Protestors Disrupting Foreclosure Auctions in California

By Timothy Y. Fong, an attorney in the San Francisco Bay Area who practices in the field of foreclosure defense litigation. His e-mail address is tyfong919 at

On Monday afternoon at 12:00 p.m., a group of protesters organized under the umbrella of the “Make Banks Pay California” campaign picketed a foreclosure sale at the Alameda County Courthouse located at 1225 Fallon Street, Oakland California.

I had heard about the protest from a contact in the real estate industry, and so I resolved to go down and see what it was about. I went specifically as an observer and not as a protester.

When I arrived around noon, I saw a group of roughly 10 to 15 people protesting. Some had yellow shirts marked “ACCE” picketing on the courthouse steps. Many of them had signs, like “Stop Foreclosures/End Bankster Fraud” and pictures of various Wall Street Executives tagged as “Wall Street Robber Banker.” One woman held up a sign that said “Chase and LPS Crime Scene.” After chatting with a few of the protesters I found out that some of them were part of the Alliance of Californians for Community Empowerment, and others were part of the local teachers union, SEIU Local 21. This being Alameda County, both the bystanders, protesters, auctioneers and bidders were a broad spectrum of ages and ethnicities.

Over the next 2 weeks, the Make Banks Pay California group plans to have a variety of actions in the San Francisco Bay Area and Los Angeles to “make Wall Street banks pay for destroying jobs and neighborhoods with their greedy, irresponsible and predatory business practices.” Several of the protesters I spoke with on Monday indicated their belief that because banks “don’t pay” it impoverishes local governments and causes school, library and government service cutbacks.

There were already a few auctioneers standing there with clipboards in hand, ready to start their auctions. The protestors started to chant, with at least one person blowing a whistle. Some of the chants were “they got bailed out, we get tossed out” and “vultures.” I spoke with a well dressed gentleman who said he was there with his client to place a bid. When asked for his thoughts, he said he thought it was a “joke” and that people should “go home” and “pay their bills.”

The bidders and auctioneers at first seemed somewhat confused or even amused by the situation. However once the protest started to get going, the protesters would circle up around an auctioneer and start chanting so loudly that it was difficult for the auctioneer to be heard. In response, the auctioneers distributed themselves around the steps so that the protesters couldn’t stop all of them. The protesters broke up into a couple of groups, with each group attempting (and succeeding in some cases) in surrounding an auctioneer with chanting people. Electronic media devices were everywhere– people were pulling out phones and digital cameras and taking pictures. I even saw one of the bidders do a self-video with what looked like an Android phone– he showed the crowd then turned the phone on himself and gave a quick narration of the scene. The protesters were able to disrupt the sales enough that one person I took to be an auctioneer (due to his clip board and demeanor– I have been to more than a few courthouse step auctions) got on the phone and said that it was “getting rough” and he “need[ed] everyone here.” Thankfully he didn’t pull a Gary Oldman and demand EVERYONE.

There was no law enforcement presence on the steps, although I know for a fact that a sheriff’s security station was within 150 yards of the steps inside the courthouse. I did see one law enforcement officer ride by on a bicycle. A picketer waved to him and he waved back.

I spoke with one of the protesters, Shirley Burnell, an older African-American woman using a walker. She said that she was there because banks are selling homes out from under people. When I asked her whether she had been personally affected by the situation, she related her story to me. Shirley had taken out a loan on her home to make some repairs. She had been given two years of fixed payments, and then told that she could refinance after that into a 30 year fixed loan. That did not happen for her, so she has been seeking a loan modification since 2007, to no avail. I did notice more than a few older people with gray hair in the crowd of protesters. It was more than just college students.

In an effort to understand both sides of the story, I also attempted to speak with one of the auctioneers. No one I talked with would go on the record with me. I did talk to one younger man, with a pair of earbuds around his neck. His name was Connor, and he related that he worked for a company that buys foreclosure. Connor said that he would be willing to listen to the protesters if they had some kind of alternative plan. In fact he asked me, “what’s your alternative” and I told him that I was there to write a blog post about it and as a journalist, and not as a protester. Connor also related that he had asked some of the protesters not to yell in his ear, and that they continued yelling.

After about half an hour of protesting, I saw some tempers start to flare as a few frustrated bidders yelled at the protesters. One man in particular stood out to me. He was dressed in a white suit with a pair of bug-eyed Gucci sunglasses. In the middle of a crowd of chanting protesters he yelled out “make your payments” and a few taunts. After a little bit of that he seemed to think the better of it and walk away. It was one of those totally stereotypical, Marie-Antoinette moments that I would not have believed had I not seen it with my own eyes.

Although the bidders yelled about “pay your bills” and “make your payments,” in my experience as an attorney, many of my clients and prospective clients have fallen into foreclosure when banks told them that they had to stop making payments in order to qualify for a loan modification. When the modification does not happen, they find themselves foreclosed upon, with the bank demanding not only the back payments but interest as well. Very few people are able to become current at that point. This practice is known as dual tracking.

In speaking with my colleagues who also practice foreclosure defense, Shirley’s experience is distressingly common. Litigating a dual tracking case is difficult because of litigation costs. Costs are driven in part by the procedural requirements put in place to eliminate “frivolous” lawsuits– effectively this places justice out of the financial reach of many.

I have also seen more than a few people who were put into loans where they had a low payment for the first few years, and then it ramped up afterwards. Like Shirley, they were told that they would be able to refinance into a 30 year fixed, and like Shirley they were unable to do so after the economy crashed in 2007. Even people who are not in a loan with escalating payments still seek principle reductions, since the value of their real estate has dropped from the bubble years.

My experience has been that there is a deep reluctance in the financial industry to make principle reductions on loans. Even relatively well off professionals in the bottom half of the top 1% category have a difficult time getting their bank to negotiate with them. I spoke recently with a mid-senior level finance professional at a major bank who indicated to me that his preferred solution would be to make the banks take their medicine; do the write downs and sell the existing inventories of foreclosed homes. This would , in his opinion push some of the banks involved into FDIC resolution. Clearly balance-sheet concerns are the source of the reluctance by management to make the principle reductions.

