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Governor Sarah Bloom Raskin
At the Association of American Law Schools Annual Meeting, Washington, D.C.
January 7, 2012

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Thank you and happy New Year. It is a pleasure to be with you today as you meet to discuss so many pressing and important issues. I know there has been much discussion at this conference about the public function of law schools and I commend you for tackling this essential challenge. In my speech today, I hope to add to the conversation a little bit by presenting a simple argument, that laws and regulations must be enforced, and enforcement must be part of what we teach lawyers and future lawmakers to study. What we think of as the rule of law encompasses not merely theories of the process by which public laws and regulations are created through particular legislative and administrative procedures, and not merely theories of how laws and regulations are interpreted by courts. The rule of law includes enforcement itself. The rule of law compels us to consider whether a rule has been crafted in such a way that it is capable of being complied with and capable of being enforced effectively by state actors. The rule of law also involves decisions about whether there has been compliance, and if not, what should be done about it.

The failure of timely enforcement leads to the entrenchment of bad practices and an increase in the costs of correction. For example, turning to what will be the focus of my comments today–the role of mortgage servicers in the foreclosure crisis–the longer it takes for mortgage servicers to make the operational adjustments necessary to fix their sloppy and deceptive practices, the costlier and more difficult it becomes for them to sort them out and correct them.

More fundamentally, a failure by regulators to enforce the laws and regulations as strong antidotes to financial misconduct and unsafe and unsound practices by the institutions they regulate establishes de facto acquiescence to the dominant norms of the financial marketplace. At that point, our laws become the resting place for unfair practices and broad disrespect for the law generally. This is a phenomenon that Shakespeare’s Angelo observed in “Measure for Measure” when he said:

We must not make a scarecrow of the law,
Setting it up to fear the birds of prey,
And let it keep one shape, till custom make it
Their perch and not their terror.

For sure, different regulatory regimes could have different answers regarding the best way to enforce laws and regulations. As law professors teaching both the substance of law and the practice of law, I imagine you find ways within your courses and scholarship to discuss theories of enforcement–for example, the use of private rights of action versus enforcement by regulatory agencies; different enforcement tools such as memoranda of understanding, consent orders, and cease and desist agreements; how these different enforcement tools are sequenced; and whether and when violations of law should be publicized.

In answering all of these questions, there is consensus that public enforcement should be used in addressing pervasive regulatory problems. Today I want to talk about how home mortgage foreclosures hurt the pace of an economic recovery, and how important it is that the severe misconduct that has been uncovered in the mortgage servicing sector be addressed through intensified public enforcement of the law as part of the overarching effort to rebuild our damaged communities and neighborhoods.

Mortgage Servicing and the Economy
The economic downturn that began in late 2007 and worsened considerably in the autumn of that year resulted in the worst recession in many decades. Although recovery from the recession officially began in the third quarter of 2009, the pace of recovery has been modest, resulting in an unemployment rate that has remained at or above 8.5 percent since mid-2009. This sustained high unemployment rate–with all the attendant social consequences, including lost income and family strains–has contributed to an unprecedented number of mortgage foreclosures throughout the nation.

This wave of foreclosures is one of the factors hindering a rapid recovery in the economy. Traditionally, the housing sector, buoyed by low interest rates and pent-up demand, has played an important role in propelling economic recoveries. The increase in housing sales and construction often is accompanied by purchases of complementary goods, like furniture and appliances, which magnify the effect of the housing recovery.

However, six years after house prices first began to fall, the pace of the economic recovery remains slow. Nationally, house prices have fallen by nearly one-third since their peak in the first quarter of 2006, and total homeowners’ equity in the United States has shrunk by more than one-half–a loss of more than $7 trillion. The drop in house prices has had far-reaching effects on families, neighborhoods, small businesses, and the economy, in part because so many American families–more than 65 percent–own their homes. The fall in house prices has caused families to cut back on their spending and has prevented them from using their home equity to fund education expenses or start small businesses. The decline in house prices has also impeded families from benefiting from the historically low level of interest rates, as perhaps only half of homeowners who could profitably refinance have the equity and creditworthiness needed to qualify for traditional refinancing.¹

Read the rest of this entry »

Before we begin our Sermon this Sunday, a bit of history:

Think back to the giant fraud that was Enron. It was enabled — indeed, it was only possible — by the criminal behavior of their “Big Five” accounting firm, Arthur Andersen. This massive fraud perpetrated on the investing public was only possible due to the cooperation and active participation of their accountant, who were found guilty of “obstructing justice when it destroyed Enron Corp. documents while on notice of a federal investigation” charges. For this sin relating to their handling of Enron’s audits, Arthur Anderson was forced to “decertify,” voluntarily surrendering their license to be Certified Public Accountants in the United States. By voluntary, we mean they had no other choice.

