Election 2010: Teabaggin' the Ds & Rs

[sebastian_dangerfield]

Originally Posted by Cletus Miller

If the affidavit says:

1. "GMAC holds legal title to the mortgage" and
2. "legal title" means (and I get that the osmosis from your biglaw office neighbor probably didn't include this bit), under a specific state's law, in the real estate context, that GMAC has had the mortgage actually assigned to it by an actual, specific assignment document, not merely that it was included in a pool of mortgages sold to GMAC and interests therein re-sold to others, and
3. no such assignment existed at the time of the execution and filing of teh affidavit, and
4. the defendant/borrower filed no response to the f/c complaint, so GMAC is requesting a default judgment, and
5. the judge, sua sponte, questions the facts asserted and asks to see the documents, and
6. the documents (per 2) don't exist, and
7. the judge doesn't like this, as GMAC "lied" about a fact necessary to obtain a default judgment,

what should happen? GMAC gets to enforce a mortgage that it does not have the legal right to, under applicable state law?

As you seem to keep missing this point I've stated more than once: The borrower should not get a windfall and I don't think that there is any reasonable basis, under any state law, to relieve the borrower of em's obligations under the note secured by the mortgage, but I could see (but not agree with, in the scenario above) a judge refusing to allow the foreclosure of the mortgage after such acts by the Lender, which is *also* not an invalidation of a mortgage, just the removal of the principal state law remedy available to a lender.

I don't think anyone is arguing the borrower should be absolved of anything. I think the windfall here is the borrower getting to live in the house for free for several more months or years than he would be able to otherwise.

The windfall I see here is mining even more equity back out of the house by further dragging out the litigation.

[Cletus Miller]

Originally Posted by sebastian_dangerfield

Moving on to substance, you'd have a point if the affidavits were unsupported and made in bad faith. Seeing how they were made in good faith, but in a slipshod manner due to the overwhelming number of foreclosures, and supported to the extent they confirm the borrower is in default, however, you don't.

Not when there is (1) a frequent problem with the required documentation, and (2) the implemented process is such that it is physically impossible for the person making the representation to have actually verified the facts averred. From the descriptions (and my understanding) of GMAC's system, there was not a data field in the default report for "when/how mortgage/note assigned to GMAC" or "location of original mortgage/note" or anything of the like.

The affidavit signer just confirmed that the amounts, loan number, address and parties were correct and signed the affidavit averring to--along with the rest of the facts--GMAC's legal title to the mortgage/note with NO diligence about whether that fact was true. Dude was just doing his job as he had been instructed, but that just means that the problem was higher up in the system.

Seriously, this is a facially defective process producing unsupported affidavits. Using that process occasionally might still be good faith, using that process for months in a row is not--perhaps not per se bad faith, but certainly not worthy of a good faith safe harbor.

I know you know that merely being in default is necessary but generally not sufficient to allow for the foreclosure of a personal residence, especially when the mortgagee is seeking a default entry. You may think that's bad policy, but that is the law in most states, and frankly pales as bad policy next to the absurd patchwork of redemption rights and processes.

[Greedy,Greedy,Greedy]

Originally Posted by Cletus Miller

If they start insuring title to property acquired through a defective foreclosure process, then they'd have liability. Which is why at least one said "nope", and then the banks halted f/c before the rest of the industry said the same thing.

There's not much likelihood of meaningful loss from already completed transactions--it's not the practice to obtain insurance of assignments of mortgages on residential properties, and of course if it were there would be recorded chain of title to the mortgages (which wouldn't deal with the issue for the notes).

This addresses loss for the title insurers - how about for the schmucks who bought at foreclosure? If it turns out GMAC screwed up on, say, 5% of their loans, and title was in a different entity, are there problems with the title on those properties, that some purchaser might be stuck with when the heirs of now-deceased former borrower Ded Beet decide they still have title and want to pay off the mortgage and get it back, what with the new Kwik Mart going in next door? Any chance the little Beets can cause a probem?

