Friday, August 12, 2011

Alleged Bank Fraud and Fabrication May Have Ramifications on Chicago-Area Foreclosures

An Oak Park foreclosure lawyer needs to consider all possible defenses when acting as a zealous advocate for their clients.  Often this requires keeping breast of legal developments across the country that affect bank mortgage and foreclosure practices.  Foreclosure attorneys know that even actions in other parts of the country may have ramifications for local homeowners. 

For example, this weekend the Huffington Post reported on strong statements made by the New York Attorney General that alleges that the Bank of New York Mellon engaged in fraud in the mortgage bond process.   The state legal chief is asking a judge to reject a proposed settlement between that bank and Bank of America because of what he alleges to be knowing, repeated, and consistent misleading of investors about the mortgage bond creation process. 

Bank of America had reached a settlement with many investors after questions arose about the institution’s improper securitization of mortgages.  BNY Mellon was acting as a trustee for those investors.  However, the state attorney general is claiming that BNY Mellon violated its fiduciary duty as a trustee by committing fraud and misrepresenting information about the mortgages to investors.  Therefore, the state official is requesting that the judge reject a proposed $8.5 billion settlement between Bank of America and BNY Mellon.  The settlement would represent only 4 cents on the dollar of the current $220 billion owed to those investors.

The proposed settlement was connected to a larger inquiry involving whether the law was followed when these large banks bundled mortgages and re-sold them to investors as mortgage-backed securities. 

Many local residents may have read about these documentation problems.  To protect homeowners and ensure fairness in the mortgage process, the law requires banks and others involved in the process to properly assemble and maintain important loan documents.  Those documents are required to turn a mortgage on a property into a security that allows the purchaser to foreclosure upon the home if the owner defaults.  When those documents are absent, the bank may not have the legal right to foreclose.  For some area residents the missing documentation is an important component of their Chicago foreclosure defense. 

Investigators have repeatedly found that many banks engaged in sloppy practices during the housing bubble.  In a rush to complete as many sales as possible and quickly bundle mortgages, companies often failed to properly follow the law when turning the mortgages into securities.  As one bankruptcy professor explained to a Congressional committee last November, “If mortgages were not properly transferred in the securitization process, then mortgage-backed securities would in fact not be backed by any mortgages whatsoever.” 
Distressingly, some unethical institutions may have attempted to get around the documentation problem by illegal means.  Besides challenging the settlement offer, the New York attorney general has also accused Bank of America of fabricating missing documents when foreclosing on homeowners who defaulted on their mortgages.

Our Oak Park foreclosure attorney knows that banks are not above the law.  Unfortunately, negligent banking practices, missing paperwork, and forged documents are all-too-common tactics used by lenders seeking to unfairly foreclose on area homes.  That is why it is vital for all residents in this situation to seek out professional help to understand how new information about problematic bank practices may affect their own case.     

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