Foreclosures Profit Some Equity Firms

CAN I BORROW YOUR LAW LICENSE SCUMBAG?

By BARRY MEIER

With a surge in lawsuits against law firms specializing in foreclosures, a case in Mississippi is casting light on another aspect of the mortgage mess — the connection between Wall Street private equity firms and those law firms, often known as foreclosure mills.

The lawsuit on behalf of homeowners claims that Great Hill Partners, a private equity firm, has benefited from what the lawsuit calls an illegal fee-splitting arrangement between Prommis Solutions and several of the busiest foreclosure law firms it controls. Great Hills is the biggest stakeholder in Prommis, a company that acts as a middleman between mortgage servicers and law firms.

A lawyer for Prommis rejected that claim, and officials of Great Hill Partners did not respond to inquiries. But a review of public filings, company news releases and other public statements shows that several private equity firms or entities they control have stakes in the business operations of some of the busiest foreclosure law firms in New York, California, Connecticut, Florida, Georgia and Texas.

Some of those law firms — like the offices of David J. Stern of Plantation, Fla., and Steven J. Baum of Amherst, N.Y. — are among those that are either under scrutiny by law enforcement officials or face actions by homeowners contending that they used inaccurate or fraudulent mortgage-related documents. Both lawyers have denied any wrongdoing, and neither has been charged with a crime.

The influence, if any, that private investors are having on the practices of the foreclosure mills is not clear. But the issue is likely to be examined in coming months in lawsuits like the one in Mississippi and as a nationwide task force of state attorneys general start their inquiry into the accuracy of mortgage documents.

To maximize investment returns, private equity firms often squeeze down costs in the operations they acquire. And some legal experts suggest that could be a factor in the quality of legal documents generated by foreclosure mills.

“The concern is that you are pushing production down to least-cost producer,” said Susan Carle, a professor at American University Washington College of Law.

Tom Miller, the Iowa attorney general who is heading up the task force investigating questionable document practices, said he was not aware that private equity firms had acquired some foreclosure-related operations. While there is no law against such purchases, Mr. Miller said the issue could prove significant because it expanded the possibilities of where and how the foreclosure system failed.

“If this is happening, this is something we are concerned about and would want to find out more about it,” Mr. Miller said in a telephone interview.

The investors involved in foreclosure mills include a publicly traded investment fund, Ares Capital, as well as other midsized and small buyout firms like Great Hill Partners.

The involvement of private equity firms in the legal industry is not new. But their involvement with foreclosure mills appears to have started about five years ago, just as the housing market was starting to collapse and the number of foreclosure procedures was beginning to boom.

The relationship between the Wall Street specialists and a law firm appears to work like this: A private equity firm, in a transaction worth tens of millions of dollars, buys a wide range of services used by the law firm, like its accounting, computer data, document processing and title search departments. Then, a subsidiary of that private equity firm or an entity it controls makes money by providing those services back to that law firm or other businesses for a fee.

For example, about three years ago, Tailwind Capital, a private equity firm in Manhattan, acquired many of the business-related operations of a law firm near Buffalo run by Mr. Baum, which does one of the highest volumes of foreclosures in New York State. Soon afterward, the fund bought similar operations from one of Connecticut’s biggest foreclosure law firms, Hunt Leibert Jacobson of Hartford.

Ares Capital, which financed the move, is also now a co-investor in those assets, which are held in a Tailwind unit called Pillar Processing, a public filing indicates.

Similarly, a private equity firm in San Francisco, FTV Capital spearheaded a $27 million investment in 2007 in an entity that buys law firm business operations and then uses them to provide services back to firms specializing in “foreclosure, bankruptcy and eviction,” according to a news release issued by the firm.

“We have been keenly focused on the mortgage-default services space,” the buyout fund stated in a 2007 news release. “The space is important to our strategic investors which represent six of the top 10 mortgage investors/servicers.”

In an e-mail, a spokeswoman for FTV Capital said that company officials were not available for comment.

Law firms receive a relatively low fee from companies that service home loans, say about $1,200 a case for handling a foreclosure-related proceeding. But those fees can translate into big profits for lawyers and their private equity partners when tens of thousands of foreclosures are involved. The law firms and the private equity firms have structured these deals with an eye toward avoiding legal statutes and ethical rules like those that bar fee-splitting between lawyers and nonlawyers.

But that relationship has been challenged in the Mississippi lawsuit against Prommis and Great Hill Partners.

Another company, Lender Processing Services, is also accused in the lawsuit of illegally splitting fees with foreclosure law firms; it also denies doing so.

The roots of Prommis, based in Atlanta, trace back to 2006 when the company acquired the back-office operations of McCalla Raymer, one of the country’s biggest foreclosure law firms. Great Hill Partners states on its Web site that it was interested in the acquisition because it reflected a way for it to profit from the housing downturn.

In subsequent years, Prommis expanded its operations nationwide by buying the back-office operations of other major foreclosure law firms, according to a recentSecurities and Exchange Commission filing made by the company in connection with a planned initial stock offering.

According to that June filing, Prommis now generates revenue by providing services like document processing to the same law firms that handle nearly all of the foreclosures initiated by the loan servicers with whom Prommis works.

In a telephone interview, Prommis’s general counsel, Richard J. Volentine Jr., said that the company did not split fees with its affiliated law firms and that those fees were paid directly to those firms by the loan servicers.

In its S.E.C. filing, Prommis alerted potential investors that it could face challenges from bar associations, prosecutors or homeowners that its relationship with its law firms constituted the “unauthorized practice of law” or involved “impermissible fee sharing” arrangements.

Prommis also stated in that filing that any steps that slowed the pace of foreclosures, like government programs that helped homeowners renegotiate loans, would hurt its revenue.

Julie Creswell contributed reporting.

 

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Time for Some New Stress Tests for {SCUMBAG}Banks

By SIMON JOHNSON
Today's Economist

Simon Johnson, the former chief economist at the International Monetary Fund, is a co-author of “13 Bankers.”

How much damage to the financial system should we expect from what is now commonly called the foreclosure morass, the developing scandal involving document robo-signing (and robo-dockets), completely messed up mortgage paperwork and highly publicized inquiries into accusations of systematic and deliberate misbehavior by banks?

The damage to banks’ reputation is immeasurable. They have undermined property rights — the ability to establish clear title is a founding idea of the American republic. They have mistreated customers in a completely unacceptable manner. If people doubted the need for a new consumer protection agency dealing with financial products — and the importance of having a clear-thinking reformer like Elizabeth Warren at its head — they have presumably been silenced by recent events. (If you need to get up to speed on the basics of this issue, see this series of posts by Mike Konczal.)

But what is the cost in terms of additional likely losses to big banks? The likely size and nature of these are leading to exactly the kind of systemic risks that the Financial Stability Oversight Council was recently established to anticipate and deal with.

It is hard to know how the precise numbers for losses will end up; so much uncertainty remains about the basic parameters of the foreclosure problem. A lot of smart people are looking for ways to sue the big banks — in particular to force them to take back (at face value) securities that were issued based on some underlying degree of deception.

This is a fast-evolving situation in which every day brings potentially significant news, but our baseline view is that the losses are in the range of $50 billion to $100 billion — that is, these are “new” losses not yet recognized by banks. (Our downside possibility, with perhaps a 10 percent probability, is that the losses are much larger.) Most of this is so-called putbacks to the banks from Fannie Mae and Freddie Mac, meaning that the banks are forced to take back onto their books the underlying securities (and absorb the associated losses) if there was significant misrepresentation in the original documentation.

In almost all cases, these additional losses will remain an order of magnitude smaller than the trillions of dollars in credit losses that brought down the global financial system in 2008-9. Still, these latest losses are not helpful to confidence in big banks, and the continuing uncertainty, which is entirely the banks’ fault, will make their managements more cautious about extending new credit.

Capital is the buffer that banks hold against losses, and banks really do not want to raise more capital under current conditions. Their executives’ fear about potentially having insufficient capital will further undermine loan availability, even for creditworthy borrowers. This is exactly what the economic recovery does not need.

In addition, Bank of America is a particular worry, because its capital position is already precarious, and any downgrade by rating agencies will push it into dangerous territory. To the extent the market believes that the government does not stand fully or immediately behind Bank of America (a view expressed by Morgan Stanley analysts in a note this week), we should expect pressures reminiscent of fall 2008.

We also learned this week of sizable additional potential exposure from the lawsuit filed by the Federal Reserve Bank of New York, Pimco and BlackRock — seeking to force Bank of America to buy back bad mortgages packaged into $47 billion of mortgage-backed securities issued by Countrywide.

