The Real Foreclosure Scandal: Why Have Virtually No Lawyers Been Disbarred?

Even now, years after the subprime market’s death in 2007, new stories of mortgage chicanery or accounts providing more evidence of known abuses keep surfacing. David Fiderer flagged a new one yesterday: Colorado’s two biggest foreclosure mills are under investigation the state attorney general. The Denver Post summarized the complaint:

Because the firms for years controlled the bulk of the foreclosure work in Colorado, they could profit handsomely and easily on a state law requiring legal notices to be posted on homeowners’ properties by steering that work to companies they owned or had a heavy interest in.

Starting in 2009, Aronowitz and Castle created or bought into process-service companies that would handle their workload just as the legislature was to pass a law requiring the first of what would be a pair of legal-notice postings in a foreclosure.

The law firms allegedly leveraged their stranglehold on the foreclosure market — estimates are that they control about 90 percent of the cases filed in Colorado — and conspired to fix the price to post those notices at $125, an amount five times more than what other companies charged for the same service, investigators said in court papers that included e-mail exchanges between the two firms.

Then, when their plan proved so successful — one of the posting companies made more than $2 million in the first year — at least one of the law firms worked tirelessly to persuade legislators to change state laws in a way that doubled their profits overnight by requiring a second notice, investigators said documents indicate.

The legislation requiring the postings, investigators say, was offered under the guise that consumers were getting better disclosure. But it was the law firms’ principals who ultimately profited, earning nearly $20 million in revenues in the next four years just for having the notices posted.

Now this is only one particularly creative example of bad behavior by foreclosure mills. NC regulars may have seen the article by Dave Dayen yesterday in Salon, Your mortgage documents are fake! It was based on the unsealing of Lynn Szymoniak’s qui tam suit against 28 banks, mortgage servicing companies, and document processors. That means pretty much every one you heard of in mortgage land. And her allegations, which led to a $95 million settlement (mind you, for actions filed in just two states, North and South Carolina), are familiar to anyone who has read this blog: mortgage documents (meaning the most importantly, the borrower promissory note) were not transferred to the securitization trusts in a timely manner as stipulated in the governing agreements. Trying to transfer after the cut-off date is a no-no for reasons we’ve discussed at nauseating length in the past. The last thing the mortgage-industrial complex wanted to admit was that it had sold investors non-mortgage-backed securities. Dayen’s summary:

The lawsuit alleges that these notes, as well as the mortgage assignments, were “never delivered to the mortgage-backed securities trusts,” and that the trustees lied to the SEC and investors about this. As a result, the trusts could not establish ownership of the loan when they went to foreclose, forcing the production of a stream of false documents, signed by “robo-signers,” employees using a bevy of corporate titles for companies that never employed them, to sign documents about which they had little or no knowledge.

Many documents were forged (the suit provides evidence of the signature of one robo-signer, Linda Green, written eight different ways), some were signed by “officers” of companies that went bankrupt years earlier, and dozens of assignments listed as the owner of the loan “Bogus Assignee for Intervening Assignments,” clearly a template that was never changed. One defendant in the case, Lender Processing Services, created masses of false documents on behalf of the banks, often using fake corporate officer titles and forged signatures. This was all done to establish standing to foreclose in courts, which the banks otherwise could not.

Szymoniak stated in her lawsuit that, “Defendants used fraudulent mortgage assignments to conceal that over 1400 MBS trusts, each with mortgages valued at over $1 billion, are missing critical documents…”

Do the math. Szymoniak’s suit covered well over $1.4 trillion of mortgages (note that the OECD puts the size of the subprime market at $1.3 trillion and subprime plus Alt-A at $2.3 trillion). And not all were securitized; some were kept on bank balance sheets. So Szymoniak’s suit is comprehensive. Each trust was designed to have its holdings broadly dispersed from a geographic basis.

An army of lawyers enabled this activity. We’ve had a lot of complaints about the failure to prosecute bank employees and executives, but perhaps the better question is why have virtually no foreclosure mill attorney been disbarred? Even when the firms like David Stern or Stephen Baum are targeted, the key attorneys often reconstitute elsewhere. Here is a typical report (from the Palm Beach Post) from one of the ground zeros of foreclosure fraud, Florida, in October 2012, a full two years after the robosigning scandal broke:

Florida’s attorney general has closed a high-profile investigation into alleged wrongdoing by the state’s largest foreclosure law firms with no findings..