However, the job of our political leadership is not fealty to bank balance- sheets, but to the well-being of the American people. I had hoped that President Obama and the Democratic Party leadership would make bailouts conditional on principle modifications but that has not been the case. I suspect this comes from a reluctance to push major banks into FDIC resolution. Also, there seems to be a certain institutional and personal blindness among our elite, as exemplified by the Gucci-sunglasses-wearing man I saw yelling at the demonstrators. Even though he was surrounded by chanting protesters he thought it might be a good idea to taunt them. Thankfully the crowd was non-violent and nothing happened other than some shouting.

I am positive that the financial and political elite fail to understand the level of anger out there in today’s America. Probably the most disturbing thing I heard at the protest came from a conversation between a couple of bystanders. An older man was commenting that he’d tried to seek justice against his bank through the legal system but that it was “bullshit” [his exact word] and that the system was stacked against normal people. It’s a sentiment that, as an attorney, I have been hearing altogether too often lately from all kinds of people. I am disturbed by it because our government, indeed all governments, depend on public faith in institutions. When public trust in government institutions fails, the result is chaos and violence. As seen when the Soviet Union collapsed, organized crime steps in to fill in the void.

Our elite leadership is a lot like the man with the Gucci sunglasses– flaunting their wealth and positions while taunting a crowd of angry people. I can only hope that the recent upsurge of protests across America can succeed in convincing our elites to effectively respond to the concerns of ordinary Americans before we step over the precipice.

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  1. pj

    “. . .this places justice out of the financial reach of many.”

    There is only justice for the wealthy, Yves, as you well know.

    “a certain institutional and personal blindness among our elite”.

    Blindness? Arrogance. They get away with breaking laws and oppressing and abusing others every day of the week. You don’t get to be an “elite” in a “leadership” position in this crazy world unless you are a ruthless shark willing to do anything.

    It’s simply our reality. Until we change it.


    1. Mark P.

      We’re changing it already. Defaults are up 70 percent in California in the last month of data.

      In fact, don’t pay and walk away is the rational, principled strategy as long as the political establishment continues to serve and assist the predations of the financial overclass at our expense.

      1. Jim

        I knew the foreclosures were increasing.

        So what happens next? All the foreclosures get dumped on Fannie and Freddie then essentially sold in bulk to hedge funds and private equity at a steep discount right?

        It’s going to be a loose loose for the taxpayer, I can guarantee it.–but-not-for-you.html

        The whole idea is to bury the western world economies in deep debt with wars and health care/medical costs. So deep, that the countries collapse and a one world government and new currency gets put in place. That shouldn’t be new news, the news is figuring out what conspiracy theory is propaganda and which is REAL.

        The only problem is the mideast is generally not as cooperative as the Elite infested UK, France, and Germany. So all those little pee-on mid eastern countries need new management first. The UN is helping that process along with the Iran Contra Affair style “rebel” opposition to governments over there.

        I think they are about a year or so away before they would like to pull the plug on the west.

        Hopefully the good people in this world, and the patriots who love their countries, can figure out who the rats are and throw them in jail. The people at the top are evil and their goals are not for a happy ever after type ending.

        It’s going to be a world where all your freedom is taken away, and your nutritional supplements taken away, where really awesome technology and gene therapy is available only to the top 1%. The rest get vaccinated with just the opposite kind of gene therapy.

        Yep! I just laid out a scary senario! The sad thing is I’m just being honest and have a pretty good track record of “seeing around the corner” so to speak.

        God bless those who can help do productive and peaceful activism to usher in an Honest Media, and weed out the rats of our government agencies. Especially those doing the elites work like the Mace Man Mr Bologna.

        1. Jeff

          My eighth grader asked me what I was reading about. “Naked Capitalism, it’s a great website, take a look”. She looked. “Too complicated to understand”.

          Got me thinking, if the average American reads at an eighth grade level, then wouldn’t it be a worthwhile intellectual exercise to distill important financial news down to an eighth grade level?

          Here’s my first draft. Care to comment?

          “Taxpayers pay interest to the Federal Reserve private bank to create money at their profit that the U.S. Treasury could just as easily have created at zero interest and no cost to the taxpayer borrower.

          Banks use this borrowed created money to lend money to people to buy houses.
          Many loans have tricks in them like balloon payments, switched terms and outright lies to borrowers, creating a big bubble.

          They then sell packages of these loans to old peoples’ pensions and foolish investors
          In exchange for real money.

          When the speculative bubble pops and banks are threatened with huge losses on the loans they still have out, they get Trillions in bailouts from taxpayers to keep lending money and help people stay in their homes they bought on credit.

          Banks instead hoard taxpayer money, pay high corporate officials billions,
          refuse to loan money to struggling businesses and most importantly, do not renegotiate terms of corrupt and bad loans to homebuyers that they administer or still own, kicking more and more people out on the street.

          Huge amounts of property that has been taken over by the taxpayers through government agencies sits empty and is surrounded by more and more people living in their cars or on the street. This taxpayer owned property is now going to be sold for pennies on the dollar to speculators who will then rent it out for thousands of dollars a month to taxpayers.

          Have you done your homework? You need to work and study to become a responsible citizen.”

        2. Mark P.

          Jim wrote: ‘where really awesome technology and gene therapy is available only to the top 1%.’

          Yes, it’s true that a lot of Wall Street investment is secretly going into that. But —

          [1] A significant percentage of the top scientists leading the development of biogenetic technologies — such as George Church —

          — are unlikely to go along with that. Church’s central drive, for instance, has been to democratize these technologies.

