Are Banks Scheming to Gut the Role of the Courts in Foreclosures?

I may be overreacting but given the sorry behavior of banks throughout the crisis and its aftermath, better to be vigilant than sorry.

The Wall Street Journal provided a very sketchy summary of the counterproposal that the banks will put on the table in the foreclosure fraud settlements this week:

The 15-page bank proposal, dubbed the Draft Alternative Uniform Servicing Standards, includes time lines for processing modifications, a third-party review of foreclosures and a single point of contact for financially troubled borrowers. It also outlines a so-called “borrower portal” that would allow customers to check the status of their loan modifications online.

But the document doesn’t include any discussion of principal reductions. Nor does it include a potential amount banks could pay for borrower relief or penalties.

This seems innocuous, right?

Think twice. It depends on what they mean by “third party review of foreclosures”. I strongly suspect that the intent is to pull as many contested foreclosures as possible out of the court process, particularly those that involve chain of title issues, since enough adverse rulings have the potential to blow up the entire mortgage industrial complex.

If you think the banks aren’t already on to this one, think twice. One ruse already used regularly takes place in Chapter 13 bankruptcies. Even though the whole point of the bankruptcy process is to hold creditors at bay while the court sorts out who gets what, the foreclosure mills, operating on their clients’ instructions, try to break the bankruptcy stay (the term of art is that they file a motion for relief of stay). Even though this can be batted down, it still costs money ($800 is a typical cost) and a borrower who has filed for bankruptcy is by definition short of money.

Not all borrowers who go through bankruptcy hire experienced bankruptcy lawyers. The bank’s counsel tells the borrowers attorney that if he signs a harmless looking agreement, the bank will quit trying to break the bankruptcy stay. However, the agreement has language that results in the bank’s being able to seize the house outside the bankruptcy process in certain circumstances, ones that come up all too often as bankruptcies grind on (I’ve been promised a live example for NC and hope to discuss this in greater detail soon). It effectively strips out a lot of the protections provided by the bankruptcy process.

And there is plenty of reason to be suspicious of third party processes devised by banks. Brokerage customers are accustomed to the indignity of having to agree to arbitration in the event of disputes; the financial press regularly carries stories on the inadequate settlements that often result. An even more abusive example was credit card settlements. Credit card customers are required to agree to binding mandatory arbitration; some banks, in particular MBNA (whose portfolio has since been acquired by Bank of America) relied upon the National Arbitration Forum, a Minnesota based firm that assured business friendly results via its selection of arbitrators, resulting in settlements in favor of the consumer in just 6% of cases (see here, here and here for details). The Minnesota state attorney general sued the NAF for consumer fraud, deceptive trade practices, and false advertising. The settlement required that the NAF stop accepting all (repeat, all) new arbitrations except those involving domain names, which put it out of business as far as credit card and other consumer debts were concerned.

I’ll admit to being a bit surprised that the banks have decided to offer up single point of contact, but as we indicated, there are ways to deliver that that would even be consistent with how the 27 page state AG proposal set it forth, yet not actually amount to the designated case manager being all that accessible (note our issue here was not bad faith but pure queuing issues, since there will inevitably be certain peak calling times and call times ). For instance, the state AGs allow for someone who can’t reach the case manager to speak to a supervisor; it’s not hard to imagine that the “supervisors” will get a smidge more pay and training to justify the designation but are likely to wind up handing the bulk of the calls.

Now the examples cited admittedly involve arbitrations as a requirement of doing business with the vendor; cheeky as the banks are, I doubt they’d have the nerve to ask for anything as sweeping. But I can easily imagine them trying to get consumers to waive certain rights to go to court if they avail themselves of a dispute resolution process. Any such measure strips consumers of important rights and should be firmly opposed by the state attorneys general and the Administration.

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26 comments

  1. David Smith

    Single point of contact isn’t necessary when files are kept current and complete. I’ve dealt with many customer service representatives who have good notes and records from previous communications with another rep, and there are no problems. If communication is by e-mail, then a single point of contact makes sense. But when by phone, it could result in delays and missed calls.

