Attorney General McKenna calls for mortgage trustees to suspend questionable foreclosures

SEATTLE, WA – October 13, 2010 – (RealEstateRama) — Washington Attorney General Rob McKenna announced today that his office has uncovered evidence that suggests foreclosure trustees are ignoring consumer protection laws in Washington, adding a new layer to a stack of problems reported in the mortgage-servicing industry. He sent letters today to 52 trustees outlining his concerns and calling on them to suspend any questionable foreclosures in the state.

“As part of our ongoing investigation, we have received complaints and information that indicate the Washington foreclosure process frequently includes inaccurate documents, conflicts-of-interest, faulty chains of title and failures to provide the disclosures and conduct mediations required by law,” McKenna said during a press conference today in Seattle with officials from the Department of Financial Institutions (DFI) and the Washington State Housing Finance Commission. “Some of these practices can deprive homeowners of their legal right to assert legitimate defenses in an action to save their homes.”

“Problems aren’t limited to the national banks and mortgage servicers, however, and appear to extend to foreclosure trustees,” he continued.

The Department of Financial Institutions shares McKenna’s concerns that some foreclosures may not have been processed according to Washington law, said Director Scott Jarvis.

“Such failures potentially injure not just the homeowners denied the protections afforded to them under our laws, but also subsequent purchasers of foreclosed properties, financial institutions who might be inclined to lend on such properties, and the title insurance companies who insure the chain of title to those properties,” Jarvis said. “The last thing we need in these difficult times is to further damage our already struggling real estate industry.”

Washington state government officials are investigating foreclosure servicing problems from three perspectives:

• McKenna and Jarvis announced today that they have joined the National Association of Attorneys General and banking regulators in forming a multistate group to investigate whether mortgage servicers have improperly submitted affidavits or other documents related to foreclosures in their states. The Washington Attorney General’s Office will serve on the executive committee of the multistate group. Jim Sugarman and David Huey, assistant attorneys general in the Consumer Protection Division, and Deborah Bortner, director of DFI’s Division of Consumer Services, will represent Washington on the new multistate group.
• The Mortgage Fraud Working Group of The Financial Fraud Enforcement Task Force, a joint federal-state initiative co-chaired by McKenna, is also investigating certain aspects of these foreclosure problems.
• On the local front, the Washington Attorney General’s Consumer Protection Division since May of this year has been investigating reports of lenders and trustee services not properly reviewing foreclosure documents or following other legal procedures.

“Because Washington state law allows foreclosure without court oversight, you are the party most responsible for ensuring that foreclosures are done properly,” McKenna wrote in the letter to trustees. “Consequently, I ask you to suspend all foreclosures in which you have not yet confirmed that all foreclosure-related documents were lawfully signed, that the chain of ownership is clear and has been revealed to you in full, and that state consumer protection requirements have been followed.”

McKenna said that he strongly favors loan modifications and other means of preventing foreclosures when possible and advocates working with lenders to improve communication with borrowers. In addition to its enforcement efforts, the Attorney General’s Office plays a leading role in the multistate Foreclosure Prevention Working Group, which issues regular reports on the status of foreclosure prevention efforts.

“The housing counselors that we fund have told us again and again about the serious communication problems they are having on behalf of families facing foreclosure,” said Kim Herman, executive director of the Washington State Housing Finance Commission, “These families just want to be treated fairly and get a reasonable, timely decision so they can move on with their lives. That is not too much to expect and, hopefully, this process will help that happen.”

Washington residents facing foreclosure should call the Washington State Homeownership Information Hotline at 1-877-894-HOME (4663) for referral to a free, state-approved housing counselor or legal help. Additional resources are on the Attorney General’s Web site at www.atg.wa.gov/foreclosure.aspx.

Specific concerns addressed in McKenna’s letter to foreclosure trustees:

• Employees of foreclosure trustees are signing documents posing as the corporate officer of multiple banks and mortgage servicers and signatures of some trustees vary widely from document to document. This appears to be happening even though signatures are notarized with a statement that the signer is the actual person standing before the notary.
• Trustees may be foreclosing on homes when there is no clear chain of ownership for the loan or the security interest. At the national level, there are reports of lenders “reverse-engineering” the chain of title, including back-dating documents to make it appear as though the loan was passed from company to company.
• Many default notices have gone out without all required information. Since July 26, 2009, Washington trustees have been required to identify the owner of the loan and the company that is acting as servicer. The notices must also include an address and phone number for the servicer. The absence of these details can make it harder for homeowners to contact their mortgage owners.
• Lenders are not consistently telling homeowners about their right to explore alternatives to foreclosure. Lenders are required to advise borrowers who obtained mortgages between 2003-2007 of their right to request mediation and, if requested, the loan owner must schedule a face-to-face meeting to occur within 14 days. It is our understanding that lenders are regularly not telling homeowners about this right, which exists to help homeowners explore alternatives to foreclosure.
  Washington is a “non-judicial foreclosure” state, which means that a lender can proceed directly to selling a home at public auction without first filing a lawsuit. This process was created by the state Legislature. Although lenders may foreclose in court in Washington, they almost always choose non-judicial foreclosures.

Media Contact:  Kristin Alexander, AGO Media Relations Manager, (206) 464-6432, kalexander (at) atg.wa (dot) gov