A moratorium on foreclosures by major mortgage lenders may give embattled Arizona homeowners a sliver of hope that their homes can be saved, while the questions it raises could lead to a rush of lawsuits and scams.
The circumstances that led Bank of America and other lenders to halt all foreclosures in the United States don’t exist in this state because Arizona uses a different system for home mortgages than the one that prompted the moratorium. Industry experts are taking a wait-and-see attitude as they try to determine what impact the moratorium will have in Arizona, one of the hardest hit states in the nationwide housing crisis.
“It’ll take a long time for the dust to clear and for it all to be eventually resolved,” said Jim Nearhood, a Scottsdale real estate attorney.
For many people who were facing foreclosure when the freezes were announced, the moratorium will likely be nothing more than a temporary reprieve from an inevitable end. And many people who were underwater on their mortgages were foreclosed on after walking away from their homes voluntarily, experts said.
But the moratorium opened the door to questions over whether major lenders, including those in Arizona, erred in processing foreclosures.
Some industry experts predicted that the court system will see a wave of lawsuits from homeowners who question the validity of their foreclosures, and that shady mortgage consultants would emerge to take advantage of people who believe their foreclosures could be halted or reversed.
Nearhood predicted a “tsunami of litigation,” and said he’s already received calls from people who are contemplating lawsuits over their foreclosures.
Others, however, said most people who consider such lawsuits simply misunderstand the situation; these are the same people who might be misled by scammers who say they can help them recover their homes.
“There will be a lot of fraud going on and taking advantage of the fear by unscrupulous parties, taking advantage of the controversy,” said Christopher Perry, an attorney and member of the Arizona Trustee Association. “Private individuals who read about this are not going to know what to do.”
Arizona is one of 27 states that primarily use deeds of trust instead of traditional mortgages to back home loans. Bank of America began its moratorium in the 23 states that primarily use traditional mortgages, which are rarely used in Arizona. It later expanded the freeze in all 50 states.
Under the deed of trust system, a lender can foreclose in 90 days if a homeowner is in default, but the homeowner is not held legally liable for the outstanding debt on the mortgage. The system does not require a court hearing, and does not use the affidavits that became the focus of the moratoriums. If Arizona homeowners believe a foreclosure is unwarranted, the onus is on them to sue to halt the proceedings.
Some of those foreclosures, however, may have been initiated based on inaccurate information, experts said, and until Bank of America and other lenders finish reviewing old cases, it would be impossible to determine how many people should have kept their homes.
Political leaders are calling on other lenders to halt foreclosures, and all 50 state attorneys general announced a joint investigation on Oct. 13 into foreclosure documentation by mortgage companies. The announcement came several days after Arizona Attorney General Terry Goddard sent a letter to more than 60 lenders in Arizona warning that they could be charged under the state’s Consumer Fraud Act if they improperly signed documents.
Ginna Green, a spokeswoman for the Center for Responsible Lending in California, said it would be premature to assume that some people didn’t lose their homes unfairly. Even in states like Arizona, which don’t have the affidavits or the judicial review process, banks lost key pieces of paperwork, foreclosure notices were delivered to the wrong homes, and other errors were rampant, she said.
“I don’t think there’s any way to know how many, if any, foreclosures might not have taken place,” said Green, who applauded the moratorium. “These are problems that occur in all states.”
The problem that led Bank of America to suspend foreclosures is that independent agents hired by lending institutions to deal with the avalanche of foreclosures triggered by the housing crisis improperly signed documents indicating they had thoroughly reviewed the cases, when in fact they may not have even looked at them. In other cases, the “robo-signers,” as they are sometimes called, may have forged signatures or listed inaccurate information to expedite the process.
“I’ve seen a lot of sloppiness, yes,” said Thomas Stoops, an attorney with the firm Stoops Denious Wilson & Murray. “And I think it’s due to the fact that you’ve got one person doing the job of 10 because none of the banks ever expected to have this kind of volume of foreclosure. It’s unprecedented.”