EconoMonitor

Great Leap Forward

Yes, Virginia, Foreclosure Is Theft

There’s a lot of pushback anytime someone points the finger at banks. As I’ve argued for a couple of years now, virtually all recent foreclosures really amount to theft. The banks have no legal standing to take homes. They created the MERS monster, which destroyed the chain of title and “lost” all the documents. That is why the mortgage servicers hire robo-signers to forge new ones. Yet, 4 years into the crisis, almost no one wants to admit the truth. Foreclosure in the US is theft–as practiced it is almost always illegal. Yet, the servicers are now ramping up foreclosures after they bought out the state attorneys general under pressure from the Eric Holder at the White House.

Here’s yet another bit of evidence. 84%! Enjoy!

link: http://www.readersupportednews.org/news-section2/427-foreclosure/10095-audit-reveals-84-of-san-francisco-foreclosures-violated-law?tmpl=component&print=1&page=

Audit Reveals 84% of San Francisco Foreclosures Violated Law

By David Wallechinsky, Noel Brinkerhoff, AllGov

22 February 12

Affirming what anecdotal evidence has suggested about the mortgage crisis, an audit out of San Francisco has found that more than 80% of foreclosures broke some kind of law.

City officials requested the audit that examined 382 randomly chosen foreclosures that occurred from January 2009 through October 2011. The findings revealed that 84% of the files involved “what appear to be one or more clear violations of law.” The violations included not giving homeowners warning that they were in default on their loans (6%), not giving homeowners adequate legal warning their property was being sold (10%), backdating of documents (59%) and transfers of loans by entities that had no business doing so (45%).

Another disturbing discovery related to the Mortgage Electronic Registry System (MERS). In 1995 the bigger banks created MERS as a privately owned electronic system for registering mortgage sales that was supposed to replace local county recording. In the words of the New York Attorney General’s Office, they did so “to allow financial institutions to evade local county recording fees, avoid the hassle and paperwork of publicly recording mortgage transfers, and facilitate the rapid sale and securitization of mortgages.” The San Francisco audit found that in 58% of cases, the loan beneficiary listed on the deed of sale was different from the one listed in the MERS database.

Kathleen Engel, a professor at Suffolk University Law School in Boston, told The New York Times: “If there were any lingering doubts about whether the problems with loan documents in foreclosures were isolated, this study puts the question to rest.”

To Learn More:

Foreclosure in California: A Crisis in Compliance (by Aequitas Compliance Solutions) (pdf)

Audit Uncovers Extensive Flaws in Foreclosures (by Gretchen Morgenson, New York Times)

Massachusetts Sues Big 5 Banks over Illegal Foreclosures (by Noel Brinkerhoff, AllGov)

California Bill Would Charge Banks $20,000 for Each Foreclosure (by Noel Brinkerhoff, AllGov)

41 Responses to “Yes, Virginia, Foreclosure Is Theft”

Michael E PicrayFebruary 22nd, 2012 at 6:59 pm

for a complete understanding of the issue and the legal standing of banks to foreclose without proper documentation (State Atty Gens notwithstanding), see "Landmark Natl Bank vs Kessler".

areopageticaFebruary 23rd, 2012 at 2:06 pm

As a lawyer who did foreclosure work for many years for both borrowers and lenders, I assure you that robosigning is a victimless technicality. In only a handful of exceptions is there a wrongful foreclosure in which the outcome would have changed had the technicality been corrected. I am astonished to see foreclosure characterized as "theft" on an otherwise reputable site.