The best approach would be a fresh set of stress tests, resulting in the requirement that Bank of America and perhaps other banks need to raise a specified dollar amount of capital (not hit a particular capital-asset ratio, as that would just result in further dumping of assets), and reassuring the market that other banks have sufficient capital, including under the augmented Basel III requirements. (For a primer on capital requirements and the thinking that underlies the approach we are recommending, see a post I wrote with Peter Boone on Oct. 7.)

Created by the Dodd-Frank financial regulatory act, the Financial Stability Oversight Council has plenty of power to order and organize such stress tests. In fact, because of the powers granted to the council under the Kanjorski Amendment, the country’s top regulators have a complete menu of choices available in terms of what they can require banks to do in order to reduce risks to the system (up to and including pre-emptively breaking up big troubled banks).

The foreclosure morass clearly poses systemic risk, both through its general effects on uncertainty about losses and because any manifest weakness at one big bank could spread — in some obvious ways and in some unanticipated ways — through the rest of the system.

In addition, the stress tests of 2009 (known as the Supervisory Capital Assessment Program) did not consider the possibility of large losses arising from the litigation now surrounding mortgage-backed securities. When Representative Brad Miller, Democrat of North Carolina, asked Treasury Secretary Timothy F. Geithner about this at a House Financial Services Committee hearing on Sept. 22, the exchange went like this:

MILLER, asking about possible breach of contract in securitized mortgages: Was potential liability on these theories taken into account at all in the stress test? I mean, the securitizers, who presumably would be the defendants in any litigation, are the 19 biggest banks that got the stress tests. Was their potential liability taken into account at all in the stress tests a year ago?

GEITHNER: I don’t think so.

Mr. Geithner also said he would take this question up in more detail with his colleagues at the Federal Reserve, which administered the 2009 stress tests. The exchange can be heard in full online, with the Miller-Geithner exchange at about the 42-minute mark.

The only fair, reasonable, and safe way to handle this situation is to order a fresh round of stress tests for all systemically important financial institutions. The stress case should consider not just the current dismal macroeconomic prognosis (and the potential for another slip back into recession) but also the downside with regard to litigation losses.

If the Financial Stability Oversight Council refuses to act decisively in this regard, a vital piece of the Dodd-Frank financial reforms will have failed.

 

TAKE THAT SCUMBAGS…

SOVEREIGN  BANK,

Plaintiff,

vs.

FLORIDA DEFAULT LAW GROUP, P.L., d/b/a ECHEVARRIA, CODILIS  & STAWARSKI

Defendants

From the complaint…

The within  action  arises  from  legal services  provided  by Defendants to Plaintiff in Broward County,  Florida.

On or about February 2, 2007, Plaintiff engaged Defendants to bid on a foreclosure sale  in Broward County, Florida.

Specifically, Plaintiff was  the holder of a second mortgage,/home  equity line of credit…

On or about August 17, 2006  the Brandts were sued by the homeowners association…

Plaintiffs nominee, Mortgage Electronic Registration  Systems, Inc., was named as a defendant…

The HOA  lawsuit proceeded  to final  judgment  in the County Court in Broward County, Florida,  and  the  foreclosure  sale was scheduled for February 9, 2007…

A copy of the final judgment in the amount of $4,294.68,  is attached…

Pursuant  to the February  2,2001  engagement letter, Composite Exhibit “B” the approved  bid amount  was $383,700, since Plaintiff at  the time believed  that  in order to protect  its interest  it had  to pay off the first mortgage  on the Real Property in addition to the HOA judgment amount, and  that the approved  bid amount would be sufficient  to pay off the  first mortgage and  the home owner’s  judgment and acquire a first lien on the Real Property.

Thus, Defendants knew from  the moment  they received  the facsimile  transmission on February  2, 2007, that the amount  of the Final Judgment was only $4,294.68 although  the approved  bid amount was $383,700.

Defendants failed  to give Plaintiff proper  legal advice  that a bid amount of $383,700 was completely unnecessary  to satisfy  the HOA  judgment and that all that had  to be paid to obtain  a certificate of sale and certificate of title, subject to the first mortgage, was $4,294.68

Additionally, apparently believing  that $383,700 was an  insufficient sum  to satisfy a$4,294.68 judgment,  on or about February  6, 2007, Defendants requested Plaintiff wire monies in the total amount of $392,148.90, or $8,448.90 additional,  in order to bid at the February 9, 2007  sale and  to pay for court costs and documentary  stamps.

Although  the Real Property could have been purchased at the February 9, 2007 foreclosure  sale  for $4,294.68,  subject  to the first mortgage, Defendants  failed to advise Plaintiff of this  fact and proceeded  to bid and pay $392,148.90  at  the sale on behalf  of Plaintiff.

Since Defendants bid $392,148.9A at a foreclosure  sale when the Final  Judgment was $4,292.68,  excess funds of $376,200.50 were placed into  the court registry.

Defendants  compounded  their errors and  failed  to  timely and properly  advise Plaintiff of the steps  to take  to reclaim the excess  funds

Instead,  the Brandts,  the parties  in default,  petitioned  for and received  the $376,200.50  in excess funds…

And you know what?

The homeowners took the money and ran…

Hahahahhahahhha

 

Former secretary says signatures were faked at {SCUMBAG} law firm being investigated over foreclosures

The Associated Press

By MIKE SCHNEIDER and TAMARA LUSH Associated Press Writers
ORLANDO, Fla. October 18, 2010 (AP)
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An office manager at a Florida law firm under investigation for fabricating foreclosure documents would sign her name to 1,000 files a day without reviewing them and would allow paralegals to sign her name for her when she got tired, her former secretary said in a deposition released Monday.

Cheryl Salmons, office manager for the foreclosure department at the law offices of David Stern, would sign 500 files in the morning and another 500 files in the afternoon without reviewing them and with no witnesses, said former assistant Kelly Scott in a deposition released by the Florida attorney general’s office.

The files were laid out on a conference room table for Salmons to sign, the former secretary said.

“She doesn’t review them. She just looks,” Scott said. “The paper is going to be in the top folder so it’s visible to her, and she knows exactly where she has to put her signature.”

Paralegals would then collect the files and swap them with each other, signing them as witnesses even though they had already been notarized and executed, Scott said.

Salmons allowed some paralegals to sign her name for her, said the former assistant, who worked at the firm for a year in 2008.

“Most of the time she was very tired, exhausted from signing her name numerous times per day,” Scott said. “You have to understand it was more than 500 files that she is signing morning and afternoon.”

The deposition took place two weeks ago as part of the attorney general’s investigation into the law firm.
Another deposition released Monday was of Mary Cordova, who worked at G&Z Process for two months. Stern’s law firm used G&Z as a process server for foreclosures.

Cordova said when she was hired, she was told that she needed to process at least 22 cases per eight-hour shift.

“It was almost like we didn’t have time to really look at what we were doing,” she said during her deposition. “It’s like this is the particular information, input that, turn that page, here’s this piece of information, type that in. It’s more about speed than accuracy per se. Although a supervisor would look at the papers to see if they’re pretty accurate.”

Jeffrey Tew, an attorney for Stern’s firm, didn’t immediately return a phone call.

Matt Weidner, a St. Petersburg attorney who has been defending homeowners whose paperwork was signed by lawyers in Stern’s office, said the latest depositions reveal that lawyers aren’t abiding by the rules and judges aren’t doing their jobs by scrutinizing foreclosure cases.

“I am literally getting to the point of speechlessness,” Weidner said. “The federal government has to come in and take control of the Florida foreclosure court system. If this stuff is occurring, it’s a crisis of confidence in our courts. It really calls into question the legitimacy of a court system.”

.

 

CLASS ACTION AGAINST THE MAJOR SCUMBAG LAWFIRMS

Below is a Class Action against all the major SCUMBAG law firms defrauding people.

class56

Fannie and Freddie’s Foreclosure Scumbag Barons

— Illustration: Lou Beach

How fishy foreclosures earned millions for lawyers like David J. Stern—and made the housing crisis even worse.

— By Andy Kroll

[Editor’s note: In November 2009, MoJo reporter Andy Kroll received a tip about a little-known yet powerful firm, the Law Offices of David J. Stern, which handled staggering numbers of foreclosures in southeastern Florida—the throbbing heart of nation’s housing crisis. Among the allegations, the tipster had it from insiders that Stern employees were routinely falsifying legal paperwork in an effort to push borrowers out of their homes as quickly—and profitably—as possible.

