Posts filed under “Foreclosures”
This commentary, forwarded by David Kotok, is a very worthwhile read — but it has a significant legal flaw in it that requires me to preface it with the following: Courts have long had the authority to apply principles of equity, as opposed to common or statutory law, to cases brought before it.
Included in this means is preventing outcomes that unjustly enrich wrongdoers, or other similar bad outcomes. With the foreclosure fraud cases, we have two actors that are not blameless here: The homeowner, who is in default, and the banks/securitizers, that failed to do the document creation and title management correctly.
Judges in civil cases do not want to see an absurd outcome. Rewarding either the homeowner (free house!) or the lenders (No penalty for massive screw ups!) would offend those principles of equity and fairness.
What might be a “just” outcome in these cases? An example of a possible fix in a full blown litigation might be for the court to order the mortgage modified to the current equity value of the home, so that it a) punishes the lenders who failed to do their proper legal work on the documents, but b) does not give a home to a defaulted homeowner for free. The odds would be that the homeowner still gets foreclosed on, but does not owe additional monies to the bank. Since these are very often uncollectible judgments anyway, the court’s judgment can mete out justice fairly, not give anyone an undeserved windfall, yet move the cases forward. That is but one “just” solution, and I am confident that most courts have the sophistication to fashion an appropriate remedy.
Courts of “equity” (meaning “just, fairness”) can apply these principles to avoid ridiculous outcomes. Whether they choose to do so or not will be determined by them.
The Foreclosure Mess
October 15, 2010
[BR: Update: The original post was written by Gonzalo Lira].
Dear Readers, this text came to me in an email from sources that are in the financial services business and with whom I have a personal relationship. The original text was laced with expletives and I would not use it in the form I received it. Therefore the text below has had some substantial editing in order to remove that language. The intentions of the writer are undisturbed. The writer shall remain anonymous. This text echoes some of the news items we have seen and heard today; however, it can serve as a plain language description of the present foreclosure-suspension mess. There is a lot here. It takes about ten minutes to read it.
Homeowners can only be foreclosed and evicted from their homes by the person or institution who actually has the loan paper—only the note-holder has legal standing to ask a court to foreclose and evict. Not the mortgage, the note, which is the actual IOU that people sign, promising to pay back the mortgage loan.
Before mortgage-backed securities, most mortgage loans were issued by the local savings & loan. So the note usually didn’t go anywhere: it stayed in the offices of the S&L down the street.
But once mortgage loan securitization happened, things got sloppy—they got sloppy by the very nature of mortgage-backed securities.
The whole purpose of MBSs was for different investors to have their different risk appetites satiated with different bonds. Some bond customers wanted super-safe bonds with low returns, some others wanted riskier bonds with correspondingly higher rates of return.
Therefore, as everyone knows, the loans were “bundled” into REMIC’s (Real-Estate Mortgage Investment Conduits, a special vehicle designed to hold the loans for tax purposes), and then “sliced & diced”—split up and put into tranches, according to their likelihood of default, their interest rates, and other characteristics.
This slicing and dicing created “senior tranches,” where the loans would likely be paid in full, if the past history of mortgage loan statistics was to be believed. And it also created “junior tranches,” where the loans might well default, again according to past history and statistics. (A whole range of tranches was created, of course, but for the purposes of this discussion we can ignore all those countless other variations.)
These various tranches were sold to different investors, according to their risk appetite. That’s why some of the MBS bonds were rated as safe as Treasury bonds, and others were rated by the ratings agencies as risky as junk bonds.
A strong article in the Washington Post makes it so clear that even a CNN anchor can understand it: A huge portion of the Fraudclosure mess was by design. These weren’t erroneous ‘i’s that were not dotted and ‘t’s that were not crossed; It was a mad rush to do yet another extremely important legal…Read More
There are quite a few misunderstandings, denials, and exaggerations floating around as to what the final outcome might be of “Fraudclosure.” At the current stage, we really do not know how extensive the problems are. We could make wild and unsubstantiated conclusions, but we prefer reason and logic. So let’s break this down as to…Read More
I am not sure why so many people are so confused over the concerns of the legal status of robo-signers. I’ll let Thomas A. Cox, a retired lawyer, describe GMAC’s foreclosure process and the work of its limited signing officer, Jeffrey Stephan in a court filing: “When Stephan says in an affidavit that he has…Read More
I had a bizarre experience today where someone told me that none of the parade of horribles we have been discussing have actually happening. He didn’t use the word myth, but he sure implied it. I quickly pulled these examples, but I want to ask you the reader: What other cases are there of actual…Read More
> October 14, 2010 Robert S. Mueller III Director Federal Bureau of Investigation 935 Pennsylvania Avenue, NW Washington, DC 20535 Robert O’Neill U.S. Attorney Middle District of Florida 400 North Tampa Street, Suite 3200 Tampa, FL 33602 Dear U.S. Attorney O’Neill and Director Mueller, When it comes to foreclosures, there is mounting evidence of a…Read More
The absurdity of illegal activity, criminal conduct, rampant fraud has reached a point where the nation much declare “No More.” We must begin the process of identifying criminal actors — and prosecuting them. The latest twist on the criminality/foreclosure fraud: The hiring of untrained, incompetent burger flippers to act as lawyers or paralegals in the…Read More