SergioFebruary 23rd, 2012 at 3:00 pm

This is really funny! I have seen many attempts to justify illegal actions, but this one just cracked me up. Wow, a "victimless technicality"? There is really no more to say about the current crisis. I think your response summarizes the causes of the current crisis very well. I thought I had seen it all, but to see that you are "astonished" to see foreclosure characterized as theft is really funny. http://www.reuters.com/article/2012/01/26/us-usa-

Oh, and you call yourself a lawyer?

areopageticaFebruary 23rd, 2012 at 3:14 pm

Yes, I am a lawyer,. Practiced for 20 years and taught as an adjunct at the University of Texas law school on creditors' rights and related topics. Submitting falsified documents to a court is a crime that should be punished and stopped. The issue with robosigning is whether anybody got hurt and how severe an infraction we are talking about. The AGs have alleged only a tiny number of cases where the borrower was able and willing to pay but still suffered a foreclosure. Those are true "wrongful foreclosure" cases and a borrower has many remedies. Following the letter of the law regarding recording and signing, which I did as a lawyer, is time-consuming and costly, which ultimately adds to the cost of credit for homeowners. And by the way, only $1.5 billion of the recent $20 billion+ mortgage settlement is even going to those who were foreclosed on. The rest is going to payment adjustments, but excludes borrowers who pay on time and made large down payments. The mortgage settlement is a travesty that should make all Americans ashamed of how the legal process has been politicized. Characterizing robosigning s "theft" is blatant exploitation of a misunderstood issue. If you think what I say is "bizarre," try a Google search on this topic.

SergioFebruary 23rd, 2012 at 3:39 pm

"Submitting falsified documents to a court is a crime that should be punished and stopped. The issue with robosigning is whether anybody got hurt and how severe an infraction we are talking about."

Aeropagetica, correct me if I'm wrong, but first you are saying that it is a crime that should be punished. Then you are saying, OK, so maybe it was a small infraction, maybe nobody got hurt, so we can say that these are innocent crimes? First you say it should be punished, then you say it is not fraud. I don't understand the logic of your argument. Help me out here.

SergioFebruary 23rd, 2012 at 3:46 pm

Here is how I see it, Areopagetica (I spelled your name right this time!):

1) There was fraud in the entire supply chain of houses, but the banks were the ones that were providing the credit to NINJAS. They produced these loans to move them off their balance sheet and sell toxic assets.

2) Now they want to fix this as fast as possible. They have broke the law in 84% of the cases to foreclose as fast as possible.

They are trying to solve the mess that they created. They are trying to fix one fraud with another fraud. If you want to ask me "The issue with robosigning is whether anybody got hurt and how severe an infraction we are talking about." I would tell you that YOU NEED TO TAKE A LOOK AT THE BIGGER PICTURE. You need see whether anybody in society is getting hurt because of the fraud that occurred in step one and in step two.

areopageticaFebruary 23rd, 2012 at 3:56 pm

Sergio- All fraud is not equal. The punishment should fit the crime. More importantly, the compensation should go to those who were harmed. The Reuters article you mentioned describes some of the horror cases where innocent people were hurt. They should be compensated and punitive damages should be assessed. But the article also says that nobody has collected statistics on wrongful foreclosures or on how many people face fantom mortgages. Yet the mortgage settlement presumes that wrongful foreclosures are widespread and systemic. I do not think they are because the AGs were able to identify very few. In any event, the damages they collected should have gone to true victims. I would add that banks don't pay any damages or penalties: They collect them–collect them from their shareholders, customers, suppliers and employees, which is Economics 101. The fraud was committed by the individuals who submitted false documents.

areopageticaFebruary 23rd, 2012 at 4:09 pm

Sergio-

If the banks that originated the mortgages sold them off their books (which indeed most of them did), then the robobsigners doing the foreclosures are different institutions. Prosecute the wrongdoers and don't assign collective blame. My view of the big picture was that the bigger culprit was the massive Federal policy of encouraging and subsidizing home ownership. The government was effectively cheering on lending to those who are now unable to pay, now they demonize it. Maybe somebody should consider occupying Freddie and Fannie.