Kroll spent eight months investigating Stern’s firm and its ilk—a breed of deep-pocketed and controversial operations dubbed “foreclosure mills.” After sifting through thousands of pages of court documents, interviewing scores of legal experts and former Stern employees, and attending dozens of foreclosure hearings in drab Florida courtrooms, he emerged with a portrait of a law firm—indeed, an entire industry—that was willing to cut corners, deceive judges, and even (allegedly) commit fraud—all at the expense of America’s homeowners.

When his story first broke online on August 4, it generated lots of buzz. Columbia Journalism Review called it the “must-read of the month” and “a great piece of muckraking journalism.” News sites from the Huffington Post on the left to the Daily Caller on the right featured it on their front pages. But the crucial response came from the authorities: Six days after Kroll’s story went live, Florida Attorney General Bill McCollum announced an investigation into Stern’s firm and two others. In September, the New York Times followed with a lengthy piece on Florida’s foreclosure mess and Stern’s operation in particular. A few weeks after that, further revelations of robo-signed paperwork and law firms gaming the courts have plunged the industry into chaos, with banks freezing foreclosures from Maine to California and members of Congress railing against the mortgage companies.

“Foreclosuregate,” as some have dubbed the crisis, may ultimately force David J. Stern to unload a few of his Ferraris. As Kroll noted in one of his many followup posts, Fannie Mae and Freddie Mac—as well as banks GMAC and Citigroup—recently stopped sendingforeclosure cases Stern’s way. As of October 19, his publicly traded paper-pushing wing, DJSP Enterprises, wallowed around $1.30 a share, down from $6 in June. The companyhas reportedly laid off nearly 100 employees, and recently announced a major reshuffling of top leadership—with Stern himself relinquishingthe chairmanship of DJSP’s board of directors. Here, then, is Kroll’s story much as it appears in our November/December 2010 print edition…]

LATE ONE NIGHT IN February 2009, Ariane Ice sat poring over records on the website of Florida’s Palm Beach County. She’d been at it for weeks, forsaking sleep to sift through thousands of legal documents. She and her husband, Tom, an attorney, ran a boutique foreclosure defense firm called Ice Legal. (Slogan: “Your home is your castle. Defend it.”) Now they were up against one of Florida’s biggest foreclosure law firms: Founded by multimillionaire attorney David J. Stern, it controlled one-fifth of the state’s booming market in foreclosure-related services. Ice had a strong hunch that Stern’s operation was up to something, and that night she found her smoking gun.

It involved what’s called an “assignment of mortgage,” the document that certifies who owns the property and is thus entitled to foreclose on it. Especially these days, the assignment is key evidence in a foreclosure case: With so many loans having been bought and sold, establishing who owns the mortgage is hardly a trivial matter. By law, a firm must compete, sign, and notarize an assignment before it attempts to seize somebody’s home.

A Florida notary’s stamp is valid for four years, and its expiration date is visible on the imprint. But here in front of Ice were dozens of assignments notarized with stamps that hadn’t even existed until months—in some cases nearly a year—after the foreclosures were filed. Which meant Stern’s people were foreclosing first and doing their legal paperwork later. In effect, it also meant they were lying to the court—an act that could get a lawyer disbarred or even prosecuted. “There’s no question that it’s pervasive,” says Tom Ice of the backdated documents—nearly two dozen of which were verified by Mother Jones. “We’ve found tons of them.”

This all might seem like a legal technicality, but it’s not. The faster a foreclosure moves, the more difficult it is for a homeowner to fight it—even if the case was filed in error. In March, upon discovering that Stern’s firm had fudged an assignment of mortgage in a case before her court, a judge in central Florida’s Pasco County dismissed the case with prejudice—an unusually harsh ruling that means it can never again be refiled. “The execution date and notarial date,” the judge wrote in a blunt ruling, “were fraudulently backdated, in a purposeful, intentional effort to mislead the defendant and this court.”

Stern has made a fortune foreclosing on homeowners. He owns a $15 million mansion, four Ferraris, and a 130-foot yacht.

More often than not in uncontested cases, missing or problematic documents simply go overlooked. In Florida, where foreclosure cases must go before a judge (some states handle them as a bureaucratic matter), dwindling budgets and soaring caseloads have overwhelmed local courts. Last year, the foreclosure dockets of Lee County in southwest Florida became so clogged that the court initiated rapid-fire hearings lasting less than 20 seconds per case—”the rocket docket,” attorneys called it. In Broward County, theepicenter of America’s housing bust, the courthouse recently began holding foreclosure hearings in a hallway, a scene that local attorneys call the “new Broward Zoo.” “The judges are so swamped with this stuff that they just don’t pay attention,” says Margery Golant, a veteran Florida foreclosure defense lawyer. “They just rubber-stamp them.”

But the Ices had uncovered what looked like a pattern, so Tom booked a deposition with Stern’s top deputy, Cheryl Samons, and confronted her with the backdated documents—including two from cases her firm had filed against Ice Legal’s clients. Samons insisted that the filings were just a mistake, so the Ices moved to depose the notaries and other Stern employees. On the eve of those depositions, however, the firm dropped foreclosure proceedings against the Ices’ clients.

It was a bittersweet victory: The Ices had won their cases, but Stern’s practices remained under wraps. “This was done to cover up fraud,” Tom fumes. “It was done precisely so they could try to hit a reset button and keep us from getting the real goods.”

On August 10, just days after this story first broke at MotherJones.com, Florida Attorney General Bill McCollum launched an investigation of three of the state’s largest foreclosure firms, including Stern’s, citing dubious paperwork. “Thousands of final judgments of foreclosure against Florida homeowners may have been the result of the allegedly improper actions of these law firms,” he told the New York Times, which wrote about the state’s foreclosure mess in September.

Backdated documents, according to a chorus of foreclosure experts, are typical of the sort of shenanigans practiced by a breed of law firms known as “foreclosure mills.” While far less scrutinized than subprime lenders or Wall Street banks, these firms undermine efforts by government and the mortgage industry to put struggling homeowners back on track at a time of record foreclosures. (There were 2.8 million foreclosures in 2009, and 3.8 million are projected for this year.) The mills think “they can just change things and make it up to get to the end result they want, because there’s no one holding them accountable,” says Prentiss Cox, a foreclosure expert at the University of Minnesota Law School. “We’ve got these people with incentives to go ahead with foreclosures and flood the real estate market.”

PAPER TRAIL

View the documents featured in this story:

Federal Securities Fraud SuitCooper and Methi v. DJSP Enterprises, David J. Stern, and Kumar Gursahaney, July 2010

Class Action Racketeering SuitFigueroa v. MERSCORP, Law Offices of David J. Stern, and David J. Stern, July 2010

Fair Debt Collection Violation SuitHugo San Martin and Melissa San Martin v. Law Offices of David J. Stern, July 2010

Class Action Suit for Fair Debt Collecting ViolationsRory Hewitt v. Law Offices of David J. Stern and David J. Stern, October 2009

Florida Bar, Public ReprimandComplaint Against David J. Stern, Sept. 2002

Florida Bar, Public ReprimandConsent Judgment Against David J. Stern, Oct. 2002

Freddie Mac Designated Counsel, Retention Agreement with Law Offices of David J. Stern, April 2003

Freddie Mac Designated CounselMemo to Law Offices of David J. Stern, March 2006

Amended Complaint Alleging Sexual HarassmentBridgette Balboni v. Law Offices of David J. Stern and David J. Stern, July 1999

Stern’s is hardly the only outfit to attract criticism, but his story is a useful window into the multibillion-dollar “default services” industry, which includes both law firms like Stern’s and contract companies that handle paper-pushing tasks for other big foreclosure lawyers. Over the past decade and a half, Stern (no relation to the NBA commissioner) has built up one of the industry’s most powerful operations—a global machine with offices in Florida, Kentucky, Puerto Rico, and the Philippines—squeezing profits from every step in the foreclosure process. Among his loyal clients, who’ve sent him hundreds of thousands of cases, are some of the nation’s biggest (and, thanks to American taxpayers, most handsomely bailed out) banks—including Wells Fargo, Bank of America, and Citigroup. “A lot of these mills are doing the same kinds of things,” says Linda Fisher, a professor and mortgage-fraud expert at Seton Hall University’s law school. But, she added, “I’ve heard some pretty bad stories about Stern from people in Florida.”

While the mortgage fiasco has so far cost American homeowners an estimated $7 trillion in lost equity, it has made Stern (no relation toNBA commissioner David J. Stern) fabulously rich. His $15 million, 16,000-square-foot mansion occupies a corner lot in a private island community on the Atlantic Intracoastal Waterway. It is featured on a water-taxi tour of the area’s grandest estates, along with the abodes of Jay Leno and billionaire Blockbuster founder Wayne Huizenga, as well as the former residence of Desi Arnaz and Lucille Ball. (Last year, Stern snapped up his next-door neighbor’s property for $8 million and tore down the house to make way for a tennis court.) Docked outside is Misunderstood, Stern’s 130-foot, jet-propelled Mangusta yacht—a $20 million-plus replacement for his previous 108-foot Mangusta. He also owns four Ferraris, four Porsches, two Mercedes-Benzes, a Cadillac, and aBugatti.