Hence, for their complicity in the Enron scandal, Arthur Anderson was taken out back like Old Yeller and put down. Their senior officers and accountants scattered to the other major firms with their clients in tow. Even their consulting firm, Accenture, luckily lost the name Arthur Andersen Consulting in 2000, removed all visible signs of affiliation.

Once Andersen was de-certified from Accountancy,  AA was no more.

Today, we have what appears to be a parallel fraud: The processing of foreclosure documents by legal services giant Lender Processing Services. Thanks to the diligent worh of Attorneys General in states such as Nevada, New York, Delaware, California (but not Florida), we are starting to learn the extent of what took place under the auspices of LPS:

•  former L.P.S. employee who worked in “attorney management,” overseeing firms that performed legal work for foreclosures, told Nevada investigators that L.P.S. required him to resolve issues raised by the firms at a rate of 30 foreclosure files every hour (2 minutes per)

• Former workers described their work as “surrogate signers.” Their job was to forge signatures on documents.

• Other employees were hired through temp agencies, paid $11 an hour and told that her job was “to sign somebody else’s signature on documents,” the lawsuit said. Investigators were informed she signed roughly 2,000 documents a day for months — well over 100,000 foreclosure docs.

• Notarization was similarly dishonest, with workers notarizing documents (as a Notary) that they had fraudulently signed as a surrogate.

• Borrowers were confronted with documents containing “false assertions about which entity was authorized to foreclose, and false assertions about whether the consumer was delinquent on a loan payment.”

I have a question for Bank of America and Citi: Why haven’t you thrown these LPS weasels under the bus? What dirt they have on you preventing a simple j’accuse! ? What the hurry to settle before an investigation?

The end game for this is fairly obvious: Find the fuckers who authorized this, prosecute and convict them, and throw their sorry asses in jail. If the orders came from high enough up the food chain, why not pursue a similar Arthur Anderson penalty. Wat this broad corporate policy, or the work of a rogue banker? There is the answer to the death penalty question. After all, if a legal services firm is committing fraud, what bank or law firm can ever work with them? Depending upon the outcome of these AG investigations, a corporate death penalty could very well be the appropriate remedy.

This is going to get very interesting this year . . .

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Source:
From East and West, Foreclosure Horror Stories
GRETCHEN MORGENSON
NYT, January 7, 2012 
http://www.nytimes.com/2012/01/08/business/mortgage-servicing-horror-stories-fair-game.html

Read the rest of this entry »

Stop Payment

“What’s happened is that, almost overnight, we’ve switched from democracy in real-property recording to oligarchy in real-property recording. There was no court case behind this, no statute from Congress or the state legislatures. It was accomplished in a private corporate decision. The banks just did it.”

-Christopher Peterson, a law professor at the University of Utah, on the “wholesale transfer of mortgages to a privatized database” and why it’s no coincidence more Americans are being foreclosed upon than any time since the Great Depression.

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The quote above is from an article in the January 2012 Harper’s. It’s ostensibly about the ongoing battle between Homeowners and Bankers (PDF is online at Scribd, Think Tank, but not for long).

The print edition is illustrated with the artwork of Amy Casey (Housing as a Recurring Dream (Nightmare), previously showcased here)

What makes the article so remarkable is it has one of the most powerful anti-MERS arguments I have ever read in the mainstream media. In addition to the quote above, there is this:

At the heart of the clouded-title problem is a Virginia-based company, recently much in the national news, called Mortgage Electronic Registration Systems. MERS was created in 1995 as a privately held venture of the major mortgage-finance operators, chief among them the government-sponsored mortgaging entities Fannie Mae and Freddie Mac. Its stated purpose was to manage a confidential electronic registry for the tracking of the sale of mortgage loans between lenders, which could now place loans under MERS’s name to avoid filing the paperwork normally required whenever mortgage assignments changed hands. No longer would the traffickers in mortgages have to document their transactions with county clerks, nor would they have to pay the many and varied courthouse fees for such transactions. Instead, MERS was listed in local recording offices as the “mortgagee of record,” the in-name-only owner, a so-called nominee for the lender, so that MERS would effectively “own” the loan where the public record was concerned, while the lenders traded it back and forth.

