How The Current Foreclosure Fraud Crisis Works

A simplified way to understand how the current foreclosure fraud crisis got started. It all became unwound when a foreclosure mill “robo signer” admitted in a deposition to signing more than 10,000 affidavits in one day, little lies on slips of paper that got people thrown out of their houses.

(graph based on Foreclosure Fraud For Dummies, 1: The Chains and the Stakes [rortybomb])

PREVIOUSLY
Bank Of America Puts Nationwide Freeze On Foreclosure Sales
JPMorgan Chase Suspends 56,000 Foreclosures
Foreclosure Firm Allegedly Forged Bank Execs’ Signatures On Affidavits
GMAC Halts Evictions In 23 States

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  1. AllanG54 says:

    The fact of the matter is NO ONE is disputing that these people didn’t pay. Many of the houses are already vacant. According to an interview I heard on Bloomberg, this shouldn’t set the banks back more than a month or so in the process.

    • TuxthePenguin says:

      Very, very true. That’s the funny thing about this… they just acted in haste and screwed things up… if they’d have no rushed it, there wouldn’t be any of these problems.

    • Loias supports harsher punishments against corporations says:

      And how much will the lawsuits set them back?

    • Power Imbalance says:

      AllanG54, It’s a good thing we don’t have laws in this country otherwise your thoughts about this really doesn’t matter would make you look like an idiot.

    • johnva says:

      It’s irrelevant whether or not they didn’t pay, because the process wasn’t followed properly. So the foreclosures are not legal, regardless of whether the lenders would have had proper legal grounds to do them had they done things properly and legally.

      Taking someone’s house away is a serious thing. It can’t and shouldn’t be done just on the lender’s say, without a proper paper trail and oversight by the courts. There’s simply too much potential for abuse otherwise.

      Absolutely they should be able to foreclose if they have the proper legal right to. But if they can’t find the proper, non-fraudulent, non-forged documentation, too bad. Until they come up with that, sucks to be them. This is why you keep your documents in order and don’t hire shady “foreclosure mill” law firms.

      • MrEvil says:

        You’re absolutely right John, it doesn’t matter if the bank has legal right to foreclose or not. We have rules and those rules should always be followed.

    • Balaenoptera says:

      One of the links describes how the Florida courts that were set up to deal with the increased volume of foreclosure lawsuits essentially made summary judgements for the banks and would not accept evidence for the plaintiff. One judge even said that he wasn’t “going to consider any evidence that the foreclosure is in error”.
      http://www.nakedcapitalism.com/2010/09/floridas-kangaroo-foreclosure-courts-judges-denying-due-process-on-behalf-of-banks.html

      • Firethorn says:

        I’d ask for that statement to be part of the record, then disregard his judgements (move BACK into the house if necessary) while working on the appeal, using that as document #1.

        Fair trials are supposed to be required.

    • ARP says:

      You mean except for the stories of banks foreclosing on the wrong houses or houses that the people aren’t behind on their payments on, right? Because that’s a pretty big, “except.”

      • Jerry Vandesic says:

        Are you saying that the rate of these kind of events is more than 0.1%? There have been a number of screw ups like you mentioned, but anecdotes do not make the problem “pretty big.” I’d be interested in seeing the actual rate of thise exceptions.

        • Runner says:

          I’m pretty sure you would be upset if that 0.1% was you. And btw, 0.1% of 10,000 is 10. If they are doing 10K doc’s a day, that’s 200 people a month (20 working days a month); or 2400 families a year.

          To take it further and use the avg of 3.5 as the family unit size, that’s 8400 people being displaced a year.

          Compare that number to the numbers of death due to various other causes that we spend millions a year in making people aware of.

        • Aesteval says:

          Does it really matter what the actual rate is? The point in which a house is foreclosed upon when it doesn’t even have a mortgage shows extensive failure on all levels of controls that are expected to prevent that sort of situation from occurring. There is no excuse for the shortcuts taken even if they only appear in a few limited cases.

    • Duke_Newcombe-Making children and adults as fat as pigs says:

      Two words: due process. Two more: due dilligence.

      Even if the banks lawfully can foreclose, they have to follow the law, and not fraudulently manufacture legal documents and blindly shovel through paperwork without personal knowledge of the instant proceedings.