Despite his wealth and his power over other people’s fates, Stern operates out of the public eye. His law firm has no website, he is rarely mentioned in the mainstream business press, and neither he nor several of his top employees responded to repeated interview requests for this story. Stern’s personal attorney, Jeffrey Tew, also declined to comment. But scores of interviews and thousands of pages of legal and financial filings, internal emails, and other documents obtained by Mother Jones provided insight into his operation. So did eight of Stern’s former employees—attorneys, paralegals, and other staffers who spoke on condition of anonymity, fearing that speaking publicly about their ex-boss could harm their careers.

One paralegal said Stern grabbed female employees from behind and faked sex with them. Former employees describe him as a “pig.”

FORECLOSURE MILLS OWE their existence to Fannie Mae and Freddie Mac, the federally guaranteed entities that essentially created, beginning in 1968, the vast marketplace where loans are traded. Their mandate was to promote homeownership by making a large pool of credit available at affordable rates. They accomplished this by buying up mortgage debt from banks and packaging it into bonds, allowing investors to get in on the action. Banks responded by lending out more money, and Fannie and Freddie’s combined mortgage portfolio exploded from $61 billion in 1980 to $1.2 trillion two decades later, according to the Government Accountability Office. Their dominance gave them the clout to rewrite rules for the mortgage industry—standardizing underwriting guidelines, loan documents, and the like.

Fannie and Freddie also reshaped the foreclosure industry. Their huge holdings meant they had to deal with thousands of foreclosures annually—even during time when relatively few loans were going bad. In the 1990s, the market expanded into subprime territory to feed the securitization beast, and borrowers began defaulting at higher rates. Hiring lawyers on a case-by-case basis was burdensome, so Fannie and Freddie put together a stable of law firms willing to litigate large bundles of foreclosures quickly and cheaply. They urged these handpicked firms to bring all foreclosure-related services—inspections, eviction notices, sales of repossessed properties, and so forth—in-house. Thus emerged the foreclosure supermarket.

In a recent speech, Stern noted the administration’s homeowner-relief program. “Fortunately, it is failing,” he told prospective investors.

Stern’s company is one of dozens of mills that now churn through more than a million cases a year for Fannie and Freddie, big banks, and private lenders. Built like industrial assembly lines, the mills employ small armies of paralegals and other low-level employees who mass-produce court filings, run title searches, and schedule scores of hearings and property auctions daily. Staff attorneys appear for dozens of court hearings in rapid succession, dashing from one courtroom to the next with rolling file cabinets. Stern and his ilk typically create in-house subsidiaries that bill the parent law firm for the various paper-pushing tasks. “All sorts of crap is loaded on,” notes Irv Ackelsberg, a Philadelphia consumer-law attorney.

The business model is simple: to tear through cases as quickly as possible. (Stern’s company handled 70,382 foreclosures in 2009 alone.) This breakneck pace stems from how the mills get paid. Rather than billing hourly, they receive a predetermined flat fee for the foreclosure—typically around $1,000—plus add-ons for all the side services. The more they foreclose, the more they make. As a result, say consumer attorneys and legal experts, even families who have been foreclosed upon illegally—and can afford to make good on their mortgages—end up getting steamrolled. “It’s ‘How fast can I turn this file?'” says Ira Rheingold, executive director of the National Association of Consumer Advocates in Washington, DC. “For these guys, the law is irrelevant, the process is irrelevant, the substance is irrelevant.”

In 2006, for instance, a federal bankruptcy judge blasted New Jersey law firm Shapiro & Diazfor filing 250 home-seizure motions presigned by an employee who had left the firm more than a year earlier. Calling it “the blithe implementation of a renegade practice,” the judge slapped Shapiro & Diaz with $125,000 in fines. The following year, a federal judge in Texas fined foreclosure giant Barrett Burke Wilson Castle Daffin & Frappier $65,000 for filing computer-generated documents the judge called “grossly erroneous” and “gibberish.” Likewise, Wells Fargo was fined $95,000 thanks to shoddy paperwork by Florida Default Law Group—a Wellscontractor that clearly believed, according to the judge, that “filing any old pleading without undertaking any investigation into its accuracy is perfectly acceptable practice.” (In April, the state attorney general’s office began probing Florida Default for allegedly “fabricating and/or presenting false and misleading documents in foreclosure cases.”)

TERMS OF FORECLOSURE

Lender Financial institutions that sell us loans often turn around and resell the debt to the likes of Fannie and Freddie.

Fannie Mae and Freddie Mac By buying up billions of dollars in mortgage debt, these federally sponsored nurture the marketplace where loans are traded.

Securitize Bundling loans into bonds drives demand and encourages lending. But more loans mean more foreclosures—especially when things go bad.

Foreclosure mill Deluged by defaults, Fannie and Freddie hire law firms that mass-process foreclosures—quick and dirty—giving homeowners little time to respond.

Assigment of mortgage Falsification of this crucial legal document, which certifies who owns a property, is at the core of a Florida probe into the foreclosure mills’ bad behavior.

Mortgage servicer These firms, hired by banks to collect your monthly payments, might agree to cut you a break. Of course, they might not tell the foreclosure mill about it.

In their rush to foreclose, lenders and their hired guns rarely bother exploring alternatives to dumping people on the street—options likeloan modifications or federal homeowner assistance. In a 2009 survey of consumer advocates in 23 states, nearly all of the respondents said they’d gone to battle against lenders and attorneys who had ordered up forecloses without checking to see if the homeowner qualified for government help with a “workout” agreement.

In a workout, also called a loan modification, the homeowner renegotiates loan details with the servicer—the firm that collects monthly payments on a lender’s behalf. When it works, everybody wins: Families stay put, banks and bondholders maintain their cash flow, and neighborhoods escape the collateral damage of yet another blighted property. That’s why the Obama administration is pushing this strategy.

But even when the lender or service agrees to cut the homeowner a break, foreclosure mills often forge ahead, shoving cases through the courts before the workout deals are sealed. In essence, one hand ignores what the other is doing. As Alys Cohen, a staff attorney with the National Consumer Law Center, told members of Congress in April, struggling homeowners receive “confusing, seemingly contradictory correspondence” from the various entities.

The mills certainly have little incentive to cooperate with efforts to keep people in their homes. Indeed, says foreclosure-defense attorney Golant, once these high-volume shops run through all the subprime detritus, some of them may find themselves with little to do. “They have an interest in this going on as long as possible,” she says.

“It’s completely screwed up,” laments Rheingold. “The machine can’t be stopped, because the people who are making money operating the machine don’t want it to stop.”

Even Stern admits as much. In a March speech to prospective investors, he made note of the administration’s embattled homeowner-relief program. “Fortunately, it is failing,” he said.

DAVID STERN WAS WELL POSITIONED to cash in on the business opportunity offered by Fannie Mae and Freddie Mac. After graduating from law school in the mid-’80s, he took a job with the firm of Gerald M. Shapiro, one of the first lawyers to automate the foreclosure process. (Shapiro is now a partner in Shapiro & Diaz, the firm fined for its “renegade practice.”) In 1993, having mastered the ins and outs of foreclosures, Stern left to open his own shop in a North Miami Beach office with, as he related in a deposition, “ugly blue carpet and pink walls.” He shared the space, according to state business records, with his wife’s short-lived beauty consulting company, Your Personal Best.

Stern put in his applications, and by 1997, when Fannie and Freddie rolled out their most-favored-attorney program in Florida, he was on the list. He relocated the firm to the nearby city of Plantation—taking over a strip-mall space formely occupied by a Stein Mart discount clothing store. He then hired a slew of rookie attorneys whose job was primarily to rubber-stamp legal documents. One attorney whom Stern brought on in 2007, fresh from law school, told me she was ordered to sign legal filings that superiors had dumped on her desk before she had a chance to read them. She eventually quit. “Ethics are thrown out the door,” she said. Another lawyer, who deals with the firm regularly, told me that Stern’s seasoned employees belittled the newbies, referring to them simply as “bar licenses.”