This centralized database facilitated the buying and selling of mortgage debt at great speed and greatly reduced cost. It was a key innovation in expediting the packaging of mortgage-backed securities. Soon after the registry launched, in 1999, the Wall Street ratings agencies pronounced the system sound. “The legal mechanism set up to put creditors on notice of a mortgage is valid,” as was “the ability to foreclose,” assured Moody’s. That same year, Lehman Brothers issued the first AAA-rated mortgage-backed security built out of MERS mortgages. By the end of 2002, MERS was registering itself as the owner of 21,000 loans every day. Five years later, at the peak of the housing bubble, MERS registered some two thirds of all home loans in the United States.

Without the efficiencies of MERS there probably would never have been a mortgage-finance bubble.

After the housing market collapsed, however, MERS found itself under attack in courts across the country. MERS had singlehandedly unraveled centuries of precedent in property titling and mortgage recordation, and judges in state appellate and federal bankruptcy courts in more than a dozen jurisdictions—the primary venues where real estate cases are decided— determined that the company did not have the right to foreclose on the mortgages it held.

In 2009, Kansas became one of the first states to have its supreme court rule against MERS. In Landmark National Bank v. Boyd A. Kesler, the court concluded that MERS failed to follow Kansas statute: the company had not publicly recorded the chain of title with the relevant registers of deeds in counties across the state. A mortgage contract, the justices wrote, consists of two documents: the deed of trust, which secures the house as collateral on a loan, and the promissory note, which indebts the borrower to the lender. The two documents were sometimes literally inseparable: under the rules of the paper recording system at county court-houses, they were tied together with a ribbon or seal to be undone only once the note had been paid off. “In the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity,” said the Kansas court, “the mortgage may become unenforceable.”

MERS purported to be the independent entity holding the deed of trust. The note of indebtedness, however, was sold within the MERS system, or “assigned” among various lenders. This was in keeping with MERS’s policy: it was not a bank, made no loans, had no money to lend, and did not collect loan payments. It had no interest in the loan, only in the deed of trust. The company—along with the lenders that had used it to assign ownership of notes—had thus entered into a vexing legal bind. “There is no evidence of record that establishes that MERS either held the promissory note or was given the authority [to] assign the note,” the Kansas court found, quoting a decision from a district court in California. Not only did MERS fail to legally assign the notes, the company presented “no evidence as to who owns the note.”

Similar cases were brought before courts in Idaho, Massachusetts, Missouri, Nevada, New York, Oregon, Utah, and other states. “It appears that every MERS mortgage,” a New York State Supreme Court judge recently told me, “is defective, a piece of crap.” The language in the judgments against MERS became increasingly denunciatory. MERS’s arguments for standing in foreclosure were described as “absurd,” forcing courts to move through “a syntactical fog into an impassable swamp.”
(emphasis added)

I was so thrilled with this piece, I subscribed to Harper’s Magazine thru Amazon ($10)

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Source:
Stop payment! A homeowners’ revolt against the banks
Christopher Ketcham
Harpers, January 2012
http://harpers.org/archive/2012/01/0083752

Regular readers of TBP know that I spend some time rooting around in the excellent American Presidency Project, a remarkable resource.  Sometimes I’m looking for something specific, other times I’m just getting a feel, a flavor, for the message coming from our leadership, specifically the president.  The latter was the case when I undertook a search to see how the phrase “home ownership” has been used by presidents over time.

Herewith, FDR’s Message to Congress, April 13, 1933.  Spooky stuff.

To the Congress:

As further and urgently necessary step in the program to promote economic recovery, I ask the Congress for legislation to protect small home owners from foreclosure and to relieve them of a portion of the burden of excessive interest and principal payments incurred during the period of higher values and higher earning power.

