Finally the administration is talking about the foreclosure fraud crisis. And their approach is that only BP knows how to foreclosure on people with improper documents 5,000 feet below the sea only Bank of America, GMAC and the other largest servicers and banks can figure out how to solve this problem internally, that “This is a problem for the banks and servicers to fix. They can fix it as fast as they feel like it.”
Here are Shahien Nasiripour and Arthur Delaney on Obama Team On Furor Over Foreclosures: ‘Problem For The Banks and Servicers To Fix.’
What if the adminstration came out with something half as strong as this ruling by Judge Christopher A. Boyko of Federal District Court in Cleveland (my bold, though seriously read it all):
This Court acknowledges the right of banks, holding valid mortgages, to receive timely payments. And, if they do not receive timely payments, banks have the right to properly file actions on the defaulted notes—seeking foreclosure on the property securing the notes. Yet, this Court possesses the independent obligations to preserve the judicial integrity of the federal court and to jealously guard federal jurisdiction. Neither the fluidity of the secondary mortgage market, nor monetary or economic considerations of the parties, nor the convenience of the litigants supersede those obligations…
Plaintiff’s, “Judge, you just don’t understand how things work,” argument reveals a condescending mindset and quasi-monopolistic system where financial institutions have traditionally controlled, and still control, the foreclosure process. Typically, the homeowner who finds himself/herself in financial straits, fails to make the required mortgage payments and faces a foreclosure suit, is not interested in testing state or federal jurisdictional requirements, either pro se or through counsel. Their focus is either, “how do I save my home,” or “if I have to give it up, I’ll simply leave and find somewhere else to live.” In the meantime, the financial institutions or successors/assignees rush to foreclose, obtain a default judgment and then sit on the deed, avoiding responsibility for maintaining the property while reaping the financial benefits of interest running on a judgment. The financial institutions know the law charges the one with title (still the homeowner) with maintaining the property.
There is no doubt every decision made by a financial institution in the foreclosure process is
driven by money. And the legal work which flows from winning the financial institution’s favor is highly lucrative. There is nothing improper or wrong with financial institutions or law firms making a profit—to the contrary, they should be rewarded for sound business and legal practices.
Counsel for the institutions are not without legal argument to support their position, but their
arguments fall woefully short of justifying their premature filings, and utterly fail to satisfy their standing and jurisdictional burdens. The institutions seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance. Finally put to the test, their weak legal arguments compel the Court to stop them at the gate.
What a badass. And what a great statement of the philosophical principles of liberalism. The state has a responsibility to be a check on power, allowing people to have their fair say. Vague references to efficiency cannot be allowed to supplant the law: the basic requirements, rules and responsibilities for how we organize ourselves. The profit motive alone won’t guide us, as if by an invisible hand, because the powerful will bulldoze over the basic structure of the rules of the market if given the chance, recreating and subverting them to their own benefit, unless their efforts are held in check.
And here’s a fun fact: This ruling was from 2007. (Here’s the Judge’s ruling, read all of it if you are interested.)
Sorry, but this wasn’t something the financial blogosphere made-up to generate links and pageviews. It’s a longstanding problem that has finally hit critical mass. A few people had mentioned this in passing (notably John Carney’s A Primer On The Foreclosure Crisis), but the courts have been flagging this as a crisis point for 3 years now.
Now that everyone has learned a lot more about notes and securitizations and foreclosure fraud and all kinds of things, let’s check out Gretchen Morgenson, Foreclosures Hit a Snag for Lenders from the New York Times, November 15th 2007, which covers this ruling (my bold):
A federal judge in Ohio has ruled against a longstanding foreclosure practice, potentially creating an obstacle for lenders trying to reclaim properties from troubled borrowers and raising questions about the legal standing of investors in mortgage securities pools.
Judge Christopher A. Boyko of Federal District Court in Cleveland dismissed 14 foreclosure cases brought on behalf of mortgage investors, ruling that they had failed to prove that they owned the properties they were trying to seize…
The ruling was issued Oct. 31 by Judge Boyko, and relates to 14 foreclosure cases brought by Deutsche Bank National Trust Company. The bank is trustee for securitization pools, issued as recently as June 2006, claiming to hold mortgages underlying the foreclosed properties….
On Oct. 10, Judge Boyko, 53, ordered the lenders’ representative to file copies of loan assignments showing that the lender was indeed the owner of the note and mortgage on each property when the foreclosure was filed. But lawyers for Deutsche Bank supplied documents showing only an intent to convey the rights in the mortgages rather than proof of ownership as of the foreclosure date….
“This is the miracle of not having securities mapped to the underlying loans,” said Josh Rosner, a specialist in mortgage securities at Graham-Fisher, an independent research firm in New York. “There is no industry repository for mortgage loans. I have heard of instances where the same loan is in two or three pools.”…
“The big issue in all these cases, whether we are dealing with a bankruptcy court, a state court or a federal court, is who really owns the mortgage note, and that is allegedly what they securitized,” said O. Max Gardner III, a lawyer who represents borrowers in foreclosure in Shelby, N.C. “A collateral question is, has that mortgage note really been transferred and assigned to the securitization trust? If not, then they really don’t have standing. It’s Law School 101.”…
“We see a trend toward judges having enough of this trampling of the rules and procedure and care and reverence with which lawyers and litigants and participants in the judicial process should comply,” Ms. Charney said. “Hopefully this will convince everybody that the time to work out these home loans is now.”
Note the bold: The courts back in November 2007 flagged that “intent” to convey wasn’t going to fly for mortgage securitizations. You are going to hear a lot in the near future that the banks having “intent” to move these notes – what else would they do with them? – should be enough. The courts and the law disagreed 3 years ago. And, I’m currently working on this, but by all accounts New York Trust law (which governs a large percentage of these securities) is even less forgiving of using “intent” as an excuse.
The article ends with a optimistic note that the banks in question will get their act together now that they’ve been embarrassed and penalized publicly. How’d that work out? Now we appear to be on the course that this will all work itself out because, again, the banks have been embarrassed and penalized publicly. How’s this going to work out without stronger and mobilized action?