The current debate over foreclosure fraud has been a revelation, even for those of us who have become familiar with the power of moneyed interests to influence the national dialog. Despite overwhelming evidence of widespread lawbreaking and deception, there's still a popular point of view that says that fraudulent foreclosures are "just a technicality" and that what we're seeing is neither a systemic problem nor a crime wave of epidemic proportions.
Actually, it's both. Here are four reasons why the foreclosure fraud scandal is very important. They're counterarguments to the conventional "paperwork" wisdom, a point of view whose numbing effects threaten to anesthetize us to the profound significance of this scandal.
1. Dragnet
A recent New York Times article is just one of many that put names and faces to the foreclosure scandal: A man who paid cash for a vacation cabin found that foreclosure papers had been filed and his locks had been changed, despite the fact that there was no mortgage on the property. A couple was foreclosed upon -- successfully -- by a mortgage trust that court papers say doesn't exist. A woman in Colorado also had her locks changed by mistake, so the bank offered to let her skip a mortgage payment as an apology. When she did, foreclosure papers were filed on her.
The writers of the Times article also frame the counterargument: "Even if the paperwork was faulty, the fact remains that most homeowners in foreclosure have not paid their bills ... " That's Argument #1 in favor of downplaying the foreclosure fraud controversy: Sure, there have been some outrageous cases like the ones listed above. But the vast majority of people facing foreclosure really have mortgages, and they're really delinquent on them. So, the argument goes, what's the big deal? Fix the paperwork, weed out the errors, and let's all get on with our lives.
Here's the real problem: Any massive invasion of personal rights and liberties will catch some people who deserve to be caught. If we placed the entire country under martial law, initiated a state of siege, and rounded up every suspicious-looking person in America with a nationwide dragnet, many -- perhaps most -- of the people dragged off to jails would be guilty of something. But that's not how free societies operate. People have rights, even if they owe money.
The legal process around foreclosures has become a massive dragnet, run and managed by the financial services industry with the compliance of too many state and national legal institutions. The most egregious stories -- i.e., people who paid cash for houses and had them seized anyway -- are almost certainly a small minority of the foreclosure cases out there. But they show us how badly corrupt the entire process has become, and how far we've drifted away from fundamental principles of due process.
2. The Dukes of Moral Hazard
Here's the complete sentence from the Times article: "Even if the paperwork was faulty, the fact remains that most homeowners in foreclosure have not paid their bills, often because they bought more house than they could afford or because they lost their jobs. As a result, they will most likely lose their homes eventually, once the banks clean up their paperwork ..." That's a point the financial services industry is only too happy to underscore: "We believe that the overwhelming majority of the cases will be that the loan was seriously delinquent and needed to go to foreclosure," the article quotes an industry spokesperson as saying.
While the Times journalists did some excellent reporting for this piece, their sentence (above) framed the situation so well - from the financial industry's point of view, that is - that a quote from the industry itself was almost redundant. Sure, a lot of people "bought more house than they could afford," and some of them did so irresponsibly. But the financial industry's all too happy to leave it at that, characterizing all these foreclosures as problems of individual character rather what they really are: a breakdown of process, law, and ethics on a systemic level.
According to the most recent report from Lender Processing Services, Inc., 9.22% of all mortgages in the US are delinquent - and that's not counting those that are in foreclosure. 8.22% are either in foreclosure or more than 90 days overdue. All told, roughly 11% of all mortgages are either delinquent or in the foreclosure process. That's a problem with the system, not the product of millions of flawed individual characters.
Here's the bottom line: More than one in ten mortgages is in bad trouble. What's more, one in four mortgages is underwater, which means there's not enough collateral to cover billions of dollars in loans. The generous explanation for the banking industry is that they're completely incompetent at what they do. A huge chunk of the loans they've written are bad. Forgive the language here, but the bank-friendliest explanation for this systemwide breakdown is that bankers suck at what they do.
But the real explanation is that they knew these loans were bad -- and wrote them anyway.
Why? Because they intended to make quick and easy money by pumping up housing values, churning loans to customers who they knew couldn't pay. (The customers didn't know that, but the banks did.) They thought they could float this crap game forever, riding an ever-growing bubble and tossing the defaulting homeowners away when they couldn't pay the nut. But the bubble burst and the crap game got shut down.
