06 October 2010

Obama Investigates: Big Banks Screw Up Home Foreclosures

Learn how the Big Banks just screwed themselves out of all their profits.

From Denny: Who really feels sorry for the greedy Big Banks who have repeatedly raped the wallets of the American public? Awww, everyone all together now in unison, "Can you hear me now???"

Big Bank Bailouts 

Months ago, with the public loudly complaining, Big Banks took big bailouts and pluncked them down on to their profit lines instead of turning around to stimulate the economy by putting the monies out into small loans for the middle class. In short, money has dried up for development - big or small construction projects and homes, and small businesses are dying for lack of funding. Getting financed on a home loan is virtually impossible. It will be months, maybe as long as a year, before small businesses can tap into the new small business loans the Democrats managed to pass in Congress recently. Until then it's anyone's guess how many small businesses will bite the dust.

Too many home foreclosures too fast 

Now it's home foreclosures, to the tune of as many as 10,000 a month. Now who can process that many foreclosures that fast? That's a good 120,000 foreclosures a year. No wonder the real estate market for resales is screwy. There's a glut on the market of foreclosed properties - some businesses as well as homes.

When I see business running that fast and furious it gets up my suspicion. Why? When you work that fast it always means there is a dearth of getting the details nailed down properly. It also means there is corruption of some kind going on - like lying to the homeowners about the proper steps and their rights during the foreclosure process.

Big Banks suspend home foreclosures

Now that there are class action lawsuits and individual lawsuits challenging the foreclosure process, many Big Banks have suspended their efforts "pending review."  Yeah, I'll bet.  And Obama's Attorney General is looking into the abuses named in these lawsuits.  So far the insitutions that have stopped foreclosures in 23 states are JPMorgan Chase and Ally Financial GMAC Mortgage.  Bank of America has followed their lead to review their procedures as well.


Right now there are a veritble explosion of homeowner lawsuits about claims of falsified mortgage documents. State attorney generals are investigating and both houses of Congress have joined the noisy chorus demanding investigations.

Get this:  banks have been foreclosing on properties of which they don't even possess the title. "You're going to see a tremendous amount of activity with all the AGs in the U.S.," says Ohio Attorney General Richard Cordray, who has sued Ally over foreclosures.

"We have a high degree of skepticism that the corners that were cut are truly legal." At least seven states are investigating this problem.  Only seven???

From Gina Proia of Ally: "We don't believe the procedural errors in these affidavits led to inappropriate foreclosures.

From JPMorgan Chase:  "We believe the accuracy of the factual loan information contained in the affidavits was not affected by whether or not the signer had personal knowledge of the precise details."

Well, of course, these guys are going to deny these charges vociferously.  If they admit it now they open themselves up to the inevitable large settlement payments because they know they will fail miserably in court.

There are also civil lawsuits claiming deceptive sales practices and violation of consumer protection laws. "The attorneys general can just sue over deceptive sales practices and get penalties," says Christopher L. Peterson, a law professor at the University of Utah in Salt Lake City.

In Kentucky, filed 28 September, is a huge lawsuit from homeowners against  Mortgage Electronic Registration Systems, called MERS, that is based in Reston, Virginia.  The mortgage banking industry created this entity to handle mortgage transfers between member banks.  Sounds normal enough.  Yet what these guys did was create false promissory notes, affidavits, and mortgage assignments that were  used in mortgage foreclosures. Similar lawsuits accusing MERS of this corruption are also in Florida and New York.  Is it any wonder the MERS group refuses to comment pending the litigation?

Procedural mistakes handling mortgage documents

Yet another monkey wrench to throw into this exponentially growing mess is how poorly the lenders have handled mortgage documents.  They have made such a mess of things that now the titles to the properties are now clouded that it is difficult to establish clearly who has ownership.  Without a clear title you are basically buying nothing but air and threw your money away down the rabbit hole.  This is an issue that could plague home sales for both buyers and sellers for many years until they figure how to straighten it out.

"This is going to become a hydra," says Peter J. Henning, a professor at Wayne State University Law School in Detroit. "You've got so many potential avenues of liability. You don't even know the parameters of this yet."


One of those "procedural mistakes" is the idiot practice of "robo-signing."  At Ally Financial GMAC Mortgage there was a team of just 13 people who were signing 10,000 documents a month - all without reading the documents to verify accuracy.

"My suspicion is that this will wind up being an industrywide issue," says Patrick Madigan, Iowa assistant attorney general. "Many companies were using robo-signers."

Who else is on the hook bringing or defending against lawsuits?

Title insurers.  Remember what were supposed to be clear titles to the properties?  If the foreclosures are reopened then this segment of the industry is on the hook for responsibility.  These guys are going after the banks, or which ever group, claimed these properties had clear titles.

What if you purchase a foreclosed property?

Industry experts are saying: "Defective documentation has created millions of blighted titles that will plague the nation for the next decade," says Richard Kessler, an attorney in Sarasota, Florida.  He conducted a study finding errors in about three-fourths of court filings related to home repossessions. So "buyer beware" if you think that foreclosed property is such a great deal.  Make sure you have a clear title so you can prove ownership.

What does a defective title mean?  Even if you have a bill of sale proving you paid for the property and move into the house, you can still not be the legal owner. "This is the most important issue of the whole mortgage mess," says Glenn Russell, a Fall River, Massachusetts real estate attorney.  He won a significant case last year that reversed a foreclosure because of faulty paperwork. "Families are being thrown out of their homes by people who may not have the right to do that." 

Increasing numbers of American homes heading for foreclosure 

Though these are three month old statistics, there are almost 25 percent of American homes in some stage of mortgage distress, according to RealtyTrac.  With the unemployment figures growing, this figure is already much larger.  There are literally millions of people teetering on the edge of falling into this financial abyss. These banks may find themselves with 60 percent bad paper.  They are simply too greedy and too inflexible to restructure the middle class homeowner debt.  They willingly do it for large companies but continue to refuse to help out  individuals.

Questions about ownership often are not looked at until there is a buyer for the foreclosed property.  That's when the buyer applies for title insurance.  This is the time when these mistakes are revealed as a deed researcher goes looking only to find errors from the previous sale.

From John Vogel, professor at the Tuck School of Business at Dartmouth College in Hanover, New Hampshire:  "It's a nightmare scenario. There are lots of land mines related to title issues that may come to light long after we think we've solved the housing problem."

Faulty foreclosures from greedy Big Banks ignore federal and state laws, consumer rights and common decency.  Floods of class action lawsuits will keep on coming. This mess will haunt America for quite some time, maybe years.

How do those proverbs go? "What goes around comes around." And "Greed will bring you to your knees." It looks like we won't have to bother to break up the Big Banks any more.  They did it to themselves.

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