Emerging Battleground on Mortgage Abuses: Foreclosure Mills

An item from last week that I sat on still seems worthy of comment, so consider this a turn of year post.

I’ve said that the efforts to clean up mortgage abuses will not have gone far enough until we see some foreclosure mill attorneys disbarred, and better yet fined and/or put in jail. And that is harder than it ought to be.

One of the frustrating issues in trying to rein in fraud is the way that essential accessories, namely, accounting firms and law firms, are close to beyond the reach of the law. For instance, if a law firm clearly permitted perjury or engaged in document fabrication that led someone to have their house foreclosed upon when they were actually current on their mortgage, the wronged homeowner could not sue the law firm. It could only sue the party that was the plaintiff in the suit (presumably a trust). Perversely, the only parties to a transaction that can sue banks and accountants are their clients, even when those firms were integral actors in scams. As we described in ECONNED:

Legislators also need to restore secondary liability. Attentive readers may recall that a Supreme Court decision in 1994 disallowed suits against advisors like accountants and lawyers for aiding and abetting frauds. In other words, a plaintiff could only file a claim against the party that had fleeced him; he could not seek recourse against those who had made the fraud possible, say, accounting firms that prepared misleading financial statements. That 1994 decision flew in the face of sixty years of court decisions, practices in criminal law (the guy who drives the car for a bank robber is an accessory), and common sense. Reinstituting secondary liability would make it more difficult to engage in shoddy practices.

The net effect is that if the clients themselves don’t sue (and they have plenty of reasons not to, starting with not wanting to air dirty linen and potentially open up privileged communications), the only recourse is sanctions by bar associations or prosecution. But state bar associations typically focus their policing efforts on solo practitioners. Bigger firms are often active in the bar association, and not surprisingly, the officialdom is seldom inclined to act against social acquaintances, particularly ones at concerns that also pay a lot in the way of dues.

Florida illustrates the difficulties prosecutors have (at least in some states) in bringing down miscreant firms. (One firm, the Default Law Group, had already been under investigation when the probe was extended last August to three other firms, Shapiro & Fishman, the Law Offices of David J. Stern and the Law Offices of Marshall C. Watson; at least two other firms were added in December).

Admittedly, the state attorney general’s probes of the leading foreclosure mils in the state has already done damage to those firms as they have lost important clients. But the effort has already hit a significant procedural obstacle. A subpoena by the attorney general was successfully opposed at the lower court level, with the ruling being that any regulation of the practice of law was under the authority of the Florida bar and the Florida courts.. The state attorney general has appealed, arguing that the Florida Deceptive and Unfair Trade Practices Act allows the AG to investigate “any trade or business”and establishes the AG as the enforcement agent. Hat tip Lisa Epstein for these court filings:

Petition Writ Certorari – State of Florida v. Shapiro & Fishman

The response, effectively, is that law is not a trade or business:

Response Petition Certiorari – State of Florida v. Shapiro & Fishman

Now this all may seem a wee bit circular, at least if you read this as I do, that the state AG is fighting an uphill battle. How can you get lawyers to adhere to professional standards if its own enforcement body sits on its hands, the courts have not taken action, and the AG faces constitutional hurdles in stepping in? In some other states, the AG and the courts appear to work far more fist in glove in enforcement. For instance, in South Carolina, the AG loves getting lawyers disbarred over botched real estate closings (the theory being if an attorney can’t even do something as simple as a real estate closing correctly he has no business practicing law). For instance, in this South Carolina Supreme Court case, an attorney was disbarred and and the matter was brought by the state attorney general for the Office of Disciplinary Counsel, which is the arm of the court that rides herd on lawyers. I’m not clear on the procedures, but one can infer that the AG and the ODC work together actively.

No doubt how this particular conflict will play out will vary by state. I would imagine one major variable is to what degree the courts have been packed with business friendly judges. It would be very helpful to get reader insight into this topic.

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29 comments

  1. attempter

    When we couple this (conventional but advanced) court corruption with the MERS system and corporations as such, we see how the priority of the government EVERYWHERE is to recalibrate the system so that organized criminals can commit crimes with total impunity.