They were able to walk away from this massive nationwide scam by convincing the country that the only irresponsible parties were people who "bought more house than they could afford." It worked, too. But now they've been caught in widespread fraud -- and they want to walk away from that, too. Nobody's suggesting there weren't irresponsible buyers out there, too. But so far, the bankers have been able to convince the country that the "moral hazard" was everybody's but theirs -- even though they were running the entire system, and it's the entire system that's broken down.
This time, the guilty parties should be made to pay for criminal behavior. And they should be forced to accept some of the financial consequences of their bad behavior by writing down some of the principal on the bad loans they've issued and sold.
3. Contract Killers
A loan is a contract, an agreement between two parties. The lender agrees to provide a certain sum of money, which the borrower agrees to repay according to agreed-upon terms and conditions. One of the biggest problems with the foreclosure fraud scandal - and the systems, tricks, and traps that created it - is that it obscures the contractual record between the parties, leaving all the information (and all the power) on one side of the transaction.
Consider the woman whose bank offered to let her skip a monthly payment in return for accidentally changing her locks, and then proceeded to foreclose on her. With shell games like the mortgage industry's MERS, which obscures the actual trail of ownership and insulates the lender from court proceedings, the bank in question doesn't even have to show up during the foreclosure process. That means that she's denied the right to face her trading partner in court. Due process is trampled upon, and so is the right to legally enforce a contract.
People facing foreclosure aren't just people who lost their jobs or "bought too much house." They're people who had a deal with their bank. Then they were hit with late fees, or unilateral changes to their loan terms, or other surprises that caused them to fall into a spiral of debt. Of those who have missed payments, many of them have a legitimate case to make: that the other party broke the contract and that's why they've missed payments. The foreclosure fraud scandal has taken away their right to defend themselves in court.
4. Getting Medieval On Your Assets
The last counterargument is literally an ancient one. It's based on the long-established right of any citizen to be inviolable in their home and possessions. This goes back to the Magna Carta, which established that the will of the monarch wasn't arbitrary and that the property of "freemen" could not be seized without proper legal recourse. This principle was enshrined in the Fifth Amendment of the Constitution, which says "No person shall be deprived of life, liberty or property without due process of law." (emphasis mine)
It's bad enough that we've seen massive violations of the Constitution and people are saying it's no big deal. But we're also seeing massive violations of a legal principle that was established as an inalienable human right ... in 1215 AD! And people are still saying it's no big deal. This isn't a "technical" problem or a "paperwork" issue. It reflects on our national character, and our will to preserve the rights and liberties that have existed for eight centuries.
The problem isn't that some people bought "more house than they can afford." The problem is that we have more rights as free citizens than the banking industry can afford. So, naturally, they want us to pretend those rights don't exist. If we do, we'll lose them. And that will be a really big deal.
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Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light.
He can be reached at "rjeskow@ourfuture.org."
Website: Eskow and Associates
Follow Richard (RJ) Eskow on Twitter: www.twitter.com/rjeskow
Rep. Jim McDermott: So You Want to Privatize
Tanya D. Marsh: A Government-Mandated Foreclosure Moratorium Is a Popular (and Bad) Idea
http://www.comcast.net/articles/news-finance/20101116/US.Foreclosure.Mess/
http://www.comcast.net/articles/news-finance/20101117/US.Foreclosure.Mess.Summary.Box/
http://www.comcast.net/articles/news-politics/20101012/POLITICS-US-USA-FORECLOSURES/
Ya! Right, they just want to cover their @ss so that the probes will stop!!!
(the 'elephants that hide in plain sight' killed this little boy, destroyed this family, and remains unaccountable!!!!) Miami Herald news story
http://www.miamiherald.com/2010/11/03/1907758/behind-a-foreclosure-danger-and.html
*also see: Foreclosure frauds, Foxes, hidden Elephants in Plain Sight, Havoc
http://open.salon.com/blog/wwwlawgraceorg/2010/11/02/foreclosure_frauds_foxes_hidden_elephants_in_plain_sig
http://blogs.forbes.com/investor/2010/11/01/these-bankers-knew-what-they-were-selling/
Unfortunately many still think we should change the law so that the illegal action of the banks become legal, because “we need to clear foreclosure inventory for the housing market to recover”. I would like to clarify how this line being parroted from the American Bankers’ Assoc. is false.