    1. Yves Smith Post author

      True, we argued this is a previous post, but thanks for bringing this up again.

    2. monday1929

      “single point of contact” could simply mean a single 800#.
      If we are debating the fine points of a settlement that will be gamed and abused, and there is no push for jail time for massive systemic fraud, the banks have already won.
      What I fear, and the bankers should too, is that the destruction of the rule of law will result in highly trained military types deciding to target high ranking bankers, not for settlement talks but for execution.

      The banks have signed hundreds of settlements in which they promised, without admitting guilt for their latest iteration oof crime, to NOT commit similar crimes in the future. Yet, they persist in doing so.

      I fear, and predict, a movement will rise among people with fatal illnesses and the elderly to “take out a banker” before they themselves commit suicide. They will see it as a desperate, last ditch attempt to achieve justice.

  2. Edwardo

    These are, in the main, criminal actors, and, as you have suggested, have acted as such for a long time. They will do what criminals do, so, yes, keeping their perfidy and criminality away from the purview of the courts will always be a top priority. One must assume, that every step of the way, this will be their default position.

  3. DownSouth

    Are Banks Scheming to Gut the Role of the Courts in Foreclosures?

    I think Richard Bookstaber pretty much exposed the hand of the bankster’s in his post “Human Complexity: The Strategic Game of ? and ?”.

    The banksters believe they are fighting a war, and make no bones about it, the American people are the enemy.

    Commenter Brian furnished the original document by the ace WWII fighter pilot, John Boyd, that Bookstaber lifts his title from: The Strategic Game of ? and ?.

    Boyd asserts that the goal of human nature is to: “Survive, survive on own terms, or improve our capacity for independent action.” “The competition for limited resources to satisfy these desires,” he continues, “may force one to diminish adversary’s capacity for independent action, or deny him the opportunity to survive on his terms, or make it impossible for him to survive at all.”

    The war plan being carried out against the American people that the banksters have adopted is three-pronged—-physical, mental and moral—-as Boyd goes on to elaborate:

    • Physically we can isolate our adversaries by severing their communications with outside world as well as by severing their internal communications to one another. We can accomplish this by cutting them off from their allies and the uncommitted via diplomatic, psychological, and other efforts. To cut them off from one another we should penetrate their system by being unpredictable, otherwise they can counter our efforts.

    • Mentally we can isolate our adversaries by presenting them with ambiguous, deceptive, or novel situations, as well as by operating at a tempo or rhythm they can neither make out nor keep up with. Operating inside their O-O-D-A loops will accomplish just this by disorienting or twisting their mental images so that they can neither appreciate nor cope with what’s really going on.

    • Morally our adversaries isolate themselves when they visibly improve their well-being to the detriment of others (i.e. their allies the uncommitted, etc.) by violating codes of conduct of behavior or behavior patterns that they profess to uphold or others expect them to uphold.

    What’s the “overall message,” Boyd asks, to which he answers:

    The ability to operate at a faster tempo or rhythm than an adversary enables one to fold adversary back inside himself so that he can neither appreciate nor keep-up with what’s going on. He will become disoriented or confused; which suggests that unless such menacing pressure is relieved, adversary will experience various combination of uncertainty, doubt, confusion, self-deception, indecision, fear, panic, discouragement, despair, etc., which will further disorient or twist his mental images/impressions of what’s happening, thereby disrupt his mental/physical maneuvers for dealing with such a menace, thereby overload his mental/physical capacity to adapt or endure, thereby collapse his ability to carry on.

    “? – What’s the point of all this -?”, Boyd asks. He answers: “We will be able to surface new repertoires and (hopefully) develop a fingerspitzengefuhl for folding our adversaries back inside themselves, morally-mentally-physically—-so that they can neither appreciate nor cope with what’s happening—-without suffering the same fate ourselves.”

    So yes, the banks are scheming to gut the role of courts in foreclosures. And they have much, much more in store for us.

