As the foreclosure practices of many of the nation's largest mortgage lenders have come under scrutiny in recent weeks, attorneys such as Andrew Cookson suddenly feel vindicated.
For nearly two years, Cookson and Chapel Hill lawyer Paul Dobelstein have been in Triangle courtrooms arguing that loan documents were being mishandled. The two have represented 40 homeowners over that time.
"We've just been trounced on this for trying to get the documentation the right way," Cookson said.
Now, allegations of mishandled documents and "robo signers" churning out affidavits without reviewing documents have led more than a dozen mortgage lenders to halt foreclosures.
But Cookson and other consumer-rights attorneys say a moratorium will accomplish little if it doesn't result in increased oversight and tougher enforcement of the mortgage servicing industry.
In North Carolina, Attorney General Roy Cooper's office is reviewing the state's top 15 mortgage companies' foreclosure processes to make sure they are fair and legal. The state has also joined a multistate investigation into the management of the foreclosure process by mortgage servicers.
Cookson says if North Carolina is serious about curbing abuses it needs to impose penalties on mortgage servicers that don't follow the rules.
"Right now, nothing happens to these people," he said. "If at least there are penalties imposed, that gives us on the other side something to push for."
A number of mortgage lenders and industry analysts have said they expect the issues related to foreclosures to be resolved within weeks.
But Jack Lloyd, head of Legal Aid of North Carolina's mortgage foreclosure prevention project, said fixing the mess will take longer.
"We've been dealing with this stuff for so long it's hard to say they're just going to stop for a month and get things straight," he said. "Well, they can't get things straight in a month. They can't get things straight that quickly because what is going to have to happen in these cases is going to require a lot more time and a lot more work."
Lloyd said many of the questionable practices that have been exposed in recent weeks are not new.
"It's the volumes that have increased, and that makes people pay attention to it," he said.
Consumer-rights attorneys say more oversight of loan assignments also is needed to ensure that they are properly recorded.
Who has the note?
Much of the current confusion stems from a lack of clarity about who owns and holds the notes on mortgages.
In order for lenders or mortgage servicers to legally foreclose on a house, they must go before a clerk of court and prove a debt is owed and they're the holder of the note. An affidavit is typically provided to show that proof.
Before the emergence of mortgage-backed securities, which are bundles of home loans packaged and sold off to Wall Street investors, the owner and the holder of a mortgage note were often one in the same.
That is no longer the case.
Cookson said most people assume the bank servicing their loan also owns and holds the note on their mortgage. But their loan has probably been securitized, meaning it is now owned by an investment group.
That investment group then hires a loan-servicing company to hold the note and handle foreclosure proceedings against a delinquent borrower, meaning their identity may never be revealed in property records or during the foreclosure process.
"Figuring out who owns and holds these notes - it's a huge problem," Lloyd said. "The parties who are proceeding don't know themselves who the holder is a lot of the times. And that's why they're getting into trouble with affidavits."
Though the nefarious activities of some people have drawn headlines in recent weeks, Lloyd said, they are likely the exceptions.
"Are there really bad guys that are out there doing this stuff? Yes," he said. "On a smaller level, and affecting probably a lot more people across North Carolina, are the affidavits that are being signed in ignorance."
The fact that some loan-servicing companies are now having their business practices called into question is largely the result of a growing cooperation among attorneys who represent consumers, said O. Max Gardner III, a bankruptcy lawyer in Shelby.
He said it costs about $5,000 to take a deposition these days, money most homeowners facing foreclosure do not have.
"It's a very expensive proposition," Garner said. "I think the decision was made that these line workers, 'robo signers' if you want to call them that, that they would probably tell the truth if they were put under oath about what they were really doing. They probably didn't really know that much about what they were doing from a legal point of view."
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