Shady foreclosure practices come to light

There have been a succession of news stories such as this one in yesterday’s New York Times detailing how major mortgage lenders around the country are freezing all foreclosure activity so they can review their methods of conducting foreclosures. Some of the abuses that have been exposed include lender employees signing batches of affidavits purportedly “with personal knowledge of the facts stated therein” when the employees have know knowledge of the facts stated.

Another problem is that many loans aren’t even owned by the lender commencing the foreclosure: during the go-go period of mid-decade, mortgages were shipped off to Wall Street before the ink on the borrower’s signature was dry so that the mortgages could be pooled and repackaged as bonds and sold to gullible investors. The faster the mortgages were transferred, the faster everyone in the chain made money. So no one worried much about legal technicalities. Now that so many of those mortgages are in default, those legal technicalities loom large and aren’t really technicalities after all, but fundamental requirements of property law and the widespread violation of these legal principles by lenders now jeopardizes the title of thousands of previously foreclosed homes. In many cases the foreclosure will have to be done over and those who suffer consequential damages as a result will have their own causes of action.

While many of these problems undoubtedly exist in Massachusetts, they have been slow to come to light because in the Commonwealth, a mortgage foreclosure is largely a private event conducted by the lender with no judicial oversight. The burden is on the borrower to initiate a lawsuit in order to raise any of these defects as defenses. As a practical matter, when a homeowner is on the verge of foreclosure, he’s probably more concerned with where he will next live than the basics of property law. Consequently, many of these defects have passed through unquestioned and they sit as hidden land mines for current and future property owners. A story in today’s Globe provides more details of the process in Massachusetts and explains how efforts by some legislators including State Senator Sue Tucker to require some judicial oversight of foreclosures failed to gain any real support in the legislature.