    The main goal of corporatist structure in itself is to enable individuals to commit crimes with total rights and zero responsibilities. That’s why the modern corporation was developed in the first place following the Civil War.

    The term kleptocracy should be understood in a profound way. Corporatist practices comprise a new paradigm of criminal practices, and the pro-corporate mindset is a characteristic, immutable criminal mindset. It’s not just a set of criminal actions, but an indelible criminal essence. To believe corporations should exist is in fact to be objectively criminal, even if one subjectively doesn’t understand what they really are. (But how could there be any legitimate doubt by now?)

    While this particular case is closer to the old corruption practice, the 1995 law and the corresponding corporatist SCOTUS decisions fit the improved pattern of structurally boxing out “the law” completely, rather than just flouting it.

    It’s the difference between flouting the law, and declaring war on the very concept of law. As I’ve mentioned before, we should look to the Nazis’ General Government administrative zone in Poland for a prototype. Or more recently the “Free Trade Zones” around the Global South. (The administrative totalitarianism of globalization “treaties” and organizations is another version of the post-legally enshrined post-law criminal enterprise.)

  2. hermanas

    ” the ruling being that any regulation of the practice of law was under the authority of the Florida bar and the Florida courts..”
    Well then. the question for the court is the role of forgery in the practice of law.

  3. txchick57

    Goodness gracious. I could expound on this one for a month.

    From mid ’09 to mid ’10, I worked informally with a solo practitioner who did nothing but represent people in foreclosure trying to stop it. The cases were varied but included everything you read about – forged documents, misallocated payments, outright servicer fraud, etc. We encountered the same 5-6 foreclosure mills over and over (Barrett Daffin is the biggest one and one who has been in trouble with the courts in Texas already – more particularly, the bankruptcy court in the Western District). Remember, Texas was supposed to have no housing bubble and bust but like all the other stupid assumptions made about this crisis – that one was also not true.

    Texas is also supposed to be debtor friendly and have a history of protection of the homestead at all costs. Well, that has gone out the window too.

    The man I worked with was by no means a saint as a lot of these solo guys are. He was a man on a mission and unfortunately, let minor details like keeping good records in his office fall through the cracks. When your clients are the uninformed public by and large, you also have problems of people running to the state bar and making frivolous complaints if anything doesn’t go their way. So, he was spending a lot of time defending himself against the state bar which pursued him zealously until he finally resigned. He had been practicing for 24 years and was near the top of his law school class at a decent school. I don’t think he was an innocent victim by any means but the lawyers he was dealing with at the mills were incredibly sleazy and to date, I’ve seen no action taken.

    I had hoped he would get one of his foreclosure cases to trial before the bar got him but that didn’t happen. While all this was going on, Barrett Daffin and the rest of the foreclosure mills here were running roughshod over his clients.

    The state court judges in many of the courts were not particularly interested in hearing any argument about servicer or bank misconduct. Their attitude was, “is the borrower paying the mortgage? If he isn’t, we’ll allow the foreclosure.” Never mind that in many cases, the borrower was hopelessly behind because of things like servicer misallocation of payments, outright incompetence, and adding fees on top of fees illegally so the borrower could never hope to dig out.

    When I first met this guy, he told me that the bank attorneys were behind the constant barrage of complaints to the state bar. I worked in big firms in the late 80s and early 1990s on the S&L bust in Texas and the RTC/FDIC liquidations, etc., so I had that background, and I thought that he was paranoid and making excuses for his own sloppy practices. I found out as I went along that there was a small element of truth to my feelings but it was far more what the attorney was telling me. I even dealt with my old firm on one case and the lawyer there (who was representing Wells Fargo in a case where our client had had forgeries on the real estate documents) told me that we were crazy and nobody at any bank ever forged anything. It turned out that someone had.

    I’m rambling at this point. I don’t know why the State of Texas has not done a better job of protecting its citizens. Well, yes, I kind of do know. We are a “bidness friendly” state here which is fine as long as the “bidness” operates legally.

    1. reslez

      I don’t know why the State of Texas has not done a better job of protecting its citizens. Well, yes, I kind of do know.