    • Difdi says:

      Except the ones who did pay, and were the victim of a typo or human error that was supposed to be caught by the process, but wasn’t, because you can”t read anything if you’re signing 10,000 documents a day.

    • kmw2 says:

      So you’re saying that if you don’t pay your cable bill, I can fake up a document and come get your TV? Sweet!

  2. Power Imbalance says:

    So some banker just rubber stamped 10,000 foreclosure notices without reading them and this is going to be investigated by another group that doesn’t read anything (congress). Can you say hypocritical.

    • banndndc says:

      or you could say. a whole bunch of bankers committed repeated and intentional perjury by lying in sworn statements to the court and the guys who impeached a president for doing so once aren’t gonna do a damn thing about it.

  3. smo0 says:

    A lot of these people were working on modifications or getting assistance. I can’t see how banks win by doing this – they just set themselves back and are now going to have to dish out a f**k ton of cash.

  4. samonela says:

    America ftw.

  5. dragonfire81 says:

    I think what burns me up the most is that NO ONE is going to get any kind of serious punishment as a result of this mess.

    • DingoAndTheBaby says:

      Yup. I feel ya. And on top of that, there’s still going to be horror stories like the article posted last week about the top 5 BofA F*ck Ups. At what point to we stop the insanity (Susan Powter FTW) and start holding people accountable…

    • Powerlurker says:

      Seriously, swearing an affidavit that you know to be false is perjury. I want to see this person on trial for 10,000 counts of it.

      • dadelus says:

        I agree, but at the same time I sort of feel sorry for them. They’re some low/mid-level cog who was getting pressure from the “big-boys” upstairs to move paper. They obviously didn’t give a shit how the job was done, they just wanted these things processed.

        While that doesn’t excuse the middle-men from doing a shitty job, I would imagine that with the increase in volume these people were being expected to do the jobs of 2-3 people on their own because their employers sure as hell weren’t going to hire more of them to cut into the profit windfall they were looking at reaping.

        Rather then send the mid-level patsy to jail, how about sending the folks who instigated the crime.

  6. Loias supports harsher punishments against corporations says:

    As I read this article and it’s sub articles, I am speechless.

    The judicial process failed at every level, with no oversight.

    This is just a huge Due Process fail.

  7. ARP says:

    One way to discourage this is to give attorney’s fees to the defendant and impose penalties on any foreclosure action if it ends up they don’t have proper documentation at the time of the the claim is filed.

    Now if a person did this, they’d be indicted for fraud, but when a corporate person does this, it’s only a paperwork error. Citizens United FTW.

    • humphrmi says:

      Another way is to throw out judges who accept foreclosures without proper paperwork. I don’t dispute that the law firms and lawyers who file these foreclosure cases are scummy, but they are taught from early law school to try to get away with anything that the judge will allow. It’s the judges who are supposed to make sure that the system is fair and that appropriate legal steps have been taken.

      • ARP says:

        Agreed, but our court system is adversarial, so you’re putting judges in a position they’re not used to being in, that of a quasi-advocate. The state equivalent of Rule 11 is rarely used since they rely on the defendant to bring up the issue. I’m not excusing them, but that’s been our evolution over the years.

        Depending on the jurisdiction, they may have a specialty courts for or they may not. I would would favor a specialized foreclosure court where they judge can ask questions, scrutinize documents, ask for additional evidence, etc. and impose penalties where the documents aren’t up to snuff.

        • Loias supports harsher punishments against corporations says:

          But in this case – if you read the subarticles – is that the judges aren’t even “judging.” They are not looking at the documents, they aren’t allowing for the defendents to bring any case at all (which many actually have lawyers ready to explain the situation).

          The judges here are shills, whether they understand that or not, and are obfiscating the homeowner’s due process.

  8. balthisar says:

    I’ve been keeping up on the robo-signers, but no one’s yet adequately explained what percentage of the documents are factually fraudulent. For example, out of 10,000 documents the one signer attested to signing, how many of them were actually legitimate? Of course there has to be due diligence in ensuring that the documents are factually correct, but what percentage of that 10,000 wouldn’t be? If it’s close to 100%, then the robo-signer isn’t committing fraud (and also not doing his/her job), but someone, somewhere is committing fraud by actually submitting fraudulent documents to be signed. I’ve seen no evidence of that in this case, other than a few outliers. In short, how many people (percentage-wise) were thrown out of their homes that didn’t deserve to be (not based on the docs, but deserved to be because they’re deadbeats)?

