ForeclosureGate: Not just bungled paperwork, it is fraud (Part 2)
Posted by AzBlueMeanie:
The New York Times provides a more in-depth analysis of the robo-foreclosure scandal in this report. Big Legal Clash on Foreclosure is Taking Shape:
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.”
* * *
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.
* * *
[J]udges 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.
“The misbehavior is clear: they lied to the courts,” she said. “The fact that they are saying no one was harmed, they are missing the point. They did actual harm to the court system, to the rule of law. We don’t say, ‘You can perjure yourself on the stand because the jury will come to the right verdict anyway.’ That’s what they are saying.”
Robert Willens, a tax expert, said that documentation issues had created potentially severe tax problems for investors in mortgage securities and that “there is enough of a question here that the courts might well have to resolve the issue.”
ForeclosureGate: Not just bungled paperwork, it is fraud (Part 1)
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