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State Attorneys General Investigate Foreclosure Affidavits and Documents
By Meghan S. Musselman

Once again, Congress, state attorneys general and regulators, consumer advocates and the public at large turn their collective ire on the lending industry – this time, the target is documentation filed in mortgage foreclosure actions. The recent focus arises out of allegations that mortgage lenders and servicers filed false affidavits or submitted improperly witnessed affidavits in support of foreclosures in violation of state law.

In early October, Ohio Attorney General Richard Cordray sued GMAC Mortgage, LLC, on grounds that the servicer and its agents filed fraudulent affidavits in connection with Ohio foreclosures. The allegations surround the practice of “robo-signing,” where persons who did not have personal knowledge of the facts set forth in the affidavits or other documents submitted in connection with foreclosure actions allegedly signed them. Additionally, the Ohio Attorney General claimed that some of these affidavits were not signed in the presence of a notary, as required by Ohio law.

At the same time, Congress considered and passed the Interstate Recognition of Notarizations Act of 2009 (H.R. 3808). H.R. 3808 would have required federal and state courts to recognize “any lawful notarization” made by a notary public licensed by a state other than the state where the court is located when “such notarization occurs in or affects interstate commerce.” H.R. 3808 would also have required courts to recognize electronic notarizations. Consumer advocates opposed H.R. 3808, voicing concern that it would interfere with the investigations by various state attorneys general into foreclosure affidavits. It probably should have come as no surprise when President Obama vetoed the Act. The same day the president vetoed the bill, Senator Christopher Dodd announced that the Senate Banking Committee would hold a hearing in November to investigate allegations of improper and fraudulent mortgage servicing and foreclosure processing.

Less than a week later, 49 state attorneys general announced a sweeping investigation of mortgage loan servicers and the practice of “robo-signing.” The attorneys general, working together with state banking and mortgage regulators, will investigate whether mortgage loan servicers have submitted improper affidavits or other documents in connection with foreclosure actions. Although the scope and breadth of the investigation is unclear at this point, the effects are already being felt. Media outlets have pointed out that the attorneys general announcement will bring the already sluggish pace of foreclosure proceedings to a crawl. Consumer groups have called for a foreclosure moratorium, and numerous lenders have announced that they will not pursue foreclosures as they sort out their foreclosure processes.

President Obama has said that he does not favor a blanket moratorium on foreclosures. He does, however, support the efforts of the state attorneys general to investigate the sufficiency of foreclosure affidavits. Even though Congress and President Obama have resisted the call to impose a foreclosure moratorium, the state attorneys general may seek to do so in each of their states. At a minimum, the threat of the attorneys general’s investigations will likely result in a de facto moratorium as servicers confirm that their policies, procedures, and practices – as well as those of their foreclosure counsel – are in order. Bank of America, the only bank to suspended foreclosure activities in all 50 states, has already announced that it will resume foreclosures in states that require judicial foreclosure. At this point, it is not clear if other lenders and servicers will voluntarily suspend foreclosures in some states or simply attempt to cure any perceived defects on a case-by-case basis.

Meghan S. Musselman is an associate in the Maryland office of Hudson Cook, LLP. Meghan can be reached at 410-865-5403 or by email at mmusselman@hudco.com.

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