Is it "just" a technicality if a mortgage servicer, foreclosing on a borrower who in all likelihood has defaulted, creates documents to prove the servicer’s client acquired the loan years ago?
Consider this (admittedly imperfect) analogy: is it just a technicality if a criminal wasn’t read his rights before being arrested? If we know such a person is guilty, it fair to say that such a person was "not harmed" by the police officer’s procedural misstep? Is it worse to violate his constitutional rights or let him back out on the street?
You can hear echoes of that age-old friction between due process and the messy, often infuriating results of honoring it, in reader reactions to American Banker’s recent story about servicers backdating paperwork to support foreclosures.
One reader, for example, took umbrage with a Bank of America spokeswoman’s comment that retroactive mortgage assignments are simply "procedural steps" to prove to a court that a trust has the right to foreclose on a borrower.
This commenter noted that Bank of America has, in at least one highly publicized instance, tried to foreclose on a home that had no mortgage at all, let alone one with B of A.
"Why should we assume that that they are correct when they allege that New Century wanted to assign a particular mortgage to Deutsche Bank as part of complex securitization deal executed 5 years ago?" this reader asked. "This is the danger of skipping those pesky 'procedural steps' long ago. I am sure they saved money by not carefully making and recording assignments at the time they were meant to occur. Unfortunately, it is not only the banks who are now paying for this. Homeowners with clouded titles are paying too. Procedures matter."
Other commenters cited our country’s foundational legal principles of rule of law and equal protection under it: "Nobody is above the law and banks certainly can't be an exception to this basic constitutional principle. You can’t go to court with forged and fabricated evidence to support your claim," wrote one reader. Another said: "Private property and the right to it are core to our economic system. The burden to take it SHOULD be high and the standards of evidence should be strict."
On the other hand, some readers pointed out that delaying or invalidating foreclosures because the lender didn’t take all the correct steps when they were supposed to can result in another type of injustice: Namely, people living for free, for months or years, in homes they never could have afforded, arguably an affront to families who scrimp and save to pay their mortgages.
"I think a good article in the future would be to highlight, and personally name, those attorneys who clog up the court system with erroneous technicalities knowing their client is responsible for the repayment of the money they freely borrowed using their home as collateral," wrote one reader.
Another commenter on this end of the spectrum, while acknowledging that "people who get wrongfully foreclosed are deserving of the full protection of the law," immediately added: "People who continue to pay their loans even though they are underwater with no hope of getting any equity back deserve something too, just for being great citizens. But if your biggest problem is that your lender signed an assignment of your loan from the seller pursuant to a power of attorney confirming that sale after the fact...., you have no legal or moral claim to anything."
Readers in this second group took issue with the story’s use of the verb "fabricate" to describe the act of creating a paper trail in 2011 to document loan sales that took place in 2005 or 2006.
"Most sophisticated mortgage loan sale agreements have a power of attorney provision that expressly permits the buyer to sign assignments and other instruments of transfer on behalf of the seller to effectuate the agreement's intent post closing," one reader in this camp wrote. "The purpose of such powers of attorney is to address the kind of issues that can be problematic in the future; i.e., something was missed back at the time of closing and now the seller has been sold, gone out of business, is tough to work with or no longer has good records etc."
But another reader countered that even with a power of attorney, "fabrication" is an appropriate term in certain instances – "if documents are backdated, include descriptions of events and actions that did not take place, are executed by individuals under titles they do not hold, etc."
As our story showed, that last scenario is actually going on; for example, this mortgage assignment was signed by an employee of American Home Mortgage Servicing, but she signed the documents as an officer of the defunct Sand Canyon Mortgage.
The story won kudos throughout the blogosphere. Reuters’ Felix Salmon called it "a fantastic piece of reporting" and Columbia Journalism Review’s Ryan Chittum lauded the writing as "straightforward and tough."
What do you think about the questions the piece raised? Is it worth delaying a bottoming-out of the housing market, and allowing some delinquent borrowers to freeload for a time, in order to prevent the rare but documented instances of someone being wrongly foreclosed on? Procedure matters, but does procedure in this case trump outcome? Share your thoughts by leaving a comment below.
BankThink: Procedures Matter in Foreclosure; Do Outcomes Matter More?
By Marc Hochstein
Is it “just” a technicality if a mortgage servicer, foreclosing on a borrower who in all likelihood has defaulted, creates documents to prove the servicer’s client acquired the loan years ago?
Consider this (admittedly imperfect) analogy: is it just a technicality if a criminal wasn’t read his rights before being arrested? If we know such a person is guilty, it fair to say that such a person was “not harmed” by the police officer’s procedural misstep? Is it worse to violate his constitutional rights or let him back out on the street?