      The system doesn’t exist for the citizens. It was designed for the owners — and that class does not include us. That’s why business can run roughshod over citizens’ rights and commit fraud at will with no consequences. Fair and just laws and so-called rights evaporate like morning dew in the Sahara when they’re inconvenient for the owners. The fact is foreclosure fraud has been going on since the 90s. It couldn’t happen without significant enabling from the entire legal system, courts and sheriffs and all.

      Justice is a lottery ticket. You have to pay enormous sums to a lawyer to have the slightest chance of a fair hearing, and since you’re not a business or a moneyed interest you’re automatically presumed a deadbeat. Deadbeats are outside the protection of the law — any kind of law-breaking or fraud can be perpetrated against them without repercussion. I’m happy for people with sterling payment histories and guaranteed jobs, but they too are just one servicer mistake away from being a deadbeat. I’m glad I rent!

      1. frankly Speaking

        I experience misapplication of mortagage payments and misappropirations in the 1990. Kept a tab on my bank and lender and send every payment by certified mail. I asked for direct deduction options etc. They said they had none, I asked can I write a software application to solve the problem, they were not intrested. I believe my interest differed from the banks.

  4. Wild Bill

    The chief ethics investigator for the Florida Bar is the brother of the defense counsel for David Stern. What more needs to be said?

    1. Fractal

      link please. Some tiny shred of information we could use to confirm or refute your suggestion. If true, the potential conflict of interest would be a solid basis to engage in discovery to investigate whether the brothers communicate about pending cases. If the ethics comm’n brother did anything close to that, the courts would oust him in a millisecond. If the defense counsel brother did communicate with his ethics comm’n brother, that would be grounds to disqualify him from defending the DJS firm. If any evidence of communication lead to evidence of collusion, a criminal referral would be made by whoever made the discovery. Both brothers would then be exposed to prosecution for conspiracy to obstruct justice. Any emails or phone calls? Wire fraud. Any threats or overt criminal acts done in furtherance of the conspiracy? RICO, treble damages against the defense firm, prison time for both brothers.

  5. AR

    Yves, if you email me I can give you the number of someone who could bend your ear about the FL bar’s closed circle of collusion, from some experience in Talahassee and elsewhere (don’t want to be specific here).

    If what Wild Bill wrote is true, never mind…….I’m sure all of the suits against DJS will be dismissed.

  6. Eugene Villarreal

    New Jersey has about three major foreclosure mills.
    New Jersey has 94% uncontested foreclosures.
    What is wrong with this picture ?
    Defendant answers foreclosure complaint, judge(s) do not even look at the complaint, plaintiff(mills) submits false statements for a Summary Judgment, judge Grants Summary Judgment as UNCONTESTED.

  7. Linda Piker

    The following causes fury and bile to rise from my belly:

    “have their house foreclosed upon when they were actually current on their mortgage”

    Oh I see, the Bank victims are only the ones who are current and gettin’ foreclosed upon, all the rest o’ the riff raff done got what they is deservin’. Pffrt, F#$k that propaganda right now.

    1. attempter

      I and most people here agree with you. But if the goal is to successfully depict the banksters as absolute criminals, it’s probably better tactics to start out emphasizing the so-called abuses, even though they’re really not abuses at all.

      (Even the bankster propaganda sheet, the NYT, took notice when they “wrongfully” assaulted somebody’s ski chalet.)

  8. kaleidescope

    Sorry to be off topic here, but I wanted to bring this to your attention. http://www.washingtonpost.com/wp-dyn/content/article/2010/12/31/AR2010123101728.html It’s a Washington Post story from a couple days ago about a major procedural loss by the Bank of America in a suit MBIA brought against BofA. MBIA wants BofA to have to buy back securities based on misrepresentation as to the quality of the mortgages backing them. BofA was claiming that for the case to proceed, each individual mortgage in the pool would have to be examined and evidence heard.

    The New York trial court, said, “no”. The court allowed a statistical sampling of a couple thousand mortgages instead.

    There should be a caveat that this is only a trial level court and that the BofA is certain to appeal. But this could be the break that allows investors to efficiently assert their claims that the mortgages making up the pools were so bad that BofA, Wells Fargo, etc. should have to buy back securities at 100 cents on the dollar.

