Legal News

States' probe of foreclosures could force reforms

By (Breaking Legal News)

A joint investigation by every state and the District of Columbia could force mortgage companies to settle allegations that they used flawed documents to foreclose on hundreds of thousands of homeowners.

It could take months, at least, for any settlement to be reached. But legal experts say lenders could be forced to accept an independent monitor to ensure they follow state foreclosure laws. The banks could also be subject to financial penalties and be forced to pay some people whose foreclosures were improperly handled.

For banks, "the most efficient way for them to get out from under this is to settle across the board," said Kathleen Engel, a law professor at Suffolk University in Boston.

Employees of several major lenders have acknowledged in depositions that they signed thousands of foreclosure documents without reading them as required by state laws.

"This is not simply about a glitch in paperwork," Iowa Attorney General Tom Miller, who's leading the probe announced Wednesday, said in a statement. "It's also about some companies violating the law and many people losing their homes."

At a news conference, Miller said the states might be open to alternatives to financial penalties for the banks. They might, for example, agree instead to have lenders step up their efforts to help people reduce their loan payments so they can avoid foreclosure.

The document problems could prolong the housing downturn if many home buyers become unwilling to purchase foreclosed homes. But for a few months anyway, the problems could help prop up prices, because fewer low-priced foreclosed homes will be for sale.

Full post as published by Breaking Legal News on October 13, 2010 (boomark / email).