LRWrayFebruary 23rd, 2012 at 6:55 pm

Aero: It is much more complicated than that. There was fraud at every step in the home finance food chain; I have written a lot about it here in previous blogs and at HuffPost. More to the point, there are problems with MERS that "infect" virtually every mortgage registered there. There are important cases siding with defendants and against MERS–the industry's creation. There are also numerous "quiet title" cases allowing delinquent homeowners to walk off with their homes. I know there are cases that go the other way, and I've read the decisions. Judges are trying to side with the banks, and AGs are trying to look the other way. That does not mean crimes and home thefts are not pervasive. I agree with you that these are expensive cases and so banks will continue to get away with theft, robosigning and all kinds of other illegal activity. That does not make it legal.

LRWrayFebruary 23rd, 2012 at 6:57 pm

I forgot to add: the "banksters" that created the fraudulent loans are also the thieves stealing them through their own servicers (the same banks own the servicers); and they created MERS to facilitate the thefts.

SergioFebruary 24th, 2012 at 1:40 am

But there is a fallacy in your argument and that is that banks were lending to NINJAS. And yes, the government had part in it, no doubt. But the private banks were also so active in this whole mess. They knew that it was going to fail, but the temptation to make a profit was too strong.

I think that if I give you a loan which I know that you are not able to pay so that I can sell it off to somebody else, that has to be at least morally wrong, think about it.

areopageticaFebruary 24th, 2012 at 3:00 pm

Astonishingly unfair and wrong on the facts. You impose blanket guilt on banks irrespective of their individual conduct. No, not all the banks that created the loans now have any interest in them or control any servicers. You asked what kind of a lawyer I am? I place guilt on the guilty. A better question is what kind of a school hires quacks like you to teach our young people.

LRWrayFebruary 24th, 2012 at 10:24 pm

Ok Aero you are all over the place. I'll try to clear this up with a longer post. I did not ask what kind of a lawyer you are–I wondered how a lawyer could imply there is no crime if those who lose their homes are "victimless". You have sort of straightened this out by admitting that false documents do constitute a crime. No one has argued that the punishment should not fit the crime. Yes. I think prison time, rather than firing squad, for example. Its the law–as you well know. Anyway, let's all try to dial it down a bit. I will post soon.

Joseph M. FirestoneFebruary 24th, 2012 at 10:29 pm

I think it's more than morally wrong. Unless, you disclose that you are selling off loans to debtors who have a high probability of default, then that's felony fraud. Jail is the proper remedy for that!

Joseph M. FirestoneFebruary 24th, 2012 at 10:34 pm

Not defending the settlement. There should have been no settlement, just prosecution to the full extent of both State and federal laws which in many cases probably included wire fraud violations, since a lot of these mortgages were probably marketed over the web. However, it's doubtful that taxpayers will have to pay for this if MMT becomes the accepted view of macroeconomics, because in that case, ant debts incurred due to deficit spending can be paid or not without collecting any additional taxes for that purpose.

Joseph M. FirestoneFebruary 24th, 2012 at 11:35 pm

areo, I think you're way, way distorting the situation:

1. The State AGs had hardly begun to investigate, and the O Administration has refused to do any investigating and prosecuting at all. The facts can't come out because they're being covered up. When we see occasional shockers like the SF situation, it tells us that investigations are needed to see just how many people have been victimized.

2. We know from a lot of research on this subject. that people holding mortgages who were being foreclosed upon by those who had no legal right to do so, very frequently had no opportunity to re-negotiate their mortgages or make other arrangements to avoid foreclosure because servicers had no incentives other than to cause foreclosures that would net them additional fees.

So, the people foreclosed upon were victimized, because the process ending in foreclosure was fraudulent all along the way, and they had no fair chance to avoid the very harmful outcome of losing their homes.

3. We also know now that the bankers created and worked through MERS to deprive counties of recording fees that they would have had to pay if they established a clean chain of title. So counties all across the United States and the taxpayers who support them were victims.

4. In addition, we are all victimized because MERS and the banks have destroyed the legal foundation of residential property in the United States. If I want to buy a previously owned house right now, how can I be assured that there is a clear chain of title protecting me if I choose to buy it?

What if I buy it outright and five years from now some bank comes by, tries to foreclose on me claiming title, producing robo-signed documents and then tries to haul me into court?

