Late yesterday, Bank of America became the latest large mortgage lender to suspend foreclosures as it double-checks its paperwork. In about 23 states, mortgage lenders are required to double-check mortgage documents before they file foreclosure actions in court, but banks, one by one, are realizing they haven’t been doing so. In any state, banks may waste as much as $100,000 in administrative costs and legal bills for every erroneous foreclosure they file, so it saves money for them to verify each foreclosure before they file it. Instead, banks have been signing off on mortgage documents after just seconds of review, not the hour or two that would be required to make sure that the documents go together.
The result of this neglect: tens of thousands of court hours wasted. Probably about one percent of foreclosures have been filed against the wrong person, by the wrong bank, or for loans where a borrower was making payments. Banks have been bypassing the federal programs designed to prevent unnecessary foreclosures. A small number of foreclosures will surely be overturned on appeal; a larger number will have to be done over with new court filings.
Defense attorneys and community organizers have been warning about this problem for more than two years. Lenders are only looking at it now because major news organizations and state law enforcement officials have started to take the problem seriously.