President rejects foreclosure document bill

WASHINGTON -- President Barack Obama has rejected a bill that the White House fears could worsen the mounting problems caused by flawed or misleading documents used by banks in home foreclosures.

White House press secretary Robert Gibbs said Thursday that Obama is sending a newly passed bill back to Congress to be fixed because the current version has "unintended consequences on consumer protections." The bill would loosen the process for providing a notary's seal to documents and allow them to be done electronically.

Obama will not sign a bill that would allow foreclosure and other documents to be accepted among multiple states. Consumer advocates and state officials had argued the legislation would make it difficult for homeowners to challenge foreclosure documents prepared in other states.

The White House said Thursday it is sending the bill back to Congress for revisions, and that the administration would work with lawmakers on it.

O. Max Gardner, a consumer lawyer in Shelby, N.C., said the bill would have worsened the problems with foreclosure documents. That's because mortgage companies would have been able to mass-produce documents and affix a digital version of a notary's seal rather than one on paper.

"They could process more foreclosure cases with improper and invalid documents and make it more difficult for consumers to try to fight," he said.

A furor has been growing as mounting evidence has surfaced that mortgage lenders have been evicting homeowners using flawed court papers. State and federal officials have been increasing pressure on the mortgage industry over concerns about potential legal violations.

Also on Thursday, Senate Majority Leader Harry Reid, D-Nev., urged five large mortgage lenders to suspend foreclosures in Nevada until they have set up systems to make sure homeowners aren't "improperly directed into foreclosure proceedings." Nevada is not among the states where banks have suspended foreclosures.

Jeanne Rivard, a retired real estate broker in Las Vegas, said she contacted Reid's office earlier this week requesting that Nevada be added to the 23 states where foreclosures are being frozen.

The rules of foreclosure are vastly different in nonjudicial foreclosure states such as Nevada, where lenders do not need court approval to start the process. However, if major lenders are admitting to fraudulent acts in 23 other states, it raises the question of similar acts in Nevada, Rivard said.

That's why the attorneys general in Texas and Maryland, also nonjudicial states, are pursuing foreclosure delays.

"I've been digging pretty deep into this situation for a couple years and it's amazing how much fraud you can uncover," Rivard said. "This is not an issue of messy paperwork where someone forgot to dot the 'i' or cross the 't.' "

Review-Journal writer Hubble Smith contributed to this report.