Reducing the foreclosure process to data entry wasn’t an entirely novel idea, but Stern set out to perfect the model. His minions created a master database dubbed “the Bible,” with information on anything that could possibly relate to a foreclosure case in Florida—the things specific judges required, how many file copies they wanted, clerks’ phone numbers, names of judicial assistants, even warnings about when a certain judge was cranky and having a bad day. According to one former paralegal, supervisors said they would be fired if they didn’t complete at least 15 daily “casesums”—information summaries for new cases referred to the firm. Another paralegal, who spent three years at Stern’s firm, said there were unofficial contests to see who could jam a case through the fastest. “Somebody would get a 76-day foreclosure,” she said, “and then someone else would say, ‘Oh, I can beat that!'” (An uncontested foreclosure in Florida typically lasts 135 days, according to industry analyst RealtyTrac.)

While rushing foreclosures isn’t illegal, Stern’s fledgling firm was promptly accused of something that is: gouging people who are trying to get out of default. In October 1998, Tallahassee attorney Claude Walker filed a class-action lawsuit involving tens of thousands of claimants, alleging that Stern had piled excessive fees on families fighting to keep their homes. (Walker, who visited Stern’s offices in 1999 to collect depositions, described the place as “a big warehouse” where hordes of attorneys holed up in tiny, crowded offices “like hamsters in a cage.”) After several years of battling in court, Stern settled for $2.2 million. Based on that case, the Florida Supreme Court and state bar association later reprimanded him for “professional misconduct.”

A few months after Walker filed his class action, former paralegal Bridgette Balboni sued Stern personally for sexual harassment. The case details read like something out of Animal House: Balboni said Stern grabbed female employees from behind and faked sex with them, stuck his tongue in one woman’s ear, and joked that another woman used her pager as a vibrator. Balboni, who settled for an undisclosed sum, declined to discuss the case, but five other women who have worked for Stern told me of similar behavior by the boss. Several used the word “pig.”

Beyond the backdated assignments, employees told me that the firm routinely doctored its legal filings.

Legal setbacks aside, Stern remained on a roll. Two years running, in 1998 and 1999, Fannie Mae named him “Attorney of the Year.” (A Fannie spokeswoman did not respond to requests for comment.) After the Walker case settled, Stern and other foreclosure attorneys hired lobbyists as part of a campaign to convince Florida lawmakers to cap class-action damages in consumer lawsuits. The Republican-controlled legislature obliged in May 2001. Tew, Stern’s attorney, shares a legal practice with former Florida Republican Party chairman Alberto Cardenas—a prominent DC lobbyist and GOP fundraiser. Cardenas has also served on the board of Fannie Mae and lobbied on its behalf.

Stern continued cramming more employees, documents, and computers into his strip-mall headquarters. From 2005 through 2007, city inspectors repeatedly cited the firm for code violations such as blocking exits and fire sprinklers with storage, and for creating a hazard by stringing extension cords between departments.

The cases kept coming. From 2006 to 2008, as the number of Americans losing their homesdoubled, Stern’s case referrals nearly quintupled, and lenders sent him 12 times as many repossessed properties to sell off. Revenues just for Stern’s non-legal operations—titles, home sales, and default processing—leaped from $40 million to $200 million, and his payroll swelled from 400 to nearly 1,000 employees. (Orientations for new hires were a near-weekly affair, said a former secretary.) In 2008, flush with cash, the firm left its strip-mall digs for a luxurious building down the street overlooking a small lake.

“I don’t have any confidence that any of the documents the court is receiving on these mass foreclosures are valid,” said the judge.

Amid this meteoric rise, interviews and court records show, Stern’s operation began to cut corners. Beyond the backdated assignments, employees told me that the firm routinely doctored legal filings. Case chronologies—the timeline of important events in a foreclosure—were changed “all day long” to create the appearance of propriety, notes a former Stern paralegal. Internal documents show that the firm attempted to push cases through the courts even when key documents like the assignment of mortgage—or the mortgage contract itself—were missing from the file. “Need to re-set. No original loan docs,” a Stern attorney wrote in a July 2008 memo after being rebuffed at a Tampa court hearing. At a Stern hearing in April, Pinellas County Judge Anthony Rondolino got so fed up with bad behavior by the mills, he declared, “I don’t have any confidence that any of the documents the court is receiving on these mass foreclosures are valid.”

That same month, a Fort Lauderdale attorney filed a class-action lawsuit against Stern and his firm, accusing them of racketeering and claiming the firm deliberately hid the true ownership on mortgages in cases involving “tens of thousands” of homeowners. A second suit, filed just days later, claimed that Stern’s firm had refused to hold up a foreclosure on a couple in Port St. Lucie, even after it was clear that they hadn’t had so much as been late with a payment.

Despite Stern’s track record, banks and lenders continued to funnel him more than 5,000 new cases a month—and Fannie and Freddie kept him as a designated counsel until mid-October. This past summer, a Freddie Mac spokesman had cited Stern’s “good standing” in Florida, adding, “We certainly want all of our vendors to follow federal and state law.” (Neither Wells Fargo nor Bank of America—which work with Stern while publicly cheering Obama’s housing-relief programs and rolling out their own—would comment directly on their relationships with Stern. In an email, a Wells spokeswoman noted that the bank monitors all of its attorneys and adjusts its referrals accordingly.)

The problems at Stern’s firm weren’t confined to the courthouse. Supervisors would instruct their staffs to ignore or hang up on homeowners who called in with complaints—no matter how justified—according to several people who worked there in the past five years. “You would get calls from people saying, ‘We are going to be evicted today, and I just got out of the hospital. I just had a baby,'” a secretary told me. “I’d go into my boss’ office, and she’d say, ‘That’s their problem.'”

A former employee from Stern’s reinstatement unit—which is supposed to help borrowers get out of default—also spoke of a culture of indifference. “I’ve had people call and tell me the locks were changed because their house had been sold at auction” without them knowing, she said. “But you would get in trouble if you were on the phone for a long time with the borrower.”

Consider the case of Holly and Rory Hewitt, who for years faithfully made monthly payments on their modest one-story house on what was once an orange grove in Loxahatchee, Florida. In October 2007 their lender, Countrywide, erroneously informed the couple that they were in default. The Hewitts, who had the money, immediately called and asked how much they owed so that they might get things straightened out. Soon after, a reinstatement letter arrived on the letterhead of Countrywide’s legal counsel—the Law Offices of David J. Stern.

The $18,500 bill was larded with charges—property inspection, title, and late fees that seemed exorbitant even in an industry renowned for arbitrary fees, plus monthly loan payments that weren’t yet due. In addition, Stern charged the Hewitts for serving legal papers not just on Rory and Holly, but on a nonexistent spouse for each. In all, the couple was being gouged for thousands of dollars. The Hewitts took their story to a local legal aid organization, which passed the case to a private attorney. It would eventually become the core of another class-action suit—one of two pending cases alleging that Stern had dumped junk fees on some 3,500 homeowners who were trying to escape default.

Stern’s attorney insists publicly that the fees were reasonable and legal. But the lawsuits claim that Stern’s firm often tripled the standard title fee, charged for serving papers on fictitious people, and demanded payments and fees that homeowners plainly didn’t owe—violating Florida laws against predatory debt collecting and deceptive trade practices. Stern, the filings allege, is personally to blame. “These people are scratching coffee cans to get enough money to reinstate their mortgage,” says attorney Claude Walker, who is not involved in the current cases. “You don’t have to go take nickels and dimes from people who are trying to save their houses.”

A NICKEL HERE, A DIME THERE, and pretty soon you’re talking real money. Stern’s back-office operations cleared more than $44 million in profit last year. Last December, a Chinese acquisition fund purchased those departments and spun them off into a company called DJSP (David J. Stern Processing) Enterprises. Incorporated in the British Virgin Islands—a notorious tax haven—the new firm processes Stern foreclosures and handles other firms’ foreclosure paperwork, too.

Stern and his operations collected more than $100 million in the deal, and he retained a top role in DJSP. In January, the company’s stock debuted on the NASDAQ at $9.25 per share—and with that, the small outfit he had launched in 1994 in an ugly North Miami Beach office was worth in the neighborhood of $300 million.

The company’s stock took a hit in May, after Stern warned investors of lower earnings due in part to a slowdown in referrals by a big client, and also to the Treasury Department’s renewed homeowner-relief efforts. Share prices tanked further after angry investors, claiming Stern knowingly misled them, hit him and DJSP with a securities-fraud class action. (This fall, under fire in the wake of our investigation and subsequent revelations, Stern stepped down as DJSP’s chairman.)

Stern had gone out of his way to assure investors that foreclosures would surge in the second half of 2010 as clients processed their backlogs of delinquent loans. This past spring, he and his chief financial officer flew to Southern California to make the case for why the foreclosure industry is ripe for expansion. The setting was the annual shindig of investment banking firm Roth Capital Partners, a swank conference for hedge-fund managers and institutional investors held at the Ritz-Carlton, Laguna Niguel—a luxury hotel perched on a bluff overlooking the Pacific Ocean. Conference perks included private concerts by Social Distortion and Billy Idol.

