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While the mortgage industry grapples with a legal morass over millions of flawed foreclosure actions, the chief of New York’s courts made a bold move yesterday to ease the crisis — at least in the Empire State.
New York Chief Judge Jonathan Lippman issued a new rule yesterday requiring every lawyer handling foreclosures to sign a document verifying that the paperwork in the case is accurate. Failure to meet the new standard could result in disbarment or other sanctions.
The move comes as attorneys general in all 50 states and the District of Columbia are investigating the glut of shoddy foreclosures bedeviling the housing industry and financially strapped homeowners.
Realtors, banks, buyers and the courts are complaining loudly about foreclosure cases tainted by improper documentation and rubber-stamped without any review.
Lippman said his rule will for the first time force lawyers to put their careers on the line in foreclosure cases with a binding document that replaces prior “good practices” pledges that had little bite.
“We want to make sure that everyone is focusing like a laser on these particular types of proceedings,” Lipmann said.
Some 78,000 homeowners are already caught up in foreclosure cases around the state. To make a case go forward, the new rule requires lawyers to include the name of a bank employee who affirmed the case facts as correct and the date it was done.
Meanwhile, the foreclosure crisis turned into a bigger political football. The White House sided with the banks yesterday, saying it found no sign of “systemic” troubles from shoddy mortgage foreclosure practices.
The nation’s largest lenders temporarily suspended foreclosures to sort out their errors, but Bank of America and GMAC both said they would partially lift their freezes, insisting they’d found nothing to warrant the suspension.
Investor lawsuits also continued to emerge against financial institutions regarding troubled mortgage-backed securities. A group of eight investors, including the Federal Reserve Bank of New York, accused Bank of America of wrongly pooling junk mortgages into more than $47 billion of bonds.
Fannie Mae sued insurance companies, including Great American Financial Resources and The Travelers Companies, blaming them for $131 million in claims Fannie paid for fraudulent mortgage loans.
Bank of America also sued the Federal Deposit Insurance Corp. over $1.75 billion of investor losses stemming from the 2009 collapse of a large regional bank and a large mortgage lender for which the bank is a trustee.
Meanwhile, Gov. Paterson yesterday signed a bill that would enable homeowners who successfully defend themselves against foreclosure proceedings to be awarded lawyer’s fees from the lender that sued them.
Previously, mortgage holders had no recourse to get lawyers’ fees from lenders if foreclosure proceedings were brought against them. Many simply repped themselves or defaulted, said Assemblyman Rory Lancman, a Queens Democrat, who co-sponsored the bill.
Additional reporting by Jennifer Fermino