New Fronts Opening in Foreclosure Crisis: Criminial Investigation, Constitutional Probe Launched

New fronts are opening in the foreclosure mess.

A lot of people have wondered why no one has gone to jail over what by commonsense standards is fraudulent activity. The possibility that the violations were indeed criminal is finally being investigated. From the Washington Post:

Federal law enforcement officials are investigating possible criminal violations in connection with the national foreclosure crisis, examining whether financial firms broke federal laws when they filed fraudulent court documents to seize people’s homes, according to people familiar with the matter.

The Obama administration’s Financial Fraud Enforcement Task Force is in the early stages of an investigation into whether banks and other companies that submitted flawed paperwork in state foreclosure proceedings may also have misled federal housing agencies, which now own or insure a majority of home loans, according to these sources.

The task force, which includes investigators from the Justice Department, Department of Housing and Urban Development and other agencies, is also looking into whether the submission of flawed paperwork during the foreclosure process violated mail or wire fraud laws. Financial fraud cases often involve these statutes.

Yves here. On the one hand, I would not underestimate the ability of Team Obama to give the banking industry a free pass when tough action is warranted. On the other hand, there is a proud tradition of the Federal government rousing itself when measure by the states run the risk of showing it to have been complacent to the point of negligence (one well known example is when state securities law suits force the generally lapdog SEC to take swing into gear). So if state or even private lawsuits expose enough damaging material, it will be hard for this task force to sit on its hands.

On another front, the ACLU is starting to obtain information to determine whether foreclosures in Florida (the so called rocket docket) violated Constitutional “due process” requirements:

The American Civil Liberties Union and the ACLU of Florida today filed public records requests with judicial officials in Florida to determine whether homeowners are having their constitutional rights violated during foreclosure proceedings and being unlawfully removed from their homes.

In Florida, where almost half a million foreclosure cases are pending, the state legislature recently spent over $9 million to create special foreclosure courts, staffed by retired judges, with the intent of speeding through the state’s backlog of such cases. But recent media reports in Florida and around the country, which reveal rampant error and fraud in the foreclosure process, have shown that courts should take particular care with foreclosure cases. Instead, in the rush to push foreclosure cases through the courts, Florida may be taking shortcuts and, in the process, forsaking constitutionally-required due process protections….

Filed with the Office of the State Court Administrator and the chief judges of all 20 of Florida’s circuit courts, the requests seek access to, among other things, all documents related to special court systems created to dispose of foreclosure cases and the rules and procedures in place that govern those systems…

Copies of the ACLU’s public records requests are available online at: www.aclu.org/racial-justice/aclu-seeks-information-about-constitutionality-florida-foreclosure-courts

Yves here. These initiatives are only in the early stages, but both show that the foreclosure crisis is moving from narrow legal issues to much bigger ones.

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22 comments

  1. Pascal Blacque

    Finally … It’s a good start. I am a bit skeptical of the Federal investigation as it may be a preemptive coup to smother all other actions. We need a viable class action suit on behalf of all borrowers (with securitized mortgages) seeking proof lenders have the notes in hand and that title chain is intact as per Trust and MERS contractual obligations.

  2. jo6pac

    Yves here. On the one hand, I would not underestimate the ability of Team Obama to give the banking industry a free pass when tough action is warranted.

    Yes this will be explained as the new normal for banking.

    Everything is on schedule, please move along.

  3. Neil D

    I hope that the ACLU and the justice department are up to the task of suing and prosecuting all those who messed up the title transfer processes.

    1. jpe

      The ACLU suit should proceed against the states; a due process claim in this context will argue that the states violate the due process of the homeowners by failing to abide by their own procedures and laws.

  4. par4

    That limp noodle Obama and his useless AG Holder aren’t going to do ANYTHING! Except to tell us to just look forward.

  5. bigfoot

    So if I bought a collapsed CDO for 2 cents on the dollar, may I now go to the bank that created the paper and demand some silly payment because the titles weren’t properly conveyed? Better not.

  6. creolius

    I’m curious about something, maybe somebody here has some insight – if someone who was current on their mortgage (which had been resold without the note being properly assigned to the trust)filed for bankruptcy, and listed the lender as an unsecured creditor – does that put the onus on the lender to prove otherwise? And if so, would a “dog ate my homework” affidavit be likely accepted by the court?

