Context
The Foreclosure Crisis was the legal and social aftermath of the 2008 financial crash, where millions of Americans were evicted from their homes through a “great foreclosure machine” that routinely bypassed the rule of law. The crisis was rooted in the “securitization fail” of the bubble years, when lenders sold mortgages into pools so rapidly that they failed to properly transfer the legal documents needed to prove ownership.
When the housing market collapsed and banks sought to foreclose on defaulted loans, they discovered that the paperwork trail was broken. Rather than admit this fundamental problem, the industry created a systematic apparatus of fraud: fabricating documents, forging signatures, and using “robo-signers” to process thousands of affidavits without any personal knowledge of the facts they were attesting to.
The Crisis
The crisis centered on the legal concept of “standing”—the requirement that only the actual holder of a mortgage note can foreclose on a property. When mortgages were securitized, they were supposed to be transferred through a chain of endorsements from originator to depositor to trustee of the mortgage-backed security. In practice, these transfers were often never completed, leaving no clear legal owner.
The industry response was to manufacture evidence. “Foreclosure mills”—law firms processing thousands of cases—employed workers who signed affidavits claiming personal knowledge of loan records without ever reviewing them. Companies like Lender Processing Services (LPS) and its subsidiary DocX created fabricated mortgage assignments, backdating documents and using fake signatures to create the illusion of proper chain of title.
Consequences
Three ordinary Americans—Lisa Epstein, Michael Redman, and Lynn Szymoniak—exposed the fraud by meticulously documenting the forged documents appearing in Florida courtrooms. Their work revealed that the “robo-signing” scandal was not isolated incidents but a systematic industry practice affecting millions of properties.
The crisis exposed a fundamental rupture in U.S. property law: the three-hundred-year-old system of public land records had been corrupted by the banking industry’s creation of MERS and the speed of securitization. The National Mortgage Settlement of 2012 imposed $25 billion in penalties on major servicers but was criticized for largely immunizing banks while providing minimal relief to homeowners. The crisis demonstrated that the same institutions responsible for the financial crash were willing to commit systematic fraud to profit from its aftermath.
Key Developments
- 2008–2009: As foreclosures surge, legal aid attorneys begin noticing irregularities in bank documents.
- 2009: Lisa Epstein and Michael Redman begin documenting robo-signed documents in Florida.
- 2009: The Kansas Supreme Court rules that MERS has no legal interest in property.
- 2010 (April): “Project BOGUS” is revealed, showing a Docx employee forged thousands of mortgage assignments.
- 2010 (September): GMAC/Ally admits that a single employee signed 10,000 foreclosure affidavits monthly without reading them.
- 2010 (October): Bank of America, JPMorgan Chase, and other major banks halt foreclosures nationwide amid robo-signing revelations.
- 2010 (November): 60 Minutes exposes the robo-signing scandal to a national audience.
- 2011: State attorneys general launch investigation into foreclosure practices.
- 2011: Lynn Szymoniak’s whistleblower lawsuit reveals systematic document fabrication at DocX and LPS.
- 2012 (February): The National Mortgage Settlement is announced, requiring $25 billion in relief from major servicers.
- 2012: LPS pays $35 million to settle federal charges related to robo-signing.
- 2013: Lynn Szymoniak receives $18 million from her whistleblower suit against DocX.