NY Times – Big Legal Clash on Foreclosure is Taking Shape

Next Stop in Foreclosure Fight May Be Courtroom

Published: October 20, 2010

About a month after Washington Mutual Bank made a multimillion-dollar mortgage loan on a mountain home near Santa Barbara, Calif., a crucial piece of paperwork disappeared.

But bank officials were unperturbed. After conducting a “due and diligent search,” an assistant vice president simply drew up an affidavit stating that the paperwork — a promissory note committing the borrower to repay the mortgage — could not be found, according to court documents.

The handling of that lost note in 2006 was hardly unusual. Mortgage documents of all sorts were treated in an almost lackadaisical way during the dizzying mortgage lending spree from 2005 through 2007, according to court documents, analysts and interviews.

Now those missing and possibly fraudulent documents are at the center of a potentially seismic legal clash that pits big lenders against homeowners and their advocates concerned that the lenders’ rush to foreclose flouts private property rights.

That clash — expected to be played out in courtrooms across the country and scrutinized by law enforcement officials investigating possible wrongdoing by big lenders — leaped to the forefront of the mortgage crisis this week as big lenders began lifting their freezes on foreclosures and insisted the worst was behind them.

Federal officials meeting in Washington on Wednesday indicated that a government review of the problems would not be complete until the end of the year.

In short, the legal disagreement amounts to whether banks can rely on flawed documentation to repossess homes.

While even critics of the big lenders acknowledge that the vast majority of foreclosures involve homeowners who have not paid their mortgages, they argue that the borrowers are entitled to due legal process.

Banks “have essentially sidestepped 400 years of property law in the United States,” said Rebel A. Cole, a professor of finance and real estate at DePaul University. “There are so many questionable aspects to this thing it’s scary.”

Others are more sanguine about the dispute.

Joseph R. Mason, a finance professor who holds the Louisiana Bankers Association chair at Louisiana State University, said that concerns about proper foreclosure documentation were overblown. At the end of the day, he said, even if the banks botched the paperwork, homeowners who didn’t make their mortgage payments still needed to be held accountable.

“You borrowed money,” he said. “You are obligated to repay it.”

After freezing most foreclosures, Bank of America, the largest consumer bank in the country, said this week that it would soon resume foreclosures in about half of the country because it was confident that the cases had been properly documented. GMAC Mortgage said it was also proceeding with foreclosures, on a case-by-case basis.

While some other banks have also suggested they can wrap up faulty foreclosures in a matter of weeks, some judges, lawyers for homeowners and real estate experts like Mr. Cole expect the courts to be inundated with challenges to the banks’ actions.

“This is ultimately going to have to be resolved by the 50 state supreme courts who have jurisdiction for property law,” Professor Cole predicted.

Defaulting homeowners in states like Florida, among the hardest hit by foreclosures, are already showing up in bigger numbers this week to challenge repossessions. And judges in some states have halted or delayed foreclosures because of improper documentation. Court cases are likely to hinge on whether judges believe that banks properly fulfilled their legal obligations during the mortgage boom — and in the subsequent rush to expedite foreclosures.

The country’s mortgage lenders contend that any problems that might be identified are technical and will not change the fact that they have the right to foreclose en masse.

“We did a thorough review of the process, and we found the facts underlying the decision to foreclose have been accurate,” Barbara J. Desoer, president of Bank of America Home Loans, said earlier this week. “We paused while we were doing that, and now we’re moving forward.”

Some analysts are not sure that banks can proceed so freely. Katherine M. Porter, a visiting law professor at Harvard University and an expert on consumer credit law, said that lenders were wrong to minimize problems with the legal documentation.

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10 Responses to “NY Times – Big Legal Clash on Foreclosure is Taking Shape”
  1. Lawyers for mortgage lenders should be held accountable for foreclosure improprieties and concealing malpractice against their lender-clients, as well as for committing Unfair Debt Collection Practices, extortion, and fraud against borrowers.

    A good starting place would be a look at property blight and foreclosure conveyances to non-existent companies; bankruptcy “Lift Stay” motions that “lack standing,” “proof of claims” different from ‘lift stays’ “movers”; and illegal property deeds. Also, lawyer are wrong for injurious frauds, failing to “effect service” or failing at any substantive Civil Procedure requirement –NOT the homeowner for refusing to cooperate with erroneous and / or fraudulent home repossession.

    And often foreclosure delays are because of foreclosure lawyers, but they keep that fact from clients. Lenders, (are not required to know laws) sometimes are unaware that lawyers’ mistakes, errors, and frauds provide reasons, defenses, and basis to attempt negotiating mortgage contracts.

    Also, property owners seeking debt reorganization through Chapter 13 Bankruptcy are not to be blamed for contesting a false “proof of claim” or false “Lift Stay” motion. Thus, countless foreclosure lawyers owe $$$$$$ to their lender clients for fatally botching foreclosure cases.

    LSU finance professor, Joseph Mason travels the country, inter alia, masking Louisiana’s foreclosure corruption and racketeering activities connected to judicial frauds, Wells Fargo, and Freddie Mac. (*Thank you Senator David Vitter!!!* )His statements make light of harm from lawyers’ fraudulent foreclosure activities. Mason is misinforming about the filing of fraudulent court documents. In disagreement with Mason the problem is NOT “overblown.” If the focus of people like Mason is on “quelling” fraudulent foreclosure filings and deliberate frauds instead of looking at critical facts and issues, then concealment is the preferred route.

