Banks “sidestepped 400 years of property law”

The New York Times quotes contrasting views on the foreclosure crisis from two finance experts:

Banks “have essentially sidestepped 400 years of property law in the United States,” said Rebel A. Cole, a professor of finance and real estate at DePaul University. “There are so many questionable aspects to this thing it’s scary.”

Others are more sanguine about the dispute.

Joseph R. Mason, a finance professor who holds the Louisiana Bankers Association chair at Louisiana State University, said that concerns about proper foreclosure documentation were overblown. At the end of the day, he said, even if the banks botched the paperwork, homeowners who didn’t make their mortgage payments still needed to be held accountable.

“You borrowed money,” he said. “You are obligated to repay it.”

Ok. Yes, if you borrowed money, you are obligated to repay it. But at this point, is that really what we’re talking about?

Take this:

In a complaint filed this month in Washington, D.C. federal court, Bank of America said the FDIC has wrongly denied claims by Ocala noteholders to recover from Colonial Bank and an Illinois lender also in receivership, Platinum Community Bank.

Bank of America accused executives at Taylor Bean, Colonial and Platinum of having fraudulently schemed to “double- and triple-pledge mortgages and steal assets” to hide their faltering conditions as the housing market declined.

Atrios asks the key question here:

So how widespread was this double-pledging of mortgages? How many people have homes that multiple entities think they are entitled to foreclose on? How screwed up is all the paperwork that nobody has any clue?

Also via Atrios, a consumer lawyer lays out the kind of bank practices that are apparently widespread:

First, Mr. and Mrs. Jackson did not face a foreclosure hearing after simply stopping payment – they paid the entire amount due per a statement sent to them by GMAC, and paid by certified check. GMAC mistakenly refused the check, alleging it was an NSF payment (not possible with certified funds), then placed the couple in foreclosure. I was simply trying to track the facts of the payment by deposing a witness who had sworn in court documents that she had reviewed the entire file and was familiar with the payment history, when, as it turned out, she was not only not familiar with the payment history, but the substance of her entire affidavit was false, including the allegation that the affidavit was sworn to in front of a notary. These were substantive questions I needed answers to – not an excuse for a delay. Further, the judge did not “throw out the case” – it is still pending, with GMAC still suing the Jacksons, years later.

I, and most of my fellow consumer attorneys who are members of the National Association of Consumer Advocates, do not raise these issues for delay – we raise them because we all have cases (this is the bulk of my foreclosure defense practice) where all or part of the foreclosure is purely the fault of the servicer or mill law firm – from homeowners whose payments were misrouted by the servicer, to servicers who simply changed the address of the property and then force-placed flood insurance, to servicers who ignore insurance plans the borrowers paid for (all examples from my cases) to servicers who refuse to even accept HAMP-type loan modification documents – all are substantive, real problems that were not the fault of the borrowers. The deposition was, in the Jackson case, merely an effort to get at the truth of the reversed payment – instead, GMAC admitted to wholesale manufacture of court documents, then promised to fix the practice, then continued that practice unabated for 4 more years.

How do you look at this and say “well, they borrowed the money. They have to repay it” as if it was just that simple? Are homeowners obligated to pay any bank that claims to hold their mortgage? Are they obligated to pay any charge that any bank has fabricated paperwork for? How many homeowners have to be wrongly foreclosed on before someone like Joseph R. Mason, holder of the Louisiana Bankers Association chair at Louisiana State University, concedes that perhaps it is a matter of some concern that working people are losing their homes because of fraudulent behavior by the banks?

The scope of illegality here is just staggering, and the Times gives a hint of how widespread it’s been—remember that quote about how the banks have “essentially sidestepped 400 years of property law in the United States”? Seriously not kidding there.

For years, lenders bringing foreclosure cases commonly did not have to demonstrate proof of ownership of the note. Consumer advocates and consumer lawyers have complained about the practice, to little avail.

But a decision in October 2007 by Judge Christopher A. Boyko of the Federal District Court in northern Ohio to toss out 14 foreclosure cases put lenders on notice. Judge Boyko ruled that the entities trying to seize properties had not proved that they actually owned the notes, and he blasted the banks for worrying “less about jurisdictional requirements and more about maximizing returns.”

He also said that lenders “seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance.” Now that their practices were “put to the test, their weak legal arguments compel the court to stop them at the gate,” the judge ruled.

Yes. That was a federal judge observing—apparently correctly, to this day—that banks had been getting away with foreclosing on homes they couldn’t prove they owned for so long that they had decided it was legal. And that’s the claim they’re still making today, despite all the recent revelations about robosigners and fraud.

Staggering.

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