The 2010 United States foreclosure crisis, sometimes referred to as Foreclosure-gate or Foreclosuregate, refers to a widespread epidemic of improper
foreclosure
Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.
Formally, a mortg ...
s initiated by large banks and other lenders. The foreclosure crisis was extensively covered by news outlets beginning in October 2010, and several large banks—including
Bank of America
The Bank of America Corporation (often abbreviated BofA or BoA) is an American multinational investment bank and financial services holding company headquartered at the Bank of America Corporate Center in Charlotte, North Carolina. The bank w ...
,
JP Morgan
JPMorgan Chase & Co. is an American multinational investment bank and financial services holding company headquartered in New York City and incorporated in Delaware. As of 2022, JPMorgan Chase is the largest bank in the United States, the wo ...
,
Wells Fargo
Wells Fargo & Company is an American multinational financial services company with corporate headquarters in San Francisco, California; operational headquarters in Manhattan; and managerial offices throughout the United States and intern ...
, and
Citigroup
Citigroup Inc. or Citi (Style (visual arts), stylized as citi) is an American multinational investment banking, investment bank and financial services corporation headquartered in New York City. The company was formed by the merger of banking ...
—responded by halting their foreclosure proceedings temporarily in some or all states. The foreclosure crisis caused significant investor fear in the U.S.
A 2014 study published in the ''
American Journal of Public Health
The ''American Journal of Public Health'' is a monthly peer-reviewed public health journal published by the American Public Health Association that covers health policy and public health. The journal was established in 1911 and its stated missio ...
'' linked the foreclosure crisis to an increase in suicide rates.
One out of every 248 households in the United States received a foreclosure notice in September 2012, according to
RealtyTrac RealtyTrac is a real estate information company and an online marketplace for foreclosure, foreclosed and defaulted properties in the United States. It was founded in 1993 and is based in Santa Barbara County, California, Santa Barbara, California. ...
.
Robo-signing controversy
"Robo-signing" is a term used by
consumer advocate
Consumer protection is the practice of safeguarding buyers of goods and services, and the public, against unfair practices in the marketplace. Consumer protection measures are often established by law. Such laws are intended to prevent business ...
s to describe the rubber-stamp process of mass production of false and
forged
Forging is a manufacturing process involving the shaping of metal using localized compressive forces. The blows are delivered with a hammer (often a power hammer) or a die. Forging is often classified according to the temperature at which it ...
execution of mortgage assignments,
satisfactions,
affidavit
An ( ; Medieval Latin for "he has declared under oath") is a written statement voluntarily made by an ''affiant'' or '' deponent'' under an oath or affirmation which is administered by a person who is authorized to do so by law. Such a statemen ...
s, and other legal documents related to mortgage foreclosures and legal matters being created by persons without knowledge of the facts being attested to. It also includes accusations of
notary
A notary is a person authorised to perform acts in legal affairs, in particular witnessing signatures on documents. The form that the notarial profession takes varies with local legal systems.
A notary, while a legal professional, is disti ...
fraud
In law, fraud is intentional deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud can violate civil law (e.g., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compens ...
wherein the notaries pre- and/or post-notarize the affidavits and signatures of so-called robo-signers.
On October 21, 2010, ''
The Wall Street Journal
''The Wall Street Journal'' is an American business-focused, international daily newspaper based in New York City, with international editions also available in Chinese and Japanese. The ''Journal'', along with its Asian editions, is published ...
'' reported that foreclosure lawyer/advocates Thomas Ice and Matthew Weidner were discussing the
deposition testimony of mortgage company employees; Weidner recalled, "Tom and I were talking, and it was, 'Jesus, they're like robots!'" Weidner, a blogger, called them "robo signers" in a January 8, 2010 posting.
In 2009,
Maine
Maine () is a state in the New England and Northeastern regions of the United States. It borders New Hampshire to the west, the Gulf of Maine to the southeast, and the Canadian provinces of New Brunswick and Quebec to the northeast and north ...
attorney Thomas Cox pointed out the wide-scale practice of robo-signing in depositions taken of
GMAC's Jeffrey Stephan and other robo-signers. News outlets reported that on September 14, 2010, Jeffrey Stephan testified that he had signed affidavits which he hadn't actually reviewed on behalf of
Ally Financial
Ally Financial is a bank holding company organized in Delaware and headquartered in Detroit, Michigan. The company provides financial services including car finance, online banking via a direct bank, corporate lending, vehicle insurance, mortgage ...
.
