RICHMOND — Chantilly real estate agent John Thompson has, since 2007, delivered the news of foreclosure dozens of times.

 

Never is it easy. One such instance, however, he will not forget.

"There was the daughter, maybe 12 years old, and her parents were standing behind her. They didn't speak much English, so she had to translate," he said. "She was tremendously mature, but you don't want to be in that situation. It's heartbreaking."

 

Virginia state senators had voted, 28-3, to send a bill to the House aimed at protecting Virginia homeowners from the use of fraudulent documents in a foreclosure, effectively helping people like Thompson's client.

 

The bill, sponsored by Sen. Chap Petersen, D-Fairfax, created a civil cause of action for homeowners against banks that used a forged document to obtain a foreclosure. 

 

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But, this week, opponents in the GOP and the Virginia Banking Association helped to kill the bill. 

Thompson has had a real estate license since 1990, but he did not see the housing market as a career until 2003 — the start of the boom period, which led many prospective homeowners, brokers and bankers to display a dream-like confidence in the market's ability to prosper.

 

New homes were going up daily, filling previously barren landscapes as construction companies and developers looked to cash in on the boom. Contractors and home builders were attracted to Northern Virginia, home to the state's most expensive property.

Then it was 2007, a year that marked the hyper-deflation of the expanding real estate bubble.

Thompson could hear it pop.

He had established himself as a foreclosure specialist at Samson Realty in Chantilly. Banks and other mortgage holders would turn to the company to manage vacated properties and return them to the market.

If the homes were still occupied, Thompson was usually the "first person to knock on their door and tell them. Before that it's all letters, notices."

No one was prepared for the volume of foreclosures, Thompson said, a phenomenon that may have led to banks and law offices to employ surrogate signers.

"In Fairfax County up until that point, you had maybe 25 to 30 foreclosures a year; after '07, you had 30 to 45 a day." Thompson said.

 

"Nobody had the manpower or expertise to cover how quickly this happened, so people — banks, lawyers, I bet the courts even — were scrambling to handle this onslaught of foreclosures."

Thompson, who has been involved in more than 100 foreclosures since 2007, is aware of the robo-signing scandal that hit the foreclosure industry two years ago, but he does not think the problem in his state is widespread.

"I don't think we saw much abuse in Virginia," he said. "Everyone I come into contact with wants everything to be done within the law. The decision to go outside the law is generally made by individuals, rather than the industry or company or bank."

“Instead of loan officers or bank presidents signing off on foreclosure notices” Petersen said, “we have robo-signing happening,” often in out-of-state warehouses or "signing mills."

Documents and titles generated this way are fraudulent, but they have been used to speed up the foreclosure process for banks. The practice, in part, led to a $25-billion federal settlement with five of the nation's biggest mortgage lenders. 

 

Banks in Virginia are exempted from state consumer-protection laws, because they are regulated at the federal level.

 

Petersen wants to change that.

People who receive fraudulent notices would have been able to sue banks for compensatory damages and even attorney fees.

Banks use fraudulent documents for only two reasons, according to Paula Nachman, a member of the Virginia Tea Party Patriots Federation, a statewide hub of tea party action. Nachman supports the bill. 

“One, because they don't have the right document; and two, because its the only way to win," she said. "If a regular citizen comes into court and tries to commit fraud by using a fraudulent document, a forgery, they're going to go to jail. All we're asking for here is for compensatory damages in a civil action. I don't know if that's too much to ask."

Petersen, who is a practicing lawyer, said people could use their money to pay down mortgages, rather than paying their attorneys.  

But Republican lawmakers refuted the arguments of Tea Party Patriots and Democrats alike. The bill died in 4-3 vote by a Courts of Justice subcommittee. The vote fell along partisan lines. 

Republican delegates Salvatore Iaquinto, R-Virginia Beach; Manoli Loupassi, R-Richmond; Greg Habeeb, R-Salem; and Peter Farrell, R-Henrico, voted against the bill. Democratic delegates David Toscano, D-Charlottesville; Jenn McClellan, D-Richmond; and Joseph Johnson, D-Abingdon, voted for it.

Habeeb said it would be wrong for Virginia lawmakers to “willy-nilly pick places in the law to cover attorney fees.”

He said he would be open to the idea of debating whether banks should fall under the state’s consumer-protection act, but he did not want to carve out a special exemption.

The question of who should pay to fight a court battle is philosophical, Habeeb said. Americans believe that people should pay for their attorneys, he said. The Virginia Bankers Association agreed with Habeeb. They argued that the bill would encourage more litigation and would increase the costs to the mortgage industry.

Petersen said Virginia was the epicenter of the foreclosure crisis on the East Coast. He noted that Prince William County, in Northern Virginia, has seen 16,000 foreclosures in the past four years. 

Housing Opportunities Made Equal, or HOME, is a 501(c)(3) nonprofit corporation organized by the state and is a HUD-approved housing counseling agency. According to HOME, Virginia ranks eighth in the United States for number of homes that are worth less than the mortgage, and one-third of all Virginians with mortgages are “underwater.”

 

See interview with Petersen: http://youtu.be/GZsI-15W_dE