The budding housing recovery in the United States owes a lot to Thomas Cox, a retired Maine attorney who went from representing the corporate interests of big banks to uncovering the robo-signing scandal that resulted in the historic National Mortgage Foreclosure Settlement Agreement of 2012. The Portland lawyer recently accepted a $100,000 Purpose Prize for his work towards fostering the public good, and he spoke with liberal political blog Firedoglake about yet another nefarious foreclosure practice in use by mortgage lenders and servicing institutions: Robo-witnesses.
Mr. Cox blew the lid on the robo-signing scandal when he represented a borrower facing foreclosure from GMAC Mortgage, the failed and defunct lender now known as Ally Financial. A deposition by a self-described signing officer for GMAC admitted that he had signed thousands of foreclosure documents in several states, without even knowing what the documents were about. That deposition opened Pandora's box for the five major mortgage lenders in the country, but it also momentarily froze the foreclosure process and provided an opportunity for the housing market to recover.
Scalability and Costs Lead to Robo-Malfeasance
In states where foreclosure is a judicial process, borrowers have a number of legal defenses they can raise against the plaintiff banks that are after their homes. Mortgage lenders hit a major snag with regard to scalability once foreclosures started to pile up at their loss mitigation departments. According to an investigation by several state attorney generals into the dubious foreclosure practices of Ally, Bank of America, Citigroup, JP Morgan Chase, and Wells Fargo, these five banks resorted to robo-signing as a way to move files through the courts.
The massive agglomeration of foreclosures led to a major scalability for these banks. Instead of conducting a formal legal review of a foreclosure file to ensure that it was legal for them to actually proceed following a lis pendens notice, banks simply appointed an employee who could sign at a lighting pace. The cost to the banks to actually follow through with the foreclosure process as the law requires it would have been astronomical, which may be a reason for the increase in short sale approvals in 2012.
Now that robo-signing has been nixed per the terms of the National Mortgage Foreclosure Settlement Agreement, Mr. Cox believes that banks are now sending representatives to court who still don't know too much about each foreclosure case they show up for. These robo-witnesses are essentially trained actors who show up to court with a prepared script. They will swear on the authenticity of the filings and the bank's right to foreclose, but what do they really know about the case in question?
To actually employ expert witnesses with intimate knowledge of each foreclosure case that ends up in court would be a huge expense for the plaintiff banks. Robo-witnesses are a much more affordable option, specially when the homeowners stop fighting the process. There is an advantage, however, in the sense that these robo-witnesses could easily be exposed with the right cross-examination.