Ohio Attorney General Richard Cordray (Pic via The Washington Independent)

James Jones has spent the past five years trying to prevent foreclosures in Cleveland. Recently, his work as director of foreclosure prevention at the East Side Organizing Project, a community organizing group dedicated to improving neighborhood life in the city, has focused on targeting predatory lenders and trying to prevent banks from foreclosing on cash-strapped low-income borrowers.

“I’ve seen the foreclosure issue go from predatory loans, to subprime loans, to predatory loans, to an economic situation where folks have been laid off,” Jones explains. “And now we’re back to problems with paperwork.”

Ohio — and especially Cleveland — was hit earlier and worse by the foreclosure crisis than other states, due to widespread problems with predatory lending, an early economic downturn stemming from the loss of manufacturing jobs, and weak consumer-protection laws. Now, it is at the forefront of the foreclosure fraud crisis, with housing advocates and politicians calling for banks to halt evictions immediately and stop seizing homes.

The fraud scandal is complex. In September, a court case brought to light the existence of one Jeffrey Stephan, who worked for GMAC Mortgage, part of Ally Financial. Stephan attested that he signed as many as 10,000 foreclosure documents a month — one every minute or so. Soon, other revelations about banks using such “robosigners” to OK foreclosure documentation came to light.

The problem is, in 23 states, those robosigned documents went to a judge, who approved a final foreclosure, wherein the bank evicts a family and reclaims a house. Stephan and other signatories were meant to be carefully checking the information within and were giving the documents to the court as an affidavit, the equivalent of sworn testimony. The documents were not checked — meaning that the signers, and the banks they worked for, were defrauding the court. A judge ruled any such foreclosures to be illegitimate, sending a shudder through the housing markets. Banks started halting foreclosures in the 23 states that require judicial review. And the scandal has spiralled from there.

Officials in Ohio were among the first and the most aggressive in going after the banks making fraudulent foreclosures. On Sept. 30, Ohio’s secretary of state, Jennifer Brunner, told the state’s boards of elections not to use foreclosures to disqualify voters, under the premise that hundreds or even thousands of foreclosures in the state might be illegitimate. Then, last week, Richard Cordray, Ohio’s attorney general, filed a lawsuit against GMAC, seeking $25,000 for every violation of the state’s consumer-protection laws. It was the biggest and boldest legal action taken against mortgage companies since the crisis started unfolding.

“Some ugly revelations have recently come to light about how foreclosures are bring processed in this country,” Cordray said at a press conference on Wednesday. “It appears that, on a mass scale, many homeowners are being deprived of their property based on phony affidavits and without the due and proper processes of law. It is now becoming clear that fraud, deception and an utter disregard for accuracy are in part to blame for our national foreclosure disaster.”

In an interview with The Washington Independent, Cordray stressed that the problems were systemic and the violations serious. “What we’re talking about here is not just sloppy paperwork,” he said. “We’re talking about fraud in a court of law. The [foreclosure document signers] were lying under oath, to a judge. And there is evidence that this company has illegally ousted people from their private property, violating their property rights.”

Cordray did not just sue GMAC, but also wrote letters to other major banks, calling on them to investigate their foreclosure processes and to stop evicting families immediately. In intervening days, banks have stopped selling their previously repossessed properties, and have mostly halted the foreclosure and eviction process in Ohio.

The scandal came as no surprise to housing advocates in the state. “We had 90,000 foreclosure filings last year, and another 100,000 this year,” explains David Rothstein of the nonpartisan think tank Policy Matters Ohio. “When we look at those statistics, and put our thinking caps on, you have to say, how were they processing all of these claims without bigger legal staffs and bank staffs? This wasn’t a surprise.”

He continues: “And there’s a tragic irony here. For five or 10 years, the banks have said that the foreclosure crisis in this state is the borrowers’ fault. They bit off more than they could chew. It’s all their fault for buying expensive houses and then losing their jobs.

“But look at this! They’re taking people into foreclosure, without the right to do it! It is tragic. They were committing fraud, and were completely giving up their fiduciary responsibilities.”

Jones agrees. He explains that the East Side Organizing Project, which negotiates on behalf of borrowers undergoing eviction, demands to work with a qualified individual at a bank, and often manages to work out a solution other than foreclosure. But most Ohioans do not have an organization like Project on their side. “Foreclosure is not a quick process,” he says. “Most of the servicers — your Chases, your Wells Fargos — have these black holes. You send paperwork in, and it is months before you even find out where it went.

“They’re not set up to modify loans, or find other solutions. They’re not set up to do what needs to be done to help homeowners. A lot of things fall through the cracks. And that’s what the big problem is. They don’t have enough eyes, enough checks and double-checks. Not when they’re getting the volume they’re getting. So when you don’t have an advocate, look what happens.”

The question is now what the foreclosure fraud scandal might mean for homeowning Ohioans — and residents of every state across the country. Already, the foreclosure situation has rocked the housing market and hurt families in the state. In the first half of the year alone, there were 45,930 properties undergoing foreclosure, enough to impact one in every 100 households. Bank-repossessed homes are flooding the market in many areas. And, according to RealtyTrac, they sell for 43 percent less than the average house — the biggest discount of any state.

Housing advocates say that the stall in foreclosures will likely only prolong the pain for Ohio families, even if they are given temporary reprieve from foreclosure and now have assurance they will not be evicted without due process.

The best outcome, Rothstein says, would be for the government to finally step in to help homeowners with more effective programs than the Home Affordable Modification Program, the Treasury’s signature effort to keep families in their homes. (It has helped about one-10th of the homeowners it said it would and is widely considered a failure.)

“The federal government made good attempts, but were really bank-focused,” Rothstein says. “They never had borrower-centered programs. But if banks are forced to reduce principals on mortgages and to make better loan terms, we might be in a better place.”

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