There seems to be a misunderstanding as to why the rampant and systemic foreclosure fraud is so dangerous to American system of property rights and contract law. Some of this is being done by people who are naked corporatists (i.e., the WSJ Editorial Board) excusing horrific conduct by the banks. Others are excusing endemic property right destruction out of genuine ignorance.

This morning, I want to explain exactly why this RE fraud is so dangerous, and explain the significance of the rights that are currently being trampled. I also want to demonstrate that the only way the nation could have the quantity and magnitude of errors we see is by willful, systemic fraud.

Perhaps this commentary will allow for a more intelligent debate of this issue, and focus on what can be done to fix the problems, rather than the blind parroting of talking points.

~~~

The process of purchasing a home in America culminates with an event called “the Closing.” It is an hour plus long contract signing that ensures the buyer is legitimately taking title, possession and legal ownership of a unique parcel of land and any structures upon it. The process gives any buyer specific rights to that property that cannot be abrogated under the laws of the United States.

At the closing, buyers sign and initial numerous documents. The goal is to accomplish the following:

1) Papers are signed that will be filed with the County Clerk (or appropriate officer) along with recording fees, for the official transfer of title from the prior owner to the new owner. The enabling purchase loan (i.e., mortgage note) is also filed with the Clerk.

2) The buyer receives title (ownership) of the land;

3) The mortgage lender establishes a new interest in that property contingent upon their mortgage note;

4) All other claims, liens, tax obligations and prior mortgages, home equity lines or second notes are satisfied and extinguished before title passes to the new owner.

5) Third party claims of any interest in that property superior to the buyer are eliminated;

6) Title Insurance is purchased and issued so the buyer has a recourse in case of defects in ownership occurs.

Every step of the process is designed to protect the property rights of all parties. The result is more than a mere transaction selling property from one party to another; rather, this has created a system where ownership interests are clearly defined; where title history can be reviewed going back decades and centuries. There is a certainty to the purchasers of this property against all future claims.

Everything about this process has been created to make sure the transfer goes off perfectly. In a nation of laws, contract and property rights, there is no room for errors. Indeed, even small technical flaws can be repaired via a process called “perfecting title.”

As we noted previously, esteemed economists such as Hernando de Soto have identified that the respect for title, proper documentation, contract law and private property rights are the underlying reason capitalism works in Western nations, but seems to flounder elsewhere.

We cannot have free market capitalism without this process. So what does it mean if banks have been systemically, fraudulently and illegally undermining this process?

~~~

The closing process described above took place with all parties participating voluntarily. The buyer wants the house, the seller wants the transaction, the financing bank wants to make the mortgage loan.

What happens during a proper foreclosure? The prior closing is essentially reversed, only its done involuntarily. The process requires another RE closing, only this time, the Note holder is exercising their right to repossess the house if the borrower has failed to uphold the terms of the mortgage note. It typically states that if a borrower fails to make the requisite payments, they become delinquent. After an extended period of delinquency, they go into default. That allows the note holder to exercise their rights to foreclose on the property, and take title and possession.

The same care and attention to detail that occurred during the initial closing must also occur in the foreclosure process. All of the steps noted in our initial closing must occur here also. But since it is an involuntary process for the (soon-to-be former) property owner, extra care must be taken to make sure that property rights are being maintained and respected. The entire process is, if anything, is even more rigorous.

The law does not tolerate any errors in this process. What does the foreclosure process legally require? It varies by state and mortgage note, but the following is a good outline:

1) Notice of Delinquency is sent to a borrower who has fallen behind his payment schedule;

2) Notice of Default is sent to a delinquent borrower who has missed the requisite number of mortgage payments;

3) Notice of Foreclosure is sent to the defaulted borrower, and the process begins;

4) Affadavit by the bank’s representative are signed attesting to: Ownership of the note, who the borrower is, the property in question, the date of last mortgage payment, amount of delinquency, tax escrow owed, other payments (such as homeowners insurance);

5) Notarized documents: A Notary Public affirms that the affidavit was actually signed by the signatory, and this allows it to be entered into the court as documentary evidence;

6A) Notice of Pendency (Lis Pendens) is filed with the County Clerk putting the world on notice as to the foreclosure action;

6B) Summons and Complaint are prepared by bank attorneys, who further verify the specific information attested to by the bank executives. The attorneys then file the Complaint, commencing the Foreclosure Action;.

7) Service of Process is filed, either hand delivered to the home owner, or nailed to the door of the home;

8) Referee is Appointed to review and process the case; calculate the amount owed, and report back to the Court; The Referees report is also notarized;

9) Judgment of Foreclosure is moved for by Note holder;

10) Court orders the property auctioned. The court specifies a notice of the auction, publicizing the property auction;

11) Bidders must Close on the auctioned house in 30-90 days; In the event of no sale, the bank takes possession (REO);

The fraud that has come to light are primarily occurring in steps 4, 5, 6 and 7. 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.

~~~

The approach of most Western nations to property is an important legacy. In the United States, it has been enshrined in the Constitution. Even the rare exercise by the State to take private property during Eminent Domain requires an extensive and proper process. The Fifth Amendment to the US Constitution guarantees that no “private property be taken for public use, without just compensation.” The Supreme Court has detailed the process required for the State to seize any citizen’s private property without the owner’s consent.

There is simply no reason we should tolerate unlawful property seizure merely when it is done by banks. They are not the State, not the King, and not above the law.

>

Previously:
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)

Are WSJ OpEd Writers Clueless or Liars? (October 11th, 2010)

~~~

This work is licensed under a Creative Commons Attribution 3.0 Unported License.

Category: Credit, Foreclosures, Legal, Real Estate, Really, really bad calls, Regulation, Taxes and Policy

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.

122 Responses to “Why Foreclosure Fraud Is So Dangerous to Property Rights”

  1. BennyProfane says:

    This should be nailed up on every county courthouse door and be made required reading by all parties involved in the present day corrupt and filthy foreclosure factories. I’m shocked at the supposedly smart and connected industry leaders, politicians (yes, you, Mr. Axelrod) and pundits that are shrugging off this thing like it’s a flu scare. Good for you for writing it.

  2. sumo says:

    “banks … are not the State, not the King, and not above the law.”

    Actually, they are. Whatever happens, it won’t be the banks who pay for this clusterfuck.
    Their bought and paid for Congress will see to that. If laws need to be changed or ignored,
    they will be changed or ignored.

    Whatever it takes.

    Once again, the poor will pay for the decadence of the rich.

  3. chartist says:

    I think that for a real fraud to occur, there has to be criminal intent. And frankly, I don’t think there’s criminal intent here.

  4. Petey Wheatstraw says:

    BR: The banks ARE the state, and they ARE above the law. You write as if the old Constitution was still in effect, and it’s not. We are all subjects of, and subject to, the whim of the Corporatists. The “resolution” of this massive criminal putsch will result in more power and wealth to the corporations. The point of no return was passed in 2000.

