Subprime Legal: Judges Scrutinize Mortgage Docs, Deny Foreclosures

By Amir Efrati JULY 25, 2008, 8:27 PM ET

foreclosureIt’s been about nine months since several federal judges in Ohio issued the widely-read amir foreclosure dismissals that shined a light on sloppy paperwork done by companies that specialize in handling foreclosures.

Since then, the WSJ reports tonight, other judges across the country have caught on and are carefully scrutinizing mortgage documents filed as part of foreclosures and dismissing cases based on mistakes they’re finding, which borrowers might be able to exploit when facing foreclosure. (For another good read on judges and lawyers working to staunch foreclosure, click here for a recent NLJ story.)

Among the issues hitting snags among the judges, according to WSJ:

“Backdated” mortgage assignments: Assignments, documents that transfer ownership of the mortgage, are executed after the foreclosure process has begun but state that they are “effective as of” a date prior to the foreclosure action. Some judges are dismissing those cases, saying attempts to retroactively assign the mortgage aren’t valid.

Suspicious multiple hats: Employees for mortgage companies are signing affidavits stating they are employees of one company, but other mortgage documents say they work at another firm. In some cases, an employee claims to work for companies on both sides of a transaction, prompting one skeptical judge to ask for that person’s work history for the last three years.

Shared office space: In foreclosure filings, one judge has found that numerous mortgage-related companies, including units of Wall Street banks, all claim to share the same address: a suite of a West Palm Beach, Fla., building. “The Court ponders if Suite 100 is the size of Madison Square Garden to house all of these financial behemoths or if there is a more nefarious reason for this corporate togetherness,” the judge wrote in a recent decision.

Judge SchackBrooklyn Crusader: The judge making Madison Square Garden references is Brooklyn’s own Arthur M. Schack (pictured) of Kings County Supreme Court, who has dismissed dozens of foreclosures sua sponte because of shoddy documents or suspicious patterns he notices in the filings.

Schack, 63, a former counsel to the MLB Players Association who is known for peppering his rulings with pop culture references such as Bruce Willis movies, says barely any of the foreclosures he has denied eventually are completed.

In one of his foreclosure dismissals, Schack (Indiana, New York Law School) cited the film “It’s a Wonderful Life” to make the point that homeowners now deal with “large financial organizations, national and international in scope, motivated primarily by their interest in maximizing profit, and not necessarily by helping people.”

In an interview, Schack, a Brooklyn native, told WSJ: “Taking away someone’s home is a serious matter. I’m a neutral party and in reviewing papers filed with the court, I have to make sure they’re proper.”

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New York City Foreclosures Climb in First Quarter: WSJ

[ASSESSOR]Associated Press In the first quarter of this year, there were 4,226 foreclosures across the city, according to a new study.

The foreclosure problem hit New York City homeowners later than most other cities, but the problems are growing. In the first quarter of this year, there were 4,226 foreclosures across the city, up 16.3% from 3,635 foreclosures in the same period a year ago, according to data compiled by the Furman Center for Real Estate and Urban Policy at New York University.

Queens and Brooklyn were responsible for more than 70% of all foreclosures in the city during the quarter, with 1,556 in Queens and 1,546 in Brooklyn.

Manhattan was last on the quarterly foreclosure list with 164 compared with 98 a year ago, according to the Furman Center.

Write to Constance Mitchell Ford at constance.mitchell-ford@wsj.com

[ASSESSOR_frcls]

Housing Prices Will Rise 37 Percent by 2014 says DEUTSCHE BANK

If you believe this then you’ll believe Pigs can fly!

Housing prices are expected to increase 12.4 percent between 2010 and the end of 2014, predicts MacroMarkets, which surveyed more than 100 analysts and market strategists.

Those interviewed didn’t all see the housing market in the same light. Joseph LaVorgna, a economist at Deutsche Bank predicts that home prices will rise 37 percent by the end of 2014.

On the most bearish end, both Anthony Sanders, professor of real estate finance at George Mason University, and investment adviser Gary Shilling, president of A.Gary Shilling & Co., expect prices will decline 18 percent.