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

Moving on to substance, you'd have a point if the affidavits were unsupported and made in bad faith. Seeing how they were made in good faith, but in a slipshod manner due to the overwhelming number of foreclosures, and supported to the extent they confirm the borrower is in default, however, you don't.

Recklessness is not good faith. Again, over to Barry Ritholtz, since he addressed exactly this point just a few hours ago:

The verification of the specific data that is mandated legally is not taking place by bank executives. Reviewing a file can take anywhere from, 20 minutes to well over an hour. Yet some bank employees are testifying that they have signed off on as many as 150 per day (Wells Fargo) or 400 per day (Chase).

It is impossible to perform that many foreclosure reviews and data verifications in a single day. The only way this could happen is via a systemic banking fraud that orders its employees to violate the law. Hence, how we end up with the wrong house being foreclosed upon, the wrong person being sued for a mortgage note, a bank without an interest in a mortgage note suing for foreclosure, and cases where more than one note holders are suing on the same property that is being foreclosed.

This is more than mere accident or error, it is willful recklessness. When that recklessness is part of a company’s processes and procedures, it amounts to systemic fraud. (THIS IS CRIMINAL AND SHOULD BE PROSECUTED).

The next step in our cavalcade of illegality is the Notary. Their signature and stamp allows these fraudulent documents to be entered into court as actual evidence (no live witness required). Hence, we have no only fraud, but contempt of court on top of it (BOTH OF WHICH REQUIRE PROSECUTION).

Law firms preparing the legal documents are not doing their job of further verifying the information. And, it seems certain states such as Florida have foreclosure mills who were set up from the outset as fraudulent enterprises. (EVEN MORE PROSECUTION NEEDED).

Lastly, some service processors are not bothering to do their job. This is the last step in the foreclosure proceedings that would put a person on notice of the errors (YET MORE FRAUD).

There are multiple failsafes and checkpoints along the way to insure that this system has zero errors. Indeed, one can argue that the entire system of property rights and contract law has been established over the past two centuries to ensure that this process is error free. There are multiple checks, fail-safes, rechecks, verifications, affirmations, reviews, and attestations that make sure the process does not fail.

It is a legal impossibility for someone without a mortgage to be foreclosed upon. It is a legal impossibility for the wrong house to be foreclosed upon, It is a legal impossibility for the wrong bank to sue for foreclosure.

And yet, all of those things have occurred. The only way these errors could have occurred is if several people involved in the process committed criminal fraud. This is not a case of “Well, something slipped through the cracks.” In order for the process to fail, many people along the chain must commit fraud.

That it is being done for expediency and to save a few dollars on the process is why the full criminal prosecution must occur.

I'm not sure that my instincts are quite as aggressive as his, but we have allowed financial institutions in this country to get away with all sorts of shit and perhaps we ought to try stringent enforcement now and see how that works.

[Cletus Miller]

Originally Posted by sebastian_dangerfield

I don't think anyone is arguing the borrower should be absolved of anything. I think the windfall here is the borrower getting to live in the house for free for several more months or years than he would be able to otherwise.

The windfall I see here is mining even more equity back out of the house by further dragging out the litigation.

Hank keeps asking the question of who owns it. Which implies he thinks someone (maybe not here, but somewhere) is arguing that the borrower might get the house for free.

[sebastian_dangerfield]

Originally Posted by Cletus Miller

Not when there is (1) a frequent problem with the required documentation, and (2) the implemented process is such that it is physically impossible for the person making the representation to have actually verified the facts averred. From the descriptions (and my understanding) of GMAC's system, there was not a data field in the default report for "when/how mortgage/note assigned to GMAC" or "location of original mortgage/note" or anything of the like.