  5. elnino says:

    Barry,
    This is not about forclosure, but something you should look into if you don’t know about it already. Looks like some fraud perpetrated by the NAR. A small item in a NY Times opinion piece: http://www.nytimes.com/2010/10/10/opinion/10fountain.html?scp=3&sq=realtor&st=cse

    “The numbers don’t even tell the whole numbers story. Apparently, significant quantities of foreclosed and distressed properties change hands without ever being listed on the multiple listing service. And then there’s the increasingly popular Z sale, where the stated sale price — usually the original list price — is noted with a “Z,” indicating that the actual sale price is, well, something else. But that bogus Z price goes straight into the numbers machine that cranks out the statistical sausage of trends, median prices and comps that are supposed to tell us where the market stands.

    “It’s poisonous,” my friend Mark Kreditor told me over lunch, speaking of the Z phenomenon. It might help support the market in the short term by keeping lower prices out of the system, “but it’s like a drug that keeps you pumped up — after a while it catches up with you.” Mark, another veteran of the ’80s bust, manages more than 1,500 rental properties in the Dallas area, and he has his own blunt take on the local market: a bubbling cesspool — not quite his actual words! — of bad credit and tenant noncompliance. “

  6. BennyProfane says:

    @Chartist

    Madoff thought he could turn things around into legality sooner or later after he started to break the law. Meanwhile, he lived the life.

  7. wally says:

    Unfortunately, Petey’s comment – though stated as an extreme opinion – contains a lot of truth. there is far more respect for the mechanisms of law at the local level than there is in Washington or on Wall Street. It has also become very clear that laws will be written or suspended based on convenience and favoritism.
    Governing officials are put into office primarily by money and they have been quite open about dancing to the tunes that are played for them. It stinks, but it is true.

  8. Petey Wheatstraw says:

    chartist:

    Sounds like GWBs justification that a statement is not a lie if you believe it to be the truth. Fortunately, adherence to the law is not a matter of reliance on a belief system.

    Honestly, with the entire system being redesigned to accommodate this fleecing of people on both sides of most RE transactions (from financing through securitization), if criminal intent was not a driver for these actions, what was?

    The equivalent is a licensed driver running a red light and causing a traffic accident resulting in personal injury and property damage, arguing that they did not know that red lights actually require a driver to stop their vehicle, and then asking the judge if they can circle around and stop at the light in order to avoid litigation and penalties.

    Fraud cannot be advanced without criminal intent. These criminals got caught.

  9. chartist says:

    Expediency was the driver.

  10. Petey Wheatstraw says:

    chartist:

    I once hard a Judge tell a defendant that every criminal he had ever questioned had had a very good reason for committing their crime. He found the defendant guilty and sent him to the pokey.

  11. rktbrkr says:

    If you have one person in the title chain signing off improperly it’s a mistake, when you have that person, their supervisors and the notary all signing documentation they know is inaccurate that is a conspiracy. The signers were even forging other names. To paraphrase Steve Martin “I forgot my name” It’s a criminal conspiracy on an historically unprecedented scale.

    Arequipa’s posting of a deposition about document signing parties says it all. The little people will be singing loud in their depositions. I look forward to the 60 Minutes type pieces on this subject.

    http://4closurefraud.org/2010/10/07/exclusive-bombshell-of-foreclosure-fraud-full-deposition-of-tammie-lou-kapusta-law-office-of-david-j-stern/

  12. whskyjack says:

    For those who are thinking this all trivial stuff, We prosecute people all the time for such trivial stuff. One of the local politicos was brought up on chargs that she lied on her mortgage application. She stated that it was for a house she was going to live in when in fact it was for rental property. She was convicted and did a little time as I recall. So if the banks want the individual held to such a standard then they should expect the same treatment.

    Jack

  13. farmera1 says:

    Thank you BR for putting this critical issue in context.

    Property rights is one of the things that has made this country great. Without reliable well defined property rights, no USA as we have known it.

    This is one of several things I’ve observed that make me very uneasy for the future of this once great country, in fact in my mind we are converting this country into, a banana republic.

    -A general disregard for the rule of law like torture as a tool (then throwing the peons in jail when caught) and holding prisoners without trial

    -Congress abrogating their Constitutional responsibility to declare war

    -Declaring corporations are people with constitutional rights like free speech (try throwing a corporation in jail)

    -A general disregard for debt and all of its’ corrosive impact on the economy and society

    -The pervasive idea that you can get something for nothing, like cutting taxes starting a two front war and expect good things to happen to the economy

    -Relegation of science to just another target of propaganda

    -Allowing greed to trump all (no morality or ethics just the unbridled lust for more)

    -More and more concentration of power in the media in the hands of a few

    As the world becomes more and more connected, the whole thing becomes increasingly unstable. The things that can bring us down are unknown and unpredictable and many largely completely out of our control.

    Instability describes the world we live in.

  14. SnowHill Pond says:

    Thanks for the detailed explanation of the closing and foreclosure processes.

    Even after that, I fail to see the issue…yet. As far as I can tell, operational mistakes were made, caught, brought to the light of day, and somewhat remedied.

    Tell me someone was mistakenly evicted from their home with their belongings thrown to the curb. Tell me that someone was jailed mistakenly. Tell me someone was injured in some way. Then I might see the issue.

    Right now I see some people wrongfully inconvenienced by someone’s mistake. If enough people are similarly inconvenienced by one lender, then there might be a class action law suit against the lender in the offing. But otherwise, life goes on.

    ~~~

    BR: These are not mistakes — the ONLY way these errors can occur is if there is systemic, willful fraud.

  15. globaleyes says:

    What’s the difference between TBTF and what BR calls “above the law” ?

    Answer: not much.

  16. machinehead says:

    Well done, BR!

    Demolish the lying, politicized hacks at the WSJ with facts and logic.

    That’s why I read your blog, and not their worthless, overpriced fishwrapper.

  17. whskyjack says:

    As one of those “vultures” who will on ocassion buy a repo house, I find myself in complete agreement with BR. The system is there for a reason. When I buy one of these houses I rely on the system to deliver me a free and clear title.
    This confusion is adding a whole new layer of risk to an already risky situation. For I know if it come down to a case of dualing lawyers,I can keep up with the banks. So I would not be suprised that buyers like me hold back and wait for this to get resolved.

  18. Petey Wheatstraw says:

    wally:

    This is an extreme time in my (and all of our) life (lives), as well as in the history of the US (the quiet death of the Roman Republic comes to mind). As with Rome, most citizens hardly notice that there has been a change at all, until it runs roughshod over them (in violation of what they understood, or believed, to be the law of the land).

    We went straight from the Pax Americana to Orwell’s 1984 scenario, without a whimper. We live in a prison state, with cameras on light posts, people intercepting our communications, the administrative suspension of habeas corpus on an as-needed and whimmy basis, the disenfranchisement of a huge swath of the citizenry, and the obvious elevation of the legal interests of the corporately-formed “person” trumping those of the natural person.