          [2] Overall, the infrastructure to do some of this work is more commonly available than is realized and getting cheaper all the time, since the technology is arguably advancing faster than Moore’s Law has advanced the microprocessor. So, for instance, there’s this —

          Work that took hundreds or thousands of people in large institutions like Genentech or Biopreparat a couple of decades ago can be done in garages by very small teams or even individuals with second-hand equipment today. The point is, at the end of this global game of musical chairs, the numbers of the very rich are going to be reduced. Is that reduced population of potential targets going to live in hazmat suits 24 hours a day?

          All of us are vulnerable. But the rich are today more vulnerable than they have ever been history.

          1. Mark P.


            All of us are vulnerable. But the rich are today more vulnerable than they have ever been in history.

      2. Jane

        I live in Florida which has been called the centre of the foreclosure crisis. More and more people I talk to are deciding to walk away from their properties. Many of them strategic defaulters. Foreclosure isn’t even a ‘dirty’ word anymore – people are being quite open about it. If they get themselves a well-qualified foreclosure defense attorney, they can stay in their house for years and not pay a dime – which in turn helps them recoup some of the loss to the equity in their property. People are wising up and doing research through the online county records’ systems. A friend of mine recently found that Fannie Mae is the owner of the note, but no assignment has been filed with the county recorder. She bought this house in 2003, so more than likely it is in a MBS and Fannie is the trust holder. She hasn’t paid her mortgage since April, and hasn’t even received a Notice of Default yet, which by Florida law, is the first stage before a foreclosure suit can be filed. Most PSA agreements state that the note/instrument must be recorded within 30/60 days of transfer. It just didn’t happen in the majority of cases, so it’s just one massive fraud. The courts are slowly catching on, because it’s just too big to hide anymore. Borrowers are fighting back by saying that they are not expecting a free house, but they do want to know who their monthly payment was going to, and therefore who has the right to foreclose.

        This is not just an issue for foreclosures, but also for anyone who wants to sell their house. The chains of title have been corrupted so badly that no one really knows how to correct it. When Sheila Bair was still at the FDIC, she admitted knowing it was an endemic problem. None of the regulators know how to fix it. The Banks? The phrase ‘Hoisted by their own petard’ comes to mind.

        Yves mentioned a suit in Michegan (back in June I think) where the judge ruled that MERS didn’t have the right to foreclose because it has no financial interest. (Yves could you please post the link to that case if you get a chance?) If you read the ruling it gives you a fairly good assessment of what is coming down the road.

        Take a look at this amazing flowchart of a borrower’s investigation into his own mortgage. Do you really think all the assignments and endorsements of the note were made as were legally required? Me neither.

        I laugh every time I read some real estate ‘expert’ stating that the housing prices will reach bottom by the end of 2012 or early 2013. Who do they think they are kidding? Less and less people are believing all this BS when they do the research. And who is going to buy these houses once they get to market? Investors maybe, if they can get a huge discount, but eventually those buyers will dry up. And the guidelines for mortgage lending have got so stringent that most people who want to buy can’t qualify. Others feel the economy is too uncertain to commit to a mortgage. They don’t feel secure in their jobs, and don’t want to be tied to a particular city in case they have to move to find work.

        In my county there are at least 35,000 foreclosures pending, and thousands more in the pipeline. There is just one judge assigned to the foreclosure court, and for every case that is being disposed, there are 3 more being filed – you do the math. The Florida Governor, Rick Scott (I could embark on a long rant on him, but will save you from such a profanity laden screed) is pondering the idea of making Florida a non-judicial state for foreclosures. However, he’ll have a tough time doing that because it clearly states in the original mortgages that the borrowers have the right to a judicial hearing.

        What we have seen up until now in this housing mess is just the tip of iceberg. It’s a HUGE mess – the banks know it, the attorneys know it, the courts know it, and the public is beginning to know it.

        This will not end well.

        1. Timothy Y. Fong

          I suspect that a lot of the action in the foreclosure buy up market is being done by hedge funds who are looking to acquire rental property in bulk. This would especially be true in the outer ring exurbs where you routinely see multiple families living in one house. Yves posted a WSJ article on it a while back. A colleague of mine attended a number of foreclosure auctions in Santa Clara and spoke with the buyers. His report was consistent with the article– except that he was attending auctions in 2009.

          1. Fraud Guy

            Multi-family rentals is a nice concept, however most of the builder exurbs have HOA/zoning codes that prohibit this, with early buyers probably the most strident against allowing their community to become a tenement neighborhood.

            In addition, most of these homes aren’t really built to be subdividable, while older homes are (think of all the victorian/brownstone/bungalows/4x4s that are easily subdivided).

        2. Nathanael

          There’s going to be a two-tiered housing market.

          Lots with clear title, where they weren’t mortgaged after (say) 1985 (maybe earlier), and never with MERS, and never transferrably, will sell for a huge premium over other lots.

          It’s taking people a while to recognize this.

    2. Middle Seaman

      It is fascinating to see how our system solves the problem of frivolous law suits is to exclude the majority of American from the courts.

      Actually, this is exactly what is done with health care insurance. In short, if you don’t have the money fuck you.


      1. PL

        Citizens are excluded from the courts when judges refuse to enforce the law. At a recent foreclosure action in which I represented the homeowner our defense was the promissory note was not endorsed to the foreclosing securitized trust AND the securitized trust does_not_exist.

        The trial judge stated on the record:
        “If you believe the lending institution or successor lending institution is engaging in fraud then you need to talk to the District Attorney. That’s not what I do. What I do is decide how much money is due.”

        That’s right, the judge thinks his job is to give the banks money even if they don’t own the promissory note. He willfully turned a blind eye to fraud knowing that there was no time to left to speak to the District Attorney and that it wouldn’t make a difference anyway. Following this quote the judge refused to permit any questioning about the chain of title and whether the plaintiff had shown it was the correct party to foreclose. We lost, but the appeals process has begun.