    A few years back there was a movie released called The Great Santini that gave a poignant portrayal of the kind of people we’re up against here, people like Bookstaber and the banksters. This scene from the movie, which is available on Youtube, is perhaps the most heart wrenching.

    1. Doug Terpstra

      The Great Santini is a great movie. I hated it.

      That scene captures very well the blind sociopathy of our Military-Financial-Industrial Complex — the US government. The banksters and soldiers are ultimately at war with their own culture, their own family, and the very foundation of their “success”. This MFIC is now utterly incapable of understanding the symbiosis embedded in the New Deal. Like a cancer, virus or bacterial colony, it is possessed by a competitive compulsion to dominate and consume the entirety of a diseased ecosystem. They will win all the battles, but by destroying the village to save it they will inevitably become victims of their own success. While they dine on slowly-boiled frogs and cooked golden goose, their house of cards will collapse on its crumbled foundation.

      That’s the good I see in this relentless, exasperating degeneration of culture and economy, and the parallel global escalation of violence and cruelty over which the great change-agent Obama is presiding without check or balance. Carried to extreme, unbridled rigged market cannibalism will fail so spectacularly that incremental reform will no longer be possible; Bernanke’s pump will no longer work and only a new paradigm will do. Although oblivious I’m sure, Obama is playing out all the rope his investors demand with which to hang themselves.

  4. JoJo

    Florida has a house bill in place that will provide non-judical foreclosures for commercial properties!!!

    We in Florida, have the worst track record in the US for foreclosures right now. And, the legislature wants non-judical foreclosures???!!!

    The foreclosing banks and attorneys can’t even live by the rule of law, let alone perform foreclosures without the benefit of a judge!!!!

    1. Dirk77

      It’s nice that the Constitutional violations embodied in the PATRIOT and FISA 2008 acts can be exploited in other situations too. If true, I like how the Florida bill confines itself to commercial properties as if they are going to stop there. As DownSouth and others say here, it is war and you better pick a side.

  5. steelhead23

    Innocuous indeed. Thanks for unveiling the ruses Yves. But this is just the offer, wait til you hear the sales pitch. As this is a big deal for the banks, Obama’s buddies, it would not surprise me if they enlisted him to do the sales pitch. He is very good at it.

    On a related note, it looks like the avalanche of putbacks is gaining strength. Surely one of the fastest growing industries in the U.S. is financial law. Y’all send your mathematically inclined kids to law school now, with a minor in finance, there’ll be plenty of work for the next decade at least.
    http://market-ticker.org/akcs-www?post=183154

  6. Ozmosium

    “I may be overreacting but given the sorry behavior of banks throughout the crisis and its aftermath, better to be vigilant than sorry.” GREAT POST THANKS. However quick ? — what would you suggest ‘our’ game plan to combat the “banks war” stategy?

  7. Fraud Guy

    Many of these problems with a single point of contact would be resolved if the law were revised to allow “one party consent” to record phone calls in all 50 states in situations where a consumer is calling a commercial establishment for the purpose of transacting business. Further, consumers should have a clear right, which they currently don’t, to record calls that the call center itself is recording. This issue, which never gets any attention, is a classic example of the unequal power between consumers and businesses. Firms assert that they have met the “two party consent” requirement if they inform you that they are recording a call and the caller doesn’t hang up. Further, the consumer has no realistic alternative to consenting if he or she wants to transact with the company. Many businesses, however, will not give consent if a consumer tries to get permission to record (try it, I’ve had representatives immediately hang up on me at times). At a minimum, it’s usually a big bureaucratic run-around, as there is typically no established protocol, and the phone rep has to leave to check with a supervisor.

    There is a clear business opportunity in offering an authenticated, escrowed call recording service, something that would be accesesed like a traditional calling card and played back over the internet. Nobody offers this because of the inflexibility of call recording laws. Google Voice offers call recording, but only in situations where consumers receive (rather than initiate) calls. The reason for this is that it allows the service to notify the initiator that the call is being recorded.