Let’s say we follow the law. Mortgages that were not assigned to trusts with correct paperwork within dates specified in contracts become unsecured debt. This means that the debtor still owes the balance, but their home cannot be taken in lieu of payment. This would include homeowners who are current on payments, those delinquent, and those already foreclosed on (illegally). MBS values plummet. Big banks are found to be insolvent in most cases, and are would down through a resolution corp. Where proof of fraud exists, executives would be prosecuted and imprisoned.
The homeowners that become unsecured debtors would be a largely those who bought or refinanced a home from 2004-07, when most fraud occurred. These are also the same group most likely to be underwater. Rarely could be sued for their primary residence for not paying off unsecured debt, usually those that owned only one home would get to keep it regardless of ability to pay their now unsecured debt (investors would still lose homes, only being a primary residence makes homeowners exempt from lawsuit). They would still face consequences for not paying debt - credit scores would plummet and other assets could be potentially seized.
Homeowners that choose not to pay on their loan would still be responsible for taxes (that are paid at a higher rate if the homeowner isn’t delinquent on a mortgage, so this would help state and local revenues), they would be unable to obtain a clear title to later sell their home (in some cases they may be able to get adverse possession granted, but selling their home with this after the many years it would take to get one would still cause severe decrease in values, akin to selling a car with a salvage title), but they would typically not lose their homes.
Regarding the homes that have already been foreclosed on, the illegally foreclosed upon owners could sue to get the home back or the value they lost. Most would sue for the money as these same people are usually struggling financially; in other cases a judge would usually rule in favor of substituting monetary value for the home in cases where a good faith buyer using the home as a primary residence occupied it. In cases where it was ruled originally homeowners could move back into the home they lost through illegal foreclosures, those who bought the new home would be covered by title insurance. Only in cases where investors paid cash and decided to not insure title risk would lose; of course it is typical to lose money on investments if one chooses not to insure it against a risk that happens to come to fruition. Decreases in home values occurring because of clouded title would also be covered for new homeowners by title insurance, unless a process is created to remedy clouded titles.
Legally, it is the only argument that matters. Even if the foreclosure process can't work, you can just sue for things like breach of contract, account stated and the like and lien the house. Then you foreclose th elien rather than the mortgage. In some states, the debtor may have fewer protections than with a mortgage foreclosure.
Practically, the only way the houseing market will ever stabalize is to get these properties foreclosed and re-sold at a lower price.
"Do you, or do you not, in fact have Fee Simple title to the property that you are attempting to foreclose upon?"
If you sold that title into "some pool somewhere," then you do not have what Federal Law requires you to have. (And this is -why- that Law demands that you have it.)
If you sold "mortgage backed securities," while the total amount of your securities sales is massively larger than the value of the mortgages you own (assuming that you actually do...), then ... you have committed fraud.
In fact, this situation is a =textbook= definition of "a swindle," despite its stupendous size and deep political connection.
You also get a lien against a property after a judgment for breach of contract or money had and recieved. The only hastle there is finding the entity (and there will be one) who is owed the money. The Mortgagor may actually lose some protection by this going into the realm of breach of contract, rather than mortgage.
foreclosure wrong house
All so that Wall St can profit while the rest of the country struggle with the losses these banker theives created which only apply to us.
Where is the justice America?
Now, let's explore the other side of that coin. Let's not just look at "banks," but at the entire three-headed Hydra that the repeal of the Glass-Steagall Act permitted to appear. A single institution is, simultaneously: a bank (fraudulently selling a mortgage, so that...) a finance company (can package the same security-interest that it doesn't even clearly own into a "mortgage backed" [sic...] security, so that...) [and] an insurance company (which can sell a "credit-default swap" to "protect against" [sic...] the inevitable, and thus drive business to the second head of the Hydra).
Mr. Ponzi did exactly the same thing.
This is: Swindling. Bribery. Extortion. Bribery. Securities Fraud. Bribery. Money Laundering (undoubtedly). Bribery. Oh, scuse me Bribery my Bribery keyboard Bribery Bribery seems to be stuck Bribery Bribery on autopilot Bribery somehow ... just a sec Bribery Bribery Bribe (click!) ... ahh, there, I fixed it.
Or shall we say, "the fix is in."
