How Does Robo-signing Impact Foreclosure Investors?

Law Offices of Peter N. Brewer

by Law Offices of Peter N. Brewer on November 17, 2010

in Foreclosure, Mortgage Issues

The Impact of Robo-signing on Foreclosure Investors and REO Purchasers in California

By: Henry Chuang, Esq.

Recently, with the announcements of foreclosure moratoriums from some of the largest banks in the nation, including JP Morgan and GMAC, there has been increased attention on the problems with the foreclosure system. Specifically, the media has focused on a practice the press has nicknamed “robo-signing”. Robo-signing refers to bank employees signing court declarations, under penalty of perjury, stating that the employee has personally reviewed all of the facts of the foreclosure and determined that they are accurate. While the banks involved have stated that the affidavits are accurate and there are no deficiencies, some banks such as JP Morgan have admitted that its employees did not actually review all of the information.

In fact, in May, an employee of JP Morgan, Beth Ann Cottrell, admitted in her sworn deposition testimony that she and her staff of eight signed 18,000 documents a month. Similarly, in a deposition in July, the vice president of bankruptcy and foreclosure at One West Bank stated that she and her team of seven signed 24,000 documents without reading each document. She stated that she spent 30 seconds per document. Further, Wells Fargo has admitted that some of its foreclosures were technically deficient and has submitted additional paperwork to support proceeding with the foreclosure.

How does this affect Californians and foreclosures here in California? Not a whole lot. Some states, like the 23 states that have the voluntary moratorium, require a judicial foreclosure–one where the court must be involved. Here in California, lenders predominantly use non-judicial foreclosure process, which is intended to be a speedier remedy for lenders. Accordingly, there is no declaration to the courts that the bank employees must attest to. Instead, the loan servicer is required to comply with the state foreclosure guidelines, such as phoning, mailing and posting. If a borrower thinks there has been a technical defect in the foreclosure sale, they must seek a temporary restraining order (TRO), and preliminary injunction to halt the sale. If they fail to halt the sale, but wish to set aside the sale after the fact, the law requires the borrower tender—that is, pay the full amount of the disputed loan. As you can imagine, tender does not happen often. The risk of foreclosure sales in California being vacated and set aside is relatively low.

While robo-signing may lead to stricter oversight of banks and their paperwork, the underlying economic realities remain. The borrower has not paid, and in many instances, cannot pay even given an extension of time. Second, while there may be technical deficiencies and a failure to comply with statute, many of the statutory provisions violated have no private right of action. In California, the law generally favors a final foreclosure sale. Specifically, while there is a case which requires  servicers discuss loan payment options with borrowers, it does not provide for any remedies beyond delaying the sale. Further, the California courts and the legislature have consistently held that public policy favors a final foreclosure sale. Civ. Code §2924 has been drafted to encourage bidders at foreclosure sales by providing protections against challenging the foreclosure sale. Courts have also adopted requirements such as the tender offer rule where the borrower must offer to pay the full amount of the debt before the debtor can challenge the fore closure sale. As such, while there may be technical deficiencies, absent other factors, those deficiencies will not result in a delay or rescinding of the foreclosure sale.

Take Away Message – While robo-signing is a hot topic with a lot of media attention, it is unlikely to have any significant impact on the foreclosure system, at least not in California. Where we think the benefit of the media attention will come from is in circumstances where lenders like Wells Fargo, under such scrutiny, make concessions such as their new proposed model where they will voluntarily suspend foreclosure after a borrower has applied for a loan modification. Presently, that seems to be one of the most difficult hurdles for borrowers, is the confusion of whether the foreclosure sale has been postponed while they are attempting to obtain short sale approval or loan modification approval. Suspending a foreclosure sale during that process would greatly minimize the confusion to borrowers and reduce possible litigation after the sale itself—thereby giving greater certainty to REO purchasers and foreclosure investors.

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{ 20 comments… read them below or add one }

avatar MARK ANAYA November 18, 2010 at 7:08 pm

You failed to mention the chain of title issue that most of these loans face, Can the bank actually prove they own the loan is the question see Adam Levitin testimony on my blog

avatar Henry Chuang November 24, 2010 at 5:11 pm

Thank you for the information. So far, we have not seen the courts concerned with the chain of custody. The courts seem to primarily be concerned with whether the bank claiming ownership has an endorsed promissory note.

avatar Bob January 7, 2011 at 9:24 am

California is the most affected state due to bankruptcy, everyone should know such valuable information. Thanks for the post.

avatar jooly August 27, 2011 at 6:11 am

thanks for the post! good quality of infos, very informative! people ought to do their job honestly to avoid problems such as this.

avatar Henry Chuang August 29, 2011 at 3:49 pm

Your welcome. Thank you for the kind words and I hope the other articles are helpful as well.

avatar allena August 31, 2011 at 9:46 am

How about the legality implication if the is an erroneous information sent by those robo-signers who would we go to if we have issues if the judiciary already conced their job to the banks?

avatar Henry Chuang August 31, 2011 at 4:14 pm

Unfortunately, only the judiciary can hear challenges to the foreclosures.

avatar kaks September 8, 2011 at 1:12 pm

That was awesome blog that you share…thanks to share!. 😛

avatar Nelia M. September 11, 2011 at 2:41 am

This is a wonderful information Hemry, its very useful for lots of people. Specially those who are in the money business.

avatar ojiebazar September 15, 2011 at 3:20 am

Banks should practice strict codes regarding this matter. This is not an easy game wherein there isno proper committee assigned for closures. A certain bank employee in coordination with other agency should look at things properly before an act of foreclosure is done. This is a serious task and should be taken seriously too. Does the governement have intervention regarding bank policies?

avatar Henry Chuang September 19, 2011 at 4:36 pm

Thank you for the kind words, Nelia. I hope other people benefit from these blog articles too.

avatar Henry Chuang September 19, 2011 at 4:36 pm

I am glad that it helped. Please continue following the blog for other insightful articles.

avatar Nessa September 24, 2011 at 1:00 pm

thanks for the great insight,this is very useful blog thanks for sharing this to us.

avatar ichigo September 24, 2011 at 2:36 pm

I’m glad I saw and read this blog…sound like great..GREAT! | 😛

avatar searia October 4, 2011 at 3:30 am

Brilliant post you shared here, many people they glad when they read this post.

avatar Vangie October 5, 2011 at 8:21 am

Good post. Very helpful for business men. Quiet informative. Thanks for sharing this idea.

avatar chynagirlash October 13, 2011 at 8:58 am

Foreclosure is a serious act. Proper committee should have be created solely for this. It should not be delegated by any mere bank employee.

avatar Lavinia October 27, 2011 at 2:46 pm

Sounds great! Very helpful for businessmen.

avatar mellowmelanie March 28, 2012 at 6:10 pm

Your description of Robo-signing fails to relate the problem accurately.
Robo-signers often were not employed by the banks. Linda Green, made famous on 60 Minutes signed as vice president of B of A, Wells Fargo, and many other banks. Law office employees signed as bank officers. Lynn Szymoniak, who trained FBI agents to detect fraudulent documents brought much of this to light.
How do you explain the tens of thousands of signatures by NON bank officers, or servicers signing for lenders who were defunct and had divested themselves of all mortgage assets?
Do you truly believe is was just a matter of employees not having time to read a few documents?

avatar kindle fire June 4, 2013 at 8:28 am

What makes presently there so numerous insane comments on this page? Unusual. Anyways I just had to stop by together with enhance you on your amazing way of writing.

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