Tuesday, February 21, 2012

More Foreclosure Mischief: Bankruptcy Hijackings

One of the common complaints from banks that the concerns raised by borrowers over robosigning are mere “paperwork” problems, that everyone who is foreclosed on deserved it, and no one was really hurt. That is patently false, as there have been an embarrassing number of instances where someone with no mortgage was foreclosed on, as well all too many cases of servicer-driven foreclosures. And that’s before we get to damage to property records.

Attorney Timothy Fong called our attention to a below the radar form of chicanery that is predictable when you have nonjudicial foreclosure with no significant oversight and agents who lack incentives to do a good job. To some translate of the account below, MFRS = Motion for Relief of Stay. Even though a bankruptcy is supposed to hold all creditors at bay until the court sorts out what to do (which in a Chapter 13 is to develop a payment plan), servicers typically harass the borrower by filing Motions for Relief of Stay, which is a fancy of saying, “I want the house now.” If the borrower has hired a competent BK attorney, he can beat it back (although this still wastes the borrower’s by definition scarce funds). But a lot of people hire friends or family that are not BK savvy, and the banks hope to trip them up (either by not responding to the filing, or by signing a document in which the servicer agrees not to file future Motions for Relief of Stay, but which includes some innocuous looking but hugely detrimental provisions).

You need to read the part I boldfaced to see how widespread this sort of bankruptcy hijacking has become. And notice further how this works: the fraudsters pretend a person in bankruptcy owns a property that isn’t his. Not only does the financially stressed borrower have to incur costs to clear this up, but he also is at risk of being construed to be a participant in the scheme. From a recent post in Los Angeles Bankruptcy Law Monitor.

Local attorney Gerald McNally, Jr. of McNally and Associates, P.C. explains the mechanics of a bankruptcy hijacking:

The mechanics of the hijacking and why we as Debtors’ Counsel are burdened with this plague:

1. a random deed is downloaded from the county recorder’s database (through access to a title company or a service like Dataquick).

2. The original information on the deed is photoshopped out, and the fraudulent information is photosshopped in—leaving the original county recorder’s filing imprint, and the notary stamp.

3. This is then presented to the foreclosure trustee as evidence to stop the sale.

4. Where the fault lies is that neither the Lender, nor the Title Officer of the title company guaranteeing the trustee’s sale does what he/she/it ought to do.

5. What the Bank/T.O. OUGHT to do is take the instrument number of the deed and look it up. This is very easy to do with either the Ticor or the other major database. Then it would be easy to determine if the document was genuine. And if the document was not genuine, reject the deed and complete the foreclosure.

6. Instead, the Bank/T.O. just ASSUMES the correctness of the false deed and then contacts Debtor’s Counsel; now this pile of “doo doo” becomes the Debtor’s Counsel’s problem, and must almost be handled unpaid.

7. Compounding the crime, Counsel for the Lender, often files its MFRS with the false deed, a patent violation of Rule 9011. Even after being advised by Debtor’s Counsel with evidence that the false deed is in fact patently false.

8. So the bankruptcy system is burdened by (1) the laziness and/or cowardice of the lender and/or title company, not to mention their counsel who file these baseless MFRS documents.

9. In fact, counsel for one lender admitted that 30% of the deeds used as a basis for these MFRSs were fraudulent.

So get this: the procedures are so bad that totally bogus documents can be created and slipped into the bankruptcy of an innocent victim to stop foreclosure sales. Even worse, the servicer, who OUGHT to know better, treats this person in BK who suddenly materialized out of nowhere from his perspective as a real owner and hits him with a motion for relief of stay so they can take a house from him that he never owned. And the foreclosure mill lawyers don’t question this because more motions of relief of stay means more fees.

If this example wasn’t such a serious indictment of our system, it would serve as a black comedy in bureaucratic incompetence.

Topics: Banana republic, Banking industry, Credit cards, Legal, Real estate, Ridiculously obvious scams

Email This Post Email This Post Posted by Yves Smith at 4:17 am

24 Comments » Links to this post

24 Comments:

  • vlade says:
    February 21, 2012 at 4:47 am

    Ah, Photoshop, the modern tool of choice for the 21st century crook.
    What never ceases to fascinate me is that I haven’t heard a single case of criminal prosecution for any of these false documents being presented.

    Whatever else banks argue, a very simple fact remains – falsified documents are being submitted.

    It’d be dead easy to prove intent (since you don’t photoshop by mistake), how people aren’t being sued in criminal courts for that? Even if you start with lowly minions, once a few hundreds of them is in front of the court and it gets well publicised, the others are likely to get second thoughts..

