No Breaks for Robo-signing Computer Stamping Mortgage Documents
Bryan Bly is a pen-wielding “robo- signer” at Nationwide Title Clearing Inc., inking his name on an average 5,000 mortgage documents a day for companies such as Citigroup Inc. and JPMorgan Chase & Co.
Those are just the ones that cross his desk.
Nationwide Title employs a computer system that automatically inserts a copy of Bly’s signature on thousands of digital files that he never sees. The system even affixes an electronic notary seal.
“The problem with the way these documents are created isn’t because a computer is used,” said Gloria Einstein, a legal aid attorney in Green Cove Springs, Florida, who deposed Bly in a case in which her client faces foreclosure by a unit of Deutsche Bank AG. “It’s because an enterprise has decided to use a computer to create a system where nobody is responsible for the information and the decisions.”
The rush to securitize more than $4 trillion of mortgages as U.S. home sales peaked in 2005 and 2006 inundated loan servicers and contractors like Palm Harbor, Florida-based Nationwide Title that help them handle paperwork. Lawsuits fighting some of the more than 4 million foreclosures since then have exposed sloppy recordkeeping and raised questions about the validity of documents used to seize properties.
Signatures Draw Scrutiny
Bly is just one of more than a dozen robo-signers deposed in the past two years by lawyers for borrowers seeking to block foreclosures. Spurred by descriptions in depositions of employees signing thousands of affidavits a week without checking their accuracy as legally required, the attorneys general in all 50 states last month opened an investigation into whether banks and loan servicers used faulty documents or improper practices to foreclose.
Nationwide Title, which has about 175 employees, provides document imaging, tracking, retrieval, recording and processing on bulk loan transfers for lenders, servicers and investors. It’s the largest third-party processor of mortgage assignments, handling more than 350,000 last year, Senior Vice President Jeremy Pomerantz said in a telephone interview. The company also prepares lien releases, which show that a mortgage has been paid off by the borrower.
Assignments, which are usually recorded with county land record departments, list the buyer and seller of a loan as it’s sold or packaged with other loans into a mortgage-backed security. Lawyers for homeowners are challenging the legitimacy of the documents, which are relied on by lenders to show they have the right to foreclose.
Batches of 30,000
(While closely held Nationwide Title in the past offered a package of foreclosure-specific services, it had just one client, Pomerantz said. The company often doesn’t know whether documents it prepares will end up being used in foreclosure cases, he said.)
Nationwide Title’s proprietary system isn’t entirely automated, said Erika Lance, senior vice president of administration. Employees receive requests from clients for lien releases and mortgage assignments, which are often sent in batches of as many as 30,000. They review the information and images of loan documents sent along with the request, and the information is keyed into the computer system.
The computer system fills in the electronic assignments in the format and wording each county requires, and places a signature and notary seal from a list of employees approved by each bank. Bly and other signers are given a title at the bank requesting the documents, such as “vice president” or “assistant secretary,” depending on what the individual counties require, Lance said.
Laws Catching Up
Nationwide Title files documents with scanned signatures in the 10 percent of counties in the U.S. that accept electronic mortgage assignments, including those for cities such as Chicago, Miami and Seattle, according to Lance. She said producing electronic signatures in bulk is common in the industry.
“The laws are catching up to what is occurring with documentation,” she said. “Electronic recording is an accepted method of document recording.”
Nationwide Title isn’t alone in using electronic signatures. Angela Nolan, a JPMorgan Chase vice president in Monroe, Louisiana, testified in a January deposition that bank’s computer system was inserting employee signatures, including hers, in random order on some documents. She said the digital signatures were used on allonges, which are added to promissory notes when more space is needed for endorsements.
“How is it determined which person’s signature will get on the allonge?” Dustin Zacks, an attorney for Ice Legal PA in Royal Palm Beach, Florida, asked during the deposition.
“I believe it’s just a random process of making sure you have the individuals,” Nolan said. “There are certain titles that are required, assistant vice president, vice president, assistant treasurer. I believe they just go in and randomly select those individuals.”
Thomas Kelly, a spokesman for New York-based JPMorgan Chase, declined to comment.
While the law allows for electronic signatures and seals on assignments and lien releases, the signer must physically appear before the notary, and the notary must affirm the signer’s identity, that the signer is aware of what the document is, and that the signer is willingly executing it, said Michael Robinson, executive director of the National Notary Association based in Chatsworth, California.
“The guiding principles behind it are the same as the guiding principles around paper notarizations,” he said.
Mark Ladd, a land-records technology consultant in Racine, Wisconsin, said the systems he’s seen require that the signer acknowledge that he’s read the document and that the notary is physically present.
“The law requires that somebody review these documents themselves,” Ladd said. “The person who signs the document makes a statement that they read it.”
