So much for the idea that the affidavit problem is a mere technicality and a mere operational hassle for the banks. They had clearly viewed complying with their own agreements as an option, not a requirement, with the savings for cutting corners only somewhat offset by the costs of getting caught from time to time.
Some jurisdictions aren’t buying the banks’ “crime pays” logic. These abuses challenge the basic principles of the rule of law.
The latest salvo is a lawsuit by the Ohio state attorney general against GMAC for filing false affidavits. The full text of the suit is here. From Richard Corday, the attorney general, is seeking both fines of $25,000 per false affidavit plus a preliminary and permanent injunction against GMAC foreclosures. In other words, he wants them out of that business in his state. He has also sent letters to four other major lenders in Ohio (Bank of America, JPMorgan, Citigroup and Wells Fargo) and clearly also has them in his crosshairs.
From his statement:
The actions by lenders that I am talking about today show gross disregard for the integrity of this legal process and for the private property rights of homeowners.
We are talking about lenders and servicers treating foreclosure not as a legal proceeding that deserves the careful attention of the property owner, the servicer of the mortgage and the courts, but rather as a production line making widgets, that accords foreclosures little deliberate accuracy that the law – or for, that matter, basic courtesy and common sense – mandates be given to such serious matters.”
Admittedly, the affidavit problem is a secondary front in the overall bank “my dog ate your mortgage” mess. But the fact that a supposedly minor problem may not prove to be so minor illustrates that all these battles will be hard fought and thus more costly than the banks’ breezy assurances would lead one to believe.
The ultimate objective is to break the excuses that the banks have been using to avoid doing serious principal writedowns. If one state is able to get a mass settlement, whether in the course of private action or state attorney general suits and investigations, it will be a precedent that other banks will find difficult to ignore.
David Dayen at FireDogLake goes through the math:
The lawsuit alleges fraud on the part of GMAC, along with violations of the Ohio Consumer Sales Practices Act, in filing false affidavits to mislead the courts in what they describe as “hundreds” of Ohio foreclosure cases. And, the Attorney General is treating every single false affidavit filed in an Ohio court as a separate violation, with a fine of up to $25,000, plus additional restitution for the homeowner of an unspecified amount.
This is a major lawsuit, and as Cordray told reporters, “We’re at the beginning of this, not the middle or end, and we’ll see where it leads us.” For context, approximately 450,000 foreclosures have been filed in Ohio since 2005, and potentially all of them used this robo-signing process. At the outer edge of this, if every one of those foreclosure processes is seen as a single case of fraud, the fines for the entire lending industry would add up to $11.25 BILLION dollars, just in the state of Ohio, not including the extra restitution for homeowners.
I don’t think that’s necessarily going to be the end result of this, but for the moment, Cordray is suing GMAC, and all he has to prove is that the lender knowingly presented false affidavits and false documents to the court. Even the hundreds of cases he suggested GMAC committed fraud in would amount to a significant fine.
What’s more, Cordray sent letters seeking meetings with the other four top lenders in the state – – to discuss their use of robo-signers and how they plan to remedy the practice. He certainly sounded like someone ready to include them in future lawsuits…..
Cordray said he was in contact with other Attorneys General across the nation about this matter, and that there is “deep concern” nationally about these practices.
Corday also rebutted the “two wrongs make a right” or deadbeat borrower argument:
When challenged by one reporter about the fact that the borrowers were in fact delinquent and that merits some action on the part of the lender, Cordray struck back. “What each side merits is that proper legal processes be carefully followed… If we would file a case with an affidavit we know to be false, that is seen as a very serious matter by the court. I don’t see why this should be taken any more lightly.”
In other words, the law must apply equally to big as well as small fry, and banks can’t be permitted to abuse court proceedings to tip the scales of justice in their favor.