    But, glossing over things is not appropriate for people who have been tortiously harmed by extortion and fraud –here in Louisiana or any place else! Refusal to even consider what those actions are, and who are the actors, exacerbates rather than extinguishes casualty. Even worse, the culprits who are most responsible for damages remain intact to continue wreaking havoc.

    Also, injurious acts by foreclosure lawyers, render them as well as their clients liable for damages. The half has not been told of outrageous, unfair collections, and privacy invasion associated with foreclosure! Lawyers know what they’ve done; they seek to have victims go away to avert exposure.
    Mortgage default causes foreclosure, but default doesn’t justify fraud and victimizing defaulted borrowers.


    *OPEN LETTER TO PRESIDENT OBAMA on Foreclosure Crisis (Wells Fargo)

  2. J Glenn Lowe says:

    You can’t fix a problem this big without flushing our entire financial system down the toilet and starting over. Our Democracy is incapable of handling something that needs that kind of quick and decisive action. That would include prosecuting all of the judges that approve fraudulent foreclosure documents, hanging all of the executives on Wall Street that know exactly what they are doing, and executing all of the banking families that have been bribing all of the spineless politicians that will sell the souls of your grandchildren for a nice house on the hill. We don’t have enough prisons to deal with it any other way. The bankers usually just create a nice big war when they need to cover up something this huge. What is really amazing is that they still get away with it because no one will believe that a conspiracy could be this big. It’s always been right in front of our faces and everyone just keeps putting their heads back in the sand because they are too spineless to risk their little worlds by standing up so we can all have a society that treats people fairly. (Taking care of my own) If we were to start caring about each other on a large scale we would start to boycott all big corporations and start to invest in people, not insane monster corporations on auto-pilot heading us all in the direction of a cliff. A sane society would not have bankers, or a stock market, or even politicians for that matter. But I guess I never read anywhere that we were a sane society. Does anyone have an extra trillion dollars?

    • Cheryl Hadden says:

      there just might be a way to fix it so that sales of houses can resume with some degree of assurance that getting a clean title is possible.
      My county is doing a tax sale right now and they take the responsibility to give Quit Claim deed with the following statement tacked on:

      “Please Note
      In accordance with the General Property Tax Act, Public Act 206 of 1893, as amended, MCL 211.1 TO 211.157, (“the Act”) the property offered for sale was foreclosed for unpaid delinquent real property taxes. Pursuant to the Act and by Judgment of the Wayne County Circuit Court, Case No.09-014685 PZ., redemption rights to the properties have expired and fee simple title to the properties has vested in the Wayne County Treasurer, in his capacity as the Foreclosing Governmental Unit in the County of Wayne, and all liens against the properties under Michigan law, except for future installments of special assessments and certain liens recorded by the State of Michigan, were cancelled. All existing recorded and unrecorded interests in these properties were extinguished, except visible or recorded easements or rights-of- way, private deed restrictions, or restrictions or other governmental interests in these properties imposed pursuant to the Natural Resources and Environmental Protection Act, Public Act 451 of 1994, as amended, MCL 324.101 to 324.90106. It is the responsibility of prospective purchasers to research the existence of any liens or encumbrances not cancelled by the Act or Judgment of the Court. Prospective purchasers are also responsible for examining the title, location and desirability of the property to their own satisfaction prior to the sale. ALL PROPERTY IS SOLD “AS IS”. The Wayne County Treasurer makes no guarantee, expressed or implied, relative to the title, location or condition of any property. Please Note: As the Foreclosing Governmental Unit, the Wayne County Treasurer now offers the property for sale to the highest bidder.”

      Why can’t the states do the same thing or individual towns and cities?

      What do you think?

      • Michael says:

        Too expensive and risky. Muni’s already in trouble because heavily invested in MBS’s and MBS derivatives and reliant on property taxes; layering this risk on is too much concentration of risk in property (arguably already way past that). Muni bond pricing would go through the roof. Also it’s another form of bailout; we have to stop subsidizing bad behavior by banks.

        But I do think that you’re on to something, and that you’re right; can’t freeze the entire housing market.

  3. PJ says:

    What is the reporter actually saying here?

    “About a month after Washington Mutual Bank made a multimillion-dollar mortgage loan on a mountain home near Santa Barbara, Calif., a crucial piece of paperwork disappeared.”

  4. RAMONA says:

    what scares me is what country did they sell our homes too?

  5. RAMONA says:

    These banks have not worked with people and have defrauded them in ever yway possible because they get more to continue the foreclosure process. So how can a bank say homeowners are a year behind if monies have been received but the bank did not stop the foreclosures? Countrywide has been found in default so how can they continue to find anyone else in default without trying to work with homeowners?Bank of america has already sent a notice that because our second loan is in default our original loan will be charged fines?What is this thing at one of the news stations offering about refinancing with freddie mac?

  6. Pj says:

    Mark my words that multi million dollar loan was given to a friend of “foeclouseurfraud” !

  7. Michael says:

    Oh BOA — we have data .. lots and lots of data.

    It affects a few more files than what you’ve represented … doesn’t it? Don’t remember the exact number you came up with but heard it was something like the low 100’s. Um….

    Don’t worry – no need to answer. We’ll be happy to answer for you, with specific case numbers to boot; makes it easier to look them up so that you can go make the families thrown to the street whole.

    Michael Olenick

  8. RRobin says:

    So, what money did we borrow??!
    WE were the creditor, and never got a “loan” actually!

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