Foreclosuregate: NY Judges Side with Homeowners

Washington Post reports that the judges in three counties in New York - Suffolk, Nassau and Kings counties - are increasingly siding with the homeowners who are being foreclosed, often by the nation's biggest banks, over the fraudulent documents and procedures and fraudulent/incomplete mortgage assignments and transfers.

Their judgement: because of these frauds, the foreclosing banks do not have standing to foreclose.

The Washington Post article tries to paint it as "paperwork" (i.e. trivial; just look at the wimpy title) problem, but what these judges are doing goes to the heart of the matter - what William Black calls "control fraud".

Some judges chastise banks over foreclosure paperwork
(Ariana Eunjung Cha, 11/09/2010 Washington Post) [Emphasis is mine.]

EAST PATCHOGUE, N.Y. - A year ago, Long Island Judge Jeffrey Spinner concluded that a mortgage company's paperwork in a foreclosure case was so flawed and its behavior in negotiations with the borrower so "repugnant" that he erased the family's $292,500 debt and gave the house back for free.

The judgment in favor of the homeowner, Diane Yano-Horoski, which is being appealed, has alarmed the nation's biggest lenders, who say it could establish a dramatic new legal precedent and roil the nation's foreclosure system.

It is not the only case that has big banks worried. Spinner and some of colleagues in the New York City area estimate they are dismissing 20 to 50 percent of foreclosure cases on the basis of sloppy or fraudulent paperwork filed by lenders.

...The situation in Suffolk and Nassau counties on Long Island and Kings County in Brooklyn- which have among the highest rates of foreclosure in the state and where the 81 judges handling foreclosures have become infamous over the past few years for scrutinizing paperwork for errors - provides a window into how the crisis could unfold across in the country.

While the level of tolerance for document mistakes varies from judge to judge, the group as a whole has a reputation for ruling against mortgage companies when paperwork issues or other problems arise. At least one bank, J.P. Morgan Chase, requires document processors to separate foreclosures cases from these three counties from those in the rest of the country. A high-ranking executive of the company is specially assigned to sign off on the area's foreclosure filings.

Judge Dana Winslow of Nassau County says he's thought a lot about why judges in his area are more apt to question filings. He said it comes down to one thing: Lack of trust for Wall Street. In this region, judges have seen a lot of inaccurate filings from the financial sector.

The article then lists several recent cases in which "paperwork errors" stopped the foreclosure:

On June 17, for example, Judge Karen Murphy of Nassau County ruled that Wachovia Bank lacked standing to foreclose on a home because the document used to prove ownership of the mortgage was incomplete.

On Sept. 21, Judge Peter Mayer of Suffolk County delayed a foreclosure by Ally Financial's GMAC mortgage unit after noticing that the paperwork transferring the mortgage to the bank was dated two days after the foreclosure was initiated.

And on Oct. 21, Judge Arthur Schack of Kings County dismissed a OneWest foreclosure motion because the bank had not adequately documented how the mortgage had been sold and resold to investors. He also questioned why the employee who signed many of the documents claimed to be a vice president of several different mortgage companies at the same time.

In a different case in May, Schack ruled that HSBC Bank could not foreclose on a home because the paperwork that assigned the mortgage to HSBC from the original lender, Cambridge, was "defective."

(You can read the entire article at the link above.)

A big can of worms is the securitization fraud.

If the mortgages weren't properly transferred to a securitization trust (REMIC - Real Estate Mortgage Investment Conduit) when the trust was duly set up, as seems to be the case in many (if not all) mortgages, then the certificates issued to the investors by the REMIC did not have any backing as specified in the pooling and servicing agreement. The investors were literally sold worthless papers (or digits on their accounts). The trustee of the REMIC is responsible for making sure the mortgages are properly transferred into the trust, and that these mortgages meet the standard specified in the agreement. It looks the trustees of numerous REMICs - large banks like Bank of New York Mellon, Deutsche Bank, Wells Fargo - didn't bother to do it.

Why is this important for the borrowers? Well, if the REMIC didn't own the underlying mortgages but was receiving the payment from the borrowers and distributing to the investors, I don't know a better word for that than FRAUD. Or RACKET. The borrowers were paying to the entity that had no right to receive payments.

New York is a judicial foreclosure state. Lucky for the struggling homeowners being foreclosed. The same fraudulent papers, filings, assignments, etc. are rampant also in non-judicial foreclosure states (California is one of them), but the homeowners who are being foreclosed in the non-judicial states have to bring a costly lawsuit to get a court hearing, and the burden of proof that the foreclosing party does not have the standing is on the homeowners, unlike in the judicial foreclosure states like New York.

It seems to me that non-judicial foreclosures are unconstitutional, denying the borrowers in the non-judicial states the right to be heard by the court while that right is enjoyed by the borrowers in the judicial states.

Thus, MSMs like Washington Post and the politicians in the pockets of Wall Street bankers (from President on down) don't want to touch "Foreclosuregate" very much, and when they do, they try their best to portray as a mere "paperwork" problem to be remedied very quickly and easily by the banks.

And we are conditioned to blame "greedy" borrowers and "deadbeats".

(h/t vecteur63)

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