    No prosecutions for ANY of this? Why do you think that is?

    That’s extreme.

  19. dead hobo says:

    I love the sound of hysterics in the morning. Take 1 part real problem, add several cups of the sky is falling, consume with lots of caffeine, and a paperwork problem that is probably quite resolvable becomes a distraction away from all those securitization thingies.

  20. rktbrkr says:

    CITI dumps Stern firm (see my earlier link)

    Citigroup Inc. said it stopped steering foreclosure work to a Florida law firm whose court filings to support home seizures are under investigation by the state’s attorney general.

    The bank, which is proceeding with seizures as some rivals stop to recheck documents, had used the Law Offices of David J. Stern PA. Florida Attorney General Bill McCollum said Aug. 10 it is examining whether Stern and two other firms filed “improper documentation” with the state’s courts to speed proceedings.

    “Pending the outcome of the AG’s investigation, Citi is not referring new matters to this firm,” the New York-based bank said in an e-mailed statement. Citigroup services loans for government-sponsored entities, such as Fannie Mae and Freddie Mac. Stern “was approved by the GSEs during the time in which it was retained by Citi,” the bank said.

  21. whskyjack says:

    Wish we had an editing function.
    lol
    Change my above comment to
    ” For I know if it comes down to a case of dueling lawyers,I *can’t* keep up with the banks.”

  22. foxorrabbit says:

    In Petey’s driver analogy, profit motive is driving the car. Stopping at red lights costs time, and time is money. When every other bank is running red lights, why would one bank choose to stop at them? It would be a competitive disadvantage. Just one more example of the ridiculousness.

  23. Petey Wheatstraw says:

    dh:

    isn’t the paperwork problem the core reason those securitization thingies are toxic, in the first place? If this unwinds, all of the accounting shenanigans and rank criminality are exposed (as Denninger points out — how many securities sold around the world are, in fact, nothing but empty boxes?), and housing will be forced to be marked to reality. In addition, the (already insolvent and thoroughly looted) banks will pay taxes and penalties in amounts that will crush them.

    The banks and mortgage industry have placed themselves in check mate. The only question remaining is whether their narrow financial interests or the rule of law will win the day.

    There is no longer such a thing as the Rule of Law in the US when corporate interests are involved.

  24. Transor Z says:

    @chartist:

    Recklessness can be sufficient mental state for criminal fraud. The general definition of recklessness is Knowledge that one’s actions had an unjustifiable risk of leading to a certain result, but did not care about that risk and acted anyway.

    See this from the National Association of Criminal Defense Lawyers opposing the recklessness state of mind under Dodd-Frank:

    http://www.nacdl.org/public.nsf/86871e9e0d470e3185257006006e5f55/b5224f126c7e41cb8525773f0074136f/$FILE/NACDL%20on%20HR4173.pdf

    See also the revised federal Patient Protection and Affordable Care Act of 2010 (“PPACA”) which now requires only recklessness to establish requisite criminal state of mind for health care fraud.

    ——————-

    Barry, to supplement your excellent post about Rule of Law and foreclosure activity, a note for some readers who may not be aware that the United States is divided up into basically two types of jurisdictions: “title theory” and “lien theory” jurisdictions. The split is roughly 27-23. There are some variations on this theme but this is the basic idea.

    This is significant because many have read articles about how lenders first stopped activities in “judicial” states and then, at the urging of certain state attorneys general, stopped in all states. But maybe not everyone understands what this is about.

    “Lien theory” states hold that a mortgage lender has a lien on the collateral. In the event of default, most lien theory states require the lender to sue the debtor in court on the note. If successful, the lender will get the court to order a judicially supervised sale of the property. Title does not necessarily pass to the lender per se, but rather the owner/borrower is forced to sell by court order, usually at public auction. Title passes from the defaulting homeowner directly to a good-faith purchaser. The mortgage company gets the proceeds of the sale to satisfy their lien.

    “Title theory” states hold that a mortgage lender holds equitable title to the collateral until the borrower/owner pays off the loan. These states normally allow lenders to use peaceful nonjudicial process to foreclose on collateral; it’s significantly more streamlined for them. But lenders must strictly comply with certain notice requirements and provide notarized affidavits in “title theory” states.

    This is of interest to following the action because lenders obviously have greater exposure in judicial/lien theory jurisdictions in which they have to file suit with document exhibits in court. I live in Massachusetts, which is a title theory jurisdiction. I’m very interested to see what is going to come out, particularly with Bank of America (aka Countrywide’s new daddy) as to why they also stopped foreclosing in nonjudicial/title theory states.

  25. dead hobo says:

    Petey Wheatstraw Says:
    October 12th, 2010 at 9:25 am

    dh:

    isn’t the paperwork problem the core reason those securitization thingies are toxic, in the first place?

    reply:
    ———–
    Probably. Actually, my nature is to look in the opposite direction of the mob and try to figure out if the mob is right or if the mob is being manipulated and serving as a distraction. Populist issues such as this are tailor made for serving as distraction.

    Other internet stories have stated that mortgages are sliced and diced so severely that for some it is common for several people to think they own the same one. If this problem is pervasive then this is Everest while the bad notary issue is a foothill. Since people who buy derivatives are less sympathetic than joe sixpack who thought he could borrow his way to wealth, I’m wondering if a big noise here will give the iBanks a place to hide and a good excuse to use later. To write with authority on this subject, one would have to be a Securities lawyer, a real estate lawyer, and a derivatives lawyer all combined. Few people, certainly not BR, are this credentialed. Thus, it’s broken down to mob opinion and the scope is limited so many more can participate in the discussion. If the iBanks and derivative owners say, “No, DH, we’re cool with everything,” then I will relent.

  26. Petey Wheatstraw says:

    Tranzor Z:

    In either scenario you describe, above, the mortgage lender and/or the legitimate title are still in question, as the securitization process illegally divorced them.

  27. rktbrkr says:

    It looks like there will have to be special US law written creating a RTC-like star chamber to resolve documentation problems of millions of mortgages issued during the boom year (not limited to foreclosure properties) to create clear title at the end of the dry cycle. Otherwise this will drag on for a decade and there could be a large class of properties with permanently clouded titles which will totally distort all property values at least in some of the sand states. An answered prayer for accountants and lawyers.

  28. contrabandista13 says:

    chartist Says:

    “….I think that for a real fraud to occur, there has to be criminal intent. And frankly, I don’t think there’s criminal intent here…..”

    Explain to me where it is that you do not see criminal intent. Perhaps what you are seeing is just a huge systemic pattern of misunderstandings…. At least, that’s the way the banks are trying to frame this….

    “Injustice anywhere is injustice everywhere…..” This is one of those issues that the American People can get their minds and hands around…. It’s not about conservative, liberal, progressive, Christian, Muslim, Jew, Gay, Straight, Pro-life or choice, it’s about equal justice under the law. Once you cross that line, you can not go back. At least not without a great deal of blood being spilled….

