WASHINGTON, DC-President Barack Obama used a pocket veto on Thursday to reject a notarization bill that would have made it more difficult for consumers to fight foreclosures that may not have been documented correctly.

The bill has been sent back to Congress with the Administration promising to work with the legislative body to correct the “unintended consequences” that may have resulted if the bill had been enacted into law. The bill would have allowed foreclosure and other documents to be accepted by multiple states. Critics of the measure said that it would make it more difficult for homeowners to challenge foreclosure documents prepared in other states.

The foreclosure process is increasingly coming under scrutiny by state attorney generals, lenders and plaintiff’s attorneys, as reports of incomplete, inaccurate or even fraudulent paperwork grow. This bill is yet another illustration of just how long a slog the residential housing market faces before it returns to health. The reports have been focusing on the issue of robosigning--that is, the signing of affidavits by lender employees that they had personal knowledge a loan was in default, when clearly that was not the case.

The freeze on foreclosures by some lenders and in some states will drag out the market reckoning for housing prices--and, some fear, have an impact on the emerging capital markets. The harder it becomes for lenders to foreclose, Craig B. Anderson, a partner in DLA Piper’s Real Estate Practice in Dallas, tells GlobeSt.com, the less likely they are to lend. “Challenges such as this will only add to the uncertainty of a lending market trying to emerge from turbulent times with large portfolios of impaired assets.”

RMBS will be the most impacted--especially if regulators call for a blanket timeout, speculates professor David Reiss with the Brooklyn Law School. The markets will also find themselves constrained if states continue to take the regulatory lead on this issue, he tells GlobeSt.com. “The TV images of banks evicting homeowners when the banks can’t even prove that they own the mortgage are enraging people--it is hard to imagine that change is not in the offing,” he says. “If the federal government does not step in, states will act in a variety of ways to push the mortgage industry to operate with real legal process.”

Congress did try to circumvent the problem with the notarization act, says David P. Leibowitz, an attorney with Lakelaw. The bill moved quietly through Congress and its passage took some of its watchers by surprise. They are paying attention now, Leibowitz tells GlobeSt.com. “It is politically radioactive at the moment.”

 

NOT FOR REPRINT

© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to asset-and-logo-licensing@alm.com. For more inforrmation visit Asset & Logo Licensing.