Headaches Increase For Mortgage Lenders And Their Law Firms

The U.S. Federal Reserve has weighed in on the foreclosure mess, not exactly on the side of homeowners, but definitely not on the side of the banks.

The New York Fed has joined investment giants Pimco and BlackRock, among others, in demanding that Bank of America buy back some of the mortgage securities it sold from 2004 to 2008.

The Fed's action is quite a turnabout. Having twice bailed out Bank of America, the Fed is taking action that could cost the bank and its shareholders billions of dollars.

Bank of America already has a headache on its hands, dealing with defense attorneys and state attorneys general who maintain many of its foreclosures were not handled properly.

After Bank of America announced this week that it would resume foreclosures in 23 states, refilling paperwork deemed to be questionable, Ohio Attorney General Richard Cordray cautioned against that, warning the bank could face "significant financial exposure" over its previous filing process.

Bank of America said it is proceeding because no foreclosures were unjustified.

Depositions

In Florida, meanwhile, Attorney General Bill McCollum has released depositions of former employees of the Law Officers of David J. Stern, which was hired by several loan servicers to process foreclosure documents.

Kelly Scott, who worked as a legal assistant at the firm, testified that the staff prepared hundreds of foreclosure files each day, which were supposed to be read, signed and notarized by a senior employee. Scott testified that didn't usually happen that way.

     A. Cheryl would come in twice a day, in the morning and mid-afternoon, around two or three o'clock, and she would sign all of them; every single one of them.

Q. But they've already been notarized?

A. They've already been notarized.

Q. And what about witnessed?

A. There was no witness there

Q.  There was no witness there at the time

A.  None whatsoever.

Clark testified that once the affidavits had been signed by her superior, paralegals would pick up the documents and notarize another paralegal's signature as having witnessed the signing. While banks have dismissed the process as "flawed paperwork," some attorneys genereal view it as fraud.

McCollum's office is investigating the Stern law office, as well as The Law Offices of Marshall C. Watson, which also performed foreclosure work for loan servicers.

McCollum said both firms are under investigation for their alleged involvement in presenting fabricated documents to the courts in foreclosure actions to obtain final judgments against homeowners.