Implicit in the legislation which I am suggesting to you is a declaration of national policy. This policy is that the broad interests of the Nation require that special safeguards should be thrown around home ownership as a guarantee of social and economic stability, and that to protect home owners from inequitable enforced liquidation in a time of general distress is a proper concern of the Government.

The legislation I propose follows the general lines of the farm mortgage refinancing bill. The terms are such as to impose the least possible charge upon the National Treasury consistent with the objects sought. It provides machinery through which existing mortgage debts on small homes may be adjusted to a sound basis of values without injustice to investors, at substantially lower interest rates and with provision for postponing both interest and principal payments in cases of extreme need. The resources to be made available through a bond issue to be guaranteed as to interest only by the Treasury, will, it is thought, be sufficient to meet the needs of those to whom other methods of financing are not available. At the same time the plan of settlement will provide a standard which should put an end to present uncertain and chaotic conditions that create fear and despair among both home owners and investors.

Legislation of this character is a subject that demands our most earnest, thoughtful and prompt consideration.

Source:
Franklin D. Roosevelt: Message to Congress on Small Home Mortgage Foreclosures.
40 – Message to Congress on Small Home Mortgage Foreclosures.
American Presidency Project, April 13, 1933

http://www.presidency.ucsb.edu/ws/index.php?pid=14618

Adding: Did not know when BR was going to run this piece, but since he slated it for Thanksgiving, I’ll take this opportunity to wish everyone a happy, healthy and safe holiday.  Enjoy friends and family.

If ever you need as an illustration why bank bailouts are such a misguided idea, one need look no further than Fraudclosure and RoboSigning. The sunk cost of the bailouts have completely skewed government officials priorities. Hence, enforcement of laws and imposing criminal penalties has become verbotten, as it undercuts the prior monies.

Why do I suspect that the hand of former NY Fed president and current Treasury Secretary Timothy Geithner is behind this?

So far, only Attorneys General in six five states have questioned the rush to settlement before full investigations have been completed. In addition to California, the AGs in Delaware, Massachusetts, Nevada and New York are raising questions about any settlement prior to a full and thorough accounting of exactly how such massive illegality took place at the nations’ largest banking institutions and law firms. Florida’s prior AG was actively investigating fraudclosure, but the new AG, Pam Bondi, has apparently sold her soul to the notorious Lender Processing Service. She fired the Fraudclosure investigators, and I continue to search for evidence she is not corrupt public official, more or less in vain.

Regardless, the banks are hoping to head off further investigations by writing a check in amounts between $18-25 billion dollars.

“Bank representatives and government officials are working on a broad settlement of most state and federal foreclosure-practices investigations that could move forward without the participation of California, long considered a key to any deal, people familiar with the negotiations said.

The terms of the deal remain fluid. Banks have proposed a deal excluding California that would carry a value of $18.5 billion, though the final outcome remains uncertain, people familiar with the discussion said.

Negotiators are continuing to make a push to persuade California to join a settlement valued at $25 billion among federal officials, state attorneys general and the nation’s five largest mortgage servicers: Ally Financial Inc., Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co. The talks center on the banks’ use of “robo-signing,” in which employees approved legal documents without proper review, and other questionable foreclosure practices.

The dollar value would include the value of principal write-downs, interest-rate reductions and other benefits to homeowners as well as cash penalties.

But negotiators now are discussing how to structure an agreement if California remains on the sidelines. Until recently, it seemed unlikely that a settlement would be possible without the participation of California Attorney General Kamala D. Harris. She left the discussions in late September, calling the deal then on the table inadequate. The state accounted for 13.1% of all mortgages outstanding at the end of September and 10.8% of all loans in foreclosure, according to the Mortgage Bankers Association.”

California has two million+ underwater homes, according to CoreLogic.

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Previously:
Florida Attorney General Report on Fraudclosure (January 2011)

The Foreclosure Zoo (November 2010)

Source:
Foreclosure Talks Push Ahead Absent California
RUTH SIMON And NICK TIMIRAOS
WSJ, November 23, 2011  
http://online.wsj.com/article/SB10001424052970203710704577054550234461744.html

See also:
Florida Asst AG Andrew Spark Scathing Memo

Assistant attorney general resigns after memo blasting Florida AG’s office

Adam Smith, Leading Austrian Economists and Other Free Market Advocates Are For the Prosecution of Fraud

There is a widespread myth that free market supporters are against regulation or prosecuting fraud.