The affidavit signer just confirmed that the amounts, loan number, address and parties were correct and signed the affidavit averring to--along with the rest of the facts--GMAC's legal title to the mortgage/note with NO diligence about whether that fact was true. Dude was just doing his job as he had been instructed, but that just means that the problem was higher up in the system.

Seriously, this is a facially defective process producing unsupported affidavits. Using that process occasionally might still be good faith, using that process for months in a row is not--perhaps not per se bad faith, but certainly not worthy of a good faith safe harbor.

I know you know that merely being in default is necessary but generally not sufficient to allow for the foreclosure of a personal residence, especially when the mortgagee is seeking a default entry. You may think that's bad policy, but that is the law in most states, and frankly pales as bad policy next to the absurd patchwork of redemption rights and processes.

YMMV, but in PA (fact pleading state), the assignment history and location is always plead right in the complaint. Sometimes, it adds a caveat about the assignment being in the process of "formalization," whatever that is.

I don't think it's bad policy. What I think is bad policy is a holdup of orderly property foreclosures so people who've been haging out in their homes for free for close to a year already can take another year free.

As an aside, I rarely challenge the documents in resi f/cs. To do f/c defense and make money at it, you need volume. I use equity defenses, which by nature allow for cookie cutter answers and summary judgment replies which can be tweaked in moments to fit any case. The best I know of is promissory estoppel. Seven out of ten borrowers called the lender before their default to inquire about modification, and were told by some call center person that they had to miss two or three payments before the bank would consider a mod. I send out a request for the bank's call records, get an affidavit from the client and use them to get past summary judgment. At that point, the bank starts talking mod or enters into a deal allowing the people to sit in the house for a year. If the people have kids, the courts will do all they can to keep the people in the home through the end of the school year. The only time it gets really ugly is when we get close to trial, both sides are bluffing and the judge asks me this question at a settlement conference:

"How much of the money he hasn't been spending on the mortgage has your client saved? What's he got in the bank?"

< Cue tumbleweeds. >

I tell people to save, and many don't. They spend on dumb shit (vacations, tvs, etc...), and the judge gets pissed, and that's why I've as low an opinion of most borrowers as I do of the banks.

[Cletus Miller]

Originally Posted by Greedy,Greedy,Greedy

This addresses loss for the title insurers - how about for the schmucks who bought at foreclosure? If it turns out GMAC screwed up on, say, 5% of their loans, and title was in a different entity, are there problems with the title on those properties, that some purchaser might be stuck with when the heirs of now-deceased former borrower Ded Beet decide they still have title and want to pay off the mortgage and get it back, what with the new Kwik Mart going in next door? Any chance the little Beets can cause a probem?

Yes, but assuming that (1) the sale already happened, and (2) the buyer got a mortgage, there is title insurance and the insurers are likely going to have to handle the litigation. Also, unless the purchase was *actually* at the auction (which, at least here, has been pretty rare), the lender probably paid for owner's title insurance as the seller of REO--which, of course, is part of why the insurers needed to say "no more for now".

[sebastian_dangerfield]

Originally Posted by Cletus Miller

Hank keeps asking the question of who owns it. Which implies he thinks someone (maybe not here, but somewhere) is arguing that the borrower might get the house for free.

That's happened once, in my recollection, on Long Island, and I think it involved both lenders' counsel and a bank repeatedly violating orders of court. And even that's likely to get flipped on appeal.

[Cletus Miller]

Originally Posted by sebastian_dangerfield

"How much of the money he hasn't been spending on the mortgage has your client saved? What's he got in the bank?"

< Cue tumbleweeds. >

I tell people to save, and many don't. They spend on dumb shit (vacations, tvs, etc...), and the judge gets pissed, and that's why I've as low an opinion of most borrowers as I do of the banks.

Have them tell the judge that they're doing their patriotic duty, trying to save the country from collapse. Just because I want to hear the story of the reaction.

[Tyrone Slothrop]

Sen. Shelby: "while the Nobel Prize for Economics is a significant recognition, the Royal Swedish Academy of Sciences does not determine who is qualified to serve on the Board of Governors of the Federal Reserve System."

