Kansas has joined a nationwide investigation into allegations that mortgage companies mishandled documents and broke laws foreclosing on hundreds of thousands of homeowners.
Kansas Attorney General Steve Six said in a statement Wednesday afternoon that he decided to join the probe in conjunction with earlier efforts from his office to combat mortgage fraud.
"Last year, I announced Operation Homestead, an effort to combat mortgage fraud and protect consumers from unnecessary foreclosures and predatory fraudsters preying on those in financial straits," Six said.
"The bi-partisan effort of 50 states to uncover potential deceptive acts is an extension of the work we've been doing in Kansas as part of Operation Homestead. We must continue to guarantee appropriate protections are in place for Kansas consumers."
All 50 states and the District of Columbia have joined the investigation, as concern grows in Wichita over the probe's impact on the local housing market.
The states' attorneys general and bank regulators will examine whether mortgage company employees made false statements or prepared documents improperly.
"It has recently come to light that a number of mortgage loan servicers have submitted affidavits or signed other documents in support of either a judicial or non-judicial foreclosure that appear to have procedural defects," officials said in a joint statement.
"In particular, it appears affidavits and other documents have been signed by persons who did not have personal knowledge of the facts asserted in the documents. In addition, it appears that many affidavits were signed outside of the presence of a notary public, contrary to state law."
Tessa Hultz, chief executive of Wichita Area Association of Realtors, said a lengthy foreclosure moratorium could hurt the Wichita market.
"Lenders do need some time to review their portfolios to ensure that homeowners are not being improperly foreclosed on, but a prolonged moratorium would have a negative impact on the families involved, the housing market and the economic recovery of the country as a whole," Hultz said.
"Our hope is that lenders will work with homeowners through loan modifications and short sales where necessary."
John McKenzie, president of Wichita's Coldwell Banker Plaza Real Estate, said residential appraisers are telling him that the number of Wichita foreclosures are rising steadily.
So any foreclosure moratorium could stall local home sales and send prices falling.
"I don't know that anyone has their arms around this thing in Wichita," McKenzie said.
"It's not like we have 500 or 600 foreclosures yet, but I can't honestly tell you that anyone in Wichita besides the appraisers are really in a position to know what to expect."
The allegations raise the possibility that foreclosure proceedings nationwide could be subject to legal challenge. Some foreclosures could be overturned. More than 2.5 million homes have been lost to foreclosure since the recession started in December 2007, according to RealtyTrac.
Ally Financial's GMAC Mortgage Unit, Bank of America and JPMorgan Chase & Co. already have halted some questionable foreclosures. Other banks, including Citigroup and Wells Fargo have not stopped processing foreclosures, saying they did nothing wrong.