Why does this matter? Let's say that Mr. Jones is laid off and Mrs. Jones develops some severe health issues that not only make it impossible for her to work, but also generate large medical bills. Mr. and Mrs. Jones aren't alone, one in every 492 U.S. housing units received a foreclosure filing during a recent month. Suddenly the Jones's can't afford their mortgage and miss six months mortgage payments.
Now, the Servicer comes knocking: "You haven't paid us. We want our money or this house." To support the complaint that the mortgage hasn't been paid, the servicer must have an affidavit that verifies the trust actually does own the mortgage, and thus is owed six months of payments. The Servicer starts foreclosure proceedings.
In order to do so, someone at the Servicer company had to personally swear on an affidavit in front of a notary that the mortgage's ownership had been verified (and was owned by the Servicer's principal) and that the homeowners owed back mortgage payments. This process is supposed to be done for each and every foreclosure.
And that is the problem. With all the foreclosures from the financial downturn, "robo-signers" from the banks were robotically signing off on literally hundreds of thousands of affidavits. And this is where the verification process loses its credibility.
First, the servicer's robo-signer signing off on these affidavits may not have been checking every single one to see that the trust indeed owned the mortgage note. Second, the notarization was not conducted by a human being who verified that the information was what it purported to be, but was done electronically.
However, the guiding principles behind electronic notarizations are the same as the guiding principles around paper notarizations. Instead the robo signed documents were "notarized" electronically often several months later. Again at some time other than the date of the document.
Bryan Bly a "robo- signer" at Nationwide Title Clearing Inc. (which helps banks with paperwork), signed his name on an average 5,000 mortgage documents a day for companies such as Citigroup Inc. and JPMorgan Chase & Co. Of course, Mr. Bly wasn't sitting at his desk signing his name. Nationwide Title employs a computer system that automatically inserts a copy of Bly's signature on thousands of digital files that he never saw. The system also affixed an electronic notary seal.
What does this mean for our jobless and health problem ridden couple? They don't know who owns their mortgage, which means payments could have been going to the wrong company. And now that they're in trouble and need help, such as a loan modification, they don't know which company to turn to.
Worse, if the original sale of Mr. and Mrs. Jones's mortgage was never processed correctly and never verified at each step it was sold, then the trust cannot lawfully claim that it owns that mortgage. Or, suppose Local Bank has declared bankruptcy (not uncommon for banks starting in 2007). Now creditors of Local Bank can claim the Jones' mortgage as an asset of the now-bankrupt bank.
If Mr. and Mrs. Jones's paperwork got lost in the process or buried in a box somewhere, verifying to whom the couple owes money gets tricky. Throw in robo-signing and the fact that their loan was bought and sold a few times over without being verified, and it's difficult to determine who legally owns their mortgage. Lawsuits fighting some of the more than 4 million foreclosures since 2006 have exposed sloppy recordkeeping and raised questions about the validity of documents used to seize properties
So when the Servicer starts foreclose proceedings on the Jones' home, does it have the authority to do so? Not if the loan was not correctly sold at each and every step. We now know so many of these parties foreclosing have no contractual right to foreclose. And, the plot thickens.
Nationwide Title, which has about 175 employees, provides document imaging, tracking, retrieval, recording and processing on bulk loan transfers for lenders, servicers and investors. It's the largest third-party processor of mortgage assignments, handling more than 350,000 last year. The company also prepares lien releases, which show that a mortgage has been paid off by the borrower.
Assignments, which are usually recorded with county land record departments, list the buyer and seller of a loan as it's sold or packaged with other loans into a mortgage-backed security. Lawyers for homeowners are challenging the legitimacy of these documents, which are relied on by lenders to show they have the right to foreclose.
The Nationwide computer system filled in the electronic assignments for recording in the format and wording each county requires, and places a signature and notary seal from a list of employees approved by each bank. Bly and other signers are given a title at the client bank requesting Nationwide to prepare documents, such as "Vice President" or "Assistant Secretary," depending on what the individual counties require. However, of course, the Nationwide employees are not employees of their client banks.
The law requires that somebody review these documents. The person who signs the document makes a statement that they have read it. While the law allows for electronic signatures and seals on assignments and lien releases, the signer must physically appear before the notary, and the notary must affirm the signer's identity, that the signer is aware of what the document is, and that the signer is willingly executing it.