On October 7, 2010, the White House announced that President Obama will utilize a legislative procedure often referred to as a “pocket veto” on H.R. 3808, the Interstate Recognition of Notarizations Act of 2010. By simply failing to sign the Bill, which passed both chambers of Congress without debate, the President essentially vetoed the legislation and sent it back to the House of Representatives.
On its face, H.R. 3808 has little to do with banking law or home foreclosures. The full text of the legislation may be viewed on the Library of Congress’s THOMAS search engine at www.thomas.loc.gov (search “H.R. 3808”). Passed with the stated purpose of removing impediments to interstate commerce, the Bill essentially streamlines the recognition of notarizations across state lines by mandating a low threshold for accepting out of state notarizations in both federal and state courts, including those made on electronic records. Although it does not even mention the words “bank,” “mortgage” or “foreclosure,” the President refused to sign the Bill in the face of increased outcry that it could hinder the ability of consumers to fight what are perceived as, correctly or not, unfair home foreclosures at a time when foreclosures have reached a record high.
The timing of the veto, coming on the heels of repeated reports and accusations of fraudulent notarizations on questionable foreclosure affidavits across the country, demonstrates both the profound impact of the economy on what many previously viewed as innocuous legislation as well as the tenuous times that banks and other lending institutions currently find themselves in with respect to mortgages and foreclosures.
The effect of the President’s veto is unlikely to be significant as it essentially continues the status quo; however, proponents of the Bill argued its benefits in terms of time and cost in avoiding lengthy trial procedures to have documents notarized out of state recognized in a court of law—benefits quantifiable only at the local level, absent the Bill’s universal application. The President has indicated his desire that the Bill be reworked to eliminate the “unintended impact of th[e] bill on consumer protections, including those for mortgages” and has stated that “further deliberations” will be necessary. (See The White House Blog, Why President Obama is Not Signing H.R. 3808, at http://www.whitehouse.gov./blog/2010/10/07/why-president-obama-not-signing-hr-3808). Critics of the veto have argued that complaints that the Bill would make it easier for lending institutions to use falsified or improper foreclosure documents are overblown as neither a notarization nor the Bill’s required recognition of a notarization would turn an incorrect document into a correct one.
But the effect of the Bill’s veto is not as large as that of the conditions which caused it. Perhaps the biggest lesson for lending institutions to take from the President’s veto is a recognition and appreciation of the circumstances and general public sentiment which gave rise to its use. There is no doubt that recent reports of the use fabricated mortgage documents are troubling. Countless newspapers and other media outlets continue to report that inappropriate steps are being taken by lending institutions across the country as well as the attorneys and other professionals who serve them. Because of these reports, as well as the general financial climate, the veto is likely an extension of a growing distrust of foreclosure tactics and those institutions whose business necessarily depends on their use.
To survive the storm of public opinion (and ensure the ability to continue necessary foreclosure actions), lending institutions must embrace the realities of the situation and ensure that all mortgage documents executed and all foreclosure procedures used are above board and not subject to question. Such an approach is necessary given that foreclosure attempts have been and will continue to see a general public, a jury pool, and, increasingly, judges, who are skeptical of mortgage documents and foreclosure strategies. The key to such preparation is training at the beginning of the process—with those individuals approving and gathering the necessary documents for home and other mortgages—as those documents are now likely being looked at with greater scrutiny than at any time before. And the importance of choosing experienced, trusted counsel is now amplified by a greater need to navigate state and federal regulations and to recognize that cutting corners, although it may yield gains in the short run, is now more likely to result in rejected claims, expensive counterclaims and regulatory review.
In short, the current economic climate has created great uncertainty and increased scrutiny on lending institutions, as evidenced by the President’s veto of what many considered to be an innocent and helpful proposal. But those institutions that are willing to engage the sentiment, ensure compliance, and rise above the unfortunately all-too-common practices fueling the current public outcry will surely be rewarded and relieved.