  7. Meg

    honestly at this point Jimmy McMillian of the Rent is Too Damn High Party is the only pol I trust to hold the mortgage industry accountable. Just look at the anger and passion he has for bringing justice people on the brink of homelessness: http://tiny.cc/ucu6d

    The man can preach it!! I’m sad he’s a long shot candidate for NY Governor.

  8. Jay

    Sign a document you have not read in its entirety: go to jail.
    Vote on a piece of legislation you have not read in its entirety: just another day on Capitol Hill.

  9. Gordon

    The articles on MERS by Prof. Christopher Peterson of the Univ. of Utah Law School lead one to speculate about a way to stop foreclosures and force some renegotiation. That is, a determined lender could loan money in small amounts on very favorable repayment terms to lots of distressed homeowners whose property records at their local county courthouse show MERS as the mortgagee. The new lender could record everything properly. When MERS (or the real first lender) showed up to foreclose, the new lender could then contend it owned the security interest. At best, Peterson argues, the first lender would get only an equitable lien and would not be able to foreclose. Do we think a renegotiation in earnest might then take place? A few court decisions upholding the rights of the new lender just might provoke some interest on the part of the securitized lenders.

  10. Darby Shaw

    Anybody know anything about K&L? How significant is this?

    http://www.reuters.com/article/idUSTRE69I59K20101019

    (Reuters) – A major law firm has formed a special task force aimed at defending lenders and mortgage loan servicers as legal challenges to questionable foreclosure practices mount.

    Global law firm K&L Gates LLP said on Tuesday it has assembled a team to help companies respond to allegations ranging from wrongful foreclosure to inadequate documentation and lack of standing to foreclose.

  11. Antifa Richtoffen

    This is bedrock stuff. The governance issues here go straight back through 800 years of English and American common law, right through every word of our Constitution and Declaration, and right back to the 63 paragraphs of the Magna Carta. King John signed it in 1215 to keep his head and some aspects of his monarchy.

    That document, signed in a room full of drawn swords (so to speak), established the idea that no one can take a free man’s property without the full involvement of the law. No one.

    It established the idea of a nation ruled by law, not by men.

    These bankers have played with far more fire than they are capable of grasping, methinks.

    1. readerOfTeaLeaves

      These bankers have played with far more fire than they are capable of grasping, methinks.

      I very much share your view.
      I don’t think these people – including the Beltway ‘pros’, and including lobbyists, have any clear grasp of what they are really dealing with in terms of messing with the foundational concepts of property rights, contracts, law, and ‘justice’.

      Where I live, divorce and family law is the most dangerous area of law (in terms of risk to attorneys).
      Real estate law is the second.

      The entire mythology of regions in my part of the US are premised on land and property ownership of ‘real’ estate.

      It’s almost like watching that old US tv show “Bonanza”, but instead of Pa and the boys all gathered round the hearth, they come home to find a foreclosure notice on the door (from a bankster who can’t locate the original mortgage, so has made a forged copy). I’m thinking that’s one really, really stupid bankster.

  12. Progressive Ed

    No matter. The Emperor can make everyone whole whenever he wants to. Just make sure you are a registered Democrat.

  13. Darby Shaw

    Wow….

    http://www.detnews.com/article/20101020/BIZ/10200329/1001/GMAC-ends-its-freeze-on-foreclosures

    Washington — GMAC Mortgage resumed foreclosures in 23 states Tuesday after it had halted practices earlier this month following an employee’s admission of approving thousands of foreclosure notices without reading the paperwork.
    “As we review the affected files in the 23 judicial states and take any needed remediation, the foreclosure process continues,” said Gina Proia, a spokeswoman for GMAC Mortgage.

  14. Bill

    Lamposts ?

    Diogenes-became notorious for his provocative behaviour and philosophical stunts such as carrying a lamp in the daytime, claiming to be looking for an honest man.

    There are few honest men . Today most of mens acts are carried out in darkness . Diogenes will not find any here in the U.S. , just as he did not in Greece .

  15. Jim Davey

    Slick banking mortgage executives and their lapdog say-anything do-anything attorneys, will all find out what R.I.C.O. stands for …. civilly and criminally. Triple damages folks … AND jail time …. like have you no common sense? Oh, well we know the answer to that one after reading about MERS!

    But R.I.C.O. lawsuits take time, and personally me thinks the bank will not survive the collapse of their derivatives gambling.

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