You can hear echoes of that age-old friction between due process and the messy, often infuriating results of honoring it, in reader reactions to American Banker’s story about servicers backdating paperwork to support foreclosures.
http://en.wikipedia.org/wiki/Due_process
http://www.americanbanker.com/issues/176_170/robo-signing-foreclosure-mortgage-assignments-1041741-1.html?BCnopagination=1
One reader, for example, took umbrage with a Bank of America spokeswoman’s comment that retroactive mortgage assignments are simply “procedural steps” to prove to a court that a trust has the right to foreclose on a borrower.
This commenter noted that Bank of America has, in at least one highly publicized instance, tried to foreclose on a home that had no mortgage at all, let alone one with B of A.
http://abcnews.go.com/Business/bank-america-sued-foreclosing-wrong-homes/story?id=9637897
“Why should we assume that that they are correct when they allege that New Century wanted to assign a particular mortgage to Deutsche Bank as part of complex securitization deal executed 5 years ago?” this reader asked. “This is the danger of skipping those pesky ‘procedural steps’ long ago. I am sure they saved money by not carefully making and recording assignments at the time they were meant to occur. Unfortunately, it is not only the banks who are now paying for this. Homeowners with clouded titles are paying too. Procedures matter.”
Other commenters cited our country’s foundational legal principles of rule of law and equal protection under it: “Nobody is above the law and banks certainly can't be an exception to this basic constitutional principle. You can’t go to court with forged and fabricated evidence to support your claim,” wrote one reader. Another said: “Private property and the right to it are core to our economic system. The burden to take it SHOULD be high and the standards of evidence should be strict.”
On the other hand, some readers pointed out that delaying or invalidating foreclosures because the lender didn’t take all the correct steps when they were supposed to can result in another type of injustice: Namely, people living for free, for months or years, in homes they never could have afforded, arguably an affront to families who scrimp and save to pay their mortgages.
“I think a good article in the future would be to highlight, and personally name, those attorneys who clog up the court system with erroneous technicalities knowing their client is responsible for the repayment of the money they freely borrowed using their home as collateral,” wrote one reader.
Another commenter on this end of the spectrum, while acknowledging that “people who get wrongfully foreclosed are deserving of the full protection of the law,” immediately added: “People who continue to pay their loans even though they are underwater with no hope of getting any equity back deserve something too, just for being great citizens. But if your biggest problem is that your lender signed an assignment of your loan from the seller pursuant to a power of attorney confirming that sale after the fact...., you have no legal or moral claim to anything.”
Incidentally, readers in this second group took issue with the story’s use of the word “fabrication” to describe the creation of a paper trail in 2011 to document loan sales that took place in 2005 or 2006.
“Most sophisticated mortgage loan sale agreements have a power of attorney provision that expressly permits the buyer to sign assignments and other instruments of transfer on behalf of the seller to effectuate the agreement's intent post closing,” one reader in this camp wrote. “The purpose of such powers of attorney is to address the kind of issues that can be problematic in the future; i.e., something was missed back at the time of closing and now the seller has been sold, gone out of business, is tough to work with or no longer has good records etc.”
But another reader countered that even with a power of attorney, fabrication is an appropriate term in certain instances – “if documents are backdated, include descriptions of events and actions that did not take place, are executed by individuals under titles they do not hold, etc.”
As our story showed, that last scenario is actually going on; for example, this mortgage assignment was signed by an employee of American Home Mortgage Servicing, but she signed the documents as an officer of the defunct Sand Canyon Mortgage.
http://cdn.americanbanker.com/media/pdfs/083111HopkinsMortAssign.pdf
Incidentally, the story won kudos throughout the blogosphere. Reuters’ Felix Salmon called it “a fantastic piece of reporting” and
Columbia Journalism Review’s Ryan Chittum lauded the writing as “straightforward and tough.”
http://blogs.reuters.com/felix-salmon/2011/09/01/mortgage-servicers-still-lying-in-court/
http://www.cjr.org/the_audit/the_foreclosure_scandal_contin.php
What do you think about the questions the piece raised? Is it worth delaying a bottoming-out of the housing market, and allowing some delinquent borrowers to freeload for a time, in order to prevent the rare but documented instances of someone being wrongly foreclosed on? Procedure matters, but does procedure in this case trump outcome? Share your thoughts by leaving a comment below.
