State AG takes aim at mortgage wolves

Washington Attorney General Rob McKenna sent a letter last week to the 52 trustees who shepherd mortgage paperwork toward foreclosure. At least a few, it seems, have been very bad shepherds.

It’s about what you would expect from people working for the wolves, whom McKenna addresses as “Dear Foreclosure Trustee.”

Not a greeting many of the 18,000 Washington homeowners who have received foreclosure notices this year might use. Washington ranks 14th — and climbing — in foreclosure rate among the states. Idaho, with 7,500 properties in jeopardy, ranks fifth.

“We’re still trying to put a finger in the dike,” says Assistant Attorney General Jim Sugarman, who has been investigating the trustee firms for several months.

At least two or three, whom he declined to identify, may have violated state consumer protection laws.

How? By failing to provide homeowners with all the information required on notices of sale or default. By having employees sign documents indiscriminately, without the proper authorization, and without notarization. In some “robo-document” cases, forgery may have been committed.

And, in cases involving mortgages made between 2003 and 2007, failing to tell homeowners they can request mediation that could lead to a resolutions short of foreclosure.

Because almost all Washington and Idaho properties are subject to nonjudicial foreclosure, these defects are not small matters. No court or judge reviews the paperwork. If trustees compromise the process, consumers who do not seek help from an attorney or mortgage counselor — not a “modifier” — could lose homes they might otherwise be able to keep.

Bruce Neas, an Olympia attorney for Columbia Legal Services, says homeowners need better protection in nonjudicial foreclosures. Landlords must go to court to oust deadbeat tenants, he notes, but lenders avoid judicial oversight as long as trustees comply with the law, unless cash-strapped homeowners undertake legal action.

There are a few dozen public-interest attorneys to help them, and not many more housing counselors certified by the U.S. Department of Housing and Urban Development, Neas says.

Several states require mediation that gives homeowners the chance to meet face-to-face with lenders or their representatives, he says. That should be an option for Washington homeowners as well.

“People expect fairness, especially when you are talking about the biggest thing in their lives,” Neas says.

Sugarman agrees, although he cautions that homeowners should not hang onto hopes they can hold onto their homes on claims their mortgage paperwork is suspect. Investigators are not looking at the loans themselves, and whether they were suitable for the borrower. Nor can they reverse the decline in property values that has submerged many mortgages.

This is about assuring homeowners fair play at the end of mortgage process, even if that was not the case at the start.

Poor lending practices precipitated one financial crisis, Sugarman says, and revelations of widespread abuses in foreclosure proceedings threaten a second phase. Banks are going to eat lots of that bad paperwork, and with it potentially billions of dollars in losses.

It’s been two years since Lehman Brothers filed bankruptcy, precipitating the biggest financial crisis in decades. In 2008, the banks got the help they needed — and, yes, it was needed — to survive. This time, let the wolves take their licks.

Washington lawmakers have approved better homeowner safeguards in recent sessions. The work is not complete. Someone needs to watch the shepherds.