  29. Darkness says:

    I’d summarize this as: If the rule of law doesn’t apply here, when does it apply? If we say, well, it’s a little costly to apply it here, so we shouldn’t bother, what the hell place have we come to? What is this sympathy for the freakin’ banks? How many times and in how many ways do we have to get screwed over by them before their apologists get a clue or get mocked out of having a venue for their delusional ramblings.

    Petey, Exactly. These *are* the securitization thingies.

    elnino, good catch on the link. Like watching Monty Python a bit in that this bombshell about MLS fraud is just tossed out as an aside

  30. wngoju says:

    Foreclosure man. Waytago, BR.

  31. Lugnut says:

    Petey says:

    “The banks and mortgage industry have placed themselves in check mate. The only question remaining is whether their narrow financial interests or the rule of law will win the day.”

    TPTB will allow the match to be declared a draw, with window dressing financial penalties levied at the top one or two most aggregious offenders (AGs do LOVE to collect penalty monies for their budgets) to make J6PK feel like the system still works for him, and everyone on the banking and mortgage side will be allowed to continue on as before, to help preserve the stability of the system. Maybe the Senate will call a sham investigation into session to look further into industry practices, and 2 weeks after Brokaw reports on it, all will be forgotten. Except in the blogoshpere.

    What happens with the strucutured securities involving this stuff is another matter altogether, and ultimately will be the issue to watch. If Fannie and Freddie get tagged to make good on losses rather than a cram back on the originators then we will definitively know all (hope for applied equal jurisprudence) is lost for this country.

  32. Lugnut says:

    PS, meant to add, great post Barry, thanks for posting it (salute).

  33. Robespierre says:

    @dead hobo Says:

    “distraction away from all those securitization thingies.”

    I agree that the original sin happened there and that fraud needed to be committed at foreclosures to cover up the original sin. So Barry can you post something similar to this post on where in the securitization fraud was committed (homework :) )?

  34. Mannwich says:

    The banks have long been THE law. The recent bailouts only confirmed that fact to them and the rest of us. Get with the program everyone.

  35. Robespierre says:

    Evicted family breaks locks, reclaims home

    http://abclocal.go.com/kabc/story?section=news/local/ventura_county&id=7716207

    And this is what happens when fraud runs amok…

  36. rktbrkr says:

    AGs on the warpath looking for some high profile scalps

    http://www.nytimes.com/2010/10/12/business/12avenge.html?th&emc=th

  37. Mannwich says:

    Meanwhile, in Hungary the authorities immediately criminally charge the head of the company responsible for the recent sludge disaster over there, while our fearless AG Eric Holder and company does exactly what?

  38. Mannwich says:

    @dead hobo: Wasn’t it you on THIS very blog who was also pooh-poohing the whole damn crisis as it unfolded in ’08? My memory ain’t what it used to be but I believe it was……

    I believe you eventually saw the light on that one but it took a while.

  39. AHodge says:

    Barry get w the fannie freddie program
    this stuff isnt complex, you dont need an expert on staff to invest in it, much less a real estate lawyer.
    we can just securitize it like its plain vanilla bonds and spread it all over the world?
    if you keep talking this way you, will personally stunt the next housing boom

  40. constantnormal says:

    EXCELLENT WORK, BR. Keep it up. This is your finest hour.

  41. sajithsankar says:

    What does this mean for new housing construction? If home buyers were looking for deals in the foreclosed property and if the huge inventory is now unavailable/ suspect in documentation, will new construction boom now? Will builders start charging more for new construction? As a person who is looking to buy in the next 1-3 yrs, how will this impact me and the overall economy? Maybe negative for the banks and positive for the builders? Your thoughts and comments, please.

  42. DeDude says:

    Can one of the professionals tell me what happens if the banks are completely unable to locate the original documents for any of the transactions. I have been surprised at the number of success stories from people doing the “Stay-don’t-pay” when they demand documentation. I presumed it was because the banks just didn’t have time to deal with that – but is it perhaps that they are stuck legally when they cannot locate the original documents ?

  43. louis says:

    Time for the administration to finally tell the banks, you are going to do this. Congress failed us on the first go round.

    Re- write all the damn things and take your money back in the future somehow. Psychologically make the homeower think they live in the current economic environment. Game over; Move on.

  44. WFTA says:

    BR,
    You are right today and you were right yesterday. I cannot understand how any of the ardent capitalists who comment here can make light of disregarding the rule of law. Maybe they are investment bankers.

  45. MinnItMan says:

    I never thought about what Tranzor Z is saying, but my jurisdiction is both lien theory and non-judicial (perhaps why I never thought about it, but it’s still interesting).

    Courts usually hate resort to philosophical analysis over legal questions, but issue over the false affidavits is an area that justifies such an analysis.

    I disagree with BR that this issue is that the false affidavits are bad BECAUSE they lead to a specific error where the lender foreclosed on the wrong property. Philosophy 101 describes this argument as consequentialist morality. The real problem with the false affidavits is that they are false. In this case, they are false in a way that undermines the very idea of rules of evidence, the primary cluster of rules affected here having to do with having to provide a foundation for evidence offered. Personal knowledge, chain-of-custody, exceptions and nuances of getting around the rule against hearsay (here, among other things, the business records exception), are all required elements of offering a document into evidence in a court proceeding.

    The lenders’ PR offensive at the moment essentially boils down to this: “our quality control on this process is outstanding. If you only knew how good it was, you would see that our automation and resulting efficiency is far superior to the old-fashioned method of having guys in green eye-shades review the file before we would go to court (they made mistakes, too, especially after drinking at lunch). In those days, the file then had to be mailed to the the law firm (have you seen the price of stamps lately?) In fact, if you only knew, you would see that it would make the most sense if we could integrate the courts themselves into our software platform so that upon borrower default, we could do away entirely with this cumbersome paperwork (as part of, but not limited to, our “Go Green” initiative). Our commitment to the environment is second to no one, but what we most take pride in is our Six Sigma quality control, having determined the number of errors we make has DECREASED exponentially since adopting the maximum technological solutions to our needs. Unfortunately, courts and the law have not evolved as we have. Courts insist upon archaic rules better suited to the era of stagecoaches and candles than our platform-based Six Sigma totally intergrated lending solutions. The time has come for the system to modernize. As such, we will offer the courts, at no charge, access to our platform so that we can aid them in keeping up with the latest technological advances so that they can do the people’s business as efficiently and accurately as we can. Modernization of the law and the courts will save our customers and stockholders perhaps billions of dollars a year in unnecessary legal expense. Trust us. Now, more than ever.”

    The big question at the moment is whether the lenders will get their way. Allowing them to side-step the rules will undermine the judiciary systematically.

    Sometimes you do need a little Kant. The rules for requiring foundation for evidence, or disaalowing evidence without foundation, are as good an example of the categorical imperative as you will find.

