Obama won’t sign bill tied to foreclosures after problems found

By Karoun Demirjian

Thursday, Oct. 7, 2010 | 9:56 p.m.

The Obama administration said Thursday it won’t sign a bill that could have implications for homeowners in the midst of a nationwide foreclosure crisis.

The measure was meant to streamline paperwork across state lines by requiring every state to recognize notarized mortgages and financial documents drawn up in any other state or online. Thought to be a fairly noncontroversial measure, the Interstate Recognition of Notarizions Act (HR 3808) passed through Congress without significant debate.

But now Obama is sending it back to Congress because the change could metastasize a growing problem in the foreclosure industry. In the last week, four major U.S. banks said they planned to stop foreclosures in 23 states because of concerns that documents were being poorly processed, leading to foreclosures that shouldn’t have happened.

The 23 states where GMAC Mortgage, JP Morgan Chase & Co., Bank of America, and PNC Bank are stopping their foreclosure activities are the states that require a court to approve notarized documents. That doesn’t include Nevada, where banks don’t have to get a court’s approval to foreclose – meaning the only time foreclosure mistakes reach the courts is when an evicted, or soon-to-be-evicted tenant sues the home lender.

Since the banks' scale-back doesn’t include Nevada, there’s no indication that foreclosure rates in Nevada will be slowed.

Still, Senate Majority Leader Harry Reid called for a suspension of foreclosures in Nevada on Thursday in response to the revelation of widespread errors in foreclosure practices.

“Suspending foreclosures on Nevadans is also justified because the reports of shoddy and defective affidavit preparation suggest that servicers might not be reviewing a homeowner’s loan documents with the requisite care,” Reid wrote in a letter to Nevada’s largest mortgage servicers. “I’m concerned about those cases where carefully analyzing a homeowner’s income and debt would lead to the conclusion that a modification is the best solution.”