        This is the same judge who denied my two discovery motions seeking the original promissory note, but stated assurances earlier in the litigation, “You can stop making motions because I’m not going to let the bank put the promissory note into evidence at trial if it wasn’t produced in discovery.” Then he did the exact opposite at trial when the promissory note magically appeared for the very first time.

        We were sandbagged by the judge and lost the case. I cannot convey the full depth of contempt directed to me and my client at trial as we were sandbagged by the judge. His duplicity and contempt are outrageous. I hope the appellate court agrees.

        1. Greg Marquez

          You should put the Judge’s name Court, Department etc. out there so that he can be recused on the next go round.

          I wonder if you could have cross-complained for fraud in a foreclosure action?

          1. PL

            Even if we had counter-claimed for fraud, we couldn’t prove it if the judge won’t order the bank to produce the original promissory note.

        2. JasonRines

          While talking about the finance system blatantly violating the law and judges that support them, let’s not forget the giant mess this kind of moral hazard has on effects of indirect tax policies.

          I’ll tell you my strategy of dealing with ammorality I devised in 2008 in dealing with NH courts. The deal in NH is that if you have a penis, yiur to be taxed up the yang using perverse social justice, really social revenge from ignored female movement that came up from MA and took over the legislature in the 1990’s.

          I made sure I stored wealth as a means of income and not be stolen. Long story but the short of it is I had to make the state so sick of me they dread having to deal a few hours of their time in exchange for dozens of hours of mine. Now this sounds like I should just settle frivilous bullcrap for ‘expedience sake’. No, you only fix the issues by forcing them to be dealt with and expect it to come at a large personal expense by doing so.

          The elite ignored the people for far too long. The result of that turns the oppressed mind toward destruction of the supply chains even while so doing that impacts themselves negatively. Its a survival response that has no containment answer so the final overraction by the government to revolution is massive war to use as the reason your butter is rationed, deflect blame etc. Its a much tougher sell now with communications than the 1930’s where the message in newspapers and radio was far easier to control.

          1. PL

            We never saw it coming. The judge played the role of an impartial, albeit clueless, jurist during pre-trial discovery. The man who sat on the bench at trial was an angry, contemptuous advocate for the bank, in my opinion. Draw your own conclusions about why and when this transformation occurred. Once all post trial motions are decided and the case is completely out if the trial judge’s hands and in the hands of the appeals court, we will weigh our options for recourse.

          2. Martskers

            The corruption and subversion of the judicial
            system in this country makes what happens on
            Capitol Hill in D.C. miniscule by comparison, and the
            real problem is that, unlike Congress, much of
            what the courts do, though nominally public, is
            never publicized, so the public doesn’t even
            know how badly it’s being screwed by a judicial
            system that’s SUPPOSED to be fair and equitable,
            but isn’t.

            The screw-job is compounded by the fact that many
            judges are elected, even though the public doesn’t
            have a CLUE whether the judge they’re voting for
            is actually qualified, has issued bogus rulings,
            plays favorites with the lawyers who support
            (i.e., contribute to) his/her candidacy, etc.

            The arrogance and imperiousness of most judges
            is off the scale. Read Glenn Greenwald’s account
            of just one such example:

            The symbol of justice is blind. It would be
            more accurate if it were stupid and mean
            as well (I suggest Mo from “The Three Stooges.”)
            When the revolution comes, the first place that
            will need to be stormed is not the “halls of
            congress,” it’s the “halls of justice.”

          3. Fraud Guy

            Probably because he was tired of having to sit through each foreclosure fight, and just wanted them to finish quickly and quietly, like they used to.

  2. Linus Huber

    Yves, thanks for this poste.

    I have a request, if I may. Is it possible, with all kind of data available to you, to find out how many of the wealthiest (like the top 5%) are coming from which sector of the economy today compared to maybe 20 years ago.

    I am just curious how many looters (bankers) make up those 5% wealthiest today compared to 20 years ago when the financial innovation was not as rampant yet.

    1. Jeff

      One thing’s for sure, some people have slipped from the pantheon of wealth. I picked up an old copy of
      “Medical Miss Magazine”…that was a magazine aimed
      at doctors’ wives…kind of a Sunset Magazine on
      steroids…”Buy an Amana Radar Range to instantly
      cook food!”

      Doctors are now just as likely to be Indian immigrants as Americans thanks to the finationalization of insurance and medicine at the corporate level.Hey, I made up a word!

  3. Jesse

    Wow. This is a powerful piece – well done by the author. Yes, the financial and political elites are completely blind and utterly ignorant of history (or maybe they are acutely aware of both and just can’t help themselves).
    Our Gucci wearing villain truly is the perfect metaphor for America’s elites. The “pay your bills/make your payments” taunts remind me of abbreviated versions of our political debate: Cut unemployment benefits so that these people finally go out and get jobs/Broaden the tax base so we get the free-riders (i.e. the 40% of the country that makes .4% of it’s income) into it.
    It is a relief that the ongoing protests have been non-violent (well, on the protester end anyway), it shows that there are still people who think they can work within the system.

    1. Richard Kline

      I would suggest that we reevaluate Mr. Suit here. Yes, perhaps he is a villian. Then again, he may sincerely believe that those being foreclosed on fell short on payments on loans they took out in good faith, and that the system simply should be allowed to clear itself ‘as designed.’ We can’t conclude that he’s will informed however self-interested and willfully blind he might be. —But moreover, he _isn’t_ the real villian of the piece.

      The real villians are sufficiently talented that they are _not_ present on the auction steps. Capitalist dung beetles go to chew financial near-corpses, but the real villians _designed the securities and ran the investment banks_ that ran the whole system. Those guys (they’re all guys) are very, very far away and high above the courthouse steps. Indeed, if Mr. Dung-Beetle-in-Gucci wasn’t there on the steps, the real oligarchical perps would have to _hire_ some one to do the Dung Beetle Jiggle for them to draw public ire. The villians are the ones who wrote the MSBs and robbed everyone. But they are invisible at the scene of the funeral.