  46. Lariat1 says:

    I think we , as the people who have good credit and are thankfully able to be current on our mortgages should send all the banks a clear message. I think we the people should declare the month of November, MORTGAGE MORATORIUM MONTH. For the 30 days in November no one that is current with their mortgage makes that month’s payment. But you do make that payment in December. Just be late for that month. Skip it and pay November and December together. Let the banks know that this is our way of telling them TO GET THEIR HOUSE IN ORDER. We know what has been happening and we aren’t buying the TOO BIG TOO FAIL claim anymore. Tell them to fix it without our tax dollars. Pay attention everyone another round of record breaking pay and bonuses is on tap for Wall Street this year. Instead of sending your mortgage payment, send your bank a Happy Thanksgiving card and ask to see your note.

  47. DG_Allen says:

    Call it fraud, call it errors, call it whatever you want – This stuff just cannot happen in this country. Property rights are the bedrock upon which this nation runs. Take that away and we turn into a banana republic where cronyism and bribes are the foundation.

    Foreclosure is supposed to be diffucult. Having it be so creates incentives for banks to make good loans.

    Everyone should be up in arms about this. If the banks get away with fraud by error what’s to stop the less than honest among the bank employees from commiting fraud with malice and taking homes away from people without proper cause or due process?

    You break the law, you get prosecuted. That’s how it’s supposed to work. That’s what happening with the small banks the FDIC is shutting down. It’s time for the big boys get theirs.

  48. bergsten says:

    I wouldn’t get all that worked up about new homes — the land they sit is and was owned by somebody too, and is probably mortgaged by the builders. I’d be really sure about the title, subcontractor liens and so forth before buying.

  49. RadioFlyer says:

    Seriously, how bad a problem is this? How many homeowners have lost their home (or have had to fight a “mistaken identity” foreclosure) due to this so-called crisis? I’ve seen plenty of anecdotal stories and quite a lot of hysterical chest thumping on the subject – but is there any data out there that this is happening to thousands? Hundreds? Even dozens of people??

    Secondly, related to the “this is fraud” argument – I’m no attorney, but thanks to the dangerous ability to get a Google law degree, it seems that there are 5 elements that need to be in place to constitute fraud. Even if you could prove 4 of them, the fifth one is that there has to be “justifiable reliance by the alleged victim on the statement”. If I’m making my mortgage payments, I’m probably not relying on any one of the several steps in the process to convince me otherwise – I’m picking up the phone and reaming somebody a new one.

    Sounds like lots of corners were/are being cut – and that’s probably a bad thing, but if you’ve been living in a house for 2 years without paying a penny to someone – anyone – you’ve got a pretty good idea that you deserve to be foreclosed on.

  50. nice post, BR.
    ~~
    and, here:
    “BR: These are not mistakes — the ONLY way these errors can occur is if there is systemic, willful fraud.”

    x2

  51. bonerici says:

    barry you completely missed the boat on this one. The problem is not that home owners will be wrongfully evicted from their homes or that there will be other mistakes.

    the problem is that when a foreclosed home is sold, the title will not be clear, and the buyer will not be told this. They will be lied to.

    5 or 10 years down the road, when the new home owner needs to sell, he might discover he doesn’t own his home, and that is the crux of the problem. Slowly home buyers are waking up to this problem.

    The net effect is to crash the resell values of foreclosed homes. Banks want and will get a new process that does not obligate them to show documentation and notarization for home ownship, and their threat will be the permanent crash of all foreclosed home values.

    Congress tried to slip one through, it didn’t work, they’ll try again.

    The nightmare scenario is if a home buyer discovers that some corporation (possibly bankrupt) still owns the home they “bought” because the title was never properly processed and the bank repossesses their home. It will do no go at that point to take the bank to court to sue for the title because banks have so much more money they will be able to hold you in court until your money runs out and you give up.

    This whole thing about wrongfully foreclosed homes is not even a problem, compared to the real issue: foreclosed homes without clear titles are going to sit vacant with no buyers.

  52. Petey Wheatstraw says:

    RadioFlyer Says:

    I think you miss the point.

    “justifiable reliance by the alleged victim on the statement”.

    People who bought securities based on fraudulent title conveyances were also defrauded. They bought a box of mortgage tranches that have no provable link to any underlying asset. Seems to me that many, many people relied on the banks to follow the law when they securitized these loans (that they, BTW, also knew would never be repaid).

  53. dead hobo says:

    Mannwich Says:
    October 12th, 2010 at 10:28 am

    @dead hobo: Wasn’t it you on THIS very blog who was also pooh-poohing the whole damn crisis as it unfolded in ’08? My memory ain’t what it used to be but I believe it was……

    I believe you eventually saw the light on that one but it took a while.

    reply:
    ————–
    Right. I thought nobody could be as stupid as they proved to be. My mistake.

    That problem dealt with a credit collapse. This is a paperwork problem. Nobody claims the loans are not in default. Rather, the complaints are mostly about bad signatures. Plus, every time someone notices this glitch, the straw man of Florida fraud and a couple of stupid mistakes are brought out and the implication is that all paperwork issues are of the same kind.

    I also see the populist outcry appears to be to let the defaulters keep free homes to teach the banks a lesson, This, more than anything else, will shut down the entire real estate industry pretty quick. You have not seen home value declines yet if this happens. Remedies exist in law to fix the paperwork problem with little disruption. The real fraud, aka Florida Fraud, is a completely separate issue that is being conflated with the paperwork problem. Sanctions against banks do not need to include giving away free houses. Fines are adequate if negligence is proven.

    Also, banks have never shown concern about screwing people over in the past. The real curiosity is why now.

    I think that if foreclosures resume then the ibanks that sold crap derivatives will have to settle up with holders who are having problems of one type or another. They might even have to buy them back. This is the real battle, not consumer issues.

  54. Really, zero errors? None? Zip? That’s an awfully high bar, BR. I’ll give you an example of how a house without a mortgage can be foreclosed on.

    Borrower X takes out two loans, the first with Bank A and a second with Bank B.

    Borrower X stops making payments, both A and B move to foreclose.

    Bank B forecloses first, lets say someone (Borrower Y) buys the home at trustee sale. That’s an extra layer of confusion, Bank B isn’t required to file that they foreclosed, it can take up to 15 days for Borrower Y to get the trustee deed. So lets say Borrower Y occupies the house and gets the trustee deed (which, again, doesn’t have to be filed).

    Bank A, seeing no notice in the public records that anything has happened and also not knowing or receiving funds yet from Bank B, forecloses on the house again. Yes what they did was wrong, but it isn’t criminal or even negligent, it just the cracks in the system. Borrower Y has legal right to the property and the real problem is between Bank A and Bank B yet Borrower Y will go to the media saying how evil banks are and you will come on here demanding zero errors.

    There’s a lot of play in the system, especially in a non-judicial foreclosure state. With judicial foreclosures things should be better but the system is swamped from all ends. Demanding zero errors is quite a stretch.

