Maryland official calls foreclosure crisis a freaking mess'
State officials try to untangle morass of faulty practices
Attorney General Douglas F. Gansler (D) has joined his 49 counterparts across the country in calling for a halt to current and pending home mortgage foreclosures to sort out a situation that his spokeswoman calls a "freaking mess."
The national scandal involving mortgage companies foreclosing on delinquent homeowners without properly following procedures is only the tip of a complex legal iceberg, state officials said.
While the attorneys general are immediately focused on allegations of "robosigning" the recently unearthed practice of mortgage service company employees signing foreclosure affidavits without even reading them, let alone making certain the information was correct the issues involved may be even broader.
Meanwhile, as some large institutions voluntarily put their foreclosure proceedings on hold and others consider doing so at the request of the attorneys general, homeowners and banks in the process of buying and selling foreclosed homes are left in limbo, said Raquel Guillory, Gansler's spokeswoman.
"This is a huge freaking mess," Guillory said.
So far, only Bank of America has voluntarily stopped foreclosures in Maryland, as requested earlier by Gansler, Gov. Martin O'Malley (D) and U.S. Rep. Elijah Cummings (D-Dist. 7) of Baltimore. Their letter had requested the foreclosures be voluntarily put on hold by Tuesday.
Since their request, however, two lawyers in Maryland have admitted that they had not signed off on all of the real estate documentation that passed through their offices, leading to a class-action lawsuit being filed this week and increased calls for a moratorium in Maryland.
Many of the small, commercial banks in Maryland do very little residential mortgage lending, and those that have typically use it as part of their portfolio, said David G. Danielson, president of Danielson Associates of Bethesda, which does consulting work for banks.
But many other banks that issued mortgages often sold them to others electronically, so that the paper documentation and reviews failed to keep up with the loans being packaged and sold to the large servicers.
That resulted in the large institutions unable to keep up with the crush of reviewing documents when homeowners became delinquent, Danielson said.
But the situation also has revealed that not only are there issues with delinquent mortgages, but many banks and mortgage servicers failed to follow all of the state and county laws in different jurisdictions involving the buying and trading of mortgages, Danielson said.
"There's going to be class-action suits," Danielson said. "The problem is every state and every county has different rules. This is the way we trade securities. We all trade in an electronic format and they put it into electronic format."
But nearly every state requires signed, paperwork documentation for foreclosure procedures and mortgages, he said. In essence, the housing market boom led banks and mortgage servicers to create their own electronic system that circumvented local laws.
"But the system had worked extremely well," Danielson said.
Danielson has followed the twists and turns of the issue. For example, some homeowners who are not delinquent might take the chance of not making their mortgage payments with the idea that the servicer might not possess the required paperwork to force a foreclosure. Or investors in mortgage-backed securities might sue mortgage lenders for not making full disclosure on troubled loans.
"I read it and put my head down and I don't know how you get out of a legal mess like this easily. There are too many moving parts, too many parties involved," Danielson said.
How deeply the attorneys general will probe into the issue is unknown, Guillory said.
"We want a thorough review of all [the mortgage companies'] procedures," she said.
In Maryland, lawyers Jacob Geesing of Bethesda and Thomas P. Dore of Hunt Valley acknowledged in court filings that the affidavits they had submitted had been signed at their direction but not actually by them, as required by state law, as first reported in The (Baltimore) Sun this week.
That resulted in a class-action lawsuit being filed Wednesday in U.S. District Court in Greenbelt. Geesing and Dore could not be reached for comment.
Maryland's congressional leaders were joined by O'Malley in a letter to the state's Chief Judge Robert M. Bell of the Maryland Court of Appeals, requesting that state courts halt all foreclosures in Maryland for "at least 60 days" to ensure mortgage companies are following proper procedures.
O'Malley spokesman Shaun Adamec said the two lawyers' admission of falsely signed affidavits adds another reason for the courts to halt foreclosures while the procedures are reviewed.
Steve Meszaros, immediate past president of the Maryland Association of Realtors, said shareholders should demand that mortgage companies work with delinquent homeowners instead of just foreclosing at a pace so fast they have not been able to keep up with the paperwork.