Abigail Field: Mortgage Settlement Institutionalizes Foreclosure Fraud

Yves here. I hope you’ll take the time to read this important post. There has been a great deal of discussion of the many deficiencies of the mortgage settlement, but its biggest has gone pretty much unnoticed. It isn’t just that the settlement gives the banks a close to free pass for past predatory, illegal conduct, but it also has such lax servicing standards and weak enforcement provisions so as to give the banks license to carry on with servicing abuses.

By Abigail Caplovitz Field, a freelance writer and attorney who blogs at Reality Check

Updated at end

The mortgage settlement signed by 49 states and every Federal law enforcer allows the rampant foreclosure fraud currently choking our courts to continue unabated. Yes, I realize the pretty servicing standards language of Exhibit A promises the banks will completely overhaul their standard operating procedures and totally clean up their acts. But promises are empty if they’re not honored, and worthless if not enforceable.

We know Bailed-Out Bankers’ promises are empty, so what matters is if the agreement is enforceable. And when it comes to all things foreclosure fraud, the enforcement provisions are laughable. But before I detail why, let’s be clear: I’m not being hyperbolic. The bankers running and profiting most from our bailed-out banks are totally dishonest when dealing with the public, and their promises are meaningless.

To see their dishonesty in the mortgage context, read the complaint filed in the mortgage deal, or my take on it here. But the bankers don’t limit their lying, cheating and stealing to homeowners. They abuse their clients the same way. Most broadly damaging, the bankers steal from taxpayers on a federal, state and local level and practically everybody else too. Fraud is just how they do business. When dealing with bankers, you can’t do business on a handshake.

I’ve already written about how banker-sympathetic, consumer-destructive the mortgage settlement’s “Servicing Standards Quarterly Compliance Metrics” are. But I didn’t address the rule-of-law metrics. So here goes.

The Empty Promises

You’d think the top law enforcers in 49 states, the Department of Justice, (including its defenders of the integrity of the Bankruptcy System), and regulatory agencies would be concerned with defending the rule of law. Boy, does it need defending. Consider how transparently foreclosing lawyers are fabricating evidence against whistleblower Lynn Syzmoniak.

And if you looked at Exhibit A to the settlement, focusing on the anti-foreclosure fraud provisions of part I, you’d think that law enforcement had done an excellent job. The rule of law looks vindicated. Consider how the Exhibit begins:

“Unless otherwise specified, these provisions shall apply to bankruptcy and foreclosures [everywhere] and regardless of [which type of sworn document we’re talking about]

“A. Standards for Documents Used in Foreclosure and Bankruptcy Proceedings.

“1. Servicer shall ensure that factual assertions made in [in any kind of court-filed or otherwise important foreclosure document] are accurate and complete and are supported by [solid] evidence….”

This kind of ‘bankers won’t lie, cheat and steal anymore’ language is surely helped persuade consumer allies like the Center for Responsible Lending to praise the settlement. Check out the Center’s press release, the day the deal was announced, titled “AG SETTLEMENT ENDS ROBO-SIGNING AND PROVIDES A MODEL FOR PREVENTING FORECLOSURES”. Notice the Center’s tagline: “Protecting Homeownership and Family Wealth.”

Just meeting the “thou shalt not lie when taking thy neighbor’s house” language I quoted would require fundamental process overhauls at all major mortgage servicers. And yet it’s just the start of 11 pages aimed at ending document fraud (42 pages of detailed provisions overall). Given how much bankers lie, driving those process overhauls requires a mighty big incentive, i.e., penalties for non-compliance.

The pathway to penalties runs through the metrics. The big ticket $1 million and $5 million penalties only kick in if the bankers failed a metric two quarters in a row. So what are the metrics for foreclosure fraud?

Measuring the “End” of Foreclosure Fraud

The first “end”-foreclosure-fraud metric is on page E-1-2 of Exhibit E. Inauspiciously, the section is called “Integrity of Critical Sworn Documents.” I say inauspiciously because the “mandated” banker truth-telling in Exhibit A wasn’t limited to “critical sworn documents.”

The first “Metric” (that’s the column header) is “Integrity of AOI” [Affidavits of Indebtedness.] The first “Measurement” is “Based upon personal knowledge, properly notarized, [and the amount owed is kinda close to right.]” The real measurements are the “Test Questions.” Question 1 relates to the knowledge and notarization requirements:

“1. Taken as a whole and accounting for contrary evidence provided by the Servicer, does the sample indicate systemic issues with either affiants lacking personal knowledge or improper notarization?” (bold mine.)