      1. Jesse

        He’s a metaphor for the type of people you refer to as “the true villains.” In other words, the image of him chiding – even outright taunting – the powerless around him perfectly encapsulates the disdain (or even rage) that the majority of the powerful in this country feel for everyone else.

        However, I don’t think that his status as a villain (although a considerably lesser one than the oligarchs) can be questioned. The idea that he can 1) be at a foreclosure auction mocking a group of people protesting fraud-closure, yet 2) “sincerely believe that those being foreclosed on fell short on payments on loans they took out in good faith” just doesn’t ring true.

        1. Jeff

          The tragedy here is when the victims cheer on their
          own demise. We know a guy that has his house leveraged to the hilt, has no health insurance, dresses in near
          rags and goes around handing out copies of The American Standard ranting about high tax levels and the evils
          of Obamacare. He claims to not own a car because he
          refuses to pay outrageous fees to the DMV. This is
          in a wealthy community of educated people. Sort of a financial Adams Family situation.

      2. PL

        Richard wrote of Mr. Suit:
        “We can’t conclude that he’s well informed however self-interested and willfully blind he might be.”

        Exactly! Mr. Suit may have strong opinions but he’s not necessarily getting the big picture. He may truly believe that homeowners with properties on the auction block have failings both financial and moral. Now put trial judges, elected representatives, district attorneys, and some attorney generals into that category too. Wall Street is playing all of them for fools and, by getting them to buy into this mindset, evading regulation and prosecution. It’s brilliant.

      3. Timothy Y. Fong

        Oh definitely. The people behind the curtain are probably a little less flashy than Mr. Gucci Sunglasses but far more responsible. When I started reading Bill Black’s articles about control fraud I was pretty shocked by the depth of the fraud and corruption involved.

        A good friend of mine puts the blame squarely on the MBA schools for pushing the ideology behind the crisis. He maintains that the world view coming out of MBA schools is detrimental to actually getting things done in a manufacturing environment.

        I would also add that legal education is a vector as well. I remember during law school that we heard a lot about “law and economics,” especially in intellectual property. Plenty of rhetoric about incentivization. Since I spent lots of time in science and math classes, I asked if anyone had quantified the effect of various laws under discussion. Of course, the answer was “none.”

        1. Mark P.

          ‘…the world view coming out of MBA schools is detrimental to actually getting things done in a manufacturing environment.’

          Absolutely. Much talk about villains and morality in the comments here. But we’re all villains given the appropriate context and lapses of intelligence — stupidity is the root of much human evil and we are all stupid some of the time.

          It’s the current model of business, however, that has supplied the appropriate context to make looting systemic from top to bottom.

      4. chris

        Richard, the people that you say should be cleared from the system may very well have taken out loans in good faith. they also may have had the good faith that they could sell when necessary and that they global economy was not going to completely meltdown through no fault of their own. It is the arrogance of such statements that make me not wonder why we have not reached a resolution for this crisis.
        If people lost their job due to downsizing thanks the the global meltdown does not mean they don’t have rights. It the banks have not followed proper procedures and have no legal right to the property they have to be held accountable. You can’t just sweep their fraud under the rug and say someone didn’t make the payments. The banks are doing something much more egregious than missing payments.
        try losing the righteous indignation and see the reality of the title system in its current state. the banks have tried to run over the rights of ownership and title in the entire country in the name of money. the didn’t care who it screwed and now you are taking up the banner for them as well buy being blind to the facts.

        Why even have title and ownership if anyone can come to court after years and claim they have ownership to property because they say so?????? Don’t you think the future of the country depends on something like this?

    2. PL

      How widespread is that anger described in the piece? How many people think our justice system is stacked against ordinary people? I think that those in foreclosure get it, but most others are oblivious because they have affordable mortgages and have not connected the dots yet. But no one is safe from the effects of an economy in free fall and when the oblivious class starts feeling them, perhaps then there will be critical mass for change. I’m very concerned about how change will come about.

      1. Observer

        A mortgage is only affordable if one is employed. Not all foreclosures result from an LTV that is upside-down. Watch as the wave of foreclosures moves to older loans held by out-of-work 99-ers. Mr. Suit, what say you then?

    1. scraping_by

      Mandelman hits the money quote in the tu cuo defense.

      “The bank may have “un-clean hands,” because it failed to follow the rules and even broke several laws, but that didn’t directly damage the homeowner financially. Conversely, however, the homeowner is not appearing in court with “clean hands” either, as he or she is in default according to the terms of the contract he or she signed,”

      Nice to know we’re getting away from that ‘black letter of the law’ nonsense. I always thought that somebody should figure out words are arbitrary symbols, and messing with the common and intended definitions is underhanded.

      Instead, we’re in the era of legal emotionalism, where the judge’s feelings are what’s important. In the real world, there’s always some escape from the obvious truth, and if that black robed lawyer sees the banks as his clients, he’ll dive for it.

      Housing has been fraudulent in origination, servicing, and custodianship for years. Few people want to risk that kind of money with a bunch of proven fraudsters. If the judges are worried about economic impact, how about they return trust to the transactions by tossing a few felons in jail?

  4. Richard Kline

    So Timothy: “My experience has been that there is a deep reluctance in the financial industry to make principle reductions on loans. Even relatively well off professionals in the bottom half of the top 1% category have a difficult time getting their bank to negotiate with them. . . . [Mods would] push some of the banks involved into FDIC resolution. Clearly balance-sheet concerns are the source of the reluctance by management to make the principle reductions.” Yes, I agree that the solvency of many banks would be threatened (at least) by doing any _extensive_ volume of mods so that this is certainly a primary concern. But I would contend that another concern as large, or even larger, is that the nature of mortgage securitization as it has been practiced is so fraught that any attempt to pull out individual loans to modify would effectively destroy the banks involved, and that this fear is the iron staunchion behind the resistance to mods by banks.

