It take a fair degree of skill to pen a journalistic story that hews to the appearance of objectivity yet is out to sell a point of view.
The lead article in the Journal tonight, “Niche Lawyers Spawned Housing Fracas” telegraphs its bias in its headline: the foreclosure crisis is merely the creation of two bit lawyers who by implication don’t know what they are doing, and are pumping trivial issues up for their own enrichment, with the housing market as collateral damage.
Funny that anyone can think this spin is remotely true. The fact that solo practitioner lawyers could have such an impact on the system is not proof that they are miscreants, as the Journal implies. It is that the foundation of mortgage securitzations is rotten as a result of widespread abuses, first on the origination end, later in the foreclosure process. These small firm players are using the legal equivalent of toothpicks; the fact that their efforts have destablized the foundation of the residential mortgage backed securities market is tangible proof that they were imperiled to begin with.
Let’s parse some sections of the article, starting from the top:
The paperwork mess muddying home foreclosures erupted last month. But the legal strategy behind it traces to a lawyer’s gambit in 2006 that has helped keep one couple in their home six years beyond their last mortgage payment.
Not bad in the drive-by shooting category. The foreclosure crisis, which is the result of what increasingly appears to be a widespread failure to convey borrower promissory notes and related liens properly to the the securitization entity is reduced to a mere “paperwork mess”. So the idea that the shortcomings are serious is dismissed. Similarly, the efforts of various attorneys who have been chipping away as aspects of this problem are incorrectly lumped together, as if there was really only a single, simpleminded strategy, a mere “lawyer’s gambit” which by implication, was copied by other low life attorneys. And this effort was to keep a deadbeat borrower illegitimately housed.
Funny, this James Kowalski, the attorney behind this dastardly act, did what members of the bar normally do (at least if they are competent): they look for weaknesses in fact and law in the case presented by the other side. And part of the process involves, stunningly enough, depositions! Kowalski’s evil deed was that he was early, perhaps first, to find a robo signer, back in 2006.
But robo signers are an abuse of court process. You can’t have it one way, and say you believe in law and order and the sanctity of contract, and then say it’s just fine to abuse legal procedures if you are pretty sure you are right. Well you can’t unless you are the Journal, skilled in the art of defending plutocrats, no matter how much in the way of mental gymnastics that might require.
But this implicit focus on robo signers (which admittedly did bring the bigger issue of foreclosure abuses into the limelight) again is a convenient diversion, since the robo signer is far from the most serious problem now affecting the foreclosure process.
Back to the Journal’s account:
It was a first step in the growth of a legal sub-specialty called foreclosure defense that has sown confusion and turmoil in the housing market. Lawyers in the field now commonly use a technique more identified with corporate litigation: probing depositions, designed to uncover any lapses in judgment, flaws in a process or wrongdoing. In the 23 states where foreclosures entail a court hearing, the bank may be ordered to pay the homeowner’s legal bill if a lawyer can convince a judge that the bank has submitted false documents, such as affidavits saying employees personally reviewed the details of loans when they didn’t.
Huh? With all due respect, this is the first time I’ve heard of this “foreclosure defense” sub specialty. Please. These are consumer lawyers, and some of them have gotten good enough at fighting foreclosures that they do it full time. But “sub-speciality” implies a degree of fomalization and coordination of effort that isn’t there. Oh, and the Journal deems it to be bad form for mere consumer lawyers to use the techniques of decent trial lawyers (only corporations are supposed to have access to competent litigators, it seems).
But it gets even better. The Journal couldn’t be bothered letting facts get in the way of a tidy narrative. Kowalski weighed in in the comment section of the article:
Despite my best efforts to answer all of Mr. Whelan’s questions, the article contains a number of misstatements. First, Mr. and Mrs. Jackson did not face a foreclosure hearing after simply stopping payment – they paid the entire amount due per a statement sent to them by GMAC, and paid by certified check. GMAC mistakenly refused the check, alleging it was an NSF payment (not possible with certified funds), then placed the couple in foreclosure. I was simply trying to track the facts of the payment by deposing a witness who had sworn in court documents that she had reviewed the entire file and was familiar with the payment history, when, as it turned out, she was not only not familiar with the payment history, but the substance of her entire affidavit was false, including the allegation that the affidavit was sworn to in front of a notary. These were substantive questions I needed answers to – not an excuse for a delay. Further, the judge did not “throw out the case” – it is still pending, with GMAC still suing the Jacksons, years later.
