COLUMBIA --- South Carolina's chief justice Tuesday ordered a stop to all pending foreclosures until the banks and homeowners involved can complete an intervention process -- a move that could affect thousands of people struggling to hold onto their homes.
The injunction -- which applies both to foreclosures still pending May 9, in addition to any filed after that date -- is intended to give homeowners a chance to mitigate their losses, modify their loans and potentially alleviate the already strained court system processing the cases, Chief Justice Jean Toal wrote in the order.
"The number of unresolved foreclosure actions has increased, with a resulting burden on the resources of the Court before which the action is pending," Toal wrote.
Trial courts report the breakdowns are largely the result of "difficulty in communication between lender-services and debtors, and the fact that foreclosure actions are proceeding to conclusion without regard to ongoing loss mitigation efforts by the parties," the chief judge said.
Toal issued a similar order two years ago. In May 2009, she ordered state judges to stop finalizing foreclosure sales on thousands of properties guaranteed by Freddie Mac, Fannie Mae or any other mortgage company that had signed on to a federal assistance program, saying she wanted to give homeowners time to take advantage of the help.
Two weeks later, Toal replaced the injunction with procedures to ensure foreclosures were handled uniformly.
At that time, more than 13,700 homes in South Carolina were in some stage of foreclosure, according to RealtyTrac, Inc., a foreclosure listing service in Irvine, Calif. As of March, more than 23,500 South Carolina homes were in foreclosure.
In her order Tuesday, Toal said no foreclosure hearings or sales may be held until an attorney for the lender has completed a list of duties, including ensuring that the homeowner has ample opportunity to try to modify the loan to agreeable terms.
A 90-day waiting period follows any agreement reached between the parties. After that, the lender will either dismiss the foreclosure action entirely or, if the homeowner has broken the agreement, pursue the foreclosure.
It was not immediately clear how many homes will be affected by Toal's order.
Attorneys general in all 50 states and the District of Columbia are jointly investigating whether lenders cut corners and improperly handled hundreds of thousands of foreclosure cases over the past several years.
Federal regulators and state attorneys general are meeting with banks to try and strike a settlement that will significantly change the mortgage industry, forcing lenders to modify more mortgages and provide greater protections for borrowers. A final agreement is not expected for several months.
Several states have already taken action on their own since investigations began last fall, and judges in many states have pledged to review banks' foreclosure documents with skepticism. Attorneys general in Arizona and Nevada, two of the states hardest hit by defaulted mortgages, have filed lawsuits against Bank of America, the country's largest bank, saying the lender misled and deceived homeowners who have tried to modify mortgages.
Many lenders temporarily halted foreclosure cases in October after allegations surfaced that employees signed but didn't read documents that might have contained errors.
The federal government sued Deutsche Bank on Tuesday, alleging the bank committed fraud and padded its pockets with undeserved income as it lied in order to join a government program that insured mortgages. The lawsuit seeks to recover hundreds of millions of dollars in insurance claims that the government has had to pay when homeowners defaulted on their mortgages, saying the bank profited from the resale of the risky mortgages and left the government to foot the bill.
A Deutsche spokeswoman says the bank believes the claims are "unreasonable and unfair" and that much of the activity described in the suit involved a subsidiary before it was acquired by the bank.