Some news outlets are already reporting on potential flaws in the foreclosure notification process – the part of foreclosure when the borrower is notified of delinquency in non-judicial foreclosure state – as “part two” of the robo-signing scandal[1]. Should this turn out to be the case, the 27 non-judicial foreclosure states in the nation could experience their own “ForeclosureGate” as banks scurry to halt potentially problematic foreclosures before class actions and other litigation ensues.

A Notice of Default (NOD) is an announcement sent to homeowners in non-judicial foreclosure states that “alerts the borrower that the official foreclosure process has begun.” It must be sent to the borrower and filed in the county recorder’s office. Until the NOD is delivered, notice of a foreclosure sale cannot be published. And now, the signatures on NODs are being called into question for two reasons:

1.     Employees may not have verified the information on the NOD before signing, and

2.     Employees who signed the documents may not have been employed by companies with the standing to foreclose on the properties[2].

Several lawsuits have already been filed in non-judicial foreclosure states with attorneys arguing that unverified information and lack of standing to foreclose on a property is certainly grounds to stop or even reverse a foreclosure. At least one mortgage servicer employee has testified that he did not verify the accuracy of information on the more than 200 NODs that he signed during his four-year tenure with the company, leading attorneys like Walter Hackett, one of the lawyers who has brought suit against lenders for faulty NOD practices, to believe that “a huge percentage of notices of default and notices of trustee sales are legally questionable and probably void.”

Many experts fear that the system is even more corrupt and problematic in non-judicial foreclosure states because there are no courts reviewing the foreclosure process. Do you think that NODs could be part two of the robo-signer scandal?

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[1] http://www.cnbc.com/id/41250862

[2] http://www.americanbanker.com/issues/176_14/new-pt-of-foreclosure-contention-1031585-1.html