A February Florida Supreme Court decision that upheld a ban on the state from investigating the firms under the Florida Deceptive and Unfair Trade Practices Act was the real decider, attorney general communications director Jennifer Meale said Friday…

The Florida Bar has maintained it only has the power to investigate individual attorneys. As of mid-August, 149 cases of attorney-related foreclosure fraud had been investigated by the Florida Bar with no disciplinary actions taken. There were 171 cases pending at that time.

Translation: The state AG wanted to go after the foreclosure mills. The state bar association barred that action and has proceeded to clear the attorneys. If in a state like Florida they’ve looked at 149 cases and found nothing wrong, they are going to find nothing wrong.

And why does this occur? State bar associations, once you pass the bar exam, are not professional organizations. They are social clubs. The large, high billing firms contribute to the bar association and in many cases have firm partners involved in various bar committees. Think someone in the bar is going to act against a colleague that he knows socially and who gives his club a lot of money? As candid lawyers who will tell you, the lawyers who get sanctioned are small fry, usually sole practitioners. By contrast, the foreclosure mills, which had such insane leverage ratios that those alone would show they were not maintaining work standards (one attorney to 40 to as many as 100 paralegals) were hugely profitable machines. It’s almost a given that they had the survival skills to make sure they were generous with the state bar association so as to deter any hard looks at what they were doing.

Moreover, in some locations, you also had white shoe firms doing foreclosure work for banks because the economic standing of the city had fallen (think places like Birmingham, Alabama, or Dayton, Ohio, which once had had midsized companies headquartered there but they were acquired and the legal business shifted to the new parent). So you also has some more respectable-looking players involved in this market too. Any probe of the bad actors would implicate lawyers at all sorts of other firms.

So when we talk of the loss of the rule of law, the blame should be directed first and foremost at attorneys themselves, who have shown a remarkable lack of self-reflection, much the willingness to assume responsibility, for actively enabling and covering up widespread fraudulent activity. But money clearly counts for more than a moral compass or a commitment to professional standards these days.

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42 comments

  1. Sleeper

    This is an illustration of a common group dynamic –

    Most societies, professional or otherwise, close ranks to protect their members. Whether it be a medical board, a bar association, a motor cycle gang, or a book club this is the norm.

  2. run75441

    Yves:

    Lawyers are a part of a guild and they do stick together for their own self preservation. I worked diligently to get one disbarred in my state which only happened after he was convicted of:

    – Abandoning ~500 cases and taking the fees.
    – Driving on a suspended license.
    – Being in possession of ~50 grams of Cocaine while on bail.
    – Running a drug house (apartment) where he supplied the heroin through his mule which led to the death of another person.
    – Kept a mule and supplied her money to buy cocaine for him and heroin (other than the other person) for heself.
    – Was convicted in both cases (and also for failure to pay rent on his office) and let out on suspended sentence and parole.

    Mind you this does not include the ~$20,000 he stole from me. Nor does it include his exparte conversation with judge in judges chambers. Nor does it include his failure to prepare for trial which came out in deposition. In each case (previous), the court let him out on bail while others went to jail and gave him a lesser and suspended sentence while others went to prison. The attorney grievance commission in our state did little to reprimand him or force the issue even with other attorneys writing. It was only after conviction and one year passed when he was disbarred.

    I sat in one of his Hearings in the far corner of the court room and listened to his BS to the judge and the people around him. In his hand was a book by Maugham “The Razors Edge” which he was extolling the virtues of to everyone who passed by him (he was a good actor also). Even the bailiff did his fetching to find out what the sentence was going to be by listening through the walls. His act was good till he saw me in the court room and he turned a shade of pale I had not seen before. He knew the jig was up at least with me.

    Sorry, I am on a rant. This guy was a thief, junkie, and murderer (in my estimation) and the courts treated him with kid gloves. And you expect, the Guild and the Courts to take action with lawyers who offered up a fraud??? It may happen in some limited cases; but, the big boys are well insulated from reproach and being disbarred.

    1. susan the other

      Remember Sunny Shu (sp?), the Brooklyn case? The rot went straight to the top. So there are probably many, many corrupt judges out there who benefit from and scapegoat lawyers. Lawyers are not moral creatures. They merely do what is legal. If legal and moral were the same thing there would be no niche for corruption, the likes of which are now so mind boggling to us all. The fact is a lawyer is an officer of the court, and, by virtue of his/her oath, is allowed to stand up and lie and misrepresent with abandon. This protects the judge if the opposing lawyer does not call it out. And everything is dandy.