Nationwide Title’s Pomerantz declined to say whether the company’s system requires signers to affirm they have read the document. He said document inspectors, a job sometimes performed by signers and notaries, review signatures and seals on a computer monitor. The notaries know the identities of the signers because they work in the same office, he said.
Relying on Staff
“The signature is required to authorize it,” Pomerantz said. “The signature is not testifying in any way that they prepared that or personally validated the information. They rely on their staff to validate.”
Missing or incomplete paperwork has forced lenders to routinely recreate documents to show courts they have standing to seize properties, said Jim Miller, the executive who oversaw foreclosure-processing operations at JPMorgan Chase & Co. from 2005 to November 2008.
About a third of foreclosure files his teams handled were missing mortgage assignments. Servicers would often write new assignments when judges requested proof that the party seeking to repossess a property had the right to do so, he said.
“What used to happen before the robo-signer issues is that you’d find out while in the foreclosure process that assignments needed to be done, and you had time to clean it up before the actual foreclosure solidified,” Miller said in a telephone interview.
At JPMorgan Chase, where Miller was managing director of the default group, the company began fixing documentation prior to foreclosure more than two years ago in response to court rulings requiring lenders to show evidence of owning the loan before taking legal action, he said.
Miller is now an independent consultant for the mortgage- servicing industry based in Dallas. Kelly, the JPMorgan Chase spokesman, declined to comment.
The issue for courts to decide is whether banks are seizing homes that they never legally acquired, visiting Harvard Law professor Katherine Porter told a Congressional Oversight Panel on Oct. 27.
The legal debate centers on whether assignments can be created to show transfers between banks that happened years earlier, Porter said.
“The largest and most complex harm that may exist with the loans in default or foreclosure today is that the paperwork for the loans was not transferred correctly,” Porter said. “I emphasize that what constitutes a correct transfer is a gray area; we need more direction from courts and legislatures on this subject.”
Joshua Rosner, an analyst at New York-based Graham Fisher & Co., has also questioned whether mortgage-bond trusts did enough to take ownership of loans. Typical practices, such as filling in the names of trusts on notes and completing missing links in assignment chains only after foreclosure work has started, may encourage investors to challenge whether the debt met the requirements for delivery under bond contracts, he said in an Oct. 27 interview.
At the end of the U.S. real estate boom in 2005 and 2006, about 70 percent of the $6.1 trillion in mortgage lending was packaged into bonds, according to the Securities Industry and Financial Markets Association in New York.
Paper documents were turned into electronic files so that they could be moved around quickly, and shortcuts were taken to accommodate multiple transactions, said Alan White, a law professor at Valparaiso University in Indiana. Promissory notes were endorsed in blank so that whichever company held it could claim possession. And mortgages were sometimes assigned in blank.
The foreclosure crisis opened up the process to scrutiny, as banks claimed to have lost thousands of promissory notes and were instead showing judges copies, White said.
Virginia B. Townes, general counsel of the Florida Bankers Association in Tallahassee, said some banks intentionally destroyed notes after scanning. Townes declined to name specific companies.
“The problems were lurking in the files,” White said. “As long as people were paying and values went up nobody cared. Fraud that happens during boom times comes to light in the bust.”
One concern with recording transfers years after the fact is that many entities that might have had roles in the securitization chain no longer exist, Porter, the visiting Harvard professor, said in her testimony.
“To the extent that these transfers are being completed retroactively, it raises issues about honesty in creating and dating the assignments/transfers and about what parties can do, if anything, if an entity in the securitization chain, such as Lehman Brothers or New Century, is no longer in existence,” she said.
New Century Financial Corp., once the largest independent subprime-mortgage lender, filed for bankruptcy in April 2007. Lehman Brothers Holdings Inc. was the fourth-largest U.S. investment bank when it went bankrupt in September 2008.
It doesn’t matter when mortgage assignments and endorsements are recorded because the existence of the pooling and service agreement and purchase sale agreement is proof in itself that the loan was conveyed, said Stephen Ornstein, a partner in the Washington office of SNR Denton, a law firm that represents loan servicers and lenders.
“If the assignment is missing, you can create it by having the old assignee reassign it to you,” Ornstein said.
‘Middle of Storm’
Nationwide Title’s Lance said she has long recommended to corporate clients that they keep their files clean and produce assignments as transfers happen. Many of the assignments the company produces are for bulk sales from one bank to another, she said.
“NTC has been put in the middle of this storm,” she said.
Bly, 52, said he trusts the employees that have verified the assignments his signature is appearing on -- even though he doesn’t know what those processes are and never sees the document.
“If they check it, why do they need you, sir,” Einstein, the attorney, asked Bly in his July deposition.
“As a signer,” he replied.
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