Bank of America suspends foreclosures
10/9/2010WASHINGTON - A mushrooming crisis over potential flaws in foreclosure documents is threatening to throw the real estate industry into chaos, as Bank of America Corp. Friday became the first bank to stop taking back tens of thousands of foreclosed homes in all 50 states.
The move, along with another decision on foreclosures by PNC Financial Services Inc., adds to growing concerns that mortgage lenders have been evicting homeowners using flawed court papers, without verifying the information in them.
Bank of America, the nation's largest bank, said it no longer would complete foreclosures as it reviews the documents used to process them. That applies to homes that the bank takes back itself and those that it transfers to investors such as mortgage giants Fannie Mae and Freddie Mac.
The bank reversed itself in reaction to mounting pressure from public officials inquiring about the accuracy of foreclosure documents.
Ohio Attorney General Richard Cordray this week sued Ally Bank and its GMAC Mortgage unit in Lucas County Common Pleas Court, citing a Toledo family's foreclosure, which he said violated state consumer fraud laws because documents were improperly signed by lenders to repossess the property.
A Bank of America spokesman said the bank contends its documents are correct but wants to satisfy officials' concerns.
Senate Majority Leader Harry Reid (D., Nev.) ,who had called for such a suspension, applauded the bank "for doing the right thing by suspending actions on foreclosures while this investigation runs its course."
Banking and housing analysts, meanwhile, fear the foreclosure document problems could prolong the housing bust, and hundreds of thousands of inevitable foreclosures will be pushed off into some legal limbo for years.