New Foreclosure Scandal Impacts LGBT Buyers and Sellers

A new drama in the foreclosure markets has shocked the real estate industry, is another sensational scandal for the mortgage sector, and is being carefully scrutinized by many consumer watchdog groups.

The gist of the fresh turmoil is simple. The fundamental legality of the foreclosure process followed by major mortgage lenders is being questioned. There is a strong possibility that tens of thousands or even millions of foreclosures that were transacted within the last 2-3 years have no sound legal basis and are, in fact, fraudulent.

The enormity of it all started to come to light last month when major lenders – including J.P. Morgan Bank, Bank of America, and GMAC’s mortgage division – issued a moratorium on foreclosures to give them time to reexamine their paperwork and procedures. Fannie Mae stopped doing business with a law firm that had been handling massive numbers of their foreclosures because they question the legality of its methods, and offices of the Attorney General in all 50 states began investigating foreclosure practices.

One lawyer working to process foreclosures – including those against LGBT borrowers – instructed staff members to sign about 1,000 foreclosure documents per day. That’s more than one every 30 seconds, which means it was impossible to read the documents before they were signed. Employees of that legal firm stated under oath that when the designated signers got tired they just asked other people in the office to sign them on their behalf.

So signatures on many important affidavits – like those that confirm how much a LGBT borrower owes on their mortgage – are fraudulent. Many cannot be validated, for example, because two signatures that are supposed to be from the same person bear no resemblance to one another. In other cases signatures were ostensibly witnessed in the presence of an official notary public, but the notary’s address was hundreds of miles away from the address where the documents were signed and supposedly witnessed.

Bear in mind that many of the documents themselves – even before they got processed with obviously forged signatures – were somewhat questionable. Thousands of affidavits submitted to foreclosure judges, for instance, essentially state that the mortgage company “attests to the fact” that it cannot find paperwork to prove that it has the authority to foreclose, but that the paperwork is somewhere in the lender’s files. Even though they cannot fully demonstrate that they have the right to do so, in other words, lenders are evicting LGBT homeowners and auctioning off their houses.

According to reporters from NPR and the New York Times, courts and judges have been pretty much going along with the process, and in some states retired judges have been reactivated out of retirement to help process foreclosures faster. They are given benchmarks for performance based on how many foreclosures they can push through the system, and in some courts judges are ruling on as many as 1,000 cases per month. To facilitate this kind of volume many of these judges work not in traditional courtrooms but from behind desks that are literally in the hallways of courthouses. People line up in the overcrowded halls to plead their cases for keeping their homes or having loans modified, and lots of cases are heard and decided in a matter of just one or two minutes – which does not give the homeowner time to explain anything.

But these observations are not limited to disgruntled LGBT borrowers or investigative reporters. There are sheriffs who have stopped enforcing foreclosure actions in their counties because they are not convinced that lenders have enough proof. In some regions of the USA title companies have even stopped guaranteeing clear title to properties that have changed hands due to foreclosure because the title companies are not convinced that the transactions are entirely legal. Investors who put up the money for mortgages that funded properties that ended up in foreclosure are also threatening to sue banks and other lenders for negligence based on a lack of proper documentation.

Many experts believe that judges will ultimately side with the powerful banking industry and rule that these foreclosure paperwork oversights are acceptable. That would help cure the bottleneck of foreclosure proceedings clogging up the courts and it would be a big boon for mortgage lenders. It would also help rid the housing market of unsold foreclosure inventories which would push real estate prices higher.

But if a court does deem a foreclosure invalid, either because the lender didn't have the correct paperwork or because the borrower was not actually in default, the title will revert back to the original owner. That could happen even if in the meantime the home was sold through foreclosure to somebody new.

Naturally this situation has many LGBT buyers and homeowners wondering what it might mean to them in terms of their financial or real estate circumstances. Right now nobody knows for certain, and only time will tell what the courts decide.

To find ethical, trustworthy real estate and mortgage professionals dedicated to active support of the LGBT community, visit www.GayMortgageLoans.com and www.GayRealEstate.com, or call toll free 1-888-420-MOVE (6683).