      1. charles sereno

        Susan, thanks for the memories… about Sunny Sheu and that most “honorable” Judge Golia. (Can’t help myself, Golia is an enigma, an A-hole wrapped in a robe, not appetizing).

    2. Martin Elsbach

      I am not an attorney but I need to ask, is there a possible RICO suit against the attorneys and Bar Association?

      1. run75441

        Martin:

        Did Travis and Crockett hold off the Mexicans at the Alamo? or Custer with the Sioux and Cheyene at the Little Big Horn? That is how much of a chance you would have with Rico.

  3. diptherio

    My favorite part of the Szymoniak findings:

    …dozens of assignments listed as the owner of the loan “Bogus Assignee for Intervening Assignments,” clearly a template that was never changed.

    “Insert Fraud Here”. Gotta love the chutzpa, no?

  4. allcoppedout

    I doubt we need these ‘professionals’ and that much of the work would be better done by clerks with a machine. What has interested me for years is the way everything put forward here is ‘forgotten’ as soon as the next case comes up. Officers of the court become models of probity but we suckers can be accused of no character on the basis of a drunken undergraduate night 40 years ago. It’s weirder – one week you can see a blagger received as a total liar as he is sent down, the next rely on his evidence against another.

    I guess courts don’t allow one to challenge on the basis that the corporate you are suing is using bent lawyers with form for presenting false evidence?

  5. jal

    Thanks for putting out this article.

    Lawyers and accountants understand what was done. They were financially motivated to set up the fraud system for their bosses.

    You need to find a team of “black sheep” of lawyers and accountants to get criminal charges against their associates.

    Since whistle blowing will get you in jail no immunity and no financial rewards, then Lawyers and accountants will not take action against their peers.

    I, like most people, am finance illiterate. That is why accountants are hired.
    Like wise, for legal paperwork.

    Its too bad that so many are fleecing the sheep.

    1. Susan the other

      So per above the combined subprime and alt-a mortgages comes to $3.6 trillion. The mortgages kept by the banks are probably in tact; but all mortgages that went through the MERS “system” are sliced and diced and have had their titles destroyed and there is no record of all the subsequent sales between the private parties (banksters) who own and use MERS to “trade.” I’ve heard that the easiest way to launder money is to write up fake real estate sales where no property changes hands but large sums of money slide into the system unnoticed. Don’t know how that would work exactly unless you had an agent who held many free-floating mortgages whose title actions never even get recorded…..

      1. chunga

        That particular situation in RI is going to be quite the showdown. MERS’ own Hultman made an appearance (along with a squad of Pro Hac’s) for the purpose of twisting the arms of legislators.

        It worked.

        Now, the only Federal Foreclosure STAY order that I am aware of in the entire country is a big fat flop.

        Naturally, it’s the attorney repesenting homeowners’ fault.

        It should come as no surprise that the Judge that is presiding over these consolidated cases is none other than Merrill W. Sherman, herself a polished banker.

        The attorney is going to appeal the fine…this should be interesting to say the least.

        Pawtucket foreclosure lawyer will appeal $10,000 fine levied by judge

        1. chunga

          Whoops…to clarify…Merrill Sherman is not the Judge. She was appointed by the Judge (John J. McConnell) to serve in the capacity of “Special Master”.

      2. Marcie

        Why don’t we talk about why they didn’t transfer the notes? Because if they kept the endorsed note in black they could sell them to multiple investors. This is what I found and passed on to the OIG/OI of the FHFA. I just don’t know why we’re not talking about it.

        1. just me

          Wait, is that rehypothecation, is that the word for what I’m thinking of? (Pledging something more than once? I think? Was issue a while back here?) (Or not?) (Was legal/quasilegal somehow?)

          ??? (dunno)

          1. Marcie

            You first heard of it in the Taylor Bean case but I uncovered that our prior loan was multiple pledged with Countrywide. The investor was Fannie Mae. The new loan had Freddie Mac as the investor. Let me ask, why wouldn’t they sell notes over and over if they knew no one was going to figure it out?

        2. indio007

          The courts are a den of thieves.
          I have seen a transcript of a trial where the judge told a defendant that if the cite their “Constitutional rights”, they will be held in contempt.

          I have a simple proof that court rooms are the model of injustice.

