Bank of America Corp. and GMAC Mortgage may be restarting some foreclosures, but this does not mean their legal problems with bad documents are over.
According to lawyers, supplemental or amended affidavits, which the servicers have begun to file after their process reviews, do not necessarily override the original documents.
There is a chance some judges will not approve the new documents or could even demand that entire cases be thrown out and refiled. The legal uncertainty extends to any other servicer following in Bank of America or GMAC Mortgage's footsteps.
"Judges will be a little bit leery, at least initially, as to how they allow some of these suits to proceed," said Jeffrey Taft, a partner in Mayer Brown. "I would expect that judges are going to carefully scrutinize what's been provided in the past and what's being presented now."
Less than a month after putting the brakes on foreclosures, some banks are resuming them in an effort to reassure investors and shareholders that the problems were just a technical glitch. Whether this turns out to be true remains unclear.
Experts contend that, on a case-by-case basis and in the 23 states where foreclosures must be approved by courts, new problems could arise with refiled documents, potentially adding significantly to servicers' legal expenses and further delaying foreclosures.
"It's hard to imagine they could be resuming this so quickly," said John Rao, a staff attorney at the National Consumer Law Center. "We may see a second wave of this, that the steps taken to supposedly address the problems are themselves very suspect."
Just three weeks after BofA said it was halting foreclosures in the 23 judicial states (after similar moves by Ally Financial's GMAC Mortgage and JPMorgan Chase), and less than two weeks after it extended its moratorium to all 50 states, the servicer said it was prepared to start resubmitting affidavits in 102,000 foreclosure cases where judgment is pending.
GMAC, for its part, said it is resuming foreclosures as each case is reviewed and remediated if necessary.