In fact, Adam Smith – the father of free market capitalism – was for regulation of banks, and believed that trust is vital for a healthy economy. Because strong enforcement of laws against fraud is a basic prerequisite for trust, Smith would be disgusted by the lack of prosecution of Wall Street fraudsters today.

Smith railed against monopolies and their corrupting influence. And Smith was pro-regulation, so long as the regulation benefited the little guy, as opposed to the wealthiest:

When the regulation, therefore, is in support of the workman, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.

Richard Posner – one of the leading proponents over the course of many decades for removing the reach of the law from the economy – has now changed his mind.

So has another leading proponent of deregulation and turning a blind eye towards fraud: Alan Greenspan.

While some promoters of a fake version of Austrian economics are anti-regulation and against prosecuting fraud, the main Austrian economists were unambiguously for them.

William K. Black – professor of economics and law, and the senior regulator during the S&L crisis – notes that leading Austrian free market economists said that fraud must be prosecuted:

Real Austrian economists … hate elite frauds and want them prosecuted vigorously. Ludwig von Mises and Friederich Hayek are the two most famous Austrian economists.

Hayek, F.A. The Road to Serfdom

To create conditions in which competition will be as effective as possible, to prevent fraud and deception, to break up monopolies— these tasks provide a wide and unquestioned field for state activity.

The Constitution of Liberty

There remains, however, one other kind of harmful action that is generally thought desirable to prevent and which at first might seem distinct. This is fraud and deception. Yet, though it would be straining the meaning of words to call them ‘coercion,’ on examination it appears that the reasons why we want to prevent them are the same as those applying to coercion. Deception, like coercion, is a form of manipulating the data on which a person counts, in order to make him do what deceiver wants him to do. Where it is successful, the deceived becomes in the same manner the unwilling tool, serving another man’s ends without advancing his own. Though we have no single word to cover both, all we have said of coercion applies equally to fraud and deception.

With this correction, it seems that freedom demands no more than that coercion and violence, fraud and deception, be prevented, except for the use of coercion by government for the sole purpose of enforcing known rules intended to ensure the best conditions under which the individual may give his activities a coherent, rational pattern…..

Liberty not only means that the individual has both the opportunity and the burden of choice; it also means that he must bear the consequences of his actions…. Liberty and responsibility are inseparable.

Mises, L.

Government ought to protect the individuals within the country against the violent and fraudulent attacks of gangsters, and it should defend the country against foreign enemies.

Black also notes that fraud is a leading cause of financial bubbles and malinvestment – two of the greatest sins which Austrian economists rightly fight against.

Unless financial fraud is prosecuted, bubbles will be blown … and when they burst, the economy will tank. Fraud – along with bad Federal Reserve policy – is what causes bubbles in the first place.

The Proof Is In the Pudding: Fewer Prosecutions Equals a Worse Economy

Obama has prosecuted fewer financial crimes than any president in decades – less than Ronald Reagan, less than George H.W. Bush, less than Bill Clinton, and less than George W. Bush.

The economy is worse than it has been since the Great Depression, if not before.

See the connection? See this and this.

Everyone Supports Laws Protecting Contract and Private Property Rights

Even the most radical free market advocates support laws protecting contract and private property rights. In other words, they support the judicial branch of government and the basic laws Congress passes to support such rights.

There are obviously good, pro-competitive laws and bad, anti-competitive laws.

Paul Craig Roberts – a true conservative, who was a Wall Street Journal editor and Assistant Secretary of the Treasury under Ronald Reagan, and is widely credited with being the “father of supply-side economics” – points out:

Regulation can increase economic efficiency and … without regulation external costs can offset the value of production.

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Thirty-three years ago in an article in the Journal of Monetary Economics (August 1978), “Idealism in Public Choice Theory,” I developed a model to assess the benefits and costs of regulation. I argued that well-thought-out regulation could be a factor of production that increases GNP. For example, regulation that contributed to the quality and safety of food and medicines contributed to specialization in production and lower costs, and regulations enforcing contracts and private property rights add to economic efficiency.