What do I them, say that these crimes are "victimless"?

Moreover, the MERS practices continue to go on. MERS isn't out of business, The banks are not stopping robo-signing practices. They are continuing the practice of producing fraudulent documents, and clouding chains of title even more.

If someone is paying a mortgage right now, how do they know they are paying the right parties? What protections do they have against someone coming at them two years right now and claiming that they haven't been paying their mortgage debt, and when they produce their cancelled checks having the Court say, "Oh, we're sorry, the plaintiff is right, you may have been paying someone, but since it wasn't the right party I have to approve this foreclosure and you're just out of luck?"

And 5. Since fraud was occurring at every step of the process of initiating, maintaining, and securitizing so many of the mortgages out there, to now take the position that there were no victims, ignores the reality that our ideal of equality before the law has been shredded. Our laws required the banks and other financial institutions to behave in particular ways to protect the sanctity of property. They did not do so! They violated their fiduciary responsibilities actively and systematically.

They flouted the laws in order to make some extra profits. And you're trying to tell us now that they should get off with virtually no punishment, and with the legal right to seize and possess property that they cannot prove they own? That's not justice. It's a rationalization for the war of all against all!

Someone owns the property under threat of foreclosure, but from where I sit, if the financial institutions cannot prove title, then they shouldn't be allowed to foreclose on people who are in possession of the property. That should be their first punishment for ignoring the law.

Their second should be re-institution of the mark-to-market rule forcing the banks to place current market value on all their property and an accurate accounting of their assets.

Their third, will be taking the big banks into resolution, since all of them will be immediately insolvent.

Their fourth will then be a searching investigation to see whether the real estate foreclosure mess has been the result of accounting control frauds at the banks.

Their, fifth, if this is shown, should then be criminal indictment and prosecution for those frauds.

And sixth, if convicted they should go to jail as anyone else would for the crime of accounting control fraud.

In my view, the actions of the State Attorney Generals and the President in negotiating this settlement violate their constitutional oaths of office to enforce the laws. The President should be impeached for this settlement, as should all the Attorney Generals who are participating. There should be no settlements, only investigations, prosecutions, imprisonments and restructuring of the banking system and the Wall Street trading houses that crashed the economy in 2008.

LRWrayFebruary 25th, 2012 at 3:40 am

Joe: no problem. you made most of my points, anyway.

Robosigning is a crime. Mers's business model has been ruled (sometimes) as illegal (yes I know this is not always the case–depends on the judge). The banks have paid fine after fine, negotiated in deals that let them avoid admitting guilt. State AGs want the money, not the criminal convictions (which are too hard to obtain). When a lawyer lies to a judge that is a criime. When a CEO signs off on fudged docs that is a crime. In many states it is illegal to knowingly provide loan terms the borrower cannot afford. And on and on and on. Almost the whole darned thing is fraud. That of course does not mean EVERY bank is a fraud, nor that EVERY lawyer is a criminal. But fraud is certainly rampant at all the biggest banks and servicers–there is no question about this. They've been caught. And as you say, it is all being ramped up right now due to the AttysGeneral buy-off.

RayPhenicieFebruary 25th, 2012 at 4:53 pm

Could you drop the 'attack the person' logic? That is not acceptable discourse. I would like to see your reasoned logic on the whole robosigning issue. So far there you have presented only bits and pieces. Everyone else here has a totally different opinion:
1. The courthouse documents have to show who holds the title to the property and the loan paperwork should also be attached. At the courthouse in the county where the property is located. Not some bank office, not some mortgage servicing office and MERS-if you look at Landmark National Bank v. Boyd A. Kessler, MERS is not a legal entity for holding this information either. Even within the financial industry itself the paperwork is lost and no one person can say-"here is the trail and party ABC holds the loan." If the identity of the loan holder is unknown by any of the so called parties to the loan . . . .well, is there really a loan? What we all hear you saying is that making up paperwork to show who the loan holder is , well that is just a legal 'technicality.' So if the parties involved want to screw somebody, ok. Just a technical screw job, should not hurt too much, so get more lube and the pain should be less, after all this is not really too horrible, stealing a house here and there, after all who really owns the property if there are 27 levels of financing?
2. Apologists for the banking industry seem to be saying, 'Well, the proof of ownership is here somewhere, do we have to show it just because there is a foreclosure?' Yes, and for this reason; courts must hold to very strict levels of proof and be models of impeccable record keeping because property rights and a thing called rule of law are at the heart of this issue. In court, a superior-inferior relationship is immediately established on the part of the bank and servicing industry versus the consumer who does not have ready access to dozens of accountants and legal advisers