This revelation led to increased scrutiny of foreclosure documentation. The practice was apparently common in the mortgage industry. In the weeks following the robo-signing revelation, other large banks came under fire for employing robo-signers as well, including
JPMorgan Chase
JPMorgan Chase & Co. is an American multinational investment bank and financial services holding company headquartered in New York City and incorporated in Delaware. As of 2022, JPMorgan Chase is the largest bank in the United States, the ...
and
Bank of America
The Bank of America Corporation (often abbreviated BofA or BoA) is an American multinational investment bank and financial services holding company headquartered at the Bank of America Corporate Center in Charlotte, North Carolina. The bank w ...
.
In the fall of 2010, major U.S. lenders such as JP Morgan Chase,
Ally Financial
Ally Financial is a bank holding company organized in Delaware and headquartered in Detroit, Michigan. The company provides financial services including car finance, online banking via a direct bank, corporate lending, vehicle insurance, mortgage ...
(formerly known as GMAC), and
Bank of America
The Bank of America Corporation (often abbreviated BofA or BoA) is an American multinational investment bank and financial services holding company headquartered at the Bank of America Corporate Center in Charlotte, North Carolina. The bank w ...
suspended judicial and non-judicial foreclosures across the United States over the potentially
fraudulent
In law, fraud is intentional deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud can violate civil law (e.g., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compensa ...
practice of robo-signing.
On September 21, 2010, HousingWire ran an article citing defects in affidavits used in some foreclosure cases at Ally Financial, formerly known as GMAC Mortgage. "This situation with GMAC isn't limited to GMAC," Margery Golant, of Golant & Golant, a foreclosure law firm in
Boca Raton, Florida
Boca Raton ( ; es, Boca Ratón, link=no, ) is a city in Palm Beach County, Florida, United States. It was first incorporated on August 2, 1924, as "Bocaratone," and then incorporated as "Boca Raton" in 1925. The population was 97,422 in the ...
, said in an interview with HousingWire reporter Jon Prior. "All the mortgage servicers do the same thing. They have people either on the inside or through outsourcers that we call Robo-signers. They just sign everything in sight, but the legal system requires that they actually know the information."
On July 18, 2011, the
Associated Press
The Associated Press (AP) is an American non-profit news agency headquartered in New York City. Founded in 1846, it operates as a cooperative, unincorporated association. It produces news reports that are distributed to its members, U.S. newspa ...
and
Reuters
Reuters ( ) is a news agency owned by Thomson Reuters Corporation. It employs around 2,500 journalists and 600 photojournalists in about 200 locations worldwide. Reuters is one of the largest news agencies in the world.
The agency was estab ...
released two reports that robo-signing continued to be a major problem in U.S. courtrooms across America. The AP defined robo-signing as a "variety of practices. It can mean a qualified executive in the mortgage industry signs a mortgage affidavit document without verifying the information. It can mean someone forges an executive's signature, or a lower-level employee signs his or her own name with a fake title. It can mean failing to comply with notary procedures. In all of these cases, robo-signing involves people signing documents and swearing to their accuracy without verifying any of the information."
Role of MERS
The Mortgage Electronic Registration Systems, known as MERS, is a
privately held company
A privately held company (or simply a private company) is a company whose shares and related rights or obligations are not offered for public subscription or publicly negotiated in the respective listed markets, but rather the company's stock is ...
that operates an electronic registry designed to track servicing rights and ownership of mortgage loans in the United States.
Since the 2010 crisis, 62 million mortgages are held in the name of MERS,
and MERS has initiated thousands of foreclosures in the United States, claiming to be the
mortgagee
A mortgage is a legal instrument of the common law which is used to create a security interest in real property held by a lender as a security for a debt, usually a mortgage loan. ''Hypothec'' is the corresponding term in civil law jurisdicti ...
of record. Lawyers have contended in court that MERS has no legal right to initiate a foreclosure, because MERS does not own the loans in question. U.S. lending laws state that only the owner of a loan can initiate a foreclosure.
Class action law suit
A class action, also known as a class-action lawsuit, class suit, or representative action, is a type of lawsuit where one of the parties is a group of people who are represented collectively by a member or members of that group. The class action ...
s against MERS are pending in
California
California is a U.S. state, state in the Western United States, located along the West Coast of the United States, Pacific Coast. With nearly 39.2million residents across a total area of approximately , it is the List of states and territori ...
,
Nevada
Nevada ( ; ) is a U.S. state, state in the Western United States, Western region of the United States. It is bordered by Oregon to the northwest, Idaho to the northeast, California to the west, Arizona to the southeast, and Utah to the east. N ...
