The controversy over banks' questionable business practices regarding document preparation in pursuit of foreclosure continues to expand. One of the latest offshoots of the story regards a bill, HR 3808, that had passed both houses of Congress, most recently the Senate on September 27th. Since then, the bill has gone from being invisible to highly controversial. The bill was vetoed by President Obama yesterday amid claims that the bill was a sellout to the banks and was intended to somehow bail the banks out of the scandal that had resulted from shoddy and/or fraudulent document preparation in foreclosure cases.
The major attention directed toward HR 3808, the "Interstate Recognition of Notarizations Act," was initiated by an announcement by Ohio Secretary of State Jennifer Brunner, who stated opposition to the bill based on the timing of the passage of the bill in the Senate, which was just four days after Ally Bank (formerly known as GMAC) had announced that it was halting foreclosures in 23 states due to problems with notarized documents it had used. Brunner noted that the bill had been "rushed through," and that "something didn't seem right," and went on to urge that President veto the bill, which he ultimately did.
The story was quickly picked up and added to on the political blogs, with sensationalist claims being the rule, and reasoned analysis of the actual legislation being the exception. "[I]t appears that the get out of jail card for the banking syndicate has once again materialized," said Tyler Durden of ZeroHedge about HR 3808. "Rather than deal with the considerable consequences of [foreclosure] abuses, the banks are prepared to bulldoze well settled state laws to give them an easy way out," said Yves Smith of Naked Capitalism.
One thing is certain: the bill was not crafted as a response to the foreclosure document mess. The legislation was first submitted in 2006, and similar legislation has been kicked around since at least 1997. There was at least one Congressional hearing on the bill, in 2006. The bill would "require any Federal or State court to recognize any notarization made by a notary public licensed by a State other than the State where the court is located when such notarization occurs in or affects interstate commerce." Currently, notarized documents from any state, notarized according to that state's laws, are usually accepted in any other state, just as if they were notarized in-state, regardless of any difference of notary laws and regulations among the states. But this is not always the case. Some states have particular rules regarding notarization that can and do cause some out-of-state notarizations to not be accepted in court.
The current situation with every state making its own rules for out-of-state notarizations does cause problems. For instance, in a 2005 Michigan case, Aspey v. Memorial Hospital, Sue Aspey, a victim of an alleged medical malpractice, had a judgment reversed by an appeals court because the Aspey's affidavit of merit-- prepared in Pennsylvania and validly notarized according to Pennsylvania rules-- lacked an accompanying certificate setting forth the notary's authority, as seemingly required by an old Michigan statute. Though the appeals court ruling was overruled by the Michigan Supreme Court due to a more recent statute that offered an alternative means of validating an out-of-state notarization, it is obvious from the experiences of the Mrs. Aspey that technicalities involving interstate use of valid notarizations can be quite costly.
Furthermore, confusion over these differences in rules often cause documents to be "ping-ponged" back and forth between business entities in different states until the document is notarized in such a way that the receiving party believes that the document will be accepted as a notarized document in his or her state. Thus, commerce is complicated and delayed by the mere existence of the possibility that a valid out-of-state notarization might be ruled invalid in-state, whether the problems result in court cases or not.
In the opinion of many, including many notaries, state laws that would deny admissibility of valid out of state notarizations are unconstitutional, because they believe that notarizations fall under the Full Faith and Credit clause of the constitution, which states: "Full faith and credit shall be given in each of these States to the records, acts, and judicial proceedings of the courts and magistrates of every other State." For example, the National Notary Association asserts flatly:
Because of the Full Faith and Credit clause of the U.S. Constitution, notarial acts performed by a Notary in one state have the same force and effect as if performed by a Notary in the respective state.
http://www.ftc.gov/...
The National Notary Association cites case law where U.S. Courts have applied full faith and credit to notary seals. But absent a U.S. Supreme Court ruling that this is in fact the case, confusion reigns.
But Jennifer Brunner and others, including the Association of Secretaries of State are on record as disagreeing with the concept of full reciprocity of notarizations among the states. Brunner noted the most common complaint in her opposition to the bill this week-- namely, provisions for electronic notarization that have been adopted by several states that "ignore the requirement of a signer's personal appearance before a notary," according to Brunner.
The personal appearance of the person is critical, e-notarization critics argue, because a notary must not only identify a signer, but also must judge that the signer is both alert enough to be aware of what they are signing and also is not signing under duress or coercion. Current E-notarization procedures in some states may not fulfill those primary obligations, critics claim. Moreover, they worry that there could be a "race to the bottom" in state notary regulations to attract businesses more interested in expediency than rigorous notarizations.
But what would this bill mean for the bad documents in the foreclosure mess? The important thing to remember about HR 3808 is that it only protects notarizations that are validly executed in the state where they occur. HR 3808 therefore doesn't really change much in terms of the current foreclosure mess-- it just settles the matter for anyone who might want to make a legal challenge to a valid notarization from another state, which is not a primary issue with the GMAC robo-signer, Jeffrey Stephan, or any of the other robo-signers who have come to light so far for that matter. Stephan, in fact, according to his third deposition, did not use electronic notarization. He described receiving documents from associated in folders, signing the documents, giving the folders to other associates, whereupon the documents were taken to the office notary for notarization. The notary was not present when Stephan signed. Without looking at the laws of all 50 states, it is highly unlikely that this process passes muster anywhere, and it does not in Pennsylvania, where Stephan was located.
Bottom line, HR 3808 doesn't bail out banks at all for improperly notarized documents-- there's no "get out of jail free card" here, as ZeroHedge claimed. If GMAC's foreclosure documents signed by Jeffrey Stephan were not properly notarized under the laws of Pennsylvania-- and it certainly appears that they were not-- there is nothing in HR 3808 to prevent a foreclosure defense lawyer from challenging that notarization in a Florida court.
It's very questionable whether the notarizations are even that big a deal in terms of substance in the majority of cases. While defense lawyers will rightly be challenging GMAC's notarizations (among many other things), consider the fact that the notary in Stephan's office would have certainly known Stephan, and would have known the circumstances of his signing. She would have known that he was indeed the person whose name he was signing; that he was alert enough to know what he was signing; and that he was not signing under duress. In other words, even though the notarizations were done improperly, all of the purposes of notarization were at least arguably satisfied by GMAC's process. There's still a technical problem, but the more substantive problems with the GMAC documents were that Stephan did not have personal knowledge of the facts to which he was signing, and allegedly did not have authority to sign for particular entities for which he sometimes signed, such as MERS.
It is very possible, and frankly understandable, that banks with a foreclosure problem might have been looking at e-notarization as a solution to weaknesses in their current notarization practices, and it would make sense that they might have brought up HR 3808 to their Congressional contacts because of worries that e-notarization would cause problems when used out of state. That does not make it a bad bill. And it just does not appear that there is anything sinister about HR 3808. So it should be brought up again and considered on its true merits and drawbacks, and its impact on all commerce should be considered, not just its impact on situations making headlines this week.
Crossposted from Source of Title