  • Middle Seaman says:
    February 21, 2012 at 4:51 am

    The banks and the servicers have complete immunity from any legal action against them. After all, Obama and Holder have all but guaranteed the above the law status of the rich. We shouldn’t be surprised at any abuse of home owners even if they don’t have a mortgage to foreclosure from. Criminals after all don’t care who the victim is.

    Even in judicial forecloser states, e.g. Maryland, the securtiny given to such cases amounts to almost none and the foreclosurer rules the day no matter what.

  • gs_runsthiscountry says:
    February 21, 2012 at 5:05 am

    Welcome to the Wild Wild West, aka Financial Industry.

    Every time a read a new news article or blog post I have to ask myself if its 2012 or its the mid 1800s.

    You’re on your own folks, protect yourself as you see fit.

    That is all

    gs_

  • Woodrow Wilson says:
    February 21, 2012 at 7:48 am

    “You’re on your own folks, protect yourself as you see fit.” -

    Pretty much sums it all up.

    Americans are standing and watching this happen right in front of them, they are letting it happen (or stupid enough to watch whatever the television tells them). The government, through CONgress and their friends at other Agencies are enabling this behavior. In the meantime, keep using the harsh language and peaceful protesting, looks like it’s working!

    “if its 2012 or its the mid 1800s.” -

    The difference is, back then, Americans that were subjected to these crimes would either shoot you or hang you for doing it. Now, our government gives them more money & power, and if it was illegal, just change the law to make it legal or more pillage friendly.

    • PL says:
      February 21, 2012 at 8:56 am

      If you can’t beat’em, join’em? After reading the post it was unclear to me who created the fraudulent deed. The original article (Los Angeles Bankruptcy Law Monitor)describes a third party in foreclosure who doesn’t want to declare bankruptcy selecting a random deed, photoshopping it to appear as the deed to their property and submitting it to the bankruptcy court to stop their foreclosure. If this is true, then some homeowners in foreclosure are creating fraudulent deeds with a method similar to photoshopped promissory notes created by servicers. Will the courts punish the photoshopping homeowners? Or turn a blind eye to their fraudulent documents like they have done with photoshopping servicers? Something tells me there will be a double standard and homeowners will be treated differently than servicers. No matter who submits a fraudulent document to the court, they should be similarly treated with swift prosecution for criminal behavior.

      • Dave of Maryland says:
        February 21, 2012 at 11:32 am

        Why not Photoshop a “paid in full” document of some sort to “prove” your “balloon payment” has eliminated the mortgage?

        Why not fight fraud with fraud? The bank, with its own fraudulent paper, is going to call you on this?

      • PSP says:
        February 21, 2012 at 4:00 pm

        Welcome to the concept of a comfort order. Somebody has alleged the exitence of a bankruptcy stay. The only way to paper the file so the bank, the sherrif, and the lawyers to KNOW that they won’t sanctioned for going forward with the foreclosure is relief from the stay. The order probably isn’t strictly necessary, but it provides comfort.

        The Debtor need not object, or can simply say they have no knowledge of the property. Since they are not contesting it, the motion for relief shouldn’t add to their Chapter 13 Admin. It is just an uncontested stay motion. The bigger problem is convincing the Chapter 13 Trustee they weren’t hiding assets.

        Lots of evil out by the banks out there. This isn’t part of it.

      • Karen says:
        February 23, 2012 at 10:50 am

        Thanks for pointing this out – as I read the post, I was wondering who might be doing this and what their reasons would be! This description of the process still doesn’t make sense to me, though:

        “1. a random deed is downloaded from the county recorder’s database (through access to a title company or a service like Dataquick).

        2. The original information on the deed is photoshopped out, and the fraudulent information is photosshopped in—leaving the original county recorder’s filing imprint, and the notary stamp.

        3. This is then presented to the foreclosure trustee as evidence to stop the sale.”

        Is it really a random deed, or the one to the perpetrator’s home? If it’s the perpetrator’s property, then I assume the “fraudulent information” consists of the name and address of the person who filed for bankruptcy, substituted for the actual homeowner who is in foreclosure – correct?

        I wonder how much time this typically buys a perpetrator? How long do bankruptcy stays usually last?

    • Up the Ante says:
      February 21, 2012 at 10:58 am

      One small addition to your quote,

      ” “if its 2012 or its the mid 1800s.” -

      The difference is, back then, Americans that were subjected to these crimes would either shoot you or hang you for doing it. Now, our government gives them more money & power, and if it was illegal, just change the law to make it legal or more pillage friendly. ”

      Nowadays, they arrange to have the legal pillage funded thru the govt.
      Words like seedy and grimey are appropriate.