Source: The Wall Street Journal, James R. Hagerty (05/19/2010)

Securities and Investments: Fraud Digest

Securities and Investments 

Morgan Stanley

Action Date: May 12, 2010 
Location: New York, NY 

EDITORIAL: On May 12, 2010, Morgan Stanley’s Chief Executive announced in response to a Wall Street Journal article that he was unaware of any criminal investigation by the Justice Department that his firm, like Goldman Sachs, misled investors about mortgage-backed derivative deals. The WSJ had reported that Morgan Stanley was the subject of such an investigation. In addition to determining whether the firm was betting against the very products it was promoting to investors, the Justice Department COULD investigate whether Morgan Stanley and other securities firms exercised secret control over the rating agencies, causing risky investments to get the highest ratings by these firms. The Justice Department COULD also investigate whether the mortgage-backed trusts put together by Morgan Stanley were comprised of much riskier mortgages than represented to investors. Another investigation COULD be conducted regarding the pay-outs from the insurance policies behind the CDOs and whether the servicing companies working for the trusts are collecting twice – from the insurance and from the foreclosures – and then turning around, acquiring the foreclosed properties for $10 – and profiting yet a third time. Investigators COULD even determine whether foreclosure mills working for trusts created by Morgan Stanley are now using forged proof of ownership to foreclose because Morgan Stanley never acquired the mortgages, notes and assignments they claimed to have in their vaults, backing the mortgage-backed securities. In the battle between the Justice Department and Wall Street, Goliath is in New York, not D.C. 

!BAM! Foreclosure Lawyers Face New Heat In Florida: Wall Street Journal AMIR EFRATI

Again…AMIR…SETS IT OFF!!

April 29, 2010, 12:46 PM ET

By Amir Efrati The Wall Street Journal

Foreclosure DrThese are precarious times for lawyers in the business of filing foreclosure cases for banks. This is particularly true in one of the epicenters of the foreclosure crisis, Florida.

As we’ve noted before, the feds in Jacksonville recently started a criminal investigation of a company that is a top provider of the documentation used by banks in the foreclosure process. And a state-court judge ruled that a bank submitted a “fraudulent” document in support of its foreclosure case. That document was prepared by a local law firm.

For more Law Blog background on the foreclosure mess in our nation’s courts, this post will help.

The news today: the Florida Attorney General’s office said it has launched a civil investigation of Florida Default Law Group, based in Tampa, which is one of the largest so-called foreclosure-mill law firms in the state.

According to the AG’s website, it’s looking at whether the firm is “fabricating and/or presenting false and misleading documents in foreclosure cases.” It added: “These documents have been presented in court before judges as actual assignments of mortgages and have later been shown to be legally inadequate and/or insufficient.”

The issue: judges are increasingly running into situations in which banks are claiming ownership of properties they actually don’t own. Some of them end up chewing out the lawyers representing the banks.

The AG’s office said Florida Default Law Group appears to work closely with Lender Processing Services — the company we referenced earlier that is being investigated by the Justice Department.

LPS processes and sometimes produces documents needed by banks to prove they own the mortgages. LPS often works with local lawyers who litigate the foreclosure cases in court. Sometimes those same law firms produce documents that are required to prove ownership.

We’ve reached out to Florida Default Law Group and LPS and will let you know if we hear back.

Bankruptcy Stalls ‘Extreme Makeover’ Foreclosure: WSJ

April 27, 2010, 1:30 PM ET

By Dawn Wotapka

Milton and Patricia Harper narrowly avoided foreclosure. Again.

Their 5,300-square-foot McMansion, built for the “Extreme Makeover” television show was set to be auctioned off in Atlanta earlier this month. But the Harpers averted that fate with a Chapter 13 bankruptcy filing–for the second time.

The couple had filed for their first Chapter 13 in early 2009, as foreclosure loomed on their supersized home. The bankruptcy halted the process. It’s possible that the family was unable to fulfill the payment plan set up under the bankruptcy and thus had to file again this year–a common occurrence says Jessica Gabel, a law professor with Georgia State University.