, and
Arizona
Arizona ( ; nv, Hoozdo Hahoodzo ; ood, Alĭ ṣonak ) is a state in the Southwestern United States. It is the 6th largest and the 14th most populous of the 50 states. Its capital and largest city is Phoenix. Arizona is part of the Fou ...
. State courts remain sharply divided on the propriety of this practice.
State supreme court
In the United States, a state supreme court (known by #Terminology, other names in some states) is the supreme court, highest court in the State court (United States), state judiciary of a U.S. state. On matters of State law (United States), st ...
s in
Maine
Maine () is a state in the New England and Northeastern regions of the United States. It borders New Hampshire to the west, the Gulf of Maine to the southeast, and the Canadian provinces of New Brunswick and Quebec to the northeast and north ...
,
Arkansas
Arkansas ( ) is a landlocked state in the South Central United States. It is bordered by Missouri to the north, Tennessee and Mississippi to the east, Louisiana to the south, and Texas and Oklahoma to the west. Its name is from the Osage ...
, and
Kansas
Kansas () is a state in the Midwestern United States. Its capital is Topeka, and its largest city is Wichita. Kansas is a landlocked state bordered by Nebraska to the north; Missouri to the east; Oklahoma to the south; and Colorado to the ...
have ruled against MERS right to file for foreclosures. MERS has however won court cases in other states such as
Michigan
Michigan () is a state in the Great Lakes region of the upper Midwestern United States. With a population of nearly 10.12 million and an area of nearly , Michigan is the 10th-largest state by population, the 11th-largest by area, and the ...
,
affirming its right to initiate foreclosures in those states.
For example, the
Third District Court of Appeals in Florida ruled, in 2007, that "... it is apparent - and we so hold - that no substantive rights, obligations or defenses are affected by the use of the MERS device,
othere is no reason why mere form should overcome the salutary substance of permitting the use of this commercially effective means of business."
Attempted legislative fix
In an apparent attempt to resolve some of the issues with missing, lost, and sometimes fraudulent paperwork both the
United States House of Representatives
The United States House of Representatives, often referred to as the House of Representatives, the U.S. House, or simply the House, is the Lower house, lower chamber of the United States Congress, with the United States Senate, Senate being ...
and the
United States Senate
The United States Senate is the upper chamber of the United States Congress, with the House of Representatives being the lower chamber. Together they compose the national bicameral legislature of the United States.
The composition and pow ...
passed
H.R. 3808 which would force courts to recognize out of state and electronic notarizations. The bill passed the Senate through a
verbal vote, and wasn't publicly debated. President
Barack Obama
Barack Hussein Obama II ( ; born August 4, 1961) is an American politician who served as the 44th president of the United States from 2009 to 2017. A member of the Democratic Party, Obama was the first African-American president of the U ...
, fearing "unintended consequences on consumer protections" utilized his
veto
A veto is a legal power to unilaterally stop an official action. In the most typical case, a president or monarch vetoes a bill to stop it from becoming law. In many countries, veto powers are established in the country's constitution. Veto ...
powers, at first using a
pocket veto
A pocket veto is a legislative maneuver that allows a president or other official with veto power to exercise that power over a bill by taking no action (keeping it in their pocket), thus effectively killing the bill without affirmatively vetoing i ...
by simply not signing the bill, and later by issuing a more formal
protective-return veto.
The
Interstate Recognition of Notarizations (IRON) Act of 2010 would have required “any Federal or State court to recognize any 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.” The bill, written by U.S. Rep.
Robert Aderholt
Robert Brown Aderholt (; born July 22, 1965) is an American politician and attorney serving as the U.S. representative for since 1997. He is a member of the Republican Party. The district includes most of Tuscaloosa County north of the Black W ...
(R-AL) to help
court stenographer
A court reporter, court stenographer, or shorthand reporter is a person whose occupation is to capture the live testimony in proceedings using a stenographic machine, thereby transforming the proceedings into an official certified transcript b ...
s in his district alleviate issues with getting courts in other states to accept
depositions notarized in Alabama, came under criticism in October 2010 from homeowner advocates who said it would have made it easier for
mortgage processor
A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any pu ...
s to foreclose on homeowners without proper documentation or
chain of title
A chain of title is the sequence of historical transfers of title to a property. It is a valuable tool to identify and document past owners of a property and serves as a property's historical ownership timeline. The "chain" runs from the present o ...
.
The first version of the IRON Act (H.R. 1979), sponsored by Aderholt in 2005, passed the House of Representatives in December 2006. The same bill was later sponsored by U.S. Sen.