    The huge majority of mortgages are welded into mortgage-backed securities. No one knows _where_ the acutal notes are. No one is any too sure just who has the legal responsibility or even the right to do a modification. Regardless of what the actual security documents say the chain of execution is far from clear, which means that anyone who acts to change a payment stream opens themselves to litigation by everyone else with an interest in the security. Many loans have failed, pushing many tranches of these securities to or past their triggers for mitigation of various kinds. The more that the payment streams are impaired, the more that holders of tranches have in claim on the securities as a whole but also on their issuers. Moreover, while what to do about actually failed loans in MBSs and their pools is often down in black and white in the security documents, it seems clear that what to do about _mods_ is anything BUT clear in many of these documents.

    Much of the point of mortgage securitization as it came to be practiced seems to me to have been for the issuers to apparently shed liability while everyone got a slice of the profit stream. But as we see, as loans fail in volume liability becomes a huge back-up of steam pressure which the securities cannot withstand. Put another way, any tinkering with the payment stream and these securities will simply blow up into ferocious litigation about a) who gets stuck with the losses and b) who pays compensation to whom about that. MSBs were weapons of mass _deception_, and now are oil tanks and tire dumps wired to litigational detonators which are motion-sensor activated—and no one knows just how much motion will set the bastards off. What is clear is that if the banks—any banks—have to cover even a fraction of the _securities_ not of the original mortgages but of the securities, those banks are atomized blast patterns, they just don’t have the capital.

    To me, this last issue is what is really blocking mortgate loan mods. Even though it is amply demonstrated that the loan mods would be in the financial interests of the banks, doing even a few mods will, by precedent, blow up the securities involved in litagation, which will absolutely destroy the bank in question. The banks know that they can stiff most of the homeowners; the latter don’t have the money to sue in most cases, and even if they do and win the cost is something that to this point the banks can survive. But one the Wide Boys stuck with smouldering MSBs start suing its all up. Who do you think scares the bankers more? That’s what I think too.

    1. Timothy Y. Fong

      Like you, I have followed the news about the lawsuits by investors against banks for the MBS fiasco. I agree that it is probably also a major driver against the modifications. There have to be a lot of pension funds taking a look at their top rated securities that turned out to be junk.

      I remember back in 2003 a friend of mine was investing in AAA rated bonds that delivered “junk bond-like” yields, in his words. I told him that had to be impossible, and he said some stuff about managing risk or something like that. I said, man that just looks too good to be true.

      And so it was.

    2. Yves Smith Post author

      Unfortunately, investors are afraid of suing banks. They rely on them for “information” and trading. I’ve heard this repeatedly.

    3. Nathanael

      If I were interested in real estate, I would look up the “adverse possession” laws in every state.

      It seems that in Florida banks are refusing to take title even *after* they’ve foreclosed. For *years*. In order to avoid dealing with property maintenance, etc.

      This opens the property up to ownership by adverse possession, if I’m not mistaken. The people who openly and notoriously live in the house just have to refuse to leave and refuse to admit bank ownership for some number of years, and voila….

      1. Fraud Guy

        In our neck of the woods, it takes 20 years of adverse possession to gain title. Might be a little too long of a play for most people.

  5. Paul Walker


    As an on again off again Alameda county resident who has spent most of my recent years traveling across the US I can attest to the widespread and ever growing discontent with social systems broadly led by a neck n neck race to the bottom between the fed, congress and the rule of law. As you note, this discontent crosses all demos and seems particularly rooted not only off San Pablo or East 14th Street, but Skyline Drive and Piedmont as representative communities as well. It seems the previous and current administrations have made it a priority to integrate and broaden to the fullest extent possible a policy of what I term judicial exclusion best enunciated by Cas Sunstein. To quote:

    Prosecuting government officials risks a “cycle” of criminalizing public service, [Sunstein] argued, and Democrats should avoid replicating retributive efforts like the impeachment of President Clinton — or even the “slight appearance” of it.

    This policy has now become so deeply rooted that any attempt to ameliorate this condition is met not only with derision, but with an air that to do so would undermine national security through eroding essential confidence in a wide range of public and private institutions. These would naturally include the law itself, law making along with finance and other glaring examples in society. The common denominator with all of the these pillars of our society is the seeming corruption of the rule of law that underpins the whole enterprise.

    When citizens cannot have a police officer respond to a burglary for lack of staff and notice that the same operative condition applies to the very functioning of the bar of justice, finance and law making then the conclusion broad society has come to is that our society is now lawless. Folks readily concede that there are institutions of justice, but that these serve the interests of the very folks promoting lawlessness. No wonder rather than have one dictator we now seem to have one on every block with the TBTF garnering an ever greater percentage from the conversion of funds, or Gucci sunglasses.


    1. Timothy Y. Fong

      That Sunstein quote is pretty nauseating, but unsurprising. It goes along with the culture of impunity that has successfully taken hold among the elite and in those who attempt to emulate them. When I talk to people who hold those views and ask them if they are concerned with a potential catastrophic outcome for all of us, what I used to get was mockery for my “paranoia.” Now I just get an uncomfortable silence.

  6. Cheyenne

    “I also attempted to speak with one of the auctioneers. No one I talked with would go on the record with me.”

    Why is that, I wonder? Is it because millions of foreclosures are so transparently fraudulent that even grandpa is catching on?

    “An older man was commenting that he’d tried to seek justice against his bank through the legal system but that it was ‘bullshit’ [his exact word] and that the system was stacked against normal people. It’s a sentiment that, as an attorney, I have been hearing altogether too often lately from all kinds of people.”

    Yeah, people are starting to wake up, and they are pissed off.

    Great Professional reference, btw.

