According to recent news reports, robots are taking over U.S. banks. In fact, they just act like robots, but as the media headlines continue to blast this issue, it may be hard to know what to think. Here we separate fact from hype and cover a few important facts to know about this hot new term in the financial world.
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- They Aren't Actually Robots
The "robo signer" name was allegedly coined by a Florida lawyer who was hired by some homeowners fighting foreclosure, and uncovered instances in which lenders' employees were signing foreclosure documents without reviewing them - essentially, acting like robots. Although the term may give the impression that the signing of foreclosure affidavits had been automated, the truth is, while the signers weren't robots, they may as well have been. In fact, the infamous robo-signers are regular people, which is a big part of the problem.
In order to get through the thousands of foreclosures the banks have seen over the past three years, some lenders hired just about anyone who could hold a pen and had them sign off on thousands of foreclosures a day. Some of these employees have now testified that they barely knew what a foreclosure was, and did not review the documents they were signing. Sure, a lot of these homeowners were in default on their mortgages anyway, but the concern is that, because the documents weren't reviewed, the banks could be seizing some homes in error, or leaving homeowners with an inaccurate paper trail, making it harder for them to prove their foreclosure was in error. (For background reading, see Know Your Foreclosure Rights.)
- Robo-Signed Mortgages Are Not All Invalid or Unwarranted
While it is true that most of the homeowners who were foreclosed as a result of a robo-signer were in default, it appears that the speed and efficiency of the system could prevent homeowners from taking steps to get their mortgages back on track. If a homeowner has missed a payment on his or her mortgage, there are quite a few options available to help that person keep the home (although the process can vary by state), including getting up to date with the payments, fighting the foreclosure in bankruptcy court or seeking loan modifications.
However, in order to ensure that a homeowners' rights are protected, he or she needs access to accurate information. If foreclosure documents are never reviewed by a qualified person, this can leave a homeowner with an inaccurate paper trail with which to defend him or herself. In addition, all states require that a lender be able to prove that it is the true owner of a mortgage in order to seize a home. However, in some cases that are now before the courts, many foreclosure proceedings proved to be faulty because the ownership of the mortgage was not clear. Finally, there is evidence that some homeowners who believed they were working with their banks to keep their homes through loan modifications later received foreclosure notifications. (Find out what happens during the foreclosure process in The 6 Phases Of A Foreclosure.)
- They Were Just Doing Their Jobs
While much of the blame has been focused on the robo-signers themselves, many of these people were low-wage workers who were just doing their jobs. For the most part, the blame for rushing important legal documents with the proper review or notarization has centered, rightfully, on the banks, but an October 7 story in the Wall Street Journal detailed a case against GMAC in Ohio, in which the Ohio Attorney General also named the alleged robo-signer of the mortgage in question as a defendant in the case, arguing that robo-signers are not necessarily absolved of responsibility just because they were doing what they were told.
While there may be plenty of blame to spread around, the banks clearly chose to put unqualified people in charge of reviewing and signing these documents, so it seems unfair to tip the full balance of responsibility to low-wage employees for following orders to "sign here" ("and here", "and here" ...).
- It's Nothing New
While it's likely the practice of using robo-signers ballooned as a result of the real estate crash and the resulting increase in mortgage defaults, this practice is nothing new. According to recent reports, debt buyers have engaged in this assembly-line approval approach for years. This debt is typically from credit cards and small loans, which the finance companies sell to debt buyers which then hire debt collectors to go out and collect – and often end up suing. This, of course, requires legal action and affidavits, some of which have been signed by – you guessed it – robo-signers. According an article that appeared in the New York Times on November 1, 2010, one signer employed by a debt buyer in New Jersey signed as many as 2,000 affidavits a day, or roughly one every 13 seconds.
- It (Probably) Wasn't (Orchestrated) Fraud
While the ongoing foreclosure crisis is certainly a scandal that has brought some underlying problems in banks' practices to light, it probably isn't an orchestrated fraud. Yes, banks were letting any old person give homeowners the boot, but according to RealtyTrac, the number of homes seized in September topped 100,000, and almost 1 million foreclosure filings were reported in the third quarter. That's a lot of documents, which suggests that while banks should certainly be taken to task for their sloppy practices, this crisis probably wasn't planned. Whether any of the banks that have been implicated so far will be held to task for their lack of oversight remains to be seen.
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The Bottom Line
The details about robo-signing practices are only beginning to emerge. While it's clear that this practice holds real risk for homeowners battling to keep their homes, the fact that some lenders abused this system does not necessarily mean that homeowners who did lose their homes would have been able to keep them, had the documents been reviewed more carefully.
For the latest financial news, see Water Cooler Finance: Lions And Diapers And Dows, Oh My!