Tom Carper
Thomas Richard Carper (born January 23, 1947) is an American politician and former military officer serving as the Seniority in the United States Senate, senior United States Senate, United States senator from Delaware, having held the seat si ...
(D-DE) and introduced in the
U.S. Senate Judiciary Committee as S.2083 in 2007, but it ultimately stalled. The bill was again sponsored by Aderholt (R-AL) and introduced in the U.S. House of Representatives as H.R. 3808 on October 14, 2009. It passed by voice vote in the House on April 27, 2010. The bill was co-sponsored by Rep.
Bruce Braley
Bruce Lowell Braley (born October 30, 1957) is an American politician and attorney who served as the U.S. representative for from 2007 to 2015. A member of the Democratic Party, he was defeated in his attempt to win an open seat in the 2014 Uni ...
(D-IA), Rep.
Mike Castle
Michael Newbold Castle (born July 2, 1939) is an American lawyer and politician who was governor of Delaware (1985–92) and the U.S. representative for (1993–2011). He is a member of the Republican Party.
The district includes the entire ...
(R-DE) and Rep.
Artur Davis
Artur Genestre Davis (; born October 9, 1967) is an American attorney and former politician who served as a Democratic member of the United States House of Representatives for from 2003 to 2011. He was also a candidate for the Democratic nomina ...
(D-AL). The bill was voted on in the U.S. Senate on Sept. 27 at the urging of Senate Judiciary Chairman
Patrick Leahy
Patrick Joseph Leahy (; born March 31, 1940) is an American politician and attorney who is the senior United States senator from Vermont and serves as the president pro tempore of the United States Senate. A member of the Democratic Party, ...
(D-VT). Leahy's staff said that they had received calls from “constituents” pressing for passage of the bill. But Leahy may have supported the bill after being lobbied by notaries at a September event in D.C. honoring President Calvin Coolidge.
Sen.
Robert Casey (D-PA), who was ushering through many pieces of last-minute legislation on behalf of the Democratic leadership on the final day before the Senate adjourned for recess, moved the bill from the Judiciary committee for a vote. Sen.
Jeff Sessions
Jefferson Beauregard Sessions III (born December 24, 1946) is an American politician and attorney who served as the 84th United States Attorney General from 2017 to 2018. A member of the Republican Party, he previously served as United State ...
(R-AL) helped gather Republican support for the bill.
The Senate then passed the bill by unanimous consent without debate. Aderholt said that he and supporters “were surprised that it came through at the eleventh hour there” in the Senate. President Obama vetoed the bill on Oct. 8, following outcry from homeowner advocates and increased scrutiny from the press.
Ohio's Secretary of State, Democrat
Jennifer Brunner
Jennifer Lee Brunner (born February 5, 1957) is an American attorney, politician and judge. She is currently an associate justice of the Ohio Supreme Court, a position to which she was elected after serving as a judge on Ohio's Tenth District C ...
, emerged as one of the earliest critics of the bill, calling the timing of its passage “suspicious.”
Brunner organized opposition to the bill, urging citizens to call and email the President and tell him not to sign the act.
CNBC
CNBC (formerly Consumer News and Business Channel) is an American basic cable business news channel. It provides business news programming on weekdays from 5:00 a.m. to 7:00 p.m., Eastern Time, while broadcasting talk sho ...
senior editor John Carney called the bill “mysterious” and wrote that the bill “might bail out banks such as GMAC, JP Morgan Chase and Bank of America from their foreclosure gate troubles.”
Aderholt defended his bill in a statement: “There is absolutely no connection whatsoever between the Interstate Recognition of Notarizations Act of 2010 and the recent foreclosure documentation problems… The bill expressly requires lawful notarizations, and in no way validates improper notarizations. Enforcement of legal notarizations is a state responsibility and I fully support each state attorney general vigorously prosecuting all notarization fraud.”
Legal action against banks
National Mortgage Settlement
On February 9, 2012, it was announced that the five largest mortgage servicers (Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo) agreed to a historic settlement with the federal government and 49 states. The settlement, known as the National Mortgage Settlement (NMS), required the servicers to provide about $26 billion in relief to distressed homeowners and in direct payments to the states and federal government. This settlement amount makes the NMS the second largest civil settlement in U.S. history, only trailing the
Tobacco Master Settlement Agreement
The Tobacco Master Settlement Agreement (MSA) was entered on November 23, 1998, originally between the four largest United States Tobacco industry, tobacco companies (Altria, Philip Morris Inc., R. J. Reynolds Tobacco Company, R. J. Reynolds, Brown ...