JohnFebruary 25th, 2012 at 10:16 pm

I am not so well versed in these things but I do have one question. If MERS is known to be inaccurate, does that infer that after a foreclosure, the person why buys the house may not have good title, and one fine day someone could show up with the real titlle and kick you out? Same in reverse can a homeowner one day have a pretender show up saying he owns the house?

It does seem that Mers saves nothing, since the real deed is in the recorder's office, I thinK??

LRWrayFebruary 26th, 2012 at 2:12 am

John: yes MERS has screwed the whole pooch. Somewhere around 66% of all property titles are tainted. Do not buy any property registered at MERS unless you are prepared to be tied up in court for the next decade or two. Nobody, literally nobody, knows who holds the title. For all these properties, you can be sure of one thing: the deeds are NOT registered at the county recorder's office. That was the whole MERS scam. Further, none of the MBS securities holders knows which mortgages are backing their securities. Their Trustees also screwed the pooch, signing off saying they had the mortgages–which it looks like was never true. IN other words 100% of all securitizations are lies. It is like the game we played with our grandmas: hide the thimble. Well the damned thimble is lost. Destroyed. It cannot be recovered. Hence robosigning frauds.

JohnFebruary 26th, 2012 at 2:33 pm

Then MERS, pretty much all by itself, says those selling the mortgages are frauds and should be prosecuted. Yet, somehow, if you are too big to fail, you are too big to prosecute. I mean, afer all, not all of them are bad, NOT. This can't be helping the housing industry and any settlement that leaves this outside will only prolong the agony.

JohnFebruary 27th, 2012 at 11:30 pm

Joe: really good analysis. Why can't our so called leaders think like this? The very existence of MERS is a fraud, IMO.

weaverFebruary 28th, 2012 at 3:13 am

LRWay;

So those who are still performing on their mortgages have suffered irreparable damages because the lien-holder cannot produce a clear title?

I occurs to me that these performing homeowners should start Adverse Possession proceedings against the entities who claim to have a claim against the property.

LRWrayFebruary 28th, 2012 at 4:44 am

John: only the first sale/mortgage is recorded. Mers was created to defraud county recorders out of the fees. So then the problem is that the average mortgage is bought and sold 10 times before securitization. You have no idea who holds your mortgage, and neither do they. No one knows. Virtually all property owners in America are, shall we say, screwed. That is the beauty of the Mers/banksters plan. They've subverted hundreds of years of Western property law. Anyone can show up and claim your house. And they are. Now all that matters is a compliant judge who will take it away from you and give it to some bank, any bank, that wants it.

tonkinsontravelsFebruary 28th, 2012 at 8:12 pm

Banks may have some paperwork problems, but virtually 100% of the properties being foreclosed upon are owned by people who have failed to keep their agreements to pay for the property they are occupying according to terms they freely agreed to. Foreclosing is not theft, unless it is truly wrongful foreclosure.

Zograp TepirdzhyanMarch 2nd, 2012 at 6:40 pm

govt policy + greedy bankers + buying beyond YOU means = MANY FORECLOSURES! Well the Banks are using this very program to force homeowners into foreclosure so they can capitalize on the Shared Loss Agreement that they have in place with the FDIC. disturbing how many homeowners are seeking aid and receiving none, while the banks and lenders continue to profit on this government program. In

Rich VetsteinMarch 7th, 2012 at 1:45 pm

Great debate!