    This legal status quo is ironic, as the “two party consent” laws were put in place by consumer and privacy advocates to protect the public, but they have been perverted to favor business interests.

    1. Robert

      That’s true about trying to record a call to a bank. Even though the call center is recording the call and informs you of the fact with no way to opt out, you have no right to record that call. If you try to inform the rep you are recording the call, they will immediately read you boilerplate that they have not given consent and you are not allowed to record the conversation. If you then get smart and retract your “consent” to have the call recorded, the rep will inform you that they are hanging up.

      Try it. The conversation will be straight out of Kafka.

      1. Dirk77

        Are you sure you even have the right to talk about your experiences with the call center with other people? I think this puts you in violation with an extension of the PATRIOT Act…which you have not been told about by your representatives because they are forbidden to talk about it because of a previous extension. Good times…For sarcasm that is.

      2. Anonymous

        But don’t they usually have a recorded statement saying something like “this call may be monitored for quality assurance”? That sounds to me like they are giving you permission to record, so long as you are doing it for “quality assurance.” ;-)

        1. Fraud Guy

          I’ve spent some time researching the law in this area, and a business notifying you of its intention to record a call does not give you a reciprocal right to do the same without notifying them and affording them the opportunity to hang up, which they often do.

      3. beowulf

        I have to agree with Dirk, you sound like an idiot. Tape the call, use this handy Radio Shack gadget with a pocket recorder to avoid any telltale beeps.
        http://www.radioshack.com/product/index.jsp?productId=2141764

        Do not tell the other side you’re taping the call! Wait to see how the conversation shakes out and If you have to end up “going to the tape” down to the road, at that point, you can talk to a lawyer about one party / two party consent laws and what options you have to sandbag the other side (like, say, filing a complaint with federal regulators, who won’t care what your state law is).

        But to actually asking the call center for permission to tape… Good Lord, that is the telephonic equivalent of writing SUCKER on your own forehead.

    2. Fraud Guy

      If the AGs weree actually going to engage in a reasonable settlement with the banks (which it appears they aren’t), one of its provisions should be to require all the banks to agree in advance to allow all callers to record calls.

      I hope that someone participating in the negotiations on behalf of the AGs reads this and considers including it in the settlement package.

    3. Fraud Guy

      If the AGs were actually to engage in a reasonable settlement with the banks (which it appears they aren’t), one of its provisions should be to require all the banks to agree in advance to allow all callers to record calls.

      I hope that someone participating in the negotiations on behalf of the AGs reads this and considers including it in the settlement package.

  8. Ericmcsquare

    Yves,

    Your statement that the agreements offered in bankruptcy by bank’s attorneys to settle motions for relief from stay are in no way harmless is dead on.

    When I was prosecuting MFRs in the eastern and middle districts of Pennsylvania on behalf of banks the Stipulations which were offered by my firm at the time contained a single clause buried in about 4 pages of fine print that shifted the burden of proof. Specifically, before the Stipulation was signed the banks had to prove that the Borrowers were delinquent; after the Stipulation was signed the Borrowers had to prove that they were current.

    Once such a stipulation was in place, if the bank did not receive a payment (whether because the payment was lost in the mail, the borrower was late, the bank misapplied the payment, etc.) the Borrowers were sent a NOD (notice of default) advising them that they had to demonstrate that the payment had been made within 10 days from the date of the notice. Pursuant to the Stipulation, if the Borrowers did not demonstrate to the bank’s satisfaction that the payment had been made the banks were permitted to file a COD (certificate of default) and relief was granted within 5 days.

    THE MORALE OF THIS STORY: NO ATTORNEY/BORROWER SHOULD EVER AGREE TO SUCH A STIPULATION WHICH CONTAINS A SHIFTING OF THE BURDENS OF PROOF AND SHOULD ALWAYS REQUIRE THAT THE BANKS PROVE THE DELINQUENCY BY HAVING AN INDIVIDUAL FROM THE BANK WITH PERSONAL KNOWLEDGE OF THE ACCOUNT APPEAR IN COURT AND GIVE TESTIMONY UNDER OATH AS TO THE DELINQUENCY (IT WOULD SURPRISE YOU HOW AFRAID OF FLYING THE BANK’S PERSONAL ARE).