    • athensguy says:

      100% of the documents that the signer signed but could not attest to were faulty.

      100% of the documents that were not actually witnessed by a notary were faulty, even if the signer could personally attest to them.

    • kmw2 says:

      They’re all fraudulent – the robo-signers were attesting that they looked over the documents and verified them, when this was almost certainly not true. Whether or not the bank had the right to foreclose on the properly was immaterial.

  9. dragonvpm says:

    After hearing folks going on and on about how all those borrowers were losers/scum/deadbeats for falling behind on their mortgages it’s interesting to now have the banks admit that they were so sloppy with the paperwork that they may not be able to legally foreclose on properties that they foreclosed on (or were intending to foreclose on). From reading various articles it sounds like in many cases the companies involved not only couldn’t foreclose on properties but they didn’t even have the paperwork needed to prove whoe owned the mortgage.

    I’m now waiting for the rush of hard nosed Consumerist commentators to start criticizing banks and other companies involved and talking about how they need to suffer and lose their interest in those homes since they couldn’t be bothered to keep the _legal_ paperwork in order so that they could prove they actually owned the interest in various properties. Of course I suspect that what will more likely happen is that we’ll start hearing excuses about how the people who work at banks are only human and mistakes happen and how the banks shouldn’t lose the money they lent out just because they can’t prove which mortgages they do own.

    This whole mortgage collapse thing has shown an ugly and extremely anti-consumer side to a surprising number of folks who participate in the Consumerist.

  10. Loias supports harsher punishments against corporations says:

    I’m so glad I don’t live in Florida. That state has a long, long road ahead of it for true recovery.

    • e065702 says:

      I live in Florida. The corruption and nepotism is not to be believed.

      I would not hold my breath for any sort of “recovery” regarding the housing crisis. There is too much money to be made for the time being

  11. JuanHunt says:

    This is a symptom of the predatory lending thought process. The originators didnt care if the applicant could pay for the house, or if the application was full of embellishments, or even if the legal documents were properly generated and maintained.

  12. HippieLawChick says:

    Unfortunately, the courts also haven’t been listening to the legions of defendants in these cases, who go to court and tell the judge that they either: a) Are supposed to be in modifications (or trial mods) or b) that the bank/mortgage company hasn’t given them appropriate documentation of the default/note/mortgage.

    If the judge orders a foreclosure after a defendant shows up in court and contests it, and that judge is just rubber-stamping these things, they are as at fault as the mortgage company.

  13. DanKelley98 says:

    So nobody is going to jail for submitting false affidavits to the court?

    • ARP says:

      Only idividuals go to jail for things like that. When corporations are involved it’s called an “administrative error” and nothing happens because they’re usually a single cog in the larger overall machine and therefore have deniability.

  14. Sys Admn says:

    That’s waaaay oversimplified. The banks would love to have us believe that the problem was that someone not signing the document in front of the notary or not reading the document.

    That fraud is the LEAST of the banks’ crimes.

    The entire MERS system was set up to allow banks to securitize mortgages without having to record a deed each time a mortgage or security was passed around. That allowed the entire industry to defraud local governments by not paying recorder fees. It also allowed banks to create securities backed by mortgages they knew or should have known were worthless. They sold those securities, defrauding purchasers such as insurance companies and pensions. Then they destroyed, excuse me, “lost”, the documentation for the mortgages so the securities’ backing could not be audited.

    http://market-ticker.org/akcs-www?post=168923

    • missiv says:

      BINGO!

      The legal chains of claim pertaining to the Deeds for the Properties has been broken. To be honest, no one knows for sure if the Bank doing the Foreclosures even owns said Properties. This is much more deeper than robo-signings, or taking back Homes that aren’t being paid for. Anyone could do what these Banks have been doing, claiming anyone’s home as their own without legal proof. Just wave a robo-signed Deed and profit.

  15. PortlandBeavers says:

    These people’s claims to be “homeowners” are as fake as the banks’ claims that the documents are properly reviewed.