The recent debacle over H.R. 3808, the Interstate Recognition of Notarizations Act (IRNA), should raise major questions for the foreclosure mediation community. The bill posed questions not only about the role of documents and authentication within the mediation context, but some questioned whether the mediation programs should continue at all, as banks around the country halted foreclosures.
Alabama Representative Robert Aderholt introduced the IRNA in 2006 after stenographers in his district complained about other states not recognizing depositions taken in Alabama. The Act requires every state to recognize a notarization made by a notary public licensed or commissioned under any other state’s laws. The only requirement for recognition is that the notarization feature the notary’s “seal of office” on or attached to the notarized document. Therefore, even if a state does not recognize electronically-stamped notarizations (i.e., made by a computer, not a person) or notarizations made at a different time than the signature or outside the presence of the signatory, that state must recognize the notarized document.
Until a few days ago, the bill seemed a low priority for the U.S. Congress and, frankly, unsexy. However, Democratic Senator Patrick Leahy (VT) and Republican Senator Jeff Sessions (AL) became suddenly enthusiastic about the bill mere hours before the end of the Senate’s latest session on September 27, 2010.
With multiple banks halting foreclosures in 23 judicial foreclosure states (affecting hundreds of thousands of homes) because of procedural “irregularities” in the foreclosure notarization process, notary publics are taking a front seat in the foreclosure crisis. And it’s a hot front seat. In some cases, notarizations were dated before the document was even created. In others, the notarization took place in an entirely different state than the signature. Even if in the same state, the notary was rarely present to see the signature of someone who was supposed to have personal knowledge of the validity of the foreclosure document. GMAC halted foreclosures on September 20, 2010. On September 30, 2010, JP Morgan Chase halted some 56,000 foreclosures to examine its document verification process. October 8, 2010, found another of the nation’s biggest lenders—Bank of America—halting foreclosures. The Ohio Attorney General filed suit October 6, 2010, claiming that GMAC violated state consumer fraud law by filing fraudulently notarized documents. Iowa and other states have explored similar legal action, calling for halts to all foreclosures until the potential fraud is investigated.
With all this excitement, it was a surprise to many commentators, and apparently to the White House, that Leahy, Sessions, and a unanimous late night vote of the Senate, passed the IRNA September 27, 2010. If the President had signed it, this bill could have radically changed the foreclosure landscape, requiring states who days earlier investigated ways to sue lenders under state law to drop state fraud claims and validate notarization processes.
While the President did not sign the bill, citing the “unintended consequences” mentioned above as the reason, the near passage poses important questions for practitioners and participants in foreclosure mediation.
First, the irregular processes many lenders followed when signing and notarizing foreclosure documents leads mediators to question what their relationship toward documents in foreclosure mediation should be. As neutrals, mediators tend to avoid the role of document reviewer. Evaluating the content of documents, and its relevance to the conflict at hand, often discourages parties from seeing the mediator as a facilitator rather than a judge. Moreover, mediators do not want to get in the business of adjudicating the authenticity or admissibility of a document.
Yet, if a mediator reads the news, she will know that the foreclosure documents presented in mediation may or may not be “valid” according to state or federal law. Can she ignore the potentially invalid documents and proceed with the mediation in good faith? Is there danger in mediating these cases to a resolution when the foreclosure itself could be challenged in court? Or, is there a greater danger in mediators taking on the role of gatekeeper? A chief executive of the banking industry said that mediation gave the homeowners a great chance to draw lenders’ attention to document problems. Who’s job is it to ask the bank whether the documents’ notarization process is valid or whether the bank has halted foreclosure in cases involving documents similar to the current party’s? What other effects would reality checking the documents’ validity have on the foreclosure mediation?
The halted foreclosures lead to another, bigger question for foreclosure mediators: should we stop mediating because some lenders, and potentially all lenders, stop foreclosing? Perhaps this question would be answered more easily in the negative if mediators knew when banks would restart foreclosures. However, with pending litigation in Ohio and teams in Florida, Illinois, Iowa, Texas, Massachusetts, and other states investigating whether they will sue, these foreclosures are certainly uncertain. What benefits might the continuation of the foreclosure mediations offer to homeowners? To lenders? To the judicial process? Is it irresponsible for mediators to help lenders and homeowners negotiate a graceful exit when homeowners could have stayed in their homes while banks resolved the notarization suits? Or, might it be irresponsible to withhold mediation services from homeowners who are trying to get out from under unmanageable mortgages? Certainly, the announcements halted court proceedings. Should the announcements halt mediation proceedings? Do mediators want to set the precedent that when courts stop, mediations stop, too?
Yesterday, the President announced that he would not further confuse the foreclosure process by signing the IRNA. However, mediators are still stumped about how best to serve the interests of the homeowners and lenders, especially in this fledgling area of mediation.