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States Probe Foreclosure Practices

The foreclosure epidemic sweeping the nation as more people fall behind on their mortgage payments has led to a joint investigation by attorneys general in all 50 states and the District of Columbia into allegations that hundreds of thousands of foreclosures were mishandled.

Attorneys general and bank regulators across the country are looking into allegations that mortgage companies mishandled documents and broke laws in the process of forcing families out of their homes.

"Given the potential size and scope of this issue, it is important that we share information and work quickly to address possible problems," said Pennsylvania Attorney General Tom Corbett in a statement.

The more serious allegations being considered involve mortgage company employees making false statements and preparing foreclosure documents improperly, heightening the possibility that people who have lost their homes could mount court challenges.

The embarrassing revelations have raised questions about the accuracy and legitimacy of documents lenders relied on to take homes. Employees of four large lenders have testified in depositions that they didn't read foreclosures files before they signed off on them. Many documents also were signed without a notary public witnessing the signature, a violation of most state laws.

Some of the nation's largest lenders already have suspended their foreclosure processes in response to the nationwide probe, including GMAC Mortgage, Bank of America and JPMorgan Chase & Co, though some were making moves to resume foreclosures this week.

According to RealtyTrac Inc., more than 2.5 million homes have been lost to foreclosure since the recession started in December 2007.

The foreclosure crisis that has crippled major cities and small towns across the nation has had a smaller impact in the greater Pittsburgh metropolitan region, where foreclosures have declined since 2005.

Fewer home losses here could be partly attributed to a foreclosure reconciliation process spearheaded by Allegheny County Sheriff William P. Mullen that requires lenders and borrowers to meet to try to work out an agreement.

"We give them a chance to refinance, lower their payments and stay in their house," the sheriff said Wednesday.

The reconciliation process also requires mortgage companies to slow down the foreclosure process and pay more attention to the details, which may have helped avoid some of the oversights that led to the national probe, he said.

In response to the allegations of possible mortgage fraud against large national mortgage companies, local lenders PNC Financial Services Group and Litton Loan Servicing recently announced they, too, would suspend some foreclosures while they review how documents were handled.

PNC owns $2.7 billion in home loans that are in foreclosure, according to SNL Financial LC, based in Charlottesville, Va.

According to RealSTATs, a local residential real estate information service, there have been 1,513 foreclosures so far this year in Allegheny County and a total of 2,681 in the five-county region that includes Allegheny, Beaver, Butler, Washington and Westmoreland counties.

"While foreclosures as a percentage are on the rise, the overall number of foreclosures is down from 2005," said Dan Murrer, vice president of RealSTATs. "The increase as a percentage is due to fewer market transactions."

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