The latest reports reveal foreclosure filings continue to increase, rising 4 percent in August. Currently, foreclosure filings – including default notices, bank repossessions and scheduled auctions – are on pace to exceed 3 million by the end of 2010. However, a new issue may worsen and prolong the crisis, according to Bloomberg.
Foreclosure proceedings have been halted by major lenders in 23 U.S. states due to erroneous, and in some cases, fraudulent, paperwork. Homeowner lawsuits have been filed against Ally Financial and J.P. Morgan Chase, both of which have been forced to suspend proceedings in order to conduct a mass review of foreclosure documents. Five other major lenders, including Bank of America, are also re-examining their paperwork for procedural mistakes.
In addition to homeowner lawsuits, many state officials are launching investigations to determine if fraudulent or falsified documents were used during foreclosure proceedings. For example, one GMAC employee stated that he, along with a team of 13 others, pushed through at least 10,000 foreclosure documents in a monthly time period without confirming the accuracy of its contents, Bloomberg reports.
“This is going to become a hydra,” Wayne State University Law School professor Peter Henning told Bloomberg. “You’ve got so many potential avenues of liability. You don’t even know the parameters of this yet.”
Paperwork issues will not only affect distressed homeowners, but buyers of foreclosed homes as well. Individuals who purchase foreclosed homes may face issues surrounding the validity of titles – meaning new homeowners may have trouble proving they are the legal owners.
Analysts say foreclosure backlogs, continued mortgage defaults and paperwork issues are expected to intensify the mortgage crisis and further hinder economic recovery.
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