In his speech to the money people, Stern explained why the time was right to invest. Historical data, he said, showed that people will continue losing their homes in large numbers through 2012, ensuring plenty of business. “When people say, ‘Oh, my god, the economy is bad,’ I’m like, ‘Oh, my god, it’s great.'” he told his audience. “I hate to hear people are losing homes, and credit isn’t available, and people’s credit is such that they can’t [refinance]. But if you are in our niche, it’s what we want to do, and it’s what we want to see.”

 

Foreclosuregate: Sue The SCUMBAG Judges Who Allow Fake Foreclosures

By bgamall

 

In the Light of Foreclosuregate There Are Thousands of Bad Judges

In the light of Foreclosuregate, not so named by CNBC and the bankster crowd, there are many bad judges. In fact, the definition of a bad judge isone who fails to protect the unrepresented. Many people are being foreclosed on. And they are not being represented, as the alleged holder of the mortgage and IOU actually gets the judge to look the other way, as it is found that the servicer of the mortgage does not have the IOU. Foreclosures have been allowed by crooked judges in cases where the IOU has been lost! And why were they lost? Well, it was because of the need for companies to hide the crap loans put together in the MBS bankster scam.

So, the problem is that you have very unethical judges who are rubber stamping a foreclosure without the IOU being in anyone’s possession. There are two issues that make this a serious offense:

1. The courthouse does not have the IOU. The courthouse has a copy of the deed, but not the IOU. But the IOU is required in order to determine the terms of the loan, and the owner of the mortgage.In many cases, the IOU has been lost, and in many cases was hidden or lost on purpose in order to fool investors into buying mortgage backed securities, you know, the crap bonds that were rated AAA but that really had junk attached!

2. Since the IOU has to be registered with the trustee of the MBS at the investment bank within a certain period, Title is clouded and broken when the investment bankster wants to hide this bad loan from potential investors. As it turns out, the investment banksters never bothered to convey the documents to the trustee of the Mortgage Backed Securities in the first place. This is both mortgage and securities fraud and it breaks the Title. In reality, these trustees don’t own these mortgages because the IOU’s cannot be reconstituted.

Table of Contents

  • In the Light of Foreclosuregate There Are Thousands of Bad Judges
  • It Is Difficult to Sue Judges Without First Exposing Them
  • So How Does the UCC Code Affect Foreclosures
  • Foreclosuregate In the News
  • Foreclosuregate Information
  • Facing Foreclosure Issues? Here Are Foreclosure Resources

 

It Is Difficult to Sue Judges Without First Exposing Them

The first part of the process is to expose judges. If there is a judge that allows a phony IOU, list that judge with Caught.net or here.

Judges who are doing fraudulent things at the state level, like foreclosures, can be sued in Federal Court. It is difficult to sue a judge. And yet, perhaps a class action against judges would at least publicize their behavior so that they would be more reluctant to go along with the bankster claims of title.

However, it is possible to appeal. And people with the means who want to make the court own up to injustice can do so.

We know that Florida has a bunch of Kangaroo courts, rubber stamping foreclosures that have no clear title. Naked Capitalism Blog has been at the forefront of this exposure of judicial misconduct.

In order to buy some time for the borrower, it is time to clog the courts with paper. I advocate clogging the courts with all manner of lawsuits and motions. People need to stay in their houses as long as they can, because they have been scammed in the first place. Yes, the scam is primarily an injustice against investors, but no one can doubt that borrowers have been scammed by this process as well. Just learning about Foreclosuregate will make it clear that borrowers have been victims of a process that would have been stopped dead in its tracks had investors had access to the IOU’s showing how bad the loans were that went into the MBS’s. Investors would have stopped buying these fraudulent bonds long ago.

As it is, since these securities, the MBS’s, are fraudulent, I hope investors seek major damages from the investment banksters. That will be a start. We need to discuss whether securitization for mortgages is something that should even be permitted.

 

Squat In Your Own Home. Don’t Pay. Show Me the Note!

So How Does the UCC Code Affect Foreclosures.

First a disclaimer, this is not legal advice. This webpage does not in any way tell you how to proceed but rather gives some possible suggestions that you may be able to explore with your attorney.

So, as it turns out, the UCC Code generally requires that the proof of transfer from the lender to the investment bank can be proven. The IOU can be reconstructed if this link can be proven. There may be other laws which say title is broken, and in those cases, Title Insurance Companies may choose to hold off. But UCC requires a connection regarding transfer. This is where the banksters made a major fraud. The investment bankers who took these mortgages from the lenders never conveyed the documents. Since there was no proof of transfer, the bonds or I should say the trust for the bonds do not own the mortgages. This is major mortgage and securities fraud. This is where the court has to be careful that there are not a lot of phony documents. Congress should pass a law with serious penalties for those caught forging documents, getting fake notaries, etc. But congress was intent on doing just the opposite, as Diana Olick exposed regarding the robo signatures.

The courts that refuse to require proof of this transfer link must be exposed and their judges held up to severe ridicule. Lets hope that happens in the coming months.

Judge Ignorant of UCC Rules Against Borrower

Foreclosuregate In the News

  • Cuccinelli to join foreclosure probeRichmond Times-Dispatch6 days agoThe possible mishandling of mortgage documents has hit home. Attorney General Ken Cuccinelli said yesterday that he, along with attorneys general in the other 49 states, will look into allegations of abuse in the foreclosure process.
  • Lawmakers Increasing Heat on Servicers on the Foreclosure Front While Regulators Try to Give a PassNaked Capitalism28 hours agoAt least some legislators are taking the foreclosure crisis seriously. Representative John Conyers, Marcy Kaptur, Raúl Grijalva, and Alan Grayson wrote to Neil Barofsky, Special Inspector General for the Troubled Asset Relief Program, to ask that he investigate foreclosure fraud and conduct an audit of GMAC, Fannie, and Freddie. SIGTARP is a full fledged […]
  • Foreclosure mess just startingThe Bryan-College Station Eagle22 hours agoWASHINGTON — Big lenders are trying to move past the foreclosure-document mess, saying they’re now confident their paperwork is accurate. Yet they face so much organized resistance that they can’t just snap up their briefcases, declare the crisis …
  • Johnstown man sues GMAC Mortgage, alleges fraud in foreclosure processNewark Advocate4 days agoNEWARK — The inevitable legal response to allegations of fraud on foreclosure documents reached Licking County on Friday with a Johnstown man’s lawsuit against GMAC Mortgage and one of its employees.
  • Avoiding the ‘f’ wordDaily Sparks Tribune25 hours agoRENO — To a homeowner who is facing foreclosure, all hope might seem lost, but housing counselors are available to help.


Foreclosuregate Information

Facing Foreclosure Issues? Here Are Foreclosure Resources

Jennifer Brunner Fights The Banksters

Attorney Resources: Save the Constitution

Bad Judge List

Here are judges who have decided not to watch out for the underrepresented. Phone them and tell them to follow the law. Tell them to throw the bogus affidavits out of their courthouses! This is about due process and the validity of evidence you bad judge shills for big banksters.

W. Douglas Baird (727) 464-3233

Jack Cox (561) 355-3496

J. Rogers Padgett

Bad Attorney List:

Attorneys listed here may have violated evidence requirements and due process in courts of law. Innocent until proven guilty, but we hope they will be criminally investigated.

Steven Baum New York

David Stern Florida

 

A Good Ruling By Good Judges (At Least In This Ruling)

Arkansas Supreme Court Ruling, yet bad judges have ignored this for over a year:

MORTGAGE ELECTRONIC REGISTRATION SYSTEM, INC., APPELLANT, VS. SOUTHWEST HOMES OF ARKANSAS, APPELLEE

No. 08-1299

SUPREME COURT OF ARKANSAS

2009 Ark. LEXIS 121

March 19, 2009, Opinion Delivered

Further, under Arkansas foreclosure law, a deed of trust is defined as “a deed conveying real property in trust to secure the performance of an obligation of the grantor or any other person named in the deed to a beneficiary and conferring upon the trustee a power of sale for breach of an obligation of the grantor contained in the deed of trust.” Ark. Code Ann. § 18-50-101(2) (Repl. 2003). Thus, under the statutes, and under the common law noted above, a deed of trust grants to the trustee the powers MERS purports to hold. Those powers were held by East as trustee. Those powers were not conveyed to MERS.