  7. Praedor

    ” I can only hope that the recent upsurge of protests across America can succeed in convincing our elites to effectively respond to the concerns of ordinary Americans before we step over the precipice. “

    Hah. Good one. The DC elite and their best bud bankers are absolutely blind to this. They literally cannot see “the little people” anymore than you can actually see every grain of sand on a beach. It all blends together into one background shade of tan. You only notice a handful of grains when they get into an inconvenient spot and then you simply wash them away in the shower (or with “the little people” you use the police/legal system to shuttle them into places out of sight).

    I actually desire that we go over the precipice. I would like nothing more than free reign to embed the lenses of the bug-eye Gucci into that pricks eye sockets. People hiding behind their gated community walls need to feel, viscerally and literally, the anger, the rage from the masses they are blithely sucking dry.

    Bring on the torrent that flushes us over the precipice. Once that happens, the “rules” and “laws” go out the window and rebalancing accounts becomes easier for “the little people” to accomplish.

    1. PL

      Oh no, don’t wish total anarchy on us. The lessons of the Reign of Terror following the French Revolution should be heeded. Those who wish for a modern day Reign of Terror have no credibility. Peaceful, overwhelming resistance and ethical reform are needed, not total anarchy.

      1. Praedor

        Ugh. It’s really quite simple. I don’t do passive resistance or peaceful protest. If you mace or pepper spray me, I response appropriately by pulverizing you. If you grab me and try to toss me to the ground, shove my face into the pavement and stick cuffs on me, I resist and respond with forceful resistance.

        I am constitutionally incapable of getting all mamby pamby and taking it in the ass on principle.

        I’ll do passive/peaceful resistance up to the point the other side gets rough. At that point, all bets are off and I go for AT LEAST proportional response. I tend to favor disproportional response but can moderate on that point.

        Up to a point, that is.

        1. Fraud Guy

          And then we read about how an unprovoked attack on an officer resulted in the assailant dying due to being shot/tasered/accidentally suffocating while in restraints.

          Though copius amounts of video evidence was presented, the officer involved was cleared by a police board review and reinstated with back pay.

    2. Nathanael

      I don’t want the country to go over the precipice. But I am at this point quite certain that it will, because there are not enough “Earl Greys” and FDRs to bring it back from the brink. Prepare however you can for it.

  8. PQS

    Great piece that should be faxed to every lawmaker in DC.

    No, they don’t get it. The fact that they are only now even beginning to discuss unemployment shows that they don’t get it. That they continue to play political games and discuss cutting the social safety net out from underneath the bulk of the middle class shows they don’t get it. That they continue along this path shows they don’t understand the consequences for the total breakdown of the rule of law.

    I, for one, have been quite surprised that we haven’t seen any Long Hot Summers of riots and disruptions. Youth and minority unemployment are both sky high. Couple that with the constant pressure on the remaining middle classes, and it seems like a recipe for unrest to me.

    And, unlike the Europeans or the Middle East, Americans are heavily armed.

    1. eclair

      I agree, PQS. But situations aren’t quite bad enough just yet and we have a cold winter ahead of us. Well, not in the South.

      But, as for the US citizens being heavily armed, the US government is even more heavily armed. No contest. I listened to a discussion on PBS the other day while driving. “Experts” talking about the US drone program, used now against citizens of other countries who are, for whatever reason, angry at their overlords and occupiers, predicted that these unmanned aircraft were the “future” in the US Airforce. My imagination hared off and I was in a crowd of peaceful , but angry, protesters as, over the horizon, appeared two or three silent, deadly, unmanned drones. Whooh! I almost had to stop the car to pull me back to reality.

      1. Externality

        The reliance on drones makes it easier for the US government to “outsource” domestic repression.

        If drones flying over Afghanistan, Somalia, or Iraq can be controlled by operators in the US, there is no reason why drones flying over the US cannot be controlled by operators in other countries. If American soldiers will not fire on American citizens, our elites will have the drones controlled from a country whose citizens have no problems killing Americans.

        1. Mark P.

          And yet note the recent riots in London. In what’s literally the most surveilled urban landscape in history the authorities were largely ineffective in clamping down on the rioters.

          Yes, the Tory-controlled UK government is in the aftermath using the cameras’ records to identify and impose ridiculously punitive sentences — for instance, six months in prison for a first offender who stole a bottle of water — on individual rioters.

          But even these harsh reprisals by the regime after the fact of the riots — and not incidentally those punished are already straining the UK’s justice/penal system — are self-defeating in the long run. Those so punished will only take to heart the obvious lessons.

      2. Nathanael

        In this regard, you think “the US government” is heavily armed? Think again. Poor grunts, facing stop-loss orders, pay freezes, and finally cuts in VA benefits — that’s who are heavily armed.

        As I’ve commented many times, our financial overlords are too stupid to even treat their enforcers properly.

        Remember how the Soviet Union collapsed? There was an attempted coup against Gorbachev…. and the Army *instantly split* with different divisions adhering to different leaders, mostly local ones. That’s why the USSR collapsed.

        As things are going, if the government was dealing with huge fury and attempted large-scale brutal repression, it would find that the US Army would be no more loyal to the leaders than anyone else.

    2. JasonRines

      PQS. An armed society is a polite society. I believe the Founding Fathers were wise to instruct the people to attempt to alter government as a first step prior to violent revolution. For even if altering is not possible attempting it mitigates the death toll on all sides.

      I have already endured violence because of the break down of the rule of law. I expect it and therefore no longer fear it. I do know my own limits in reform involvement. For example, I’ll syndicate the Wall St. protest but could not attend. As soon as I saw those hedged in girls get pepper sprayed, I would lose all restaint toward that cop. He wouldn’t leave walking if I was there and I am not a little guy and have plenty of street fighting experience.

      Having that kind of action is BAD for what the protest is supposed to be about which really is restoring the rule of law so the country can mend. It may be too late already to avoid more serious conflict.