    How about an tremendous effort to do their jobs right and make things right when the inefficienies of the system come to fore. Many of the servicers don’t match that bar and we can yell about them but to demand zero errors is ridiculous.

    You also get the wrong house being “trashed out” (removing the contents because the banks believe they own they home, but they go into the wrong home) because a typo on the work order, it isn’t fraud, it’s a mistake and mistakes happen.

  55. Snickers says:

    Cheers BR. That WSJ editorial was one of the most disturbing things I’ve read for quite a while. Good for you to keep hammering on this topic.

    Would like your opinion on the thoughts expressed in this piece (lame title but the content is good).
    https://syntheticassets.wordpress.com/2010/10/11/moral-hazard-and-the-foreclosure-crisis/

    “Over the past half century the financial industry has not treated the law as a bedrock institution that constrains the nature of its activities, but rather as a set of rules that can be forced to adapt to the industry’s needs and desires.”

    I’m no expert, but I do see this business of playing fast and loose with the rule of law regarding foreclosures as symptomatic of a much larger problem.

  56. dead hobo says:

    Mannwich,

    Consider the possibility that MERS is a sham operation and none of their work is legally valid since its inception in 2003 (i think 2003). This means that millions of mortgages in the US, and millions of titles, are clouded. Essentially all US real estate would be toxic. Including your house. Is this what you want?

  57. RadioFlyer says:

    @Petey: I may have missed the point, but I don’t think so. The issue with securitization problems (i.e. – just exactly who owns a particular note), while closely related to the subject, is another matter.

    I took this article, and the gist of the past couple of weeks’ worth of hand wringing, to be about the relationship between the borrowers/homeowners and the lenders/mortgage servicers. Just because there’s confusion about whether someone owes money to Mr. Smith or Ms. Jones – that doesn’t mean that they don’t owe anyone.

    I agree that they probably shouldn’t be foreclosed upon until it’s been proven who the proper creditor is, but I ask the same question – how often is this happening?

  58. Mannwich says:

    @dh: No, of course not (as someone who bought in ’05), but it’s not about what I (or YOU) WANT, nor has it been, EVER. You know that, but this is all going to end badly one way or another at some point. The question is what’s going to trigger it and when.

  59. Mannwich says:

    @dh: And, for me, this isn’t about allowing deadbeats to stay in their homes but it’s about the rule of law. Why is it always a “simple mistake” (“nobody could have predicted”) when the powerful fuck up, but something entirely different when the rest of us do it?

    It’s a slippery slope we’re on when we continue to allow these “mistakes” to go unchecked. I’m not saying to bring down the whole system with it (that was the argument of those who favored TARP and all the subsequent bailouts, it HAD to be done, it was EITHER/OR, bullshit), but when are we as a nation going to say “enough is enough” and incent (no, force) people and companies to do the right thing?

  60. dead hobo says:

    Mannwich Says:
    October 12th, 2010 at 12:46 pm

    but this is all going to end badly one way or another at some point. The question is what’s going to trigger it and when.

    reply:
    ———-
    Right-a-roonie. The iBanks that sold the toxic crap are eventually going to have to settle up with the buyers. A lot will have to be bought back. This will happen after the foreclosures resume. We’re talking tens of billions in cost at least. Others will just sue the iBanks for one thing or another. This is the end game. This may even be another TBTF crisis.

  61. Mannwich says:

    @dh: The mistake that “was made” was bailing out these rotten banks in this rotten system to begin with……

    What we’re seeing play out now is all a consequence of doing that, instead of truly fixing those problems. But, “nobody could have predicted”…..

    Nope, “nobody”, alright.

  62. dead hobo says:

    Mannwich Says:
    October 12th, 2010 at 12:50 pm

    @dh: And, for me, this isn’t about allowing deadbeats to stay in their homes but it’s about the rule of law.

    reply:
    ———-
    But if the rule of law allows for the transaction to stand and money sanctions be imposed for careless paperwork, then the rule of law still stands. Then, change the law so uncrossed t’s and undotted i’s don’t stop the world.

  63. vachon says:

    I am a former property searcher for a title company in Florida, which means I verified the 30 year chains of title as well as verified liens, mortgages and foreclosures on a given property. The near impossibility of getting a live person at a bank to actually answer the phone contributed nearly 90% to my daily frustrations. Once I got someone, though, whatever problem I was dealing with that pertained to that bank, was usually taken care of fairly quickly.

    If I had to guess, sheer volume and not being able to talk to a live banking person is a big cause of one fixable problem turning into a many headed leviathan.

  64. Petey Wheatstraw says:

    RadioFlyer:

    Go read Denninger’s posts on this topic. Here’s an excerpt from earlier, today:
    __________________

    “The underlying issue is that many of these so-called “securities” (MBS, CDOs, etc) were issued “light” of the required legal mandates to keep the chain of assignments and actual consent signatures required for enforcement. Many people charge that the reason behind this was simple volume. I disagree.

    I believe that a large part of the root cause of these “lost” documents is to cover up blatant and in many cases outrageous fraud. It is difficult to prove that a bank or other lender knew and ignored stated-income fraud (or allegedly “investigated” and “underwrote” a file when it did not) when the original file has been turned into ticker-tape confetti courtesy of the closest paper shredder!

    MERS has thus given cover to a tremendous amount of fraudulent conduct – the very conduct that predatory lending statutes, “wet signature” and “chain of title” laws are supposed to prevent.

    The real bottom line here is that securitized bondholders may in fact be holding worthless pieces of paper.”
    _____________________

    This isn’t even about loan delinquencies or foreclosures — it’s about who has the right to foreclose and how (and more importantly, why) that right ever came into question.

    The chain of Title has been broken. It appears that chain was broken, in perhaps millions of cases, for the purpose of covering one fraud by committing another.

    Why do you think there are laws against this type of shit?

  65. Petey Wheatstraw says:

    dead hobo Says:

    “Mannwich,

    Consider the possibility that MERS is a sham operation and none of their work is legally valid since its inception in 2003 (i think 2003). This means that millions of mortgages in the US, and millions of titles, are clouded. Essentially all US real estate would be toxic. Including your house. Is this what you want?”
    ______________

    That’s exactly what we have. Of course, no one wants this, but what you want and what you, in fact, have, are two entirely different things.

    You take TBTF to a new level: Too Criminal To Prosecute.

  66. Matt SF says:

    Fortuitously, I’ve been reading Bernstein’s “The Birth of Plenty”, where he places individual property rights as 1 of 4 cornerstones that drove select countries to modern prosperity, and others as the before image in the history books.

    From an economic anthropologist viewpoint, as well as many others, it will be interesting to see how the legality of legalized fraud among the shot callers plays out and it’s aftershocks from years to come.

  67. dead hobo says:

    Petey Wheatstraw Says:
    October 12th, 2010 at 1:04 pm

    That’s exactly what we have. Of course, no one wants this, but what you want and what you, in fact, have, are two entirely different things.

