Investigation: 5 Banks Accused of Fraudulent Foreclosures

Monday, January 14, 2013

GoLocal News Team

Five of the nation’s largest banks are now violating an agreement with the federal government in Massachusetts, according to an investigation of local foreclosure affidavits conducted by GoLocal.

The investigation involved nearly 200 affidavits from Ally, Bank of America, Citi, Chase, and Wells Fargo filed with the Registry of Deeds in Worcester and Essex Counties and found that these documents had been expedited and signed without required knowledge of the signer, which is in violation of federal standards banks agreed to uphold with the federal government.

Housing Attorney, Tom Vawter of Newton, MA said that there is no way they comply with the standards the banks agreed to uphold. He surmises that economic gain is behind the banks’ behavior, which nullifies many of the reasons behind the Monitor's established agreement with the banks.

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“In order to sign these affidavits under personal knowledge, they would have needed to be at the foreclosure sale. The knowledge that this person would need to have would likely be more than what one person has,” he said, comparing these incidences to hearsay. “Their affidavit is not based on personal knowledge, but by review of the file in the office. They didn’t review anything at all.”

Essex County Register of Deeds, John O’Brien, said that this situation and scale of fraud is “appalling,” and that their broken promises are hurting homeowners.

“The banks have decided to have attorneys sign these, but they weren’t at the foreclosure sale, so they don’t have personal knowledge of that,” Vawter said, adding that in most cases, the person signing the affidavit has no idea what they’re signing, putting homeowners at risk.

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The Agreement

The standards were dictated by the Office of Mortgage Settlement Oversight, written by the Monitor of the National Mortgage Settlement, Joseph Smith, and states that banks must ensure that foreclosure affidavits are carried out by an individual who has personal knowledge of the foreclosure, but according to the documents, these affidavits do not uphold that agreement.

Smith released a statement in response, saying, “These types of allegations are serious and may be violations of the settlement. Information of this kind from people in the marketplace is critical to my ability to oversee the settlement effectively.”

He added, “If I find that there are patterns and practices of noncompliance with the settlement, I will use the tools at my disposal to get the bank in question to remediate the violation and, if necessary, seek redress, including substantial fines or injunctions, through the court that has jurisdiction of this matter.”

Essex County Register, O’Brien, said that the agreement the banks signed has turned into a “total sham.”

“The total disregard by these banks for the integrity of the land recordation system is appalling. I look forward to the day when all levels of government take this fraud as seriously as we do and work together to put a stop to these illegal practices once and for all. I am pleased that we were able to provide our records as evidence of this continuing fraud,” O’Brien said. “The public knows that the banks are still acting illegally no matter what they say to the contrary.”

Vawter said that it is not uncommon for the signer’s knowledge to be completely based on documents they may or may not have seen – making it impossible for them to have personal knowledge of the affidavits they would sign.

“They haven’t changed their ways at all,” he said of the banks. Vawter said that banks are likely acting in this manner for the cost benefits.

Spokesperson for the National Consumer Law Center (NCLC), Jan Kruse said that these servicers need to comply with the terms of the national mortgage settlement and highlighted the ongoing battle that surrounds the issue: “The wide spread use of ‘robo-signed’ affidavits in the foreclosure process sparked the state attorneys general’s investigation into servicing-related abuses which led to the national settlement between the attorneys general, the federal government and five large mortgage servicers last February.”

“I hope this report becomes a wakeup call to everyone that has authority to stop this,” O’Brien said.

GoLocal MINDSETTER™ and former Massachusetts gubernatorial candidate, Grace Ross, said, “We had absolutely no doubt about the failure of these affidavits.”

GoLocal pulled close to 200 affidavits filed since July 6th – since the Monitor of the National Mortgage Settlement said that the banks were in full compliance. They had been filed with the Registry of Deeds and were properties that those banks were part of.

Timeline: The Steps Leading to the Foreclosure Crisis

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Banks Involved

Ross, a member of the Worcester Anti-Foreclosure Team, went through all settlements under the five banks – Ally, Bank of America, Citi, Chase, and Wells. These five banks agreed to certain standards under a federal agreement, which the report says they have been maintaining since July 2012.

The over 200 affidavits in violation came after this agreement, and Ross says that there is no way they hold up to the standards agreed upon.

In response, Mark C. Rodgers, a spokesperson from Citigroup said, “We will look into this matter. We have robust guidelines in place to help ensure sure that affidavits are accurately and properly prepared.”

T.J. Crawford, regional spokesperson for Bank of America, stood firmly against the accusations, saying, “Bank of America is in compliance with all servicing standards required under the National Mortgage Settlement, including standards regarding foreclosure processes, affidavits and documentation.”

Ally, Wells Fargo, and Chase all declined comment.

