Mike Konczal of RortyBomb puts together a spectacular series of flow charts that explain in the simplest of terms how the bank foreclosure process went off of the rails, in Foreclosure Fraud For Dummies.


How Courts Process Foreclosures


Errors Began in the Syndication Process


From A-Z, Fraud is Endemic in the Entire Process

Read his full piece.


Foreclosure Fraud For Dummies, 1: The Chains and the Stakes
Mike Konczal
RortyBomb, October 8, 2010

Man without Mortgage Loses Home in Foreclosure (September 23rd, 2010)

Florida’s Ongoing Foreclosures Nightmare (September 29th, 2010)

How ‘Flawed’ Is Foreclosure Paperwork? (October 4th, 2010)

Foreclosure Fraud Reveals Structural & Legal Crisis (October 5th, 2010)

See also:
Officials in 40 States May Join in Foreclosure Probe (Bloomberg)

The Next Step in the Foreclosure Investigations (NYT/Dealbook)

Courts Add To Foreclosure Delay (WSJ)

Category: Credit, Foreclosures, Legal, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

19 Responses to “Foreclosure Error Flow Charts”

  1. Robespierre says:

    Laws will be written and pass to make the fraud legal. I just watched CNBC and there was a lady saying that instead of moratorium on foreclosures the administration should “modernize” the system to fit with the way banks do things. Your friend Kudlow was the moderator. So the bankers take on this is if the law makes what we do and did illegal, just use our representatives (by our I mean all the ones they bought and will buy) to make laws that fit. In the mean time the executive branch will give them cover by not investigating them. Now there you will have bi-partisan support in spades.

  2. Mannwich says:

    Kind of rich irony that the word “Trust” keeps popping up in this little daisy chain that leads to a time where this very thing is evaporating quickly in our culture.

  3. rktbrkr says:

    Lots of fast buck freddies operating in this arena , tons of missing and fabricated documentation along the way. The note holders may eventually be able to prove their interest in contested foreclosures but it will take a lot of time and money to do it. If large numbers of homeowers challenge foreclosures or sue to reopen foreclosures the whole system will grind to a screeching, fucking halt.

    The banks will have to get serious to negotiate short sales with those heading to foreclosure to avoid this morass. The banks don’t have much leverage at this point.

    The simplest fix is to lobby some more and get Obamas veto overridden otherwise they’ll just have to throw their support to the R Pres candidate in 2012 to get the laws rewritten

  4. Robespierre says:

    One more thing, while I don’t expect the federal government to investigate (let alone prosecute) any bank/banker for fraud, I do expect state AGs to go after the via lawsuits. My reasoning here is that they need the money that class action suites will bring. So IMO this may play like the tobacco lawsuits: very little changed but a windfall to the states.

  5. Brent_in_Aurora says:

    Substance over form. Do the borrowers owe the money? Yes. The only question is to whom.

    Federalization of the recording process may cause problems as there has to be only one official system of recording. Somebody has to have exclusive jurisdiction. The recording system affects all sorts of things, including liens. Personally, I would prefer a federal system, but how would it work?

  6. Robespierre says:

    @Brent_in_Aurora Says:

    “Substance over form. Do the borrowers owe the money? Yes. The only question is to whom. ”

    You need to read up on the subject a little more. This is not about substance over form. This is not even about foreclosures. This is about systemic fraud in the securitization process for the sole purpose of profit. The foreclosure mess brings into light the legality (illegality?) of it.

  7. Foreclosuregate is rapidly spiraling out of control, and is going to get worse.

    As I have repeatedly said since 2007, this is not about bad paperwork. It is about fatally-defective securities sold to investors for half a decade and the fraud up and down the line that enabled those sales.

    In no particular order the biggest (but by no means the only) problems are:
    Borrowers overstated income, assets or both. In some cases they did so willingly and knowingly. In others loan officers changed numbers to “ram it through” the computer-operated approval systems, submitting files multiple times while doctoring figures. In the latter case perhaps the borrower knew, perhaps not – many people didn’t read the entire 100+ page stack of paper at closing. That’s dumb but it’s not criminal. Changing the figures or lying, on the other hand, is criminal.

    Lenders stuffed paper they either knew was bad or had the ability and legal duty to verify the provenance of but intentionally did not into securities sold to investors. This has been disclosed in FCIC hearings and is no longer speculative, although as I noted in 2007 it had to be the case because it was the only way the deals that were being done could have possibly been done. This was an act of deception and in my opinion (along with many others, including plenty of attorneys) meets the legal definition of fraud….”


    Robespierre Says: October 11th, 2010 at 12:35 pm

    @Brent_in_Aurora Says:

    “Substance over form. Do the borrowers owe the money? Yes. The only question is to whom. ”

    You need to read up on the subject a little more. This is not about substance over form. This is not even about foreclosures. This is about systemic fraud in the securitization process for the sole purpose of profit. The foreclosure mess brings into light the legality (illegality?) of it.

  8. DeDude says:


    Yes the unforeseen (collateral damage) cost of pushing for “efficiency” and “cost cutting” can be huge. This will give home loaners a big stick in negotiations with banks. They may even be able to get short sales with “relocation money” out of the deal. But the window is probably no more than 12 months before law gets changed.

    If the trickle of “stay, don’t pay, and demand documentation” stories become a flood, we will risk financial instability, and something will be done after the election. The meme to drum up political cover for a law change is frame it as “deadbeats getting something for free” – you are already seeing it pushed here and in the media. People hate seeing someone “under” or “at par” with them getting a free-bee (that is where the welfare queen story gets its legs). It’s just that this time is unusual because people also really hate the banksters.