On the other hand, bureaucracies build their empires and extend their regulations into the realm of negative returns. Moreover, as regulations increase, economic managers spend more time in red tape and less in productive activity. As rules proliferate, they become contradictory and result in paralysis.

I had hopes that my analysis would result in a more thoughtful approach to regulation, but to no avail. Liberals continued to argue that more regulation was better, and libertarians maintained than none was best.

Do Anti-Law Advocates Really Want Anarchy?

All sports need a referee. Some players will be bigger or more talented than others, which is great. They have a better chance of outcompeting the other guy and winning.

But without basic rules and referees, ruthless players might use a knife or kick the other guy in the knee. Perhaps we could suspend all rules, and maybe everyone would whip out a knife break the other guy’s kneecap. That’s fine … but that’s not the game of football.

Radicals who believe that we should not have any laws against fraud are implicitly arguing for anarchy. They might not use that word, but that is what they’re arguing for.

But the same Founding Father who argued for periodic revolutions to keep the government honest also argued against tearing down something unless you have something better in mind to replace it? Thomas Jefferson, the most vocal advocate of the citizens’ right to revolt to ensure honest government also cautioned against tearing something down unless it was for the express purpose of replacing it with something better.

Real, deep-thinking anarchists (as opposed to those using fake anarchy philosophy in order to promote lawlessness by the super-elite) are not for destroying all organization.  Instead, they argue for self-organization and self-regulation. See this, this and this.

JP Morgan and Goldman Sachs aren’t reining in one another’s fraud.  Bank of America and MF Global didn’t police each other’s fraud.   Tepco and BP didn’t make sure the companies made accurate reports about their safety measures.  Solyndra and Koch Industries didn’t guard against abuse by the other company.

So if one wants to argue that the Federal government should not regulate financial players, fine (perhaps our country is too big and complex to manage, and the federal government has become too corrupt) … but who should?

The states? Cities? Communities? Neighbors?

Human beings have the ability to form social contracts. Our D.C. government has largely breached it social contract with the people.

But we shouldn’t tear down the federal government unless we replace it with something better.

No one wants to tear down the state of organization so completely that we go back to monkeys (without the ability to talk), or one-celled critters . . . so the question is how do we want to organize?

Do you want to live as a “savage”? In reality, the natives had survival skills, cultural traditions, and knowledge developed over many hundreds or thousands of years (including knowledge gained before the migration from Asia to America), stored in the database of oral traditions. The settlers had traditions and knowledge as well. If we tear away all of that organization, life is going to be pretty challenging.

It is easy for a teenager to criticize his parents, but a lot harder to actually create a better adult life for himself. A teenager looks silly and immature when he criticizes everything his parents do without understanding the challenges he’ll face as an adult. But a young person who rebels against his parents and then creates a better adult life is doing important and heroic work.

In other words, anarchy as an economic model could work if economic players organized in such a way as to police against fraud and criminal behavior (the equivalent of pulling out a knife or taking out someone’s kneecap in the middle of a football game).

This is a long-winded way of saying that we should not stop the government from enforcing fraud laws unless we come up with a more effective way to stop fraud.

Below are the first criminal charges brought in the foreclosure fraud scandal. Every state Attorney General will take note of what Nevada AG Catherine Cortez Masto just did.

We’ve read the indictment, and those 606 charges are no joke. Just open it up to any page and you’ll see what was going on. A likely probability is that Nevada AG Masto is starting by going after mid-level employees, with the intent to flip up the chain.

According to the WSJ, the charges were brought against Lender Processing Services employees. As Yves Smith explains, LPS handled much of the foreclosure mill network used by the big banks.

WSJ: “Nevada Grand Jury Indicts Two in Alleged Robo-Signing Scheme”

Office of the Attorney General Announces Indictment in Massive Clark County Robo-signing Scheme

Indictment (First Page)

OFFICE OF THE ATTORNEY GENERAL ANNOUNCES INDICTMENT IN MASSIVE CLARK COUNTY ROBO-SIGNING SCHEME
To:

Office of the Attorney general ANNOUNCES indictment in massive clark county robo-signing scheme

Defendants to be Held Criminally Accountable for Filing Tens of Thousands of Fraudulent Foreclosure Documents

Carson City, NV – The Office of the Nevada Attorney General announced today that the Clark County grand jury has returned a 606 count indictment against two title officers, Gary Trafford and Gerri Sheppard, who directed and supervised a robo-signing scheme which resulted in the filing of tens of thousands of fraudulent documents with the Clark County Recorder’s Office between 2005 and 2008.