      1. Linda Piker

        Is this a minor fine? If homeowner X has a Fannie note in default serviced by BOA, does this mean the foreclosure speeds up?

        1. Fractal

          This is not a “fine.” BAC was forced to buy back billions worth of crap mortgages which Countrywide sold to the GSEs. Has nothing to do with whether or not any or all of those mortgages were in foreclosure, but the extent to which the mortgages were crap could indeed have been correlated with the extent of delinquencies.

  9. Michelle

    Yves,

    Here is a question I need some direction on…
    After my refi in 2005 my mortgage paperwork was filed with NBank according to the county records. In 2006 Citibank started billing me for my mortgage, they cannot produce the title paperwork after I had sent them a letter asking for proof.
    (there is a bit more to this story if you are interested)
    What would you do in my situation? I feel as though I should contact a lawyer but not sure if it would be a real estate lawyer or who?
    Thank you for all you do!

  10. TC

    And to think that Florida Default Law Group has been ‘under investigation’ for nearly a year now and STILL nothing has been done to any of them.

    Isn’t it ironic that FDLG has somehow staved off any kind of depositions or further invetigation????

    One of their lawyers showed our judge a (in my opinion) fraudulent document that stated our motion to dismiss was denied….the only problem – the judge that signed that order was from a county far away from ours. And, no, our judge did nothing about it.

    Sterns, Fishman, and all others are not the only mills. The state of Florida needs to continue to pursue FDLG. Maybe it is due to Ms. Cullaro having worked both at FL AG office AND FDLG. After all, she was on the Economic Crimes Division at the AG office at the same time that she was moonlighting at FDLG.

  11. James

    “The chief ethics investigator for the Florida Bar is the brother of the defense counsel for David Stern. What more needs to be said?”

    I think this sums it up. There is ABSOLUTELY no investigation by the Florida Bar even though there have been many complaints. The bars position seems to be that they will open an investigation only if a court signs an order finding misconduct. At the same time members of the bar are telling the courts (the judges who are also members of the bar) that the Florida AG does not have the authority to investigate attorneys, only the bar does.

    This seems to be a chicken and egg problem – The bar and bar members say the bar has the sole authority but they wont move unless a court finds the facts and does the ruling for them.

    1. hermanas

      What is the difference between the Florida Bar and an association like the chamber of commerce?

  12. T

    I have family experiencing the same. here’s what I learned.
    For what it’s worth.
    Prepare for a battle that’s going to last at least six months.

    However, Forget the lawyer, do your own leg work first. get your head around what’s real first.

    Quicly take responsibility. Mark your calender, The next steps are absolutely critical, you must make the bank establish rightful intrest of your title any and all liens to the property. Period.

    Don’t panick.

    But run,don’t walk to your county property registrar. Take two witnesses who will testify as being present,have copies of Picture Id. Past tax bills, utility bills, all paid and stamped paid, present them to the county court houseclerk of property registrations, ask for and secure valid stamped, dated and witnessed copies of your property’s registration, taxes paid, all liens registerred and released, and releases from your first to last of mortgage of the property as released to you; including the refinanced mortgage and most especially the releases of all the release of liens on the property and a current registration of the current loan, tax id and lien holder claiming to be holder of your mortgage.

    Make copies of everything, including closing papers….got it…everything and secure them in a savings deposit box. keep 1 for a private desk file and quick access, scan another and file as an un-editable PDF file, burn a digital copy disc’s,a store PDF file on desktop file and on-line Internet file system such as Mozilla.

    Once the above is done, you can take the next step.

    Submit by courier, a registerred letter, return receipt requested, by snail usa mail to the loan department of your bank requesting title and written response from the bank.

    Do not under any circumstance threaten suit or legal action. Your letters will establish your legal request to get a copy of the title. Give them 10 business days to respond by written letter from an registerred officer of the banks loan department.

    Failing their response, send them another letter of request of copy of your title. remind them of the 1st request. Give them 10 business days.

    Failing that, file your own legal subpoena in the county court house for the banks property records from the mortgage lender. You still have not threatened anybody.

    take personal responsibility. do not however, I repeat do not make the mistake of witholding your mortgage payment. That takes the focus off what needs to get done. Simply get your ducks in a row.