MERS holds no authority to act as an agent and holds no property interest in the mortgaged land. It is not a necessary party. In [*11] this dispute over foreclosure on the subject real property under the mortgage and the deed of trust, complete relief may be granted whether or not MERS is a party. MERS has no interest to protect. It simply was not a necessary party. See Ark. R. Civ. P. 19(a). MERS’s role in this transaction casts no light on the contractual issues on appeal in this case. See, e.g., Wilmans v. Sears, Roebuck & Co., 355 Ark. 668, 144 S.W.3d 245 (2004).

Finally, we note that Arkansas is a recording state. Notice of transactions in real property is provided by recording. See Ark. Code Ann. § 14-15-404 (Supp. 2007). Southwest is entitled to rely upon what is filed of record. In the present case, MERS was at best the agent of the lender. The only recorded document provides notice that Pulaski Mortgage is the lender and, therefore, MERS’s principal. MERS asserts Pulaski Mortgage is not its principal. Yet no other lender recorded its interest as an assignee of Pulaski Mortgage. Permitting an agent such as MERS purports to be to step in and act without a recorded lender directing its action would wreak havoc on notice in this state.

Affirmed.

 


Largest US Title Insurer To Demand Indemnity And Foreclosure Warranty From Banks

Tyler Durden's picture

Submitted by Tyler Durden on 10/20/2010 14:55 -0500

The good news: title insurers may be getting back into the game. The bad news: they will demand indemnity and warranties from the issuing bank assuring their paperwork is sound before backing sales of foreclosed homes. At least this is what the largest title insurer in the US, Fidelity National, will do going forward (which makes one wonder just what exactly FNF’s job function is if the mortgage issuing bank, such as BofA, now caught in too numerous RoboSigning scandals to mention, essentially takes over the title guarantee process…) From Bloomberg: “An indemnity covering “incompetent or erroneous affidavit testimony or documentation” must be signed for all foreclosure sales closing on or after Nov. 1, the Jacksonville, Florida- based company said in a memorandum to employees today. The agreement was prepared in consultation with the American Land Title Association and mortgage finance companies Fannie Mae and Freddie Mac, Fidelity National said.” And what happens if the bank is once again caught to be, gulp, lying? Who foots the bill then? Why the buyer of course. All this does is to remove the liability from companies like Fidelity National and puts it back to BofA, which is already so much underwater it has no chance of really getting out without TARP, contrarian Goldman propaganda notwithstanding.

More from Bloomberg:

“It’s just the prudent thing to do,” Peter Sadowski, executive vice president and chief legal officer for Fidelity National, said in an interview. “It is important for the servicers and the lenders to represent to us and to the people we are going to be insuring that there are no problems.”

Bank of America Corp., the biggest U.S. lender, agreed to a similar contract with Fidelity National on Oct. 8, the same day it extended a freeze on foreclosures to all states amid concern by federal and state officials that lenders are seizing homes without properly reviewing documents. The bank plans to start resubmitting foreclosure affidavits next week. Attorneys general across the country have opened a joint investigation into foreclosures, saying they will seek an immediate halt to any improper practices at mortgage lenders and loan servicers.

Title insurers use their records and public documents to verify a seller is the home’s true owner and that the property is free from liens. They collect a one-time premium at the closing of the purchase and pay costs that may arise if someone disputes the new owner’s right to the property.

The indemnity agreement requires lenders to protect title insurers at their own expense from “any and all liability, loss, costs, damage and expense of every kind” if errors arise in foreclosure procedures, according to the document.

The expenses may include attorney’s fees, a decrease in the property’s value and inability to sell the title, Fidelity said in the document. The lender must also notify the insurer in each case that a foreclosure complies with state laws and regulations, according to the agreement.

The indemnity agreement is available for use by all title insurers, Fidelity National said.

The American Land Title Association, which is nothing but a lap dog for the bankers, of course applauded this development: after all there are millions in pending foreclosures to be done.

“This is a standard all lenders should follow,” said Kurt Pfotenhauer, chief executive officer of the American Land Title Association, a Washington-based trade group. “The sooner that indemnification agreement is adopted market-wide, the more confidence investors can have in this foreclosure market.”

At this point it is only a question of who can kick the massive mortgage fraud can the farthest down the road, before it all comes crashing down. In the meantime, we can get back to more important things: like record banker bonuses due to be paid in a few months (of the pre-TARP 2 version).

 

STOPA STOMPS ON THE LOAN MOD LIES – LOAN MODIFICATIONS – HOW BANKS DUPE HOMEOWNERS

SCUMBAG BANKS WILL DO ANYTHING TO DEFRAUD YOU…

Posted by Foreclosure Fraud on October 20, 2010 ·

Mark Stopa has been fighting this fight along with the rest of us and he just did a spot on piece on loan mods…

Keep it up!

LOAN MODIFICATIONS – HOW BANKS DUPE HOMEOWNERS

Posted on October 20, 2010 by mstopa

I’ve repeatedly expressed my frustrations with the loan modification process, or lack thereof, on this blog.  Honest, well-intentioned homeowners cannot get a bank representative to communicate with them.  Many such homeowners were actively induced to default, purportedly to become eligible for a modification that, in my experience, never arrives.  Even in those rare instances where a loan modification is offered, it’s typically not a meaningful modification – the homeowner is essentially making the same monthly payment that he/she was paying all along.  What does that accomplish?  What’s the point?

Unfortunately, it’s even worse than that.  As this article illustrates, banks often want homeowners to enter a modification just so a subsequent foreclosure will be easier for them!  I’ve seen this often enough that I feel comfortable opining:

Banks aren’t offering modifications to help homeowners – they’re offering modifications to help themselves!

Lest you disagree, consider the loan modification agreement that just came across my desk.  Like most modifications I’ve seen, three aspects of this agreement are just brutal for homeowners:

1)  All foreclosure defenses are waived. Under most loan modification agreements, if a homeowner signs, then defaults on the modification agreement, the homeowner agrees that all defenses to foreclosure are waived.  Essentially, if the homeowner defaults on the modification agreement, the bank can dribble up to the basket and slam-dunk a foreclosure without opposition.

“But the bank doesn’t own and hold the Note,” you argue.  Maybe so, but since the homeowner warrants otherwise in the modification agreement, the homeowner is barred from challenging the bank’s standing after defaulting on the modification agreement (or that’s what the bank will argue, anyway).

What does this mean?  Essentially, the homeowner takes what may be a very defensible foreclosure case – one where the bank may be unable to prove it owns and holds the Note and Mortgage – and turns it into an easy case for the bank by signing a modification agreement.  In my view, the banks are offering modifications to make it easier for themselves to foreclose! It’s a one-sided agreement – for the banks!

With this in mind, if the modification agreement doesn’t entail a significant reduction in payments, what’s the point?  In my view, modification agreements generally aren’t a good idea (the way they’re currently set up) unless the homeowner is absolutely certain that he/she can make the requisite payments indefinitely into the future.  After all, once you default on a modification agreement, chances are it’s “game over.”

2)  The foreclosure lawsuit remains pending.  In most lawsuits, when the parties enter a settlement agreement, the lawsuit is dismissed.  Sometimes, the suit is dismissed with a court order that reserves jurisdiction to enforce the parties’ settlement agreement, but this is standard fare – lawsuits are dismissed when the parties settle.  Unfortunately, that’s not how it works with loan modification agreements in foreclosure cases.  To illustrate, the modification agreement in my hands says “The Lender agrees to suspend all foreclosure activities so long as I comply with the terms of the Loan Documents.”  Hence, if the homeowner defaults – or if the Bank asserts the homeowner defaults – all the Bank has to do is resume prosecution of the existing foreclosure lawsuit, which remains pending.  It doesn’t matter if the default occurred six months after the modification or two years – all the bank has to do is resume the existing foreclosure case.  And since the homeowner has waived all defenses, obtaining a foreclosure judgment truly is the equivalent of Shaq dunking the ball on an 8-foot basket without any defense.

(Judges, I respectfully submit you should do something about this.  How many pending cases are on your dockets where nothing has happened because the parties agreed to a loan modification but the bank refuses to dismiss?  I’d suggest an Administrative Order that requires dismissals of foreclosure lawsuits where the parties enter a Loan Modification Agreement.  There is no reason for cases to remain pending for months or even years when the parties have amicably resolved their dispute.)

3.  The bank makes no representations whatsoever.  You know what scares the heck out of me with these modification agreements, more than anything else?  The bank that is receiving the money does not make any warranties or representations whatsoever – not even a representation that it is the rightful owner and holder of the Note and Mortgage!  Lest you think that’s “no big deal,” consider this.