According to the indictment, defendant Gary Trafford, a California resident, is charged with 102 counts of offering false instruments for recording (category C felony); false certification on certain instruments (category D felony); and notarization of the signature of a person not in the presence of a notary public (a gross misdemeanor). The indictment charges defendant Gerri Sheppard, also a California resident, with 100 counts of offering false instruments for recording (category C felony); false certification on certain instruments (category D felony); and notarization of the signature of a person not in the presence of a notary public (a gross misdemeanor).

”The grand jury found probable cause that there was a robo-signing scheme which resulted in the filing of tens of thousands of fraudulent documents with the Clark County Recorder’s Office between 2005 and 2008,”said Chief Deputy Attorney General John Kelleher.

The indictment alleges that both defendants directed the fraudulent notarization and filing of documents which were used to initiate foreclosure on local homeowners.

The State alleges that these documents, referred to as Notices of Default, or “NODs”, were prepared locally. The State alleges that the defendants directed employees under their supervision, to forge their names on foreclosure documents, then notarize the signatures they just forged, thereby fraudulently attesting that the defendants actually signed the documents, which was untrue and in violation of State law. The defendants then allegedly directed the employees under their supervision to file the fraudulent documents with the Clark County Recorder’s office, to be used to start foreclosures on homes throughout the County.

The indictment alleges that these crimes were done in secret in order to avoid detection. The fraudulent NODs were allegedly forged locally to allow them to be filed at the Clark County Recorder’s office on the same day they were prepared.

District Court Judge Jennifer Togliatti has set bail in the amount of $500,000 for Sheppard and $500,000 for Trafford. The case has been assigned to Department 5 District Court Judge Carolyn Ellsworth who will preside over the case.

Anyone who has information regarding this case is asked to contact the Attorney General’s Office at 702-486-3777 in Las Vegas or 775-684-1180 in Carson City.

Read the indictment by visiting: http://bit.ly/TraffordSheppardIndictment

MSNBC – Nearly 29% of mortgaged homes underwater

A whopping 28.6 percent of homeowners with mortgages owe more on their loans than their homes could sell for, according to quarterly data released Tuesday by Zillow, a real estate website. That’s up from 26.8 percent in the second quarter. Home values declined only 0.2 percent from the second quarter but were down 4.4 percent year over year. The rising percentage of homes with “negative equity” or “underwater” status is due largely to how long the foreclosure sale process takes rather than home value fluctuations, said Zillow chief economist Stan Humphries. Prior to the “robo-signing” scandal around foreclosures that came to light in 2010, the negative equity rate hovered in the 21 to 23 percent range, but has been in the 26 to 28 range since due to added delays in foreclosure sales. While the rate of foreclosures is dropping, the time required for foreclosures to sell has lengthened. “We’re in uncharted waters,” Humphries said in an interview. “More than one in four homes underwater and about 9 percent unemployment is a recipe for more foreclosures.”

USA Today – Foreclosure backlogs could take decades to clear out

Foreclosure sales are moving so slowly in half the states that at the current pace, it will take more than eight years on average to clear the 2.1 million homes in foreclosure or with seriously delinquent mortgages, new research shows. That’s about twice as long as a year ago in the states where foreclosures go through courts — before the mortgage industry was upended by last fall’s disclosures that court papers in many foreclosure cases were improperly prepared. Since then, new checks have slowed the process. The backlogs suggest that the fallout from the nation’s worst housing-market collapse is likely to weigh on real estate prices in many markets for years to come, and on some markets for longer than on others.

Comment:  According to Census data, a total of 76.428 million owner occupied units existed in the U.S. as of 2009. Of those, 50.3 million currently had a mortgage on their property.

Recently, Core Logic estimated that 22.5% of all homes in the U.S. were underwater and another 5% had near negative equity.  Additionally, JP Morgan has estimated that 27% of all foreclosures are walkaways.

Zillow’s estimates offer another data point on mortgages, suggesting nearly a third of all homes are now underwater.