The Harpers didn’t return a call for comment. Lender JP Morgan Chase, which now needs court permission to proceed with a foreclosure sale, declined to comment.

As we’ve written, the Harper episode aired in the 2004-2005 season. The family’s modest home with septic-tank issues was replaced by a showpiece resembling an English castle. In addition to a new house, which they were given outright, the Harpers received a scholarship fund for their three sons.

Mortgage troubles came after the family used the house as collateral for a $450,000 loan, which was modified by Chase in 2008.

Meanwhile, the family still seems to be trying to raffle off the house. They’ve recently updating their raffle Web site, however, no auction date is listed.

“That is unusual,” said Ms. Gabel, the professor. “That doesn’t pass the smell test. They’re going to have to demonstrate to the court why they should proceed” with the raffle. Plus, she added, any post-bankruptcy petition income might have to go to creditors.

Fannie Offers Spur to Avoid Foreclosure: WSJ

SFF posted how DJSP is going to begin to run the “Deed In Lieu” for an undisclosed servicer. Is this the opening door to fend off the millions of foreclosure fraud that are being presented in many courts?? Is this they’re way of “taking care of business” prior to any foreclosure? Go here to see Law offices of David J. Stern as a retained attorney for Fannie Mae. NOTE: almost all Mills are on this list.

By NICK TIMIRAOS

Fannie Mae will make it easier for some struggling homeowners to buy houses in the future if they avoid foreclosure in the present.

Under rules released this month that will take effect in July, some troubled borrowers who give up their homes by voluntarily transferring ownership through a “deed in lieu of foreclosure” or by completing a short sale, where a home is sold for less than the amount owed, will be eligible in two years to apply for a new mortgage backed by Fannie.

Currently, borrowers who complete a deed-in-lieu of foreclosure must wait four years before they can take out a loan that Fannie is willing to purchase.

[FANNIE]The new policies from Fannie, a government-backed mortgage-finance company that together with Freddie Mac backs about half of the U.S. mortgage market, don’t relax waiting periods for borrowers who go through foreclosure.

In 2008, Fannie lengthened that waiting period to five years from four.

To quality for the reduced waiting period, most borrowers will need to make a down payment of at least 20%, although borrowers with extenuating circumstances, such as a job loss, will be required to put down just 10%.

Even if waiting periods are shortened, many borrowers may be unlikely to repair their credit that quickly in order to get a loan in the first place. Foreclosures and short sales generally have the same effect on a borrower’s credit score and can stay on a credit report for up to seven years.

The new rules are designed to make foreclosure alternatives more attractive to borrowers at a time when the Obama administration is ramping up its effort to encourage banks to consider alternatives such as short sales. That program sets pre-approved terms for short sales and offers financial incentives to borrowers and lenders to complete such sales.

Freddie Mac requires borrowers to wait five years after a foreclosure and four years after a short sale or deed-in-lieu.

Those periods can fall to three years for a foreclosure or two years for a short sale when borrowers show extenuating circumstances.

Officials at the Federal Housing Administration, the government mortgage insurer, say they are considering changes to their rules, which require borrowers with a foreclosure to wait at least three years before becoming eligible for an FHA-backed loan.

“We are beginning to think about post-recession, how you address borrowers who became unemployed through no fault of their own … and now deserve the right to re-enter the housing-finance system,” said FHA Commissioner David Stevens. DinSFLA: DOUBLE DUH! Beginning to think?? A little too late.

But some worry that policies enabling defaulted borrowers to more quickly resume homeownership could encourage more people to default.

“We don’t want to say that there’s a ‘get out of jail’ card during recessions to walk away from your house,” Mr. Stevens said. DinSFLA: Exactly who is getting the “GET OUT OF JAIL CARD”??

In December, the FHA unveiled rules for borrowers who completed a short sale.

Those who have missed payments prior to completing a short sale or who didn’t face a hardship and simply took advantage of declining market conditions to buy a new home must wait three years.