          How many times have you heard “Don’t piss off the judge.”?

          They emotional state of the judge should have NO BEARING on the litigation result.

          How does everyone know “Don’t piss off the judge” then?

          It’s because we all know that court rooms are the personal fiefdom of psychopaths.

          BTW every court in the US is listed on Dun & Bradstreet as a business.

  6. PeonInChief

    Because illegally evicting poor people isn’t as important as protecting the rights of the banks. It was even worse for tenants in foreclosed properties, where lawyers seemed to believe that the federal Protecting Tenants at Foreclosure Act was a suggestion. Even in California it took Tenants Together two years to get the State Bar to sanction one lawyer, David Endres–and they sanctioned him for not signing his own complaints, rather than illegally evicting tenants. Four thousand dollars, six months suspension.

  7. gozounlimited

    Unfortunately, the average person in the US has little to no knowledge or understanding of Real Estate Law. The law is kept obscure, the client kept in the dark, allowing the industry to run roughshod over law and client. Only recourse is to file a complaint with the State Board and find an uncorrupted attorney to represent. Since cases against RE fraud has to be brought by the victim….. it’s very helpful to the perps….to keep you in the dark and confused.

  8. 2little2late

    It’s not true that attorneys involved in foreclosure work aren’t being sanctioned. Uhm, well, er…. it’s true that those doing the bank’s bidding aren’t. But there’s plenty of trouble for those defending homeowners

    1. keepon

      Is this who we have become as a nation? Connect the historical dots, ‘lest we forget!’ Did Homeland Security silence your child with pepper spray? And when DID we start referring to the good ol’ USA as die, or is it das, Homeland? (Gives me the creeps.)

      Huffington Post
      http://www.huffingtonpost.com/…/lynn-szymoniak-foreclosure-deutsche-bank…‎

      “Lynn Szymoniak, Foreclosure Whistleblower, Says the bank is harassing the living hell out of me!”

      Mar 29, 2012 – Last May, the bank sued Szymoniak’s son, who was in New York pursuing a graduate degree in poetry at the time, hadn’t lived in Szymoniak’s …

      Let’s ask Elliot Spitzer what happens when you mess with the big boys.

  9. LillithMc

    Criminal behavior was sanctioned at every level of real estate with most understanding illegal behavior was going on, but felt it was not their place to talk about it or they were doing it themselves. For a criminal enterprise to be so large there had to be group-participation or group-silence from most members of the real estate community.

  10. DolleyMadison

    Amen sister! Even the “good guys” are corrupt – I was stunned to see that Bill Diehl was Lynne’s lawyer as I BEGGED him to take my case last year – which I had already written up in a manner almost identical to the way he laid his case out – and he scoffed at me and acted like I was crazy. (even more Federal Acts were violated in my case including lying, multiple times, in writing, to a Bank Regulator)

    Thank you for staying on this, Yves…I feel like everyone has “moved on” while these abuses continue for me and so many others.

    1. JamesW

      So, Ms. M., you are (or sound like) you are finally coming to grips with the reality many of us eternal activists have long ago realized, that we live in a completely fraud-based society/economy?

      Yes, only the practise of continuous fraud can sustain and maintain the fantasy finance-based economy (I forget where I heard that term, but it is the most appropriate one, IMHO).

      What to do? Certainly, not voting for whichever one of those two presidential candidates we are presented with every four years by Wall Street.

      That would be the first step…..

  11. indio007

    I have a Fcome etc…alse Claims Suit for ya.
    How about all those claims for payment from the banks with their bogus docs to various HUD loan guarantee programs?

    Unfortunately you can’t use FOIA to support a false claims suit. The info has to be gathered another way.

  12. alex morfesis

    I am not a big fan of lynn szymoniak for reasons that I will leave others to explain…

    but here in florida, the complication is the payola issues with now Senator Rubio, LPS and Karl Rove. The state constitution in florida calls for the state to fund all the needs of the judicial system. Mr. Las Vegas (rubio) decided to strip the judiciary of ALL its funding, and replace it with increases in…drum roll please…the fees that FORECLOSURE MILLS (the lawyers you properly state should be disbarred) pay to file foreclosures with the local county court clerks…THUS…

    he handed effective control of the Florida Judicial Process to the banksters…

    a story no one is talking of nor bothering to ask rubio about…

    So the bar in florida knows that if they do much of anything, the banksters will just slow down foreclosure filings and force the courts to reduce staff and reduce services…

    justice ala cubano style…

    and just so those who might squack about someone with a greek surname giving a hard time to cubans…my mom was born in a suburb of havana…her one brother died in the cause against castro…and her other brother did things that would now be labeled terrorism for the crazy alpha 66 crowd, back in the days before “been lah dee dah dah den” was being financed and trained by jimmy carters whitehouse…

  13. Honest Politics is an Oxymoron

    It’s enough to make you hang yourself.