  9. Robespierre says:

    @rktbrkr Says:
    October 11th, 2010 at 12:25 pm

    “The simplest fix is to lobby some more and get Obamas veto overridden otherwise they’ll just have to throw their support to the R Pres candidate in 2012 to get the laws rewritten”

    So your simple solution is ti institutionalize fraud by the banks?

  10. amandahenk says:

    Equality before the law and due process. Without these, we are a third world banana republic whose government has no moral authority at all.

    Yes, debtors should pay, but they should repay the correct party. And that party must be able to show standing in a court of law with the correct documentation. Justice demands nothing less.

    Those who have committed fraud must suffer the consequences and we must return to respecting local recording procedures. Real property recording is and must remain under local control.

    Are we a nation of laws or a nation where the powerful may do as they please?

  11. Marc P says:

    You heard it here first: I’ll predict these issues create a constitutional conflict between Congress and the state courts.

    There is a very real problem with the situation. As Brent_in_Aurora pointed out, in the vast majority of cases the borrower is in default but the question is to whom. The banking industry wants the foreclosures to proceed and then they can work out who gets the money. However, this isn’t legal.

    Real property and foreclosure is a state issue. The title and mortgage recording systems are a state function. If Congress tries to create a law that says foreclosures may proceed and the money will get sorted out later, then some state judge will undoubtedly say no. State law details vary but one thing they have in common is that only the holder of both the note and mortgage has standing to conduct a foreclosure.

    Can Congress use the interstate commerce clause of the Constitution to preempt state foreclosure and recording laws? Tune in next time, kids, for the next episode of “Banksters Go to Washington.”

  12. Arequipa01 says:

    “Badges? We ain’t got no badges. We don’t need no badges! I don’t have to show you any stinkin’ badges!”

    Badges=Due Process. Ever since we all accepted what the US Govt under the Bush Junta did to José Padilla, the game was over. We will pay.

    The rule of law cannot remain operative in a society like ours. We don’t want rule of law. We have the system we want.

    Anyone who is inclined to accept the agitprop from the WSJ. Take the time to read Tammie Lou Kapusta’s deposition: http://4closurefraud.org/2010/10/07/exclusive-bombshell-of-foreclosure-fraud-full-deposition-of-tammie-lou-kapusta-law-office-of-david-j-stern/

    Some of you are making comments without the benefit of adequate information. That is it say, if you’re going to walk around with your ass hanging out, it might be a good idea to at least wipe your arse.

  13. batmando says:

    @ amandahenk
    agree 100% regarding banana republic, demands of justice, and local control of property recording.
    as to “Are we a nation of laws or a nation where the powerful may do as they please?”
    unfortunately, by and large, powerful can do and have done as they please for quite some time now. the “little people” are currently having evidence thereof thrust in their faces. even so, not all that many can or will recognize it for what it is, much less have any effective means to do anything whatsoever about it. what hope there is, is in the form of state’s AGs and other officials, like Ohio’s AG Richard Cordray and Sec’ty of State Jennifer Brunner who swim against the political currents that sweep out of DC and Wall Street and who are prosecuting and raising alarms.

  14. louis says:

    They will do anything to avoid the original problem. Mortgages/Marijuana same thing right?

  15. Marc P says:

    I’ve read that the documentation problem may be merely a symptom, not the root problem. Some say the root problem is that the MBS/CDO securitizers weren’t rigorous about what loan was included in which security, and there are many cases of a loan being “sold” as being in more than one security. If the securities get repaid then this problem washes away, but if there are rigorous searches through the chains of loan ownership then the problem will come to light. The securities holders would then sue, fraud claims, litigation for years, expensive PR disaster, possible personal liability, etc. The industry would rather put its attention to simply repaying the MBS rather than with the past troubles.

    From this point of view, the goal of the Great Loan Industry Coverup (let’s anoint it GLIC) is to avoid having the chain of loan ownership come to light. A key part of GLIC is using blanket affidavits that effectively say “Ignore the chain of loan ownership, we own it now, and we get to foreclose. Just believe it’s true because we’re big and thus trustworthy, don’t ask questions.”

    BR, do you have any data on this?

  16. AG Sage says:

    Finally, the pigeons have come home to roost. Here I thought someone at one of these banks would actually get in trouble for helping brokers falsify loan applications. Or banks for strong-arming appraisers. Or the ratings agencies for being, well corrupt to the core. Yeah, silly . . .

  17. dead hobo says:

    KD, from previous thread …

    This is saying much of what I speculated. GS, as the sponsor, and probably others, are on the hook for one thing or another. I suspect the Bad Notary problem is the populist distraction and a probable PR campaign. The real problem is more along line of securities fraud than tossing out the poor into squalor because of lazy managers and the current campaign is just a distraction for GS to hide in. Whether its 1993 Securities Act fraud, convoluted slicing and dicing so that people aren’t being paid properly, or something else will shake out.

    That being said, the foreclosures will resume and the above problem will be properly differentiated and publicized soon enough.

  18. rktbrkr says:

    Arequipa, Thanks for that posting, I think it’s a must read for anyone trying to get a feel for the magnitude of what has been happening in foreclosures – at least in FL. I think the Stern gang is the biggest foreclosure law firm in FL. If they are not an isolated exception then the whole foreclosure system in FL is fatally flawed and god knows how many clouded titles there are in FL.


  19. [...] flowcharts posted by Barry Ritholtz (sourced from  Foreclosure Fraud for Dummies Part 1,  Part Two, Part Three, and Part Four) show [...]