make sure that the foreclosure is truly justified. Some of the foreclosures that have been processed over the last few years not only were processed far too quickly and sloppily, but are not even legal, because some files contained documents that were forged, signatures that were forged, names of made-up companies and employees from those companies, and affidavits that were signed without the presence of a notary (or that were signed by a notary several days after the initial signature that the notary was supposed to have witnessed).
According to a recent series of articles by Washington Post staff reporters Ariana Eunjung Cha and Brady Dennis, the foreclosure process at most banks and mortgage companies is riddled with inconsistencies, and many lenders in charge of processing foreclosures find ways to take shortcuts as they review documents. In some cases, lenders have engaged in outright fraud, faking documents and forging signatures. In others, mistakes slipped through the cracks because of a shoddy document review process and lack of coordination between various entities (lenders, courts, housing advocates) involved in the foreclosure process.
The problems with the foreclosure process are occurring so often that the fourth largest mortgage lender in the U.S., GMAC Mortgage, and its parent company, Ally Financial, have called a stop to home evictions in 23 states this week. Other lenders are gradually withdrawing documents in foreclosure cases that have been tainted by affidavits from GMAC employees. Ally’s home eviction process in those states will not proceed until documents are doublechecked, because one mortgage banker admitted that he signed off on 10,000 sets of foreclosure papers every month without checking the information that the documents contained to find out whether an eviction was warranted. He spent no more than a minute per case on most foreclosures. Meanwhile, another bureaucrat, working for JPMorgan Chase, admitted under oath last May that she also signed off on around 18,000 foreclosures every month without checking the paperwork or reviewing the details of the cases in question. The documents signed by both officials affirmed that they had personally reviewed all the details of each case.
Bureaucrats whose job it is to go through foreclosure documents and sign them are called, in the mortgage industry, “robo-signers,” because they have to sign so many papers in such a short amount of time. Signing foreclosure documents after just a cursory, less than one minute review is standard in the mortgage industry -- not the innovation of a few rogue employees. Consequently, many in the industry feel that the current investigations are just the tip of a much larger iceberg of misconduct by mortgage companies ranging from simple lack of diligence and oversight to outright forgery and fraud.
Document processing improprieties are becoming common not only at lending companies, but also at document processing businesses. For example, Lender Processing Services is being investigated in Florida because of allegations that it used improper documentation to support the foreclosure process. In some cases improper documentation simply means that affidavits were signed without the presence of a notary. But in others, documents and signatures were actually forged. One of the employees of Lender Processing Services apparently was forging signatures, or having her own signature forged, on foreclosure documents. The Washington Post reported yesterday that in one case, she signed a document in which she claimed to be the vice president of a made-up, nonexistent company. Lender Processing Services, however, claimed (in an emailed statement printed in the Post) that made-up names and companies were simply “placeholders.”
Some snags in the foreclosure process have also occurred because of the practice in which lenders sell mortgages to other lenders. Sometimes physical files are lost in the transfer. When this occurs, in some cases, document processors have forged new documents for the files.
“Mistakes happen all the time,” St. Petersburg, Florida foreclosure defense attorney Matt Weidner said in The Sun Sentinel yesterday. “It’s just not getting reported.” (It is now, with articles appearing in The Washington Post, The Wall Street Journal, The Sun Sentinel itself, The New York Times, and countless other newspapers and financial reporting outlets.)
One type of mistake that can occur in a foreclosure proceeding is the failure of one party in a proceeding to keep other parties duly informed of new developments in a case, such as the “short sale” of a home to a third party for less than the value of the mortgage, which should end the foreclosure proceedings in the case. But sometimes this disclosure is not made, and the foreclosure proceedings continue. That is what happened to Jason Grodensky of Fort Lauderdale. He bought his house with cash in a short sale, and did not even have a mortgage. But he was foreclosed upon by Bank of America, and his house was sold out from under him illegally. Bank of America later recognized its mistake and has agreed to compensate Grodensky.
