New York AG fights foreclosure fraud

New York Attorney General Eric Schneiderman is under pressure from the Obama administration to drop his investigation of fraudulent mortgage foreclosures and go along with a negotiated settlement, which would impose a token punishment on the banks without any guarantee that the abusive practices will stop.

It shows the benefits of a federal system and the separation of powers, which enables a state official to prosecute lawbreakers and independent judges to decide their cases, even when a President is not willing to act.

Eric Schneiderman

The housing boom and bust began when banks induced people whom they knew could never repay to take out mortgages.  Then they repackaged these mortgages into complex securities whose buyers had no way of knowing how unsound the investment is.

The final stage is foreclosure without any documentation as to who holds the mortgage and what is owed.  Processing of foreclosures has been turned over to servicing companies whose only interest is to process as many foreclosures as possible as quickly as possible, not in fulfilling their legal duty to verify who owes what to whom.

In some cases, people who are fully paid up on their mortgages, or have every reason to believe they are fully paid up, have lost their homes.  The mortgages are assigned to mortgage service companies, who add their fees to the original mortgage debt—sometimes without telling the homeowner.

Here’s what the New York Post found in an investigation in the New York metro area.

In a staggering 92 percent of the claims brought by creditors asserting the right to foreclose against bankrupt families in New York City and the close-in suburbs, banks and mortgage servicers couldn’t prove they had the right to kick the families out on the street, a three-month probe by The Post has shown.

But that didn’t stop the banks from trying.

By robosigning documents and pressing foreclosures without the proper paperwork, banks have attempted to steamroll their way over sometimes-outgunned homeowners … .

But homeowners and the courts are starting to fight back.

Forced to finally face the mess, banks find themselves driven to the bargaining table, where they now hope to win a global settlement with all 50 states and the federal government.  The tangled, complex mess in New York shows how tough — and expensive — such a settlement could be for the banks.

The Post dug through more than 150 Chapter 13 bankruptcy filings from June 2010 in New York’s Eastern and Southern federal court districts — covering the five boroughs, Long Island and nearby northern counties including Westchester–in search of local foreclosure or pre-foreclosure cases.  We then put together a random sample of 40 cases where creditors such as banks — but more often loan servicers — filed proofs of claim for first mortgage debt.

The research unearthed claims riddled with robosigners, suspicious documents and outrageous fees.  And in a stunning 37 out of 40 cases, The Post discovered a broken chain of title from the original lender to the company now making claim against a local family for its home and thousands of dollars in questionable fees.

In other words, the bank or mortgage servicer filing the claim failed to prove it has any right at all to make a claim it was owed the debt or that it could seize the home in question.

Click on Banks’ House of Cards for the full New York Post article.

This 60 Minutes documentary is excellent, but it gives the impression that the only problem is lack of proper paperwork.  The other part of the problem is the hidden and sometimes bogus fees which allegedly are added to mortgage payments.  As with credit card issuers, it is sometimes possible to make more money from penalties and fees

It is premature to settle the case without any investigation to determine the extent of the fraud.  But that is what the Obama administration is trying to get the 50 state attorneys-general to do.  The argument is that to pursue the case will put the whole financial structure of the United States in jeopardy.  If so, then that financial structure must be very rotten.  Maybe it needs to be reformed.

Click on How Chase Ruined the Lives of People Who Paid Off Their Mortgages for two examples of how someone who is paid-up on their mortgage can still be the victim of wrongful foreclosure.

Click on Banks ‘foreclose’ on houses bought for cash for an earlier post of mine on foreclosure abuse.   I link to articles about how people who were paid up on their mortgages or who owned their houses free and clear were victims of wrongful foreclosures.

Click on Foreclosuregate: a scandal of robber bankery for another earlier post of mine on foreclosure abuse.   I link to articles that show how mortgage service companies profited from arbitrary fees and charges leading to wrongful foreclosures.

Click on What Eric Schneiderman Reveals About Obama for comments by Matt Stoller, a fellow at the liberal Roosevelt Institute and former adviser to Rep. Alan Grayson (D-FL).

Schneiderman and the other state attorney-general hold-outs deserve great credit.  They must be under great political pressure to give in, and any expression of support would mean a lot.  If you agree with what Schneiderman is doing, go to his web site, Questions and Comments to Attorney General Eric Schneiderman, to say so.  Or phone his office at 1-800-771-7755 or 1-212-416-8050.