See how that works? If enough garbage documents (not verified, not executed in compliance with the law) get plowed into the system that the enforcement structure suspects there’s still systemic problems, the bankers get to say why they think no problem exists, and the monitor is supposed to take them seriously. The monitor is supposed to weigh the bankers’ defense considering everything, not the narrow concept that the so-called “Measurement” touted–“Based upon personal knowledge, properly notarized, [and the amount owed is kinda close to right.] I mean, that measurement reads like it’s a simple yes or no, on a per-document basis, right?

Bottom line: it’s up to the monitor to decide how much foreclosure fraud he’s willing to tolerate before he insists systemic issues exist, and the bankers will be lobbying him hard. How do you feel about that Exhibit A ‘Bankers shall tell the truth when taking your home’ language now?

The next two “Metrics” within the “Integrity of Critical Sworn Documents” section (Proofs of Claim and Motions for Relief from Stay Affidavits) don’t even pretend to care about process at all; they only look at the accuracy of the amounts owed. The Test Questions are, respectively,

Are the correct amounts set forth in the form, with respect to pre-petition missed payments, fees, expenses charges, and escrow shortages or deficiencies?” [and yes, the error rate and error threshold mean not every incorrect amount counts]


Verify against the system of record, within tolerance if overstated:

a. the post-petition default amount;

b. the amount of fees or charges applied to such pre-petition default amount or postpetition amount since the later of the date of the petition or the preceding statement; and

c. escrow shortages or deficiencies.” (See E-1-3 for both quotes.)

So much for the rule of law.

But wait, there’s more; skip ahead to page E-1-9. In a section called “Policy/Process Implementation” we find “E. Affidavit of Indebtedness Integrity”. Here’s what the metric supposedly measures:

“Affidavits of Indebtedness are signed by affiants who have personal knowledge of relevant facts and properly review the affidavit before signing it.”

Sounds like the end of “robosigning“, right? Well, here’s the test question:

“1. Is there evidence of documented policies and procedures sufficient to provide reasonable assurance that affiants have personal knowledge of the matters covered by affidavits of indebtedness and have reviewed affidavit before signing it?”

This metric says: look at what we say–what our handbooks say–not what anyone actually does. Think I’m reading too much into it? Here’s the “Test Loan Population and Error Definition”, which is what the people measuring compliance are supposed to look at when asking the “Test Question”: “Annual Review of Policy.”

Through the magic of the metrics, ‘Affidavits are done correctly’ dissolves to ‘look at our policy once a year and be reasonably confident we’re doing things right.’


I can’t imagine that the Center read the metrics. I’ll bet pre-press release they were never even shown it. Surely the pre-deal promotional tour just pushed the “strong” Exhibit A language.

Prosecute or the Release Becomes Immunity

The liability releases let the bankers off all sorts of foreclosure fraud hooks (see details in “Covered Servicing Conduct” in the Federal release.) But the release only covers conduct up through February 8, 2012. In theory, the bankers could be sued for all the fraud they’re committing now and will in the future. In theory, unless these metrics are treated like a back door ongoing liability release. In which case it’s not a release at all: it’s foreclosure fraud immunity.

Update: Isaac Gradman points out that the Enforcement provisions in Exhibit E include at J. the right to enforce the banks’ obligations in court. However, the only remedies are a court order telling the banks to obey or other “non-monetary” relief, and monetary penalties for metrics-based violations. See J.3. Unless the banks are litigated into contempt of court, or unless an injunction forces the banks to overhaul their standard operating procedures, it’s not obvious the servicing standards have any teeth outside the metrics. Moreover, violations of the terms of Exhibit A that aren’t included in the metrics are unlikely to be systematically assessed, and thus are unlikely to be the basis for an enforcement action. Finally, it’s not clear when the anti-foreclosure fraud servicing standards take effect. You can’t violate what you don’t yet have to do. In short, given the deal’s expiration date, it’s hard to imagine change we can believe in happening.

Print Friendly, PDF & Email


  1. R Foreman

    So it’s a free-for-all then.. he who has the most convincing documents wins the case. Why not set up shell companies for the sole purpose of legitimizing phony bank records, or any other kind of record? That’s the new growth industry.

    If this is what our law-makers want, then we should give it to them. When in Rome, do as the Romans do. We could probably foreclose on the 1% this way. Pff, who needs real companies anymore.. we’ve got BananAmerica.

    1. PL

      Why bother setting up a shell company to legitimize phony bank records? Actual companies are not a legal requirement in foreclosureworld. Many foreclosures have been filed by trustees for nonexistent securitzed trusts. Courts don’t bother to check whether these trusts have standing to foreclose, they just rubberstamp the paperwork. Seems like all the banks need to do is say there’s a company and it is accepted as fact.

      1. R Foreman

        Ah ya never know, the occasional judge might do a google search for xyz bank of brahma.. does this bank exist? why yes, they’ve got a website!