“I feel like I’m hanging in the wind and I’m scared to death,” Grodensky said in Sunday’s Sun Sentinel. “How did some attorney put through a foreclosure illegally?”
In other cases, a mortgage note changes hands from one lender to another, and confusion frequently results as to who actually owns the note that is being foreclosed upon.
The foreclosure rate is particularly high in Florida, where more than 20 percent of all mortgages are either delinquent or in foreclosure. Almost half of all Florida borrowers owe more money on their mortgages than their homes are worth on the housing market today.
Because the foreclosure rate in Florida is so high, some lawyers say that even judges are not taking a careful look at the documents in foreclosure cases. “Now you show up and you get whatever judge is on the schedule and they have not looked at the file -- they don’t even look at the motions,” attorney April Charney of Jacksonville Area Legal Aid said in The New York Times on Sept. 4. “You get a five-minute hearing. It’s a factory.”
Judge Victor Tobin of Florida’s 17th Judicial Circuit, quoted in the same article, disagreed, however. “There are more assets devoted to those three foreclosure divisions in Broward than to any other division in the building in terms of case managers and that sort of thing to help the general public,” he told The Times. “The people who come get fully, fully heard.” Still, judges say they are under pressure to clear a backlog of cases out of the system so that other civil cases can also be heard.
Three Florida law firms -- the Law Offices of Marshall C. Watson, Shapiro & Fishman, and the Law Offices of David J. Stern -- are currently under investigation by Florida’s Attorney General for allegedly submitting fraudulent documents to courts in foreclosing cases.
In response to the disclosures by GMAC Mortgage and JPMorgan Chase, Fannie Mae and Freddie Mac have begun internal reviews to check foreclosure files for possible problems.
Real estate finance professor Todd Zwicki, of George Mason University, told The Wall Street Journal yesterday that it is possible that judges may start requiring that the accuracy of documents involved in foreclosure cases be checked more carefully. Millions of foreclosure cases could be delayed as a result.
“The kind of facts that you’re talking about here are the facts that judges don’t like -- this kind of assembly-line paperwork pushing with no oversight. There’s good reason for lenders to be worried,” commented Zwicki, “if they misstep....It could be a relatively severe hurdle to foreclosures.”
Although most foreclosures might still make it through the court system eventually, delaying foreclosure proceedings could work in the favor of families who simply need time to get caught up on their mortgage payments, find a buyer for their home, or work out another solution with their lenders. For families caught up in eviction proceedings, time is one of the resources they need the most.
In addition to families who are foreclosed on and evicted improperly, the current investigations may also end up affecting a few self storage owners whose businesses are in the process of being foreclosed upon.
Sources used:
Biddle, Susan. “NW sidewalks fill with personal items after eviction.” The Washington Post. Sept. 22, 2010.
Brackey, Harriet Johnson. “Lauderdale man’s home sold out from under him in foreclosure mistake.” The Sun Sentinel. Sept. 19, 2010.
Campbell, Dakin and Woellert, Lorraine. “Ally says GMAC mortgage mishandled affidavits on foreclosures.” Bloomberg. Sept. 20, 2010.
Cha, Ariana Eunjung, and Dennis, Brady. “Amid mountain of paperwork, shortcuts and forgeries mar foreclosure process.” The Washington Post. Sept. 23, 2010.
Dennis, Brady. “‘Robo-signer’ played quiet role in huge number of foreclosures.” The Washington Post. Sept. 23, 2010.
Meyers, Scott. “Self storage investments capitalize on tendency to accumulate goods.” NuWire Investor. May 27, 2010.
Morgenson, Gretchen, and Fabrikant, Geraldine. “Florida’s high-speed answer to a foreclosure mess.” The New York Times. Sept. 4, 2010.
Whelan, Robbie. “GMAC spotlight on ‘robo-signer.’” The Wall Street Journal. Sept. 22, 2010.