Ah, good stuff.

[Cletus Miller]

Originally Posted by sebastian_dangerfield

That's happened once, in my recollection, on Long Island, and I think it involved both lenders' counsel and a bank repeatedly violating orders of court. And even that's likely to get flipped on appeal.

It's much more likely to happen in a bankruptcy court, especially if there are repeated violations of the stay. I know I've read of it happening a couple of times, but don't know about reversals, and it was always related to repeated bad acts by the lender, as you say.

[sebastian_dangerfield]

Originally Posted by Tyrone Slothrop

Recklessness is not good faith. Again, over to Barry Ritholtz, since he addressed exactly this point just a few hours ago:

I'm not sure that my instincts are quite as aggressive as his, but we have allowed financial institutions in this country to get away with all sorts of shit and perhaps we ought to try stringent enforcement now and see how that works.

I agree with the sentiment, Ty. Really, I couldn't agree more. But your practical point of yesterday was far more persuasive: Anything holding up the foreclosure process, and by extension, delaying the bottoming out of the housing market, is bad.

Sanctions are the cure here. The courts have huge budget deficits right now. I think hitting banks with a million here, a million there, is the only win/win we can reach in a circumstance like this.

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

YMMV, but in PA (fact pleading state), the assignment history and location is always plead right in the complaint. Sometimes, it adds a caveat about the assignment being in the process of "formalization," whatever that is.

I don't think it's bad policy. What I think is bad policy is a holdup of orderly property foreclosures so people who've been haging out in their homes for free for close to a year already can take another year free.

As an aside, I rarely challenge the documents in resi f/cs. To do f/c defense and make money at it, you need volume. I use equity defenses, which by nature allow for cookie cutter answers and summary judgment replies which can be tweaked in moments to fit any case. The best I know of is promissory estoppel. Seven out of ten borrowers called the lender before their default to inquire about modification, and were told by some call center person that they had to miss two or three payments before the bank would consider a mod. I send out a request for the bank's call records, get an affidavit from the client and use them to get past summary judgment. At that point, the bank starts talking mod or enters into a deal allowing the people to sit in the house for a year. If the people have kids, the courts will do all they can to keep the people in the home through the end of the school year. The only time it gets really ugly is when we get close to trial, both sides are bluffing and the judge asks me this question at a settlement conference:

"How much of the money he hasn't been spending on the mortgage has your client saved? What's he got in the bank?"

< Cue tumbleweeds. >

I tell people to save, and many don't. They spend on dumb shit (vacations, tvs, etc...), and the judge gets pissed, and that's why I've as low an opinion of most borrowers as I do of the banks.

What you're saying suggests that the banks' misrepresentations are all the more pernicious because they are being made against litigants who, as a practical matter, won't challenge them. This means the adversarial process won't get the facts right, and that undermines the legitimacy of the judicial system.

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

I agree with the sentiment, Ty. Really, I couldn't agree more. But your practical point of yesterday was far more persuasive: Anything holding up the foreclosure process, and by extension, delaying the bottoming out of the housing market, is bad.

Sanctions are the cure here. The courts have huge budget deficits right now. I think hitting banks with a million here, a million there, is the only win/win we can reach in a circumstance like this.

I hear what you're saying. OTOH, we have got to stop saying that we're going to let the banks off the hook because it'll be bad for the economy.

[sebastian_dangerfield]

Originally Posted by Cletus Miller

Have them tell the judge that they're doing their patriotic duty, trying to save the country from collapse. Just because I want to hear the story of the reaction.

I had to tell one judge my client was giving back a gaudy luxury SUV to the dealer to find more $$$ for a modification in an effort to stop one sheriff's sale. The judge gave me one of those looks: You get one of these, son. Maybe two. Bring this kind of shit here on all your other cases and there'll be problems.