We all know that most Notes and Mortgages have been transferred or assigned from one bank to another, many times over.  Often the banks don’t know who owns/holds the Note and Mortgage, much less prove it.  If the Bank you’re entering a loan modification with does not represent, in writing, that it owns and holds your Note and Mortgage, then what’s to stop another bank from emerging, months down the road, and suing you for foreclosure on that same Note and Mortgage?  Unfortunately, absolutely nothing. That’s why, if it were my client, I’d require the bank to sign the loan modification with a written representation that it owns and holds the Note and Mortgage and is the party entitled to collect mortgage payments.  I’d also demand to see the original Note.  Without these precautions, my clients may be handing out money to an absolute stranger – one with no right to collect – and with what I know, that’s not a risk I’d feel comfortable recommending.

But even that’s not good enough.  In addition to this representation, I’d want the bank to indemnify my clients from any losses they incur as a result of another bank making a successful claim on that Note and Mortgage.  In other words, if another bank sues my client for foreclosure, after the modification agreement, the bank that modified with us should bear the losses, not my clients.  To ensure the bank would be able to foot this bill, I’d also want some financial disclosures, especially if the bank was one I’m not familiar with.

In sum, if you’re a homeowner facing foreclosure and the bank is offering you a loan modification, I’d be very careful about what you’re getting.  Read the fine print closely.  If your payments aren’t going down significantly, you’re waiving defenses, the foreclosure lawsuit remains pending, and the bank isn’t making any written representations, chances are the modification agreement is designed to help the bank, not the homeowner.

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You can check out Mark in more detail here…

Anyway, in other words, they are stealing your money and setting you up to fail…

Ever wonder where all your trial payments went while you were waiting for the permanent modification?

Have you noticed the whole time you were making those payments you were being reported delinquent?

Did you catch all the late fees piling up every month?

Yea, me too.

After they decline you for your modification, although you have done EVERYTHING possible, and you get foreclosed upon anyway, ever wonder why all those “trial payments” never reflected on your amounts due and owing…

Thousands upon thousands of dollars lost into the abyss…

They trick you into getting all your financial information to calculate how long they can string you along until you have exhausted every last resource, 401k, kids college fund, your cookie jar etc., and once they sucked you dry, they foreclose.

As Capt Jack puts it…

Savings drained – check, 401ks all gone – check. Kicked out of their homes – check. “Lenders” made whole many times over via Credit Default Swaps – check. Homeowners foreclosed and “lender” buys back property for pennies on the dollar – check.

Don’t believe me? Ask one of the tens of thousands of Americans that had it happen to them…

Then, on top of all that, they use all your financials that you submitted to profile you on how to collect the “deficiencies” for decades…

Sound crazy? Of course it does…

Try this America.

If you decide to go through with submitting your loan mod package with all your financial information, WATERMARK all of the documents you submit to the “lender” with something like “THIS INFORMATION IS FOR LOAN MODIFICATION PURPOSES ONLY”

Cause that’s what it’s for right?

Right?

Watch what happens…

 

Fed Wants {SCUMBAG} Banks to Buy Back Some Bad Mortgages

By NELSON D. SCHWARTZ

To the long list of those picking fights with banks over bad mortgages, add theFederal Reserve.

Two years after the Fed bought billions of dollars in mortgage securities as part of the financial bailout, its New York arm is questioning the paperwork — and pressing banks to buy some of the investments back.

The Federal Reserve Bank of New York and several giant investment companies, including Pimco and BlackRock, have singled out Bank of America, which assembled more than $2 trillion of mortgage securities from 2004 to 2008.

Bank of America is already dealing with the fallout from the fight over whether foreclosures were handled properly. It insists that no foreclosures have been initiated in error, and on Monday announced it would resume the foreclosure process in 23 states where court approval is required to go ahead.

But while the human toll of the foreclosure crisis has grabbed the headlines, the fight over how these loans were created in the first place could last longer and ultimately cost the banks much, much more. And it is setting the stage for a huge battle between mortgage holders like the government, hedge funds and other institutional investors on one side and the big banks on the other.

“It’s very serious,” said Glenn Schorr, an analyst with Nomura Securities. “The numbers are all over the map.”

If the Fed and the investors succeed, it could cost Bank of America billions of dollars. On Wall Street and in bank boardrooms, the question of whether investors can force banks to buy back, or “put-back,” the bad mortgages to the banks that sold them is dominating the debate and worrying analysts, money managers and banking executives.

It also makes for some strange bedfellows. After all, it was the government that bailed out Bank of America — twice — during the financial crisis, the same government that includes the Fed.

And it is going to be a fight. On Tuesday, after watching its shares get pummeled again, Bank of America went on the offensive, vowing to “defend the interests of Bank of America shareholders,” and hire more lawyers.

“It’s loan by loan, and we have the resources to deploy in that kind of review,” saidBrian T. Moynihan, Bank of America’s chief executive, on a conference call to discuss the bank’s results for the third quarter.

Although the bank turned in better results than expected, much of the call was given over to the put-back issue. “We have thousands of people who are willing to stand and look at these loans,” Mr. Moynihan told analysts. “We’d love never to talk about this again and put it behind us, but the right answer is to fight for it.”

The legal battle turns on the question of whether the banks properly represented the loans they put together into mortgage-backed securities when they sold them to investors. If the banks ignored evidence that the underlying mortgages did not conform to underwriting standards or they lacked the proper paperwork, the banks could be obligated to buy the troubled mortgages back.

The Federal Reserve Bank of New York and the other large investors are pressing Bank of America to buy back a portion of the $47 billion in mortgages it originated, most of which were assembled by Countrywide Financial just before the real estate boom turned to bust in 2005, 2006 and 2007.

Countrywide, which specialized in subprime mortgages, was acquired by Bank of America in July 2008.

“People did not think bondholders would be able to organize themselves, but they can,” said Kathy Patrick, a Houston lawyer who is leading the effort. “It’s a large amount of money but the principle is simple. When you promise to do something in an agreement, you should do it.” A letter from Ms. Patrick detailing the claims was obtained by The New York Times.

The danger posed by angry — or opportunistic — investors ‘putting-back’ mortgages to the banks is hardly limited to Bank of America. Other giants like Citigroup andJPMorgan Chase face similar claims, and last week JPMorgan set aside $1.3 billion just for legal costs, including put-backs.

JPMorgan has said it expects repurchases of mortgages to run at about $1 billion a year, but that expense should be covered by $3 billion it has earmarked specifically for put-backs.

At Bank of America, repurchases have been running at about half a billion dollars a quarter. The bank estimates total put-back claims stand at $12.9 billion, as of Sept. 30. In the third-quarter, Bank of America recorded an $872 million expense for put-backs.

Besides the major institutions, hedge funds like York Capital and Moore Capital have been jumping into the game recently, buying up bad debt in the hopes it will eventually be bought back, according to traders and money managers. Both funds declined to comment.

And smaller ones are sniffing around, hoping to ride the depressed securities higher as the fight over put-backs gathers steam.

“Any hedge fund with a distressed desk is contemplating this trade,” said one analyst who insisted on anonymity. “The idea of bottom-fishing vulture funds buying this stuff up for a nickel on the dollar so they can sue the banks to get 100 cents must be pretty odious for the Treasury, which bailed out the banks in the first place.”

Indeed, the group that includes the Fed is one of two coalitions that is gearing up for a fight with the banks.

Bill Frey, chief executive of Greenwich Financial Services, leads a group of investors that holds just under $600 billion worth of mortgage-backed securities.

But it is the recent controversy over foreclosures that has jump-started interest by pension funds, hedge funds and other players. “In the last two weeks, there has been a flood of new investors,” Mr. Frey said. “We haven’t even had a chance to do the arithmetic, that’s how fast they’re coming in.”

Besides all the lawyers that billions can buy, the banks have other weapons in their arsenal. Some hedge funds and other investors are nervous about challenging the banks too forcefully, because they trade with them daily.

There is risk too for the government, despite the Federal Reserve claims. If the banks are indeed forced to spend tens of billions to buy back securities, they could turn once again to the federal government for help.

Given the legal resources available to the banks, though, that is unlikely to happen quickly. And for now, broader conditions in the financial services are improving. On Wednesday, Bank of America reported that operating earnings in the third quarter hit $3.1 billion, in contrast to a loss a year ago.

A substantial portion of the profit gain came from the expectation of lower losses among credit card and mortgage borrowers, rather than new business, but the bank was able to recapture money it had earlier set aside. It released $1.8 billion from reserves, compared with a release of $1.45 billion in the second quarter.

On a noncash basis for the quarter, the bank reported a loss of $7.3 billion because of a $10.4 billion write-down in the value of its credit card unit, attributed to federal regulations that limit debit fees and other charges.