As much as it pains me to say, I think we do need a high standard when seizing property. Property rights are the underpinning of an economically viable society. For reference, see the Israeli/Palestinian conflict. I very much agree with the person who pointed out the unfairness of these delays allowing people to live rent free for months and months, but I do believe in due process. It's too bad there's not a way for troubled homeowners to sit down with the banks, look at the dilemma, and simply turn over their keys instead of gaming the system for free rent on the backs of others.
More unfair than this, however, were HAMP and similar programs. I tried to buy a short sale, but the guy couldn't untangle it because he had three loans on the house - a mortgage, 2nd mortgage and a commercial loan. The guy ended up pulling it off the market because he got a mortgage mod, bringing his interest rate down to 2% or so. I've used credit responsibly and scrimped and saved for my house and my interest rate is 4 or 5%. Now, that sucks.
The issue is whether we enforce the rule of law, requiring parties to abide by terms of their contracts, prove they have standing to enforce the terms of those contracts, and apply the law fairly to all parties. It isn't just changing a date on what would otherwise be a binding agreement, it is "fabricating" documents after the fact. If, as alleged in the article above, the lender/servicer, had POW to amend agreements after the fact, they are free to produce those POW agreements at trial. However, does anybody believe that if the borrower appeared in court with documents they had "fabricated" with signatures of people who nothing of the facts representing parties to the agreement, and not witnessed by the notary who has provided his/her stamp would be equally tolerated by our judicial system?
Each state spells out the steps required to foreclose on a property. These steps are NOT burdensome ones for the lender to meet. If the lender is the holder of the debt or an agent of that holder, it's a no-brainer. If lenders are unable to obtain copies of promissory notes or mortgage assignments demonstrating ownership, or transfers of legal title to themselves, should we allow them to bypass existing remedies available, ones that provide protection to BOTH parties, in order to collect on debt because of their failures? Describing some of these documents as "fabrication" isn't hyperbole, in fact, I'd go so far as describing it as felony "forgery" and "perjury" and those behind them should count themselves lucky there have been no criminal indictments. I am not convinced criminal indictments may be necessary to end the practice as they continue, despite reassurances by the lenders otherwise. It may be the only way to change the pervasive, albeit delusional (would lenders, or judges, ever tolerate similar complaints of paperwork and technicality issues from borrowers, e.g. oh say, filing a "fabricated" satisfaction of lien?), mentality in the industry that this isn't paperwork issues and merely technicalities, this is about not allowing one party to operate outside of the law. Taken in context with other news within the mortgage loan industry, the public has become increasingly less tolerant of what has become the financial industries apparent widespread fraudulent practices and utter arrogance across the spectrum of the mortgage loan industry. They seem to believe that laws should not apply to them, and in a fair and just society, our captive regulatory, captive legislative, and judicial system would have already acted to enforce lenders to remain within the system, behave ethically, and comply with existing statutes and policies, thus dissuading them of those beliefs. Thus the burden has fallen on the people to perform the services they have failed to provide, by seeking the only remedy available to homeowners, "free houses".
I don't believe "free houses", forced modifications and writedowns, fines, or monetary penalties will lead to a solution. I believe we need to seek indictments for criminal acts, including remedies available under RICO. The financial industry has demonstrated that they will not "self-regulate" and clean up their own industry despite repeated promises, therefore outside intervention is required. It is unfortunate that it must come down to such dramatic measures, but public confidence in the banking industry must be restored before our housing industry and economy can recover.
So what if some home owners end up with "free" houses ?? ( A house is NEVER free - what with all of the expenses and property TAXES that have to be paid) Is it any more equitable that the bank should get the house for free ?? Both the bank and the buyer took a risk .. is it fair that the buyer ends up with all of the losses when a deal goes bad ?? Many people scrimped and saved to make payments on homes for years and then lost their jobs and their savings because the banks crashed the economy with their greed. What happens to all of those payments that people made before they could no longer pay ?? The bank gets to keep all of those payments AND they get the house. Is that fair ??
In many cases, people defaulted because they were told by the bank to stop making payments so that they could qualify for a loan modification. People then used up all of their savings making payments on loan modifications that were later denied .. meanwhile, the bank started foreclosure proceedings to take their home after draining their bank accounts .. the bank has now taken all of their savings, cost them their jobs by wrecking the economy with shoddy business practices, told them to default, and now the bank comes for their family home. It is NOT a fair outcome !!
The housing industry will eventually recover. The question is who should pay for it. The answer is that those at fault should pay .. those who participated in shoddy business practices and those who break the law should and will pay. The US economy is resilient and it can survive without a robust housing industry for a while. The economy will recover because justice will prevail. God Bless America !!