    Subpoena the bank until your satisfied.

    If they fail that, now you can go to AG, ask the AG to subpoena on your behalf, exhaust all options. Proceed in the same manner as above. Pay attention to the calender and don’t let up, for any reason. your goal is to establish your title. Period.

  13. PJ

    The reason why Shapiro can come out swinging at the FL state AG is because the majority of servicers use his, that’s Gerald Shapiros loan “platform” LOGS. Shapiro and his network of mills nation wide are imbedded in FM & FM, the TBTF banks and their “servicers”

  14. Fractal

    Whether or not a single target of a single subpoena based upon a very narrow non-criminal investigative interest was able to have that single subpoena limited or quashed by a single trial court judge (or magistrate or commissioner) is entirely a red herring. It is most certainly NOT “a significant procedural obstacle,” to use Yves’s term above. The state executive & judicial branches have ample jurisdiction & power to investigate, discipline, punish & disbar attorneys engaged in fraud or crimes.

    It is generally true that attorneys are answerable primarily to the courts for misbehavior and/or unethical or unprofessional conduct. The courts make the rules of attorney conduct, and the “bar association” of the state acts as the court’s agent in enforcing those rules. The bar association’s ethics committee and/or bar counsel are directly answerable to the courts. Those facts do not in any limit or constrain the law enforcement jurisdiction of the state’s executive branch, either through criminal investigation & prosecution or through civil or administrative regulation & sanctions. For example, lawyers and law firms as business entities can be punished for tax evasion or unfair competition (antitrust violations); lawyers as employers can be sanctioned or fined or held liable for abuse of employees (wage & hour violations, discrimination, etc.).

    It seems possible that the Florida AG either colluded with this particular law firm target (Shapiro & Fishman) to set up an outcome questioning a particular subpoena as exceeding the AGs jurisdiction over the “practice of law.” Even so, the lower court erred and I suspect the limitation on the scope of the AG’s subpoena will be overturned. Of course only the courts regulate the “practice of law,” but all other operations & behaviors of lawyers and law firms (including wilful fraud & forgery, which are NOT the “practice of law”) are subject to the AGs investigative scrutiny.

    To know what actually occurred here, it would have been more useful to have a copy of the actual lower court order than to see the appellate arguments.

  15. 60sradical

    The above comments by “attempter” are spot on! When fraud, illegality, and kleptocracy are the fabric of the money-making system, our only recourse is mass movement, heavy- duty publicity, honest attorneys and cracker-jack journalists like you,Yves. It always comes down to critical mass. I don’t see this developing. BUT this does not mean one should quit. Each of us who care, resembles Albert Camus’s “Absurd Man/Woman”–the situation is hopeless, but one must still act.

    1. Paul Repstock

      You contradict yourself Radical.
      This is not “hopeless”. The critical mass you mention is hat is needed. As people begin to understand that even their supposedly clear title properties are threatened by this great swindle, they will forget their petty snobberies against those of us who have mortgages.

      Our entire civilization is threatened by the insider’s club where professions are suposed to be self policed, but are not because of solidarity and backscratching. It seems absurd that certain sectors should be outside the law because they are self regulated. But, that is what we find from medicine to realestate to politics and ofcourse Law. Law must be the worst of all these. To imagine that any group is so scrupulously honest as to be able to both write the laws and enforce them upon their own members seems worse that naive.

  16. mannfm11

    Yves, I saw Eustace Mullins, who was a controversial character speak live once. He wrote the book on the organization of the Federal Reserve at the request of Ezra Pound, but that is beside the point. Mr. Mullins, who had a habit of suing people and institutions in court, said that the term bar had the same meaning as bank. The longer I have thought about that, the more I realize he had a sound connection there. The bar associations and the bankers associations are one in the same. Few people realize how dangerous the protection lawyers provide for each other. Being there is a separation of powers supposedly in the US, I believe lawyers should be barred from the other branches of government, based at least on the fact they enjoy a title of nobility that is reserved only for them. We are watching a total joke being made of the lawful process and those that are to protect such process have shielded themselves from prosecution.

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