Six major lenders are disputing a New Jersey chief justice’s proposition that their foreclosures be suspended indefinitely in his state, saying that they have addressed “questionable legal practices” and arguing that such a freeze might even be unconstitutional under the New Jersey constitution[1]. The six lenders – Ally Financial, Bank of America, JP Morgan Chase, Wells Fargo, CitiGroup and One West Bank – were ordered by chief justice Stuart Rabner in mid-December to “show why foreclosure actions should not be frozen in the wake of reports last year of robo-signing.” At the same time, Rabner introduced the idea of appointing a “special master to oversee foreclosures.”

The lenders, who are due in court with their responses to the order on January 19, 2011, all say that they have already addressed the issues that concern Rabner and that their procedures are improved in wake of their own internal investigations, which included a review of past foreclosures and voluntary suspension, in many cases, of the foreclosure process while the lender reviewed potential “deficiencies” in documentation. Citibank tackled the issue head-on, stating that 210 of its 4,023 active foreclosures have problems with their documentation and pledging to correct the issue, while Wells Fargo, which has steadfastly maintained that its foreclosure processes are perfectly fine even as it has suffered a very public – and landmark – foreclosure reversal decision in past weeks, questioned the legality of a freeze under New Jersey law.

JP Morgan Chase and several other lenders insist that internal reviews of foreclosures found “no examples of homeowners improperly losing their homes,” and Citibank pointed out that “an indiscriminate suspension of foreclosures…would result in protracted uncertainty and costs for both borrowers and lenders.” However, most of the lenders have acknowledged that there are at least a few shortcomings in their documentation, though they do not believe that a statewide suspension of their foreclosure activities is warranted.

Do you think it is reasonable for the chief justice to target these six lenders? Should the foreclosure moratorium in New Jersey be enacted?

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[1] http://www.northjersey.com/news/business/113124199_Lenders_against_foreclosure_freeze.html