    Review some anti-capitalist art to help us escape this madness. We all need respite from this hell.

    I’m still listening to Marxman, Rage Against the Machine, Sun Rise Above and old Bob Dylan (before he went Christian with Reagan in the 80’s). Looking for something new.

  14. chris m

    don’t conflate the terms pennsylbania bar and pennsylvania bar association, for instance.

    two different beasts.

    the bar is governed by the supreme court of pa. the pba is controlled by its members. the latter is the “club” you are referring to, and i am skeptical that the florida counterpart discipolines lawyers.

  15. allcoppedout

    In the case of successive sales and purchases, the property is sold in a series of subsequent transactions, each time at a higher price. Law enforcement cases have shown that these operations also often include, for example, the reclassification of agricultural land as building land. The sale is therefore fictitious, and the parties involved belong to the same criminal organisation or are nonfinancial professionals in the real-estate sector who implicitly know the true purpose of the transactions or unusual activity.

    Non-financial professionals usually means lawyers. I would guess FinCEN and various bodies world-wide hold a huge database on illegal commercial practices. As Yves has pointed out many times the lawyers are even bent in day-to-day transactions, hardly suggesting they can be trusted in activities kept secret!

  16. Skeptic

    I was involved in a case which was in both the State and Federal courts. I observed a lot and researched a lot and this was not conventional research.

    One thing I discovered, scuse the pun, was that most cases never go to trial, civil or criminal. So, a lot of the work consisting in passing expensive papers back and forth, discovering evidence, depositions, etc. Very costly. Then a settlement is forced one way or the other. The biggest losers usually are the litigants and the winners are the lawyers who have billed, billed and billed some more.

    The above was most vividly brought home to me one day while waiting for a pretrial hearing. Two lawyers in another case were sitting next to each other, one for the plaintiff and one for the defendant. Wellllllll, you would have thought these two were lovebirds! They were chirping away at each other in a most loving and sdoring manner. And why not, the billable clock was running for their clients and the company was most enjoyable. Of course, if the clients had been present, the behaviour would have been entirely different. They would have put on a good antagonistic show for the billable boobs.

    Here is that well described in HOLODECK LAW:

    “What I now refer to as the “courtroom holodeck” is the scene of the crime, and the stage where this chimera is played out. In this virtual reality the judges and attorney(s) are holograms (mere images of justice), all working in the labyrinth of a “Litigation Vortex.” The unsuspecting public who either gets sucked into the vortex (unwillingly brought into court) or suckered into the maelstrom (thinking that justice would be received through the legal system), are real characters, but they do not realize they are on the court holodeck, nor do they realize that they are not being protected, or zealously represented as was taught to them in our government-funded elementary schools. They do not realize that nothing is as it appears.”

    http://www.ejfi.org/Courts/Courts-4.htm

    Don’t talk to the Police and don’t get involved with Lawyers.

  17. washunate

    “So when we talk of the loss of the rule of law, the blame should be directed first and foremost at attorneys themselves”

    Well said. It is the educated professionals in our society that are enabling the assault on our economy and our republic. The lawyers, doctors, professors, accountants, journalists, etc. (not rural America or flyover country or prolifers or racists or the religious right or foreign trade or whatever scapegoated group du jour gets on the Dem pundit email list…)

    Some individuals speak out passionately, but as a group, they are remarkably dense, obstinate, and protective of one another. We must look forward, not backward!

  18. Brian

    Dozens of lawyers have been disbarred in California as a result of the foreclosure crisis, although most, perhaps all, has been related to fraudulent foreclosure avoidance schemes and not the lawyers assisting the banks.

  19. MATT WEIDNER

    i’ll take it one step easier…”why have not foreclosure mill lawyers even been punished at all?” I stand in court everyday and watch lawyers engage in the most egregious conduct…never a word of punishment is spoken….
    forget about disbarment…how about a good old fashioned stern talking to?

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