    You take TBTF to a new level: Too Criminal To Prosecute.

    reply:
    ————–
    Well, if this comes to pass, then again I will have to say I had no idea that anybody could be this stupid. I suppose it’s possible, but the iBanks will still have to cough up some big bucks, regardless, to whoever bought their toxic crap. Bye Bye GS and others either way.

  68. kiwifritz says:

    For Robbespierre + securitisation fraud occurred wi MERS , which broke chain of title Mortgage Electronic Registration System defrauded States of fees ++ This all is anarchy, so throw a law professor at it , yes …

    Ref MERS Ellen Brown truthout 19th August

  69. Petey Wheatstraw says:

    dh:

    I don’t see it as stupidity. I see it as taking the chance that any criminal would take, if the potential rewards were great enough. In the lax law enforcement environment of the times, I guess they thought they’d get away with it. In light of the ridiculous protection offered by the corporate shield, coupled with corporatist control of all 3 branches of government, they just might get away with it.

  70. Mannwich says:

    @vachon: I think you hit on an important point. Over the years, to help goose the bottom lines, the banking industry didn’t want to pay attention to the mundane operational side of their business. They didn’t think it was important. In talks with friends in other industries, they have similar issues with not believing these little things are important due to largely to the uber-focus on SHORT TERM results. Why is that? Think about how execs are paid in this country and you’ll get an answer. It’s all about incentives, and we’ve been using the wrong ones for a long time in this country.

  71. [...] Barry Ritholtz, “There is simply no reason we should tolerate unlawful property seizure merely when it is done by banks. They are not the State, not the King, and not above the law.”  (Big Picture) [...]

  72. bigpiccomment says:

    @elnino

    re the NYT article: the part of the article you refer to was about Texas.

    Texas is a non-disclosure state.

  73. I’ve been lately busy (fraudulently notarizing affidavits and such) and so can’t point out the bullshit as frequently as it appears, and it has been pouring out lately. But here’s the deal. You did a great job BR explaining the foreclosure process in states that require judicial foreclosures. That’s 23 of them. Not even half. And in the other states, no such rigorous process is required for foreclosure. Just a notice of default, the opportunity to cure, and then the date of the foreclosure auction has to be published. Now, considering the differences amongst the states in their foreclosure processes, yet the similarity in where they get money for their mortgage market (i.e., from federal government taxpayers), should we just take a big ol’ pile of money from the 27 states that don’t have such a rigorous process and give it the ones that do?

    And the hyperbole over affidavits and forged signatures. Every day in law offices across the nation, paralegals “forge” their bosses signatures to court filings. Of course, they do so w/ the express consent of their bosses. A signature is only forged in an actionable way if the forgee did not agree to allow the forger to sign for them, and the forgee presses charges. It’s why spouses that forge each other’s signatures on credit cards and such can’t get away with not paying–unless they agree to prosecute their spouse for forgery.

    This is all so overwrought. I’m beginning to wonder if there is a rational, reasonable human left anywhere anymore.

    I can assure you guys touting all your populist nonsense that if you succeed in shutting down foreclosures and depriving banks of their interests in these properties, you better start hoarding guns, gold and beans, because it will utterly and completely destroy the economy. You thought this last hiccup was bad? The end of the world in 2012 will turn out to be a self-fulfilling prophecy.

  74. Thor says:

    “And the hyperbole”

    you better start hoarding guns

    The end of the world in 2012

    Really now?

  75. Petey Wheatstraw says:

    Curmudgeon,

    so, a signature forged in concert with one or more people (I don’t think these folks were married), in sworn affidavits, in order to avoid the checks and balances set forth by law, and for the manifest purpose of issuing securities based on these signed documents, where ANOTHER signature is then forged to a document that falsely swears all of the included docs and foregoing processes were examined for, and found free of, defect, as required by law, isn’t criminal?

    Brother, you’ve lost it.

  76. BennyProfane says:

    @The Curmudgeon

    “A signature is only forged in an actionable way if the forgee did not agree to allow the forger to sign for them, and the forgee presses charges.”

    Fine. Let’s have some higher-ups testify to that. Under oath.

    “I can assure you guys touting all your populist nonsense that if you succeed in shutting down foreclosures and depriving banks of their interests in these properties, you better start hoarding guns, gold and beans, because it will utterly and completely destroy the economy. You thought this last hiccup was bad? The end of the world in 2012 will turn out to be a self-fulfilling prophecy.”

    There they go again. “We must invade this country to eradicate the WMDs!!!”, and tens of thousands of soldiers and trillions of dollars of tax money is committed so that billions of dollars of profits can be made by friends of the White House. Or, “If you don’t fund these banks with a bailout, we will all be wallowing in a new Depression!!!”, and trillions of taxpayer dollars are used to prop up an industry that most intellegent people now know destroyed our economy for years to come, and obscene bonuses are still being handed out to the SAME PEOPLE who got us into this mess. The same. 92% of TBTF bank executives are still in the same positions they held in ’07.

  77. whskyjack says:

    There is authorized use of an electronic signature and there is forgery the 2 aren’t the same. and if a notary takes an electronic signature and declares that they saw the document signed in front of them then…………

  78. Sechel says:

    Barry, you are 100% right. The system is broken. People need to know that when they buy and sell real estate they have clear title. The servicers are making a mockery of this and it’s therefore no accident that title insurance companies are refusing to sign off. The banks know they can’t dump REO properties with this issue out there.

    What makes me nervous is if the banks via the Fed try an end-run and try to pass a bad-bill through congress. It’s clear our repsesentatives do not understand the issue since all they talk about is keeping people in their homes. This is about property rights, not keeping people in their homes who can’t afford to stay.

  79. bergsten says:

    “Everybody makes mistakes,” “nobody is 100% perfect,” and “well, they deserve it even if it’s done wrong” are a bunch of very slippery slopes. We’re talking “end of civilization” slippery.

    “I” don’t want to fly on a plane designed by people who think “good enough” is good enough.

    Do you?

  80. obsvr-1 says:

    The exposure of fraudulent foreclosures is exposing the fraudulent security transactions of RMBS and CDOs quite the dilemma for the banksters.

    The toxic assets are like a tar baby that the banksters can’t get there arms out of, nor should they, since they are of their creation.

    Trying to cover the original sin is now exposing all the sins — are we at a pearly gates moment for the fraudsters in the system ?

  81. Mannwich says:

    I don’t either, bergie.

  82. obsvr-1 says:

    And then there is this little persnickety problem:

    Foreclosure Fraud: It’s Worse Than You Think
    http://www.cnbc.com/id/39634568

    Looks like a financial WWIII is a brewing ….

  83. RadioFlyer says:

    bergsten says: ““I” don’t want to fly on a plane designed by people who think “good enough” is good enough. Do you?”

    Not exactly an appropriate analogy. Not least because you’re mixing a financial issue with a potential life or death situation – neither of which are the end of civilization, by the way.