    • R Foreman says:
      February 21, 2012 at 1:11 pm

      The commoners are starting to organize. It won’t be long until you start to see peoples’ jails, militias, and such. Then the elite will have to make a decision to crush that permanently with a brutal, public show, or to let it grow and eventually take over the establishment. I have a hunch they’ll do the former, and we’ll see a violent, bloody domestic conflict. As we’ve learned from Egypt, the key to winning that is preparation. Egypt didn’t get their revolution because they were outgunned.

      • Woodrow Wilson says:
        February 21, 2012 at 1:49 pm

        “Egypt didn’t get their revolution because they were outgunned.” -

        Right, because The People in Egypt had nothing to lose. They were already subject to their own heavy-handed corrupt government.

        We don’t have that here within our population, not yet anyway. Sure, there’s people homeless & hungry, but it’s too late for them, they’re finished. It is those that are healthy & able now, when we have the obligation to our own children to head that off before we have a large portion of our society reflecting that of pre/post-Egypt revolution.

        The Rule of Law is already gone, if it is not equal to all, then there is no law. The only question left is to what extent, and what The People here will sacrifice to restore The Republic? I say they have been not pillaged enough to understand true suffering.

        When/If we have enough people here, that have nothing else to lose, then we’ll see something. Until then, turbulence is forecast on the flight plan.

  • commoner in fief says:
    February 21, 2012 at 8:32 am

    I’m an I’LL bk attorney. I’ve never seen what yoy are talking about. At best, a motion for relif from stay restarts the foreclosuure process about two months sooner than it would normally start. The automatic stay expires by default 45 days after the creditors meeting so its not like the mfrs is a huge deal in most cases here. But we don’t have the false deeds being tosses around either.

    • Jane Doe says:
      February 21, 2012 at 12:39 pm

      Unless you are dealing with a bk with a mortgage tied up in MERS or securities issue, my guess is that this is not something you would have to likely deal with. I have cases where there are issues of companies and law firms trying to forge documents or register them after they had filed for foreclosure. In theory, the cases should have been thrown out by the judge because the company/firm could not prove standing to bring the case, but the case was not thrown out. Unfortunately, if you ever have to deal with this kind of issue, despite what the laws say, the reality is that there is a presumption, even now, that these guys aren’t committing any fraud, and its really a lot of extra work (cost to client) to demonstrate that they are committing fraud with no guarantees that the courts will see it that way despite the evidence. I have to say what we are facing here is one of the biggest sweeping under the rugs in U.S. history. No one wants to deal with the problem.

    • ericmcsquare says:
      February 21, 2012 at 4:41 pm

      The automatic stay only expires 45 days after the meeting of creditors in a Chapter 7. In a Chapter 13 the automatic stay is imposed upon all property listed in the Debtor’s Schedules as of the date of filing (provided the Debtor was not a serial filer).

      In PA we had this problem (i.e. Defendants in one foreclosure action claiming that a third party in BKY owned a partial interest in the property being foreclosed upon and providing photoshopped deeds). In our case we would just go to the filed Schedules of the BKY to either confirm or deny what the third party was claiming. This was much quicker and cheaper than going to the recorders office.

      If the property was listed on the Schedules (this only happened about a dozen times) we would file an MFR and once it was granted we would file a lis pendens on the property to prevent subsequent transfers to other individuals rights before they declared BKY.

      If the property wasn’t listed on the schedule, which was the case 95% of the time, we would call the third party’s BKY attorney and advise them of the claim and provide them with the document.

      This practice stopped in PA when the third party BKY attornies began forwarding the documents to the US Trustee who then did their own investigation and an indictment was handed down against an attorney for engaging in such shenanigans.

  • dcblogger says:
    February 21, 2012 at 10:19 am

    This is truly the culture of corruption.

  • tracy coyle says:
    February 21, 2012 at 10:27 am

    The courts are not clean hands participants in the process. Judges that see the result of bad paperwork are unwilling to let the homeowner off the hook and therefore, even in the face of LAW saying otherwise, give the ‘bank’ properties they can’t prove should be theirs. All because a Judge doesn’t like the result the law demands….judicial hackism.

    • PL says:
      February 21, 2012 at 11:59 am

      The courts are absolutely complicit in this mess. If judges would enforce the law against forgeries and fraudulent documents then parties would stop submitting them to court.

      • Dave of Maryland says:
        February 21, 2012 at 3:00 pm

        I once heard it said (some movie I think) that the courthouse was where people went to lie. That’s so 20th Century!

        In the 21st Century we go to the courthouse to file fake documents. My mortgage was in fact recorded by MERS, as there is no one else doing that. So my courthouse records are already fake.

  • Mac says:
    February 21, 2012 at 3:27 pm

    When you have a process that is overloaded, messed up and populated by folks of dubious morals and shaky education this what you can expect.
    The above description fits our Governments at most levels.


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