The lede here has to be that the Ohio Attorney General has sued GMAC mortgage:

This is big news. I just got off a conference call with Richard Cordray, the Attorney General for the state of Ohio. He has filed a lawsuit in Lucas County (Toledo) Common Pleas Court against GMAC Mortgage and their parent company Ally Financial, in a suit which names Jeffrey Stephan, the infamous “robo-signer” who signed off on up to 10,000 foreclosures a month across the country with affidavits, without verifying the information in the foreclosure documents. The lawsuit alleges fraud on the part of GMAC, along with violations of the Ohio Consumer Sales Practices Act, in filing false affidavits to mislead the courts in what they describe as “hundreds” of Ohio foreclosure cases. And, the Attorney General is treating every single false affidavit filed in an Ohio court as a separate violation, with a fine of up to $25,000, plus additional restitution for the homeowner of an unspecified amount.

This is a major lawsuit, and as Cordray told reporters, “We’re at the beginning of this, not the middle or end, and we’ll see where it leads us.” For context, approximately 450,000 foreclosures have been filed in Ohio since 2005, and potentially all of them used this robo-signing process. At the outer edge of this, if every one of those foreclosure processes is seen as a single case of fraud, the fines for the entire lending industry would add up to $11.25 BILLION dollars, just in the state of Ohio, not including the extra restitution for homeowners.

Cordray is also requesting information from the other major lenders, and has moved for an injunction against GMC, so it looks like this snowball once he gets to discovery.

Additionally, we have more calls for investigations and a moratorium, with both Nancy Pelosi,the Republican Texas Attorney General Greg Abbott, and North Carolina Attorney General Roy Cooper raising concerns. (talk about the odd couple)

Congress has weighed in, sort of, with an unexpected vote in the Senate a week ago approving an electronic notary law which, at least according to Jennifer Brunner, the Ohio Secretary of State, increases the possibility of fraud by creating a credit card style race to the bottom in terms of legal standards.

This growing furor may explain one of the peculiarities of the property meltdown, why banks seem to favor foreclosures over short sales even when the former generate more money.

I was unaware of the fact, but the standards for titles are much lower in the event of a foreclosure sale:

If you know anyone in real estate, you have bumped into countless frustrated agents who were attempting to complete shortsales for their selller clients only to have the whole thing fall apart at the last moment and then they later see the same property go into foreclosure for LESS than what the pre-approved shortsale buyer had offered just weeks earlier. Why, why, why, they moan. Why would a bank or mortgage servicer take less than what they could have had?

Well, now I wonder if one potential answer doesn’t have something to do with the types of deeds that get conveyed in a foreclosure and the tie to title insurance. In foreclosures in many states the buyer obtains a specialized deed – a special warranty deed, or a bargain and sale deed which make fewer guarantees for the buyer than the general warranty deed which is transferred in a normal sale(which I believe a short sale still falls under)

………

Is it possible that the foreclosers realized it was in their best interest to abort short sales in favor of foreclosures in order to pass the more limited deeds conveyed in a foreclosure? Did that decision come back to haunt them once the entire foreclosure process itself became highly suspect and publicized? (There is already a large title insurer who is denying title insurance on some foreclosures.)

Of course, the real elephant in the room is that anyone who has gotten a mortgage in the past decade^* is just as likely to have problems with their title.

Foreclosures do not create title problems, foreclosures merely reveal those problems.

This is going to be uglier than David Boehner in a thong.

^*Full disclosure, like me.