Yves Smith and 4closureFraud have doing an astonishingly good job of keeping on top of all of the legal matters surrounding mortgage foreclosure. There are lots of them — do you know what phony allonges are? — and they are all very complicated, and they vary from state to state and from bank to bank, with the result that it’s really hard to sum it all up in a simple overview. But it’s impossible to read those sites and not conclude that we’re at the early stages of an absolutely monster legal mess.
Any one of Smith’s posts is astonishing enough — try here for a good starter, although you could do worse than to start here or here if you’re in Florida — but put them all together, and it becomes clear that the mother of all legal messes has already emerged from the foreclosure crisis, and threatens not only a large chunk of the financial system but also venerable civic institutions, like the courts, which have thus far emerged from the crisis largely unscathed.
While there’s some evidence that Congress is willing to find a bank-friendly way out of this mess, I don’t think that’s going to fly, not when state AGs are already filing lawsuits against the likes of GMAC.
Argentina’s sovereign default has been called “the slowest trainwreck in history”, but this one might turn out to be slower, bigger, and much less fair. Millions of people have already lost their houses to lenders who didn’t have the proper paperwork, and it’s unlikely they will ever get any redress. For people who haven’t yet been foreclosed upon, however, it could now be a very long time before they lose their house.
The big-picture consequences here are by their nature unpredictable, as no one has a clue how this might all play out. But I can think of a few themes:
All of this is going to be very costly and very unpleasant for all concerned; the only winners I see here are the lawyers. Add in possible securities-fraud charges against investment banks which underwrote a lot of these bonds, and the end result is a level of legal chaos I can barely imagine, in both the civil and criminal courts. And I see no easy way out at all.
It looks like it has been touched on before, but there was a New Jersey Bankruptcy Court judge in 2006 that noticed irregularities in affidavits generated by mortgage servicers, and undertook an investigation of their practices and wrote a report on their business practices in a published opinion. In re Rivera, 342 B.R. 435 (Bankr. D.N.J. 2006). Or Case No. 01-42625-MS for PACER users.
As to this issue, the mortgage servicers are clearly in violation of rules requiring notarized and personally signed affidavits for certain court motions, but in a world of computerized communication and multinational companies, it is questionable whether this isn’t a symptom of a legal profession has a certain amount of modernization to do. The idea that a central headquarters can't process a servicer's foreclosure work, and that each company must have a locally located representative to attest to attest to the facts of each foreclosure is an odd administrative hurdle to impose.
On the other hand, I’m waiting to hear the counterargument that the CRA somehow compelled mortgage servicers to maintain sloppy records, and this is a failure of government intervention rather than free markets.
Congress cannot help their friends this time. The outcry would be more than anything we have seen before.
Defending these lawsuits is going to bankrupt some banks. I’ll root for that to happen and for justice to be served.
Mark
“…much less fair. Millions of people have already lost their houses to lenders who didn't have the proper paperwork…”
This is the kind of thing I think we should be very careful about. The issue of “fairness” does not really turn on whether the lender’s paperwork is perfectly in order; it turns on whether the loan is in default and the lender has the right to foreclose. Usually, when the outcome of a judicial process is reversed because a signature is missing from a document, we call that “a technicality.”
In particular, if a loan is in default, we can identify with certainty the one person who should _not_ have possession of the house–and that is the borrower. “Fairness” can’t allow borrowers to default on loans but retain the properties securing them.
“Bond investors, who have seen the value of their mortgage-backed debt rise impressively over the past 18 months,”
Uh, that’s the price of the MB(S)-backed debt. And how much of that was the decisions to hold the really bad paper “to maturity” is left as an exercise.
What I find grimly amusing in all this, is the utter incompetence, and its sheer scale.
So, we’ve all be intimidated by the financial industry and its legions of wannabe rich physicists.
Now we see that under that crust of mad scientists, this crew is more incompetent than any other group of American professionals I have ever dealt with.
Somehow I am not surprised.
Perhaps the kid gloves approach of the Obama administration has encouraged these defects to persist.
“Wannabe rich physicists”… I love that. I’m guessing it’s also the fault of the computer programmers when the bank charges you a $39 debit card overdraft fee on your $4 latte. Probably also the fault of the carpenter when your house built in the floodplain ends up under water.
“Better to remain silent and be thought a fool than to speak out and remove all doubt.”
So where has the MSM been on issues like this? The WSJ has done a couple of small stories but as far as I can tell, nearly all of the digging, thinking, and publishing is being done by a network of bloggers and their contacts. Where have the NYT and Post been? Where has CNN been?
And the newspapers etc. wonder why they are in trouble and are being replaced by the Comedy Channel and people working out of their kitchen.
@FosterBoondog, I’m sorry, I’m failing to grasp what your examples have to do with what nyet posted. Can you explain? Are they in reference to the financial industry comment or the Obama comment?