    And for what it’s worth, pretty much everything – including airplanes – are designed to be “good enough” for the task, as you say. If every airplane were designed to the ridiculous standard of absolutely zero tolerance for failure, there wouldn’t be a single plane in the sky.

  84. obsvr-1 says:

    more color:

    Has The Foreclosure Crisis Already Triggered A Double Dip?
    http://www.cnbc.com/id/39628756

  85. Dogfish says:

    RF:

    “Not least because you’re mixing a financial issue with a potential life or death situation”

    For many at the lower levels, financial issues can be life and death situations. That said, I agree with your general premise. There is no such thing as 100% certainty, and attempting to engineer something as such is not realistic.

    Personally, I wonder how many people genuinely believe all these mistakes to be “innocent”. To me it’s bleedingly fcking obvious it’s intentional fraud in the pursuit of profits, and anything in the way (laws, rules, ethics, compassion) is viewed as a barrier to break or go around rather than a boundary to respect.

    It’s like Rumsfeld saying nobody knew we needed more troops in Iraq (despite canning generals who said as much), or Condi Rice saying nobody could’ve foreseen people using planes as missles (despite multiple FBI reports saying just that), or nobody being able to predict the Housing crisis, or nobody being able to predict the moral hazard that would be wrought by the bailouts, or nobody understanding how bad the levees were, or nobody thinking we needed acoustical blowout preventers, etc, etc, etc.

    There almost seems to be some sort of pattern of feigned idiocy so as to mask willful malfeasance. But surely our esteemed leaders are better than that! I mean, if this direction continues, we are on track to become a planet-wide plutocracy of capitalists, above, and not constrained by, any one sovereign state, and using scare tactics and fear to maintain the current exploitation of the lower classes. Hopefully our dear leaders succeed in turning things around from that. I know they wouldn’t want that to happen! They care about America, I can tell, because of how much they talk about freedom and democracy.

  86. batmando says:

    @ dh @ 1:13

    “Well, if this comes to pass, then again I will have to say I had no idea that anybody could be this stupid.”

    stupid, NOT! duplicity, YES! as janet tavakoli calls it, the “biggest fraud in the history of capital markets” and MERS apparently a conspiracy to commit that fraud.

  87. Dogfish says:

    batmando +1

    it’s only stupid from our perspective. like saying invading iraq was stupid.

    for normal americans, yes. for our country, yes.

    for people who position themselves to take advantage of war profiteering (which is pervasive thanks to Cheney’s push for privatization as DecSef under Bush 41), it’s not stupid, it’s profitable.

  88. Dogfish says:

    DefSec, not DecSef, but yall knew what I meant.

  89. RadioFlyer says:

    Dogfish says:

    “RF: “Not least because you’re mixing a financial issue with a potential life or death situation”

    For many at the lower levels, financial issues can be life and death situations. That said, I agree with your general premise.”
    ————–
    My bad, I didn’t mean to imply that a foreclosure is not or could not be a devastating, or even life threatening, occurrence for many – even for some not at the “lower levels”.

    Still, other than the one instance in FL of the foreclosure on a home with no mortgage – I haven’t heard of any other cases where people are losing homes to foreclosure, but were not in default of their mortgage. Is this happening?

  90. patfla says:

    > Others are excusing endemic property right destruction out of genuine ignorance.

    I think you wanted pandemic – and not endemic.

  91. bergsten says:

    @RF — I guess I didn’t state my position clearly enough, but the analogy is perfectly valid. When is it OK to squeak through? When health and safety aren’t at issue? When almost nobody gets hurt? When the ends appear to justfiy the means? When people are too stupid or indifferent to notice? When everybody else is doing it? When it’s the only way to compete? When it keeps the stock price up? When it saves a few bucks here and there?

    It seems sensible (certainly from an economic perspective) to conclude that nothing is perfect, so it’s OK to cut corners. The problem is, this is yet another moral hazard. How much corner do you cut?

    And, once society gets into the habit, when and how do you stop?

  92. Andy T says:

    Take a deep breath and come in off the ledge Barry. It’s going to be OK. Among the many “dangerous” things occurring right now, this seems to rank lower. A mistake in this process can be remedied. Many other things happening have no remedy.

  93. bergsten says:

    Oh, and airplanes are designed for zero tolerance to (unrecoverable) failure. Ask anyone in avionics. Doesn’t mean they succeed, but they sure try.

  94. bergsten says:

    Over at ZH: Here’s your chance — check if you a victim of mortgage fraud.

    Maybe it works, maybe not. “I” for one, am going to go visit my county clerk and check it all out for myself.

  95. wisedup says:

    I remember an excitable guy in the Chicago pits in early 2009 frothing at the mouth about housing bailouts. Damn shame Santelli did not pick on the right problem.

  96. gordo365 says:

    All of this stinks. But I want to see banking executive blood on the streets.

    Putting some middle class loan approver or notary public in jail for trying to make bonus by cutting corners seems like a shallow victory.

  97. RadioFlyer says:

    @bergsten, I personally am not (and I don’t think anyone else here is) defending anyone (individuals or corporations) that acted unethically, immorally, or illegally. All I’m saying in response to your point, is that there’s no such thing as perfection. There’s no perfect system, there’s no perfect person, there’s no “perfect” anything.

    Those that did break the law, should indeed be prosecuted.

    ——————————————
    @bergsten: “Oh, and airplanes are designed for zero tolerance to (unrecoverable) failure. Ask anyone in avionics. Doesn’t mean they succeed, but they sure try.”
    ———-
    I assume you meant aviation, not avionics, since you mentioned airplanes, not airplane electronic systems. Either way, I reiterate that nothing is designed to zero tolerance for failure, which is a statistical impossibility. If something were in fact designed to a zero tolerance for failure, it would be a failure as soon as pen was put to paper. Things are designed, and tested, to a certain tolerance to failure, and certainly “health and safety” applications have a very, very high standard/extremely low tolerance – but it’s not possible to be zero. Maybe it’s one in a thousand, maybe it’s one in ten trillion trillion, but it ain’t zero.

    And you said it yourself – even if they do try, it doesn’t mean they always succeed. Whether it’s bad luck, or a line worker that had a bad day, or any other reason, $hit happens.

    In the case of homes being foreclosed on that should not have been because either there was no mortgage, or the borrower was not in default….as far as I can tell, it’s one dude in FL. That’s one in what, 40?,45? million mortgage holders? That’s okay with me.

    In the case of investors holding securities that are a clusterF of poor documentation – that seems like it might be a much higher failure rate – and if it’s the result of fraud, then again, heads should roll.

  98. wisedup says:

    why cut corners RF?
    “In the case of homes being foreclosed on that should not have been because either there was no mortgage, or the borrower was not in default….”

    should have been

    “In the case of homes being foreclosed on that should not have been because either there was no correctly (legally) processed documentation, no mortgage, or the borrower was not in default….”

  99. beaufou says:

    I just finished typing and printing the title for my house, just waiting for it to dry to notarize it.
    Maybe my wife can sign and my kids witness the whole operation.