Loophole unlikely to affect Nevada foreclosures

As a nonjudicial foreclosure state, Nevada isn't likely to see JP Morgan Chase, GMAC and now Bank of America back off from foreclosing on thousands of homes because of documentation legalities.

The core issue for those lenders appears to be affidavits that were signed by representatives who had not read or did not verify what they were signing.

Nonjudicial foreclosure means a bank or the lender can foreclose on a property without court approval.

Some people are taking it a step further, arguing that lenders must produce the original promissory note signed by the borrower before they can initiate foreclosure.

The task seems simple enough, except that over time, those loans have been bundled, securitized and traded among international institutions. The original note could be held by someone in China.

Lenders created the Mortgage Electronic Registration System, or MERS, to simplify the way mortgage ownership and servicing rights are originated, sold and tracked, but even that has been challenged as not meeting legal requirements for foreclosure.

Does that mean free homes for everybody?

Highly doubtful, said Sean O'Toole, chief executive officer of Discovery Bay, Calif.-based foreclosure tracking firm ForeclosureRadar.

"It's certainly been blown up with the GMAC and Chase announcement, but I think it's really gotten legs because people are jumping to the conclusion that this is the tip of the iceberg for something much bigger," O'Toole said. "I'm disagreeing with that. I'm still struggling with that."

There's another law called "unjust enrichment," he said. If someone borrows $100,000 for a home, which is documented at the time of purchase, and then stops making payments because the lender can't find a piece of paper, it seems unfair for any judge to give that person a free home, O'Toole said.

Also, people need to understand that a lot of these loans are owned by the federal government -- Freddie Mac and Fannie Mae -- and that taxpayers are "on the hook" for them, he said.

Bank of America said Monday that it will delay foreclosures on properties in 23 states to review whether its employees signed off on foreclosure documents without reading them. That follows last week's announcements from JPMorgan Chase and Ally Bank, a subsidiary of GMAC Mortgage.

The Florida Supreme Court in February ruled to require verification of mortgage foreclosure complaints. The ruling's primary purpose is to provide incentive for the lender to "appropriately investigate and verify its ownership of the note or right to enforce the note," the court said.

O'Toole said he places far more blame for the foreclosure crisis on lenders and the government than homeowners, but he doesn't believe paperwork errors should result in free homes.

It's one thing if the error leads to a lender trying to foreclose on someone who is making payments, O'Toole said. The foreclosure process should be stopped while that person gets his day in court.

"But that's not the argument here. Instead, they're saying they should get to stay in their home even though they stopped making their payments," O'Toole said. "While the wild conjecture is entertaining, I remain convinced that these affidavit and chain-of-custody issues will ultimately be resolved and amount to nothing more than foreclosure delays and a lot of attorney fees."

Las Vegas homeowner Ronald Williams sued JP Morgan Chase, Chase Home Finance and Cooper Castle law firm, alleging that agents for the bank misrepresented their authority to collect mortgage payments after Chase took over Washington Mutual.

"They're collecting mortgages on notes that were gone," Williams told the Review-Journal in June. "Chase has nothing to do with my note at all. They're pretending they do. They're extorting money under cover of the note. I believe a lot of people have left their home in a foreclosure that was fraudulently filed."

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.