The mortgage is itself a legal abomination. They give you a loan equal to the then value of the house to use to buy the house. Then, when unemployment, cancer, accident or other dire straights constrain payment of principal plus profit on the loan amount, they keep all the money you have paid thus far, whatever that amount is, however allocated to profit or principal, and are contractually entitled to take away your house and dispose of it any which way they like, including letting it sit and rot, or selling it later at a profit over the original loan/price.
All this is contractually “legal” and about as moral as sticking a gun to the homeowners head and saying “hand over your money and move out of your house,” and that for what was a fully collateralized and essentially riskless loan ab initio.
It amazes me to hear these essential legal safeguards dismissed as “technicalities.” The whole mortgage contract is an amoral “technicality” devised by banks for banks, predicated on the basic human need for shelter. A legal abomination.
The idea of congress passing this “stampede the foreclosers” bill shows just how far banking owns congress.
To share some good news: Operation Home Relief just launched today to help protect military families from losing their homes to foreclosure. It’s really sad how many of our military are fighting overseas and don’t even know if they will still have a home to return to. For every person who “likes” the Facebook cause, $1 will be donated to USA Cares. I hope you’ll all show your support! http://on.fb.me/ctuP3f
@spectre855 – I thought the phrase I quoted made it clear.
Claiming that the mortgage mess (and the failure to properly document loan title chains) is somehow the fault of evil “physicist” wizardry is simply delusional. I can see blaming the rating agencies. I can see blaming heads-I-win-tails-you-lose compensation schemes at the big banks. I can see blaming mortgage brokers who told their clients to lie about their income. I can see blaming the MBS securitizers who didn’t care what was going into their sausage machine as long as they could sell what was coming out. But I really can’t see pinning this on a bunch of grunt programmers (which is what 98% of the ex-physicists are).
Finding an easy scapegoat is always a mistake: you blame the wrong person and you let the culpable parties off the hook. The current frenzy of undocumented-immigrant-bashing is another version of the same mistake with respect to employment. It’s an old tactic, usually promoted by that actual people responsible for the misery.
My wife and I will be first time home buyers in about 2 years, and plan to live there long term (20+ years). This will probably work in our favor, right? Lots of cheap houses.
I can’t really accept any of that. In particular, banks are not allowed to dispose of foreclosed properties “any which way they like”–they can’t, for instance, sell them to the cousins and nephews of board members for a dollar each, and then sue the borrower for the “deficiency.” In fact, the procedures for sale of foreclosed properties are well-defined and fairly rigid, and designed to establish a fair-market value. It may take a bank a long time to actually _complete_ the foreclosure, but that is another matter, and it is not the bank that is letting the property rot in the meantime; it is the borrower.
And as for “keeping the money you have paid thus far,” well, what _should_ happen to it? The principal payments reduce the debt outstanding, so the bank is “keeping” that money in the sense that the borrower doesn’t owe it any longer, and the interest payments were the contractually-agreed-to price of obtaining the money up front. Outside of Deuteronomy, these are pretty well accepted ways of doing business.
What bothers me about so much of the argument I read about foreclosures these days is that it is so willing to deprive the borrower of moral agency. Moral agents can enter into contractual agreements, and it is a pretty fundamental notion in law and ethics that agreements should be largely honored.
You may find mortgages abhorrent–even responsible, fixed-rate mortgages with a reasonable down payment and everything else. If so, I would encourage you not to take out a mortgage. I do not find the idea of a secured loan per se to be abhorrent.
Response to “forthetimebeing” above. Sorry about that.
and i can’t see how we can avoid blaming the previous administrations deregulation scheme. had they not wanted to be so customer friendly to those they regulated maybe this mess wouldn’t have happened as the number of loans would never have ballooned so large. and we could blame business who cut corners and got them selves in to this mess. and we could blame the TBTF crowd who got bailed out last time, but seemly isn’t going to this time. and we can blame the states as they manage the foreclosure process.
In the past three years, potential home buyers have already found that buying repossessed properties is a long, difficult and often costly process. This fact has driven prices or repossessed homes lower, and consequently, helped driving all home prices lower.
With the additional unexpected complications and uncertainty, repossessed properties are going to lose value more rapidly, and drive the housing market further down, and the banking industry with it.
The problem is that this time neither the Fed nor the Treasury will be able to save the banks, who’ve been surviving on borrowed time, so far.
Don’t forget that the banks never lent any money in the first place – which makes it all fraudulent – whether proper signatures are in place or not.
No one at the bank walked to the vault and removed $100,000 and gave it to someone to buy a house. They simply wrote a number on a piece of paper, backed by absolutely nothing, and said “Now you owe me $100,000 plus interest”.
No value was exchanged. The borrowers brought value by bringing the house into the equation, but the bankers brought nothing…..
All the kings horses and all the kings men are not putting this one back together. The criminals used the system for there gain until they broke it – and now they want it all to come back together in more or less the same way.
Now that we know the american dream is just that, a dream, and that if you work hard and do good, you ultimately get screwed by criminals calling themselves legislators and bankers, who’s gonna fall for it again?
Now that everyone lost big money in the stock market through criminality, does it make sense to go back and invest in it again?
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