I, and most of my fellow consumer attorneys who are members of the National Association of Consumer Advocates, do not raise these issues for delay – we raise them because we all have cases (this is the bulk of my foreclosure defense practice) where all or part of the foreclosure is purely the fault of the servicer or mill law firm – from homeowners whose payments were misrouted by the servicer, to servicers who simply changed the address of the property and then force-placed flood insurance, to servicers who ignore insurance plans the borrowers paid for (all examples from my cases) to servicers who refuse to even accept HAMP-type loan modification documents – all are substantive, real problems that were not the fault of the borrowers. The deposition was, in the Jackson case, merely an effort to get at the truth of the reversed payment – instead, GMAC admitted to wholesale manufacture of court documents, then promised to fix the practice, then continued that practice unabated for 4 more years.
Most of what we have uncovered are criminal violations – false testimony under oath, notary fraud, etc. These problems will continue until the attorneys general who have formed a task force recognize and confront the significant criminal violations, and will continue unless we have real reform of the servicing practices that emphasize speed over the truth.
Not a single one of my clients wants (or deserves) a free house. What they want (and deserve) is for their voices to be heard, and, for better or worse, consumer lawyers are the only ones capable of achieving this at the moment.
Oh, and it would have been nice if Mr. Whelan had taken the time to spell my name correctly throughout the article.
Yves here. Servicer abuses that result in foreclosures are simply not getting the media attention they deserve. The prevailing perception, and the party line from the banks, is that the borrowers are all deadbeats and therefore any efforts to aid them are simply an abuse of court processes.
But servicers are modern judges, juries, and to the extent they can railroad foreclosures through, executioners. When a payment arrives after the due date (and servicers have been found to hold checks to render payments late), under RESPA and the bank’s agreement with the borrower, the bank is supposed to apply payments to principal and interest first, then any late fees. But if you incur a late fee, they instead apply the payment to that first, which makes your regular monthly payment come up short. So then you get an insufficiency fee.
Servicers don’t send detailed monthly statements like credit card companies, telling you how your payments were applied. This process of misapplication of payment and failure to notify borrowers when fees have been incurred guarantees that the charges will balloon. It isn’t until months have passed and the extra balance become large, say $2000 or more, that the homeowner realizes they are under water according to their servicer, even though they have made all their regular payments. Many lack the extra money to clear out all these largely bogus fees; other have tried fighting, only to find the servicer won’t budge, and they rack up more charges, which forces them either to capitulate or lose their home.
Nevertheless, the Journal runs the party line that nothing is wrong with the foreclosure machinery, when the intense pushback suggests otherwise, and brandishes the usual financial services industry threat: hurt us, and it will hurt you even more:
“There is a movement afoot by [state attorneys general] and private lawyers to use technical problems to avoid foreclosures where the borrower is in default and the foreclosure is in all respects substantively appropriate. These are lawyers where the best job they can do for their clients is to keep them in their houses without paying the mortgage,” said Andrew L. Sandler, a Washington securities lawyer who represents banks and firms that service mortgages.
Mr. Sandler added: “The class-action lawyers are swarming around this issue right now, because they perceive that it can result in significant fees for them. But they’re not well-founded cases, and the banks will vigorously contest any class action around these issues.”
The big risk to banks and the housing market, indeed, is that more homeowners and lawyers come to see such cases as attractive to fight.
It’s certainly fair to say some legal actions are based on weak theories; we dissed the widely touted investor suit against Countrywide on mortgage putbacks yesterday, and have selectively argued against other legal theories. But some of these cases are based on careful study of real abuses and are attacking improper, potentially fraudulent actions. This is one of the few checks we have left on misuse of power, but the powers that be want the public to see these legal challenges as a threat to their financial security and accept compromises, just as we have been forced to accept diminished civil liberties and ever more intrusive surveillance in the name of personal security.
One encouraging sign: I didn’t take a careful tally, but despite the Journal’s heavy spin on this story, its comment section seemed to be running at only a 50% acceptance of its position. The more the banks try to press the merits of their case on dubious evidence, the more the public is coming to realize they are not to be believed.