Mortgage fraud investigations prompt calls for change

LANSING — The growing controversy over allegedly fraudulent foreclosure documents will receive a hearing Wednesday in the state House Banking Committee. The controversy has also prompted some public officials to call for repeal of Michigan’s foreclosure by advertisement process, and instead adopt a judicial foreclosure act.

The DocX situation made national headlines late last year when many large banks in the nation suspended foreclosures while the banks sorted out ownership documents with fake signatures on them. But Michigan was not impacted by the suspension, and foreclosure started up shortly after the announcement they had been suspended.

Now, those same “robo-signed” documents are appearing in numerous Michigan counties. Michigan Messenger reported last week on Ingham County Register of Deeds Curtis Hertel, Jr. and his discovery of what have become known in shorthand as the Linda Green documents. Those discoveries have resulted in investigations by the FBI, the Ingham County Sheriff’s Department and the Michigan Attorney General’s Office.

The DocX situation has also resulted in criminal referrals from Essex Southern District Registry of Deeds and Register John O’Brien in Salem, Massachusetts. A release from that office says O’Brien referred 286 possible cases from 2010 alone to U.S. Attorney Carmen Ortez, Mass. Attorney General Martha Coakley and Essex County District Attorney Jonathan Blodgett.

O’Brien explained his decision in a release:

“If what I suspect has happened, then the people who have committed this fraud should be held accountable for their actions,” commented O’Brien. O’Brien fears that this fraudulent behavior is only the tip of the iceberg and feels strongly that lenders and mortgage servicers should be held accountable for their actions.

Hertel has been invited to testify before the Michigan House Banking Committee on Wednesday morning. Hertel is expected to call for a switch to judicial foreclosure, where the entire foreclosure process is overseen by a judge.

“It’s entirely too easy to foreclose on some one in Michigan right now. The odds are stacked against the homeowner,” Hertel said. Still, he said, “I am realistic enough to understand it is pretty unlikely the state will move to judicial foreclosure.”

Echoing Hertel’s understanding of the political landscape, Ari Adler, spokesman for Michigan House Speaker Jase Bolger (R-Marshall) issued the following statement on the budding DocX foreclosure document concerns:

“The Speaker’s Office will be watching this issue closely but the Speaker does not have a position on a moratorium or judicial foreclosure at this time,” Adler wrote in a statement to Messenger.”If legislation is introduced to change the current foreclosure law, we would use the committee process to fully investigate the concerns raised and take appropriate action as needed.”

But Sen. Minority Leader Gretchen Whitmer (D-East Lansing) said the discussion on foreclosure needed to be restarted.

“I was disheartened to see the amount of recent foreclosure fraud in Ingham County and even more saddened that this type of activity is the norm in most Michigan counties,” said Whitmer in a statement released exclusively to the Michigan Messenger. “There are a number of questions regarding the validity of foreclosure documents and I believe that judges would provide the best expertise on this crucial issue to better protect Michigan’s homeowners. I am in favor of opening the dialog on judicial foreclosure to address this fraud since the mortgage rewrite of two years ago is clearly not working.”

Whitmer was speaking about legislation passed by the last legislature and signed into law by Gov. Jennifer Granholm which created additional safeguards for Michigan residents facing foreclosure. The new law provided a delay period between notice of Sheriff sale and when the sale would happen, thus allowing the home owner to access assistance programs. That law sunsets in July, and legislation has been introduced to extend the law, but it would also reduce the time a homeowner has to redeem a home — from six months to three months — which many advocates oppose. The legislation is expected to die without much action, allowing the Home Foreclosure Prevention Act to sunset, but continue the six month redemption period.

In his testimony Wednesday, Hertel says he will propose interim actions the legislature can take to allow local officials to reduce the potential impact of the fraudulent documents. He declined to explain those proposals until he had a chance to share them with lawmakers.

However, Hertel did lay out some of the obstacles facing him in this crisis.

“I have no authority under the laws of Michigan to do anything,” Hertel said. “All I can do is verify the documents are legally recordable. That’s it… We don’t have investigators, we have clerks.”