JPMorgan Suspending Foreclosures

David Streitfeld

In a sign that the entire foreclosure process is coming under pressure, a second major mortgage lender said that it was suspending court cases against defaulting homeowners so it could review its legal procedures. 

The lender, JPMorgan Chase, said on Wednesday that it was halting 56,000 foreclosures because some of its employees might have improperly prepared the necessary documents. All of the suspensions are in the 23 states where foreclosures must be approved by a court, including New York, New Jersey, Connecticut, Florida and Illinois.

The bank, which lends through its Chase Mortgage unit, has begun to “systematically re-examine” its filings to verify that they meet legal standards, a spokesman, Tom Kelly, said.

Last week, GMAC Mortgage said it was suspending an undisclosed number of foreclosures to give it time to take a closer look at its own procedures. GMAC simultaneously began withdrawing affidavits in pending court cases, throwing their future into doubt.

Chase and GMAC, in their zeal to process hundreds of thousands of foreclosures as quickly as possible and get those properties on the market, employed people who could sign documents so quickly they popularized a new term for them: “robo-signer.”

In depositions taken by lawyers for embattled homeowners, the robo-signers said they or their team had signed 10,000 or more foreclosure affidavits a month.

Now that haste has come back to haunt them. The affidavits in foreclosures attest that the preparer personally reviewed the files, which those workers acknowledge they had no time to do.

GMAC and Chase say that their lapses were technical and will soon be remedied with new filings. But defense lawyers are seizing on these revelations and say they will now work to have their cases thrown out.

Beyond the relative handful of foreclosure cases being contested are many more in which the homeowner did not have legal counsel. Potentially, hundreds of thousands of cases could be in doubt.

GMAC’s initial disclosures prompted challenges or investigations from attorneys general in Iowa, Illinois, Colorado, California and North Carolina. The Treasury Department, which became the majority owner of GMAC after providing $17 billion in bailout money, has directed the lender to correct its procedures.