I think that all of us are faced with a very serious and sobering choice, Robert. We can either have a Government, or we can have an Organized Crime outfit, but we cannot have both and we WILL have one or the other. 310 million people can't go on this way, just for the benefit of a couple thousand. The document that _created this nation specifically outlawed two things: Treason, and Bribery.
Hmmmmmmmm.
I imagine it was for that sticking and having to be unstuck that Racketeering, Influencing and Corrupt Operations didn't make it into your list.
I wonder if there is an exemption from RICO in the fine print of the Glass-Steagall Act repeal? If they overlooked that and we can find an honest court left in the USA [Perhaps the blindfolded Goddess is out with lantern and scales looking--unless the lobbyists got to here and have her searching with lantern and sword--] , there may be some hope for us.
(1) A legislator might be able to do a whole lot of criminal things because of their supposed "immunity." (One of the big weaknesses in the design of our form of Government today is that legislators are obliged to prosecute themselves, which they simply decline to do. There is no "vote of No Confidence" that can remove an Officeholder before his or her term is ended.) But since "Bribery" is listed by name in the US Constitution, it cannot be so easily explained away ... although both the Citizens United "decision" (unconstitutional though it was), and an actual Constitutional Amendment that has been quietly proposed (penning "contribution" into the text...) are serious attempts to do just that.
(2) Bribery, like Treason, is an "enabling crime." If "the fix were not in," even in "who now occupies the Secretary of the Treasury and the Chairman of the Fed" positions, this crime would not be possible. If the SEC, e.g., were not "on the take," it might actually do its job. If Members of Congress were not receiving billions (literally...), they might not have repealed Glass-Steagall.
Today, "lawmaking" (sic) is relatively simple: you write the laws you want, hand them to a Member with a few hundred million in cash, and "you get what you paid for." And the cost that 310+ million people are paying ... is devastating.
What we all have to do, as a nation (and really, as a world community as well), is to say in no uncertain terms:
(1) This is not "politics."
(2) This is not "acceptable."
(3) This is High Crime ... which is the lowest and most despicable Crime, yet CRIME nonetheless ...
(4) It is causing hellish damage to hundreds of millions of people to the benefit of just a few thousand ...
(5) ... and we are not going to take that anymore. Our nation (and, nations...) might be "a bone to be chewed" to you, but it is a priceless thing to us.
(6) Be "on notice" that those who abuse their official powers, whether for "high crimes" or "misdemeanors," and whether you are the President Him/Herself or the least of "any civil officers," you SHALL BE REMOVED FROM OFFICE FOR these offenses.
... uh, wait a minute. I think I'm getting a real sense of deja-vu about that last paragraph. Haven't I read those words before? I wrote 40 words... but where did I see 31 more eloquently-written words that said that? ...
... ahh, if only those words were part of "the supreme law of the land." Part of what -created- the three Branches of our Government. How wonderful THAT would be...
Heh.
Given the depth and breadth of the criminality in our financial system, you can almost see how these people can convince themselves that this is just a minor problem.
It is a misconception, but among people I've talked too, it's a very unpopular one. They are really upset that this is still going on and no one is in prison.
I'm really upset that our President seems to agree with the banksters.
Let's face it: "money talks." And it so happens that if a crime is simply BIG enough, it DOES pay, because it can "pay off" the people who are supposed to be stopping it. This can occur, and it does occur, at both a national and an international level.
This scheme inures to the benefit of just a few thousand people, out of billions, but those people are the ones with the necessary, official titles. Including, I regret to say, "President."
It really, really, REALLY sucks to say this. And of course it is very frightening, because millions of people are seriously left to wonder, "is ANYONE on MY side?" Republican and Democrat, well, all you can really say about either one of them is that they "cost" about the same.
We are fighting "endless wars abroad," precisely as Gen. Dwight D. Eisenhower foretold, and utterly neglecting "the enemy within."
But the founders of our nation did perceive the threat that could be raised by the abuse of official power "within." I believe that this is why Article 2, Section 4 ... all thirty-one words of it ... is so specific, so sweeping, and so unconditional. And, so utterly and completely wise.
=> "All Civil Officers" ... from the highest to the low.
=> "All Offenses" ... outrageous to menial, SPECIFICALLY including Bribery.
=> "SHALL BE Removed."