Folks, keep your eye on the next potential bombshell coming out of the Massachusetts SJC: Eaton v. Fannie Mae.
http://www.massrealestatelawblog.com/2012/01/31/s

It will decide whether foreclosing lenders must possess both the note and the mortgage at the same time, in order to foreclose. This decision, if adverse to lenders, will decapitate the securitized industry.

There's also the issue with innocent third party purchasers of foreclosed properties, who (at least in Mass.) have their titles rendered defective due to invalid foreclosures. See, http://www.massrealestatelawblog.com/2011/10/18/w

Richard D. Vetstein, Esq.

BillyMarch 13th, 2012 at 1:29 am

I assure you the note I received from my lender clearly shows my name forged. It also shows the notaries signature forged and in the wrong place on the deed of trust. It may not be class as a Robo but it clearly is a forgery.

Wendell FitzgeraldMarch 13th, 2012 at 7:18 pm

You do not seem to grasp the subversion of our system of property laws and the clouding of chains of title for millions of property owners. This will create havoc for years if not decades. If you own property you will be affected in one negative way or another as will all of us whether we are property owners or not. You are absolutely correct in saying that "people who have failed to keep their agreements" should be foreclosed. And the people who are being foreclosed on are entitled to have foreclosures done by the strict letter of the law such as the tiny teeny detail about knowing for sure who holds the note. The truth is that all property owners are entitled to strict compliance with the law of property and contract. This is just as much a part of the "agreements" you seem to hold sacred as the obligation to pay the mortgage. Or do you want to enforce parts of contracts for some but not some parts for others.

Wendell FitzgeraldMarch 13th, 2012 at 7:35 pm

I trust you are not implying that all, or most or even many people buying homes they later found they could not afford has anything to do with anything. I am not even saying that they were victims. There are no victims here. Not one of these people forced banks and mortgage brokers to extend credit to them. Not one. Banks and mortgage brokers sought these people out for purposes of making quick profits on transactions they knew were shaky and they knew that they woud not take the loss if the borrower defaulted. All of these mortgages were passed on to investors who would take the loss. Massive losses have occurred to those who were not involved upfront and they will continue for some time. Does this make the banks and mortgage brokers bad guys? Only if you want to be judgmental and want to criticize business as usual in America which has always involved questionable practices involving land speculation from the beginning.

Wendell FitzgeraldMarch 13th, 2012 at 7:40 pm

You've got this right. Wrongful foreclosure actions and suits for negligence against those who perpetrated these legal atrocities wil become a new niche market for a generation of lawyers. Finally there is something lawyers can do that is clearly for the good of the people. Good luck Massachusetts from a recovering attorney too old to jump on board in this fight.

indio007March 14th, 2012 at 2:24 am

MERS's problem s they have no proof of agency and can not comply with the statute of frauds. Which happens to say that every transfer of real property must be in writing and if an agent transfers he property that agency must be in writing and specific to the property being transferred. MERS's membership agreement doesn't cut it. Whether the homeowner agreed to MERS magic is meaningless because the note's owner didn't specifically give them agency. MERS's system is not secure and relies on good fiath of it's members as opposed to proof of ownership.

MERS is fatally flawed and the simle argument of lack f agency is a slam dunk.

GuestMarch 15th, 2012 at 6:01 pm

So, what I have read on many sites is that the securitization of these loans, and the robosigning, and the other suggested fraud makes these banks unable to legally foreclose on these properties. If this is the case, then what about all of the mortgages held "fraudulently" by banks that are not in foreclosure? Wouldn't homeowners have a legal right to sue the banks to prove who legally holds a lein on the property? In the absence of such proof (which I am learning is the MERS shredding issue), wouldn't the homeowners be able to have their mortgage declared fraud, and own their home free and clear?

A professorMarch 19th, 2012 at 6:21 pm

Frankly this is essentially BULLSHIT. Were an individual to do it, they would be in deep shit! So while this is an emotional response, I don't want to waste my time coming up with much more.