    With regard to my personal view as to how best to address the situation I would propose having all bankruptcy districts adopt a “Trustee Pays All” approach similar to that currently in place in the Western District of Pennsylvania. In that situation the Debtor pays the Chapter 13 Trust not only their required payments under the proposed/confirmed Chapter 13 plan but also pays their monthly mortgage payments directly to the Chapter 13 Trustee who then forwards the monthly mortgage payment onto the bank. In this situation the Chapter 13 Trustee keeps independent records of the mortgage payments that can be used to beat back any unreasonable MFR filed by the banks. In addition, in the WDPa the procedures require banks file notices of all payment changes. This cuts down on escrow/interest rate shenanigans and provides a formidable adversary (e.g. Rhonda Winnecour in the WDPa) in the event such shenanigans are employed.

  9. Steve Devos

    DownSouth: “The banksters believe they are fighting a war, and make no bones about it, the American people are the enemy.”

    There’s no question the banksters/ruling elites have declared war on the American people. The only question is how long it will take before the public understands that we are the target of class warfare from above.

    As for the kind of people we’re up against, the following document from Claude Lanzmann’s film “Shoah” precisely describes their mentality.

    Where the document says “load”, “load space” or “pieces loaded”, substitute “American public”. Numbers merely represent a technical problem that needs to be solved.

    And for Willy Just, SS-Obersturmbannfuhrer Walter Rauff substitute the names we’re all familiar with: Summers, Blankfein, Rubin, Dimon, Geithner, Bernanke, Obama, Clinton, Immelt, etc, (and their accomplices), and you get the picture.

    “So reduction of the load space seems necessary. It must absolutely be reduced by a yard, instead of trying to solve the problem, as hitherto, by reducing the number of pieces loaded. Besides, this extends the operating time, as the empty void must be filled with carbon monoxide. On the other hand, if the load space is reduced, and the vehicle is packed solid, the operating time can be considerably shortened…”

    http://weber.ucsd.edu/~lzamosc/chelm09.htm

  10. herman sniffles

    To get a feel for how these bankers operate one should read “The Development of Capitalism in Colonial Indochina (1879-1940)” by Martin Murray. Though a bit heavy on Marxist jargon, it carefully documents how the French banks and corporations took control of Vietnam, and how they were ALWAYS one step ahead of the poor Vietnamese people – people who were sometimes literally kept in metal cages by their local branch. Central to the bankser’s control was their influence over the French government, which became deaf to the pleas of the Vietnamese people. To my mind our situation in American today is analogous to the old woman who raises a couple of pitbulls in her apartment that eventually kill her and eat her. Our banks have pulled this crap in countries all over the world for years, and Americans haven’t even noticed. Now that the pitbulls are so powerful they are turning on their owner, we’re suddenly taking notice. In some ways we almost deserve what we’re getting.

  11. braden

    Eventually it should become apparent that these practices are denying fifth amendment protections to homeowners. I can’t imagine that the AGs would agree to procedural changes that aren’t worth the paper they’re written on. The truly terrifying prospect is the widespread adoption of state statutes that weaken borrowers’ rights in the foreclosure process. That would be an enormous injustice. The settlement is a sideshow, and will probably only produce a minor injustice. (And that’s unfortunately how you evaluate the worth of public policy in this country.)

  12. Sam Adams

    Are you kidding me? The Supreme Court is changing from wearing Black robes to Black shirts. The fifth amendment is nothing more than a technicality to be glossed over. Until this mess is concluded – and I mean fixed so that I know what I purchased will be mine adn my heirs tommorow — you’d be bat sh*t crazay to buy real estate within the USA.

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