Shoddy lending practices fueled the housing bubble and led to massive losses. Now, shoddy paperwork in the headlong rush to foreclose could become a new source of pain.

In recent weeks, J.P. Morgan Chase, Bank of America and Ally Financial have temporarily halted foreclosures in 23 states due to flawed affidavits used in legal proceedings. Friday, Bank of America expanded this halt to all 50 states, while PNC Financial Services said it was stopping foreclosures in 23 states for a month.

Banks insist the problems are administrative and can be cleared up in a few weeks or months. But investors, ...

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