. The five banks were also required to comply with 305 new mortgage servicing standards. Oklahoma under then-Attorney General
Scott Pruitt
Edward Scott Pruitt (born May 9, 1968) is an American lawyer, lobbyist and Republican politician from the state of Oklahoma. He served as the fourteenth Administrator of the Environmental Protection Agency (EPA) from February 17, 2017, to July ...
held out and agreed to settle with the banks separately.
Joseph A. Smith, Jr., the North Carolina Commissioner of Banks, was tapped to be the Settlement Monitor. He created the Office of Mortgage Settlement Oversight (OMSO) to ensure the banks were providing relief to homeowners and complying with the new mortgage servicing standards as required by the NMS.
National SunTrust Settlement
The Federal government together with state attorneys general in 49 states and the
District of Columbia
)
, image_skyline =
, image_caption = Clockwise from top left: the Washington Monument and Lincoln Memorial on the National Mall, United States Capitol, Logan Circle, Jefferson Memorial, White House, Adams Morgan, ...
reached a settlement in 2014 requiring SunTrust Mortgage, Inc., to provide $500 million in various forms of relief to borrowers. The
United States District Court for the District of Columbia
The United States District Court for the District of Columbia (in case citations, D.D.C.) is a federal district court in the District of Columbia. It also occasionally handles (jointly with the United States District Court for the District of ...
entered the Consent Order on September 30, 2014. The consent order addressed SunTrust's alleged misconduct regarding its mortgage servicing and foreclosure practices. SunTrust was also required to create a 40 million dollar fund for the approximately 45,000 SunTrust borrowers who were foreclosed upon between January 1, 2008 and December 31, 2013. In addition, SunTrust was required to adhere to significant new homeowner protections. The consent order required that SunTrust follow the servicing standards set up by the 2012 National Mortgage Settlement (NMS) with the five largest banks.
Ocwen National Servicing Settlement
The
Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau (CFPB) is an agency of the United States government responsible for consumer protection in the financial sector. CFPB's jurisdiction includes banks, credit unions, securities firms, payday lenders, mortg ...
(CFPB), together with attorneys general and state banking regulators in 49 states, and the District of Columbia obtained a Consent Judgment requiring
Ocwen
Ocwen Financial Corporation is a provider of residential and commercial mortgage loan servicing, special servicing, and asset management services, which has been described as "debt collectors, collecting monthly principal and interest from homeown ...
Financial Corporation—who at the time, was the largest nonbank mortgage loan servicer in the country—and its subsidiary, Ocwen Loan Servicing, to provide $2 billion in first lien principal reduction to underwater borrowers. The consent order addressed Ocwen's misconduct during the mortgage servicing process. It also covered two companies previously purchased by Ocwen, Litton Loan Servicing LP (“Litton”) and Homeward Residential Holdings LLC (previously known as American Home Mortgage Servicing, Inc. or AHMSI). Ocwen was also required to pay $125 million to the nearly 185,000 Ocwen, Litton, and Homeward borrowers who had been foreclosed upon and well as being required to adhere to significant new homeowner protections.
See also
*
Bankruptcy remote
A bankruptcy remote company is a company within a corporate group whose bankruptcy has as little economic impact as possible on other entities within the group. A bankruptcy remote company is often a single-purpose entity, and frequently deployed ...
– a desired feature of vehicles like REMICS
*
Chain of title
A chain of title is the sequence of historical transfers of title to a property. It is a valuable tool to identify and document past owners of a property and serves as a property's historical ownership timeline. The "chain" runs from the present o ...
*
Financial crisis of 2007–08
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...
*
Occupy Homes
Occupy Homes or Occupy Our Homes is part of the Occupy movement which attempts to prevent the foreclosure of people's homes. Protesters delay foreclosures by camping out on the foreclosed property. They also stage protests at the banks responsibl ...
– a protest movement in order to save foreclosed homes.
*
Real estate mortgage investment conduit A real estate mortgage investment conduit (REMIC) is "an entity that holds a fixed pool of mortgages and issues multiple classes of interests in itself to investors" under U.S. Federal income tax law and is "treated like a partnership for Federal i ...
(REMIC)
*
Shadow banking system
The shadow banking system is a term for the collection of non-bank financial intermediaries (NBFIs) that provide services similar to traditional commercial banks but outside normal banking regulations. Examples of NBFIs include hedge funds, ins ...
References
{{DEFAULTSORT:2010 United States Foreclosure Crisis
Great Recession in the United States
2000s economic history
2010s economic history
United States Foreclosure Crisis, 2010
Fore
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United States housing bubble
Urban decay in the United States
Foreclosure