  9. eclair

    And from Colorado, here is a link to an article in Sunday’s “Denver Post”, detailing the steps by which the foreclosure industry, working under the public’s radar, changed the state laws over the past decade to make it easier to foreclose.

    According to the article, Colorado laws now provide almost no protection to the home buyer.

    Interesting discussion of Colorado’s Public Trustee system, all of which now seems to be harnessed to the service of the lenders. So much for Public Trust.

    1. Observer

      Not surprising since Colorado is a second home for many of the wealthy. It’s also next door to Big Dick Cheney’s home state.

  10. steelhead23

    I am wondering whether it would be seditious to encourage people not to pay their mortgages in an effort to cause the banks a massive cash-flow problem? Clearly, government isn’t up to the job of chastising the banking elite. At some point, We the People are the cops and We could effect change, if only we would.

  11. Praedor

    I would suggest to homeowners who are being foreclosed upon to not simply walk away. No, DO something constructive first to the bank: destroy the interior of the house before you walk away. Hammers to ALL the wall and ceiling surfaces. Cut the water lines and drains here and there. Cut up the electrical wiring and wreck the fuse box. Wreck wooden or tile floors, soak carpeting with water and urine. Leave the exterior alone, even make it look good so no one is the wiser until they enter.

    Then walk away.

    If a bank wants to take the house then let them have something that they cannot even sell at the REAL value (today’s market).

    Destroy the interior of the home in as many ways as possible. Screw the banks. Screw anyone/everyone seeking to make yet more money on their scheming.

    1. Jane

      In Florida you don’t even have to take physical action yourself to wreck the house. A friend of mine went to look at a modest 3 bedroom house recently that the real estate agent hadn’t visited before. When she got the key from the lockbox and opened the door the house was full of mold. A rough estimate to fix that – $60,000. Once you turn off the a/c down here, the house begins to rot. The banks are not taking care of the properties. What do they care – they’re just the servicers – it’s not their asset.

    2. Tukung

      That’s exactly what owners should do. Water leaks, mold, etc. but I would wait until you know for a fact that the home has sold at auction before administering your own brand of justice. Depending in which state you reside, there is a 20-day period after the sheriff’s sale before the occupants must be out. I would take a few of those days to complete my own HAMP (Halt Auction Motivation Procedure.) Once Bidders start getting regularly stung by buying a REALLY distressed home maybe not so many homes get bid on.

  12. CaitlinO

    “I can only hope that the recent upsurge of protests across America can succeed in convincing our elites to effectively respond to the concerns of ordinary Americans before we step over the precipice.”

    If we step over the precipice it will be because we were pushed there inexorably by three decades of predation, continual violation of long held social contracts, and the corruption of every one of our branches of government.

    When elections stop making a difference, other means of change must be pursued.

  13. Greg

    I wish the author knew the difference between principal and principle. He would gain a bit more credibility.

    1. Timothy Y. Fong

      That’s the best that you can do, complaining about a typo?

      What is this, reddit? You know you can’t get upvotes here, right?

    2. Foppe

      Ah, yes. “Who cares about social issues — Correct Spelling is what we must worry about!” Might I suggest you adjust your priorities slightly?
      Having said that, if this is to be an exercise in pointless pedantry, then I would venture that it strikes me as exceedingly unlikely that the author does not — as you suggest — know the difference between principal and principle. The point is merely that he did not manage to spell it correctly this time. As such, I don’t think your wish holds water, nor do i really understand what “credibility” has to do with it.

  14. Demaris

    For those that think letting the house mold over or deteriiorating in other ways is getting back at the bank, think again. The banks have so much shadow inventory they can’t even bring to market lest selling prices plunge to values causing them huge write-offs/losses. Go ahead and take more and more houses out of circulation with your vengence. You’ll be doing the banks bidding. Besides the banks don’t hold the mortgage anymore, remember? They’re just servicers. No the banks belong to all of us, John Q Public, due to the Fed buying up the bad paper. So if you wanna screw over each and every one of us. Yeah, have at it.

  15. Jack Parsons

    Freedom of speech does not include yelling in my ear.

    If you want to be effective, dress up in professional drag and find the individuals bidding for themselves. Carefully explain the title/MERS problem and get them to understand how they will never own the house.

    My age-related hearing damage manifests not as deafness but as low pain thresholds from loud noise. A fake nun once had a bullhorn in my ear and a friend said, “I thought you were going to punch a nun!”.

    If you want media time, dress for success.

  16. Lyn

    There is no right to affordable housing no matter what any group of self proclaimed community activists says. People are foreclosed upon when they fail to repay their loans. That’s it. Now if the author or ACCE or others want to argue that the average California minority is too foolish or unsophisticated to read and understand the terms of their loan documents then go ahead I’ll buy that.

    “Fair lending” laws and irresponsible borrowers are responsible for the housing crisis and the continuing economic crisis. Blame those in Congress who forced banks to make a certain percentage of loans to residents in certain zip codes no matter their ability to repay. Blame someone like Maxine Waters who preaches about “gangster banks” and otherwise misleads citizens instead of serving their interests.

    How would you feel if you turned over something of value to someone and they didn’t pay for it but continued to enjoy it and even claim it was their right to have it and you – for whatever reason – didn’t really deserve it or the money for it anyway?

    1. skippy

      “Personal responsibility is important to me. I don’t like the way our country has degraded itself. There is a permanent underclass in the US – and in Canada and Europe too – that actively asserts its “rights” to everything while completely denying responsibility for its own failures. I’m going to use this website to hopefully enlighten liberals and to help conservatives spread their wisdom.”

      “There is a permanent underclass in the US – and in Canada and Europe too”

      Nay the hole world, its historical…eh.

      Skippy…I personally like giving, its called altruism, its in my DNA, alliteratively it means survival of the group by sharing resources.

  17. Don

    I’m still waiting for President Obama to denounce the violence being used on peaceful protesters….in NYC. Freedom of speech is only for regimes we don’t like evidently.

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