The Evidence

Vawter said that since the agreement between the banks was signed, nothing has changed in their practices.

“Since they signed this agreement between the five banks, I haven’t seen any difference or any efforts to make a difference to make someone with personal knowledge sign these affidavits. There’s nothing in there to say they’re doing that,” he said.

Ross agreed, saying, “We know [the banks’] standard operating procedures. When I saw the report come out, I immediately thought, that would mean they would have had to change their procedures completely.”

Foreclosure and possession deeds from the Worcester Registry of Deeds that met criteria of date and bank were examined to see if each met the standards of personal knowledge.

None of the affiant signatures on the foreclosure documents matched the bank agent names on the possession documents.

“The gist is that banks part of the settlement for Attorney General signed an agreement for legal standards they haven’t been meeting. The Settlement Monitor says that major banks are saying they had met some key metrics – signing all affidavits on personal knowledge and state laws,” Ross said.

Smith, of the Monitor of the National Mortgage Settlement said, “I encourage people who see potential violations to report them to me through my website: www.mortgageoversight.com.”

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Personal Knowledge

All foreclosure affidavits must be signed on personal knowledge of the facts they are signing for so that the title can be filed on record and remain valid.

“They agreed to base the data on personal knowledge,” said Vawter. “When you hear that you’d assume what would be evidentially satisfactory. They might have personal knowledge with respect that they sent out certain documents, but more likely than not, they don’t.”

Even if this is the case, Vawter said, “Looking at documents doesn’t give you personal knowledge.”

“These affidavits can’t have been done under personal knowledge. There are three categories. Standard understanding personal knowledge, which means that person can’t sign unless they saw or witnessed directly what happened,” Ross said. “This part was failed in these affidavits in the last section – what happened at the auction. Unless you’re there, you can’t meet personal knowledge.”

The three stages of the affidavit, 1) attesting to the fact that someone was behind in their mortgage, 2) a posting by either a law firm or keeper of the records in a newspaper, and 3) an action, which can only be signed by someone who was present and competent – or have an understanding of how auction procedures.

“Either someone else from the office goes, or they could have video tape of the auctions, but if you video tape, standard practice dictates that this is always included in the records of what happened in the foreclosure and reviewed by the keeper of the records for an institution,” Ross said. “If you’re the person whose job that is, you have personal knowledge to sign an affidavit.”

Like Vawter, Ross says that the affidavits they checked could not have possibly met these criteria.

“We looked at who signed these affidavits. If it was signed by a representative of the bank, they assume it would be keeper of the records. If it was signed by the bank, we know they didn’t put it in the paper, and if it was signed by lawyer for the bank, then they couldn’t have been the keeper of the records to check if they were falling behind on their mortgage,” she said.

What Banks Stand to Lose

Vawter said that if taken to court over this issue, banks will likely pick apart language and argue that there was no possible way for them to literally comply with the agreement. But when asked whether he thought it was sufficient evidence to win a case against them, he said, “Do I think that’s enough? Absolutely.”

“I assume they would try to say they didn’t really mean personal knowledge and hold it up to the literal light and say it would have been silly that they would have actually been able to do that,” he said.

When asked how much banks could potentially profit from this massive fraud, Ross said, “Part of the problem is that I don’t know about how they’re making money. They lose money when they foreclosure. The servicing contracts are set up in such a way that they make more money the longer they keep someone in the foreclosure process.”

Ross added that the banks also make money servicing a property after a foreclosure.

“The whole reason they file is so that if someone buys the property, they know it’s done right. This allows them to expedite the process, and it’s a mystery why they think that’s a good procedure,” she said. “There are these perverse incentive programs for themselves in which both sides of servicing contracts are represented by their bank. We assume the side servicing foreclosures is consistently making money.”

An even bigger question, however is how much the banks could lose in court from these violations.

“The act of violating a federal agreement at that level, is $100,000 per violation. The problem is how they will interpret the violation. We’d like them to get fined for every affidavit they’ve signed since then, but the expectation is that they will not interpret it that way,” Ross said. “More than likely, they will count a certain percentage for error that they will allow – 5, 6 percent – and everything else will be treated as a violation.”

Ross remains hopeful that this legal action will go through, but says, “That’s something we’ll have to push on.”

The monitor is obligated by the Consent Judgment to allow the servicers a chance to correct a violation of one of the metrics. If they fail to correct the violation, the first violation is sanctionable by $1,000,000 by the United States District Court for the District of Columbia.

Ross said that the Consumer Protection Division of the Massachusetts Attorney General’s office notified her that the monitor must allow for a chance to correct a violation of this kind, but that serious repercussions could come of any uncorrected violations.

By Ashley Klann; Anthony Faccenda, Researcher; and GoLocal Editors Adam Joseph Drici, Dan McGowan, and Tracey Minkin.