The blogosphere is doing great work on covering the foreclosure fraud crisis. Here are some pieces that I’ve read recently that stand out:
1) I was going to try and write something like this for the Dummies series, but Barry Ritholtz nailed it with Why Foreclosure Fraud Is So Dangerous to Property Rights, that walks through both the chain of documentation and the act of foreclosure. Must read. Excerpt:
The law does not tolerate any errors in this process. What does the foreclosure process legally require? It varies by state and mortgage note, but the following is a good outline:
1) Notice of Delinquency is sent to a borrower who has fallen behind his payment schedule;
2) Notice of Default is sent to a delinquent borrower who has missed the requisite number of mortgage payments;
3) Notice of Foreclosure is sent to the defaulted borrower, and the process begins;
4) Affadavit by the bank’s representative are signed attesting to: Ownership of the note, who the borrower is, the property in question, the date of last mortgage payment, amount of delinquency, tax escrow owed, other payments (such as homeowners insurance);
5) Notarized documents: A Notary Public affirms that the affidavit was actually signed by the signatory, and this allows it to be entered into the court as documentary evidence;
6A) Notice of Pendency (Lis Pendens) is filed with the County Clerk putting the world on notice as to the foreclosure action;
6B) Summons and Complaint are prepared by bank attorneys, who further verify the specific information attested to by the bank executives. The attorneys then file the Complaint, commencing the Foreclosure Action;.
7) Service of Process is filed, either hand delivered to the home owner, or nailed to the door of the home;
8) Referee is Appointed to review and process the case; calculate the amount owed, and report back to the Court; The Referees report is also notarized;
9) Judgment of Foreclosure is moved for by Note holder;
10) Court orders the property auctioned. The court specifies a notice of the auction, publicizing the property auction;
11) Bidders must Close on the auctioned house in 30-90 days; In the event of no sale, the bank takes possession (REO);
The fraud that has come to light are primarily occurring in steps 4, 5, 6 and 7.
2) Annie Lowrey investigates the battle on the ground in Ohio in Ohio, Hit Hard by Foreclosure, Now at Epicenter of Fraud Crisis:
In an interview with TWI, Cordray stressed that the problems were systemic and the violations serious. “What we’re talking about here is not just sloppy paperwork,” he said. “We’re talking about fraud in a court of law. The [foreclosure document signers] were lying under oath, to a judge. And there is evidence that this company has illegally ousted people from their private property, violating their property rights.”
3) Tracy Alloway in The MBS mess from the beginning – the deal docs goes hardcore into the Pooling and Servicing Agreement that we discussed briefly in Part 2 of the For Dummies series. Many links and many a “structured finance footnote.”
4) I liked John Carney’s Primer of the Foreclosure Crisis, a good one-stop for the story.
5) And Moe Tkacik with 5 Things David Axelrod Must Have Missed About The Foreclosure Thing. Number Two is important:
2. Banks do not just walk away from a cash cow like “mortgage servicing” without a good reason. Mortgage servicing is a $200 billion a year business, and that is not because of the flat 0.25% fee mortgage servicers receive to process the timely payments of responsible homeowners. In the boom years, mortgage servicers raked in fees every time they convinced a homeowner to refinance—the more “adjustable” the better!—and in the bust years, late fees and foreclosures are the cash cows. Like all things banks do, it is truly recession-proof! The catch is that because foreclosures sort of necessarily involve, you know, “laws” governing “property rights” and “trespassing” and whatever, they require someone acting on behalf of the theoretical new “owner” of the property (whoever that is) to sign an affadavit saying something along the lines of, “yes, I’ve thought about it and reviewed the documents and whoever the local sheriff is should know that definitely these people deserve to have their locks abruptly changed and all their shit ransacked by some contract team of meatheads, and whoever shows up on this property after that they should feel free to harass, arrest, and what the hell waterboard.”