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Is the Senate Trying to Protect Banks That Commit Foreclosure Fraud?

October 6, 2010 - by Donny Shaw

A strange thing happened in the Senate last week. After years of rejecting the House’s attempt to pass the “Interstate Recognition of Notarizations Act” that would force states to accept out-of-state notarizations of documents, including electronic notarizations, the bill was suddenly discharged from committee, called up on the Senate floor, and quickly passed under unanimous consent. Even the bill’s sponsor, Rep. Robert Aderholt [R, AL-4], said that he was “surprised that it came through at the eleventh hour.” Nobody expected the bill to come up for Senate passage, but since it seemed innocuous enough and because senators were itching to get out of D.C. and hit the campaign trails, they passed it without any debate or dissent.

Luckily, Ohio Secretary of State Jennifer Brunner had her wits about her and has raised a red flag:

When I learned of it last Thursday, it sounded innocuous to me, but then I started looking at the timing of the bill. GMAC, owned by Ally, had just suspended its foreclosure actions in 23 states, including Ohio. I had already referred Chase Home Finance, LLC, on August 23, 2010, to the U.S. Department of Justice, asking it to review and investigate Chase’s document notarization practices in home foreclosures (18,000 documents per month were being notarized by 8 people, along with other irregularities). I license notaries in the State of Ohio. Even though I don’t have the power under state law to investigate or prosecute, I couldn’t stand idly by without acting. That’s why I’m asking you to email or call the President at 202-456-1111 to ask him not to sign the bill.

Last Wednesday, the day before I announced the DOJ referral, JPMorgan Chase announced it was having third party counsel review its document procedures for foreclosures. Just two days before, the U.S. Senate had rushed through H.R. 3808. Something didn’t seem right. Since then others agree with me.

Notarizing a document requires the signer to make a fundamental statement, an acknowledgment, before a notary public. It is used for documents of great sensitivity or value, like when the title of a car is transferred on its sale or when a bank tells a court how much is owed on a note for a mortgage when it wants to foreclose.

Some states have adopted “electronic notarization” laws that ignore the requirement of a signer’s personal appearance before a notary. A notary’s signature is that of a trusted, impartial third party, whose notarization bolsters the integrity of the document. Many of these policies for electronic notarization are driven by technology rather than by principle, and they are dangerous to consumers.

In other words, just as more information is becoming known about certain banks’ lax and fraudulent documenting practices in their bulk foreclosure operations (and as House Dems are starting to call for investigations), this bill may have been rushed through in order to protect banks from liability and force states to accept forged foreclosure affidavits as valid. As soon as it takes effect, all the robo-signed affidavits that are being contested would instantly be considered valid under federal law. Furthermore, it could set off a race to the bottom, wherein states attract business by outdoing each other in lax notarization standards and banks looking to foreclose on customers across the country rush in to avoid the stricter standards in other states. So, in Massachusetts, the law might require a fingerprint next to each signature on notarized documents and enforcement might be highly regulated, but in Florida it may be common practice to send off a stack of documents to be e-signed by a notary in bulk. If I’m a national bank looking to foreclose on thousands of properties that I can’t seem to prove that I actually possess the right to foreclose on because of all the complex securitization I did in 2006, I would go to Florida to have my documents certified.

Is it just coincidence that this bill was rushed through last week, or is this an example of a bought-out Senate protecting their funders (i.e. the big banks)? There needs to be some more investigation to find out definitively, but this certainly does seem fishy to say the least. Reuters describes what went on in the Senate and where we might begin looking to dig in deeper:

After languishing for months in the Senate Judiciary Committee, the bill passed the Senate with lightning speed and with hardly any public awareness of the bill’s existence on September 27, the day before the Senate recessed for midterm election campaign.

The bill’s approval involved invocation of a special procedure. Democratic Senator Robert Casey, shepherding last-minute legislation on behalf of the Senate leadership, had the bill taken away from the Senate Judiciary committee, which hadn’t acted on it.

The full Senate then immediately passed the bill without debate, by unanimous consent.

The House had passed the bill in April. The House actually had passed identical bills twice before, but both times they died when the Senate Judiciary Committee failed to act.

Some House and Senate staffers said the Senate committee had let the bills languish because of concerns that they would interfere with individual state’s rights to regulate notarizations.

Senate staffers familiar with the judiciary committee’s actions said the latest one passed by the House seemed destined for the same fate. But shortly before the Senate’s recess, Judiciary Committee Chairman Patrick Leahy pressed to have the bill rushed through the special procedure, after Leahy “constituents” called him and pressed for passage.

The staffers said they didn’t know who these constituents were or if anyone representing the mortgage industry or other interests had pressed for the bill to go through.

These staffers said that, in an unusual display of bipartisanship, Senator Jeff Sessions, the committee’s senior Republican, also helped to engineer the Senate’s unanimous consent for the bill.

Neither Leahy’s nor Session’s offices responded to requests for comment Wednesday.

So, Sen. Robert Casey [D, PA], Sen. Pat Leahy [D, VT], and Sen. Jeff Sessions [R, AL].

For the moment, all eyes are on Obama, who is now in charge of deciding whether to sign this bill into law or send it back to Congress with a veto. A decision could be made as soon as today.

UPDATE: Whie Huse spokesman Robert Gibbs tells HuffPo that they have “concerns” about the bill and will be releasing a more definitive statement later this afternoon. Memeorandum rounds up all the commentary.

UPDATE 2: President Obama has announced that he will not sign the bill into law. “We need to think through the intended and unintended consequences of this bill on consumer protections, especially in light of the recent developments with mortgage processors.”

As I said on Twitter in 140-character-or-less-speak, “Obama veto of notary bill shows power of grassroots online activism. Very impressed by how quickly this all went down.”

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