        Then you just need a cheap printer, and a couple guys in cheap suits and bad acting skills to show up and present the papers, and viola, we’re rich!

        Those deadbeat borrowers are just stalling for time and everyone knows it. Give us the house now!

        1. PL

          Were you present at my client’s foreclosure trial a few months ago? The bank’s witness was a young guy in a cheap suit waiving a promissory note with highly suspect stamped endorsements and an incomplete chain of title. He didn’t have the pooling and servicing agreement with him, but testified it was “back at the office.” The judge couldn’t grant the foreclosure judgment fast enough after telling me “we’re not here to figure out MERS, whatever that may be.” Honestly, it’s like you were with me in the court room that day.

          1. R Foreman

            Did I get the house? I’m trying to remember.. so many foreclosures, so little time. I just have to take back these houses as quickly as possible. :)

      2. Ericmcsquare

        Banks foreclosing in the name of nonexistent trusts occurs a lot more than anyone realizesb. I am suprised no one has really started hitting this yet as it is very easy to get the identity of the Trust from the designated Plaintiff’s name in a foreclosure action and then use the SEC’s EDGAR site to see if such a trust actually exists.

        For example if the named Plaintiff is Wells Fargo N.A. As Trustee for BNC Mortgage Loan Trust 2007-4 Pass Through Certificates, the trust is ” BNC Mortgage Loan Trust 207-4″. Then just go to EDGAR and see if the trust exists.

        You would be shocked how often the names are wrong.

        1. LucyLulu

          It can be searched on Edgar, assuming it’s a publicly traded trust. Some trusts are privately held.

        2. PL

          When is a mistake not a mistake?

          If a nonexistent trust forecloses on fifty mortgagors, is that a mistake or a strategy of the servicer?

          If one servicer directs foreclosures in the names of multiple nonexistent trusts, is that an unintentional sequence of errors or a corporate policy?

  2. John Regan

    Forgive me, but this is hardly shocking or unexpected.

    US Courts have done this:


    and almost eight years later the whole thing is still completely unaddressed, and if the system has its way it will remain that way.

    The rule of law really doesn’t exist in the US and hasn’t for a long time. The “law” is: the bank wins, the government wins, the insurance company wins. It’s been that way ever since I started as a lawyer, and probably for a long time before that.

    In fact, bad as this mortgage fraud is, it is relatively minor compared to a lot of other things that are done as a matter of routine. You think bankers lie and cheat? Prosecutors have actually argued before the United States Supreme Court that they can “frame” people for crimes without violating their rights. The case was Pottawattamie County v. McGhee, argued November ’09.

    You don’t know the half of it.

  3. Sleeper

    Oh Please

    Every adult with half a brain and something that passes for a pulse understands how it works.

    The banks steal, payoff Washington, steal some more while the 4th estate plays Dixie and waves the flag.

    And no one has the nerve to take any sort of direct action.

    Folks we deserve this.

    1. Woodrow Wilson

      Yet Americans stand and watch (including myself). Of course my reaction would be quite different than the rest should a TBTF try this upon my family. Cowardly? Maybe. Americans just aren’t ready, and thanks to voter apathy, status quo for a long time to come.

  4. JamesW

    We exist in a completely fraud-based society.

    Anyone continuing to speak of “the economy” or “the media” is either clueless or a professional liar; they dismantled the economy over the preceding 35 years or so, which is why there are so many multi-billionaires today, and forget the media — completely nonexistent.

    1. YankeeFrank

      You are absolutely correct. At every level, from doctors churning patients into tests, procedures and treatments they don’t need (and that often harm them) to boost fees, to extended warrantees for electronics or autos that will never be honored, to banksters who… well, we know what they do, and the list goes on and on. Its as if the entire nation has decided to adopt the sketchy used car salesman business model. My rule is if they’re slick, don’t trust them. If they are very successful, don’t trust them. The more corporate they feel, the less we can trust them. Go to the local auto mechanic who looks you in the eye and wants your repeat business. Go to the humble Indian doctor with a shabby office who actually looks at you, spends time with you and seems to actually concentrate and focus when examining you. In our fraud-based economy, anyone who is very “successful” is a liar and thief.

      Oh, and trust gangsters, drug dealers and mobsters over politicians, corporate chiefs and bankers; they are far more ethical. This is because the “legit” fraudsters have actually convinced themselves of their superiority, and if they care about justifications at all, that their selfishness is good for society. Therefore they are justified in whatever perfidy they commit, whereas these others know they are not admirable and actually place limits on the bad things they will do. Gangsters, as a general rule, would never throw Grandmas out of their homes, steal their money so they can’t eat or heat their homes, or tank an entire economy. Bernanke and his buddies do such things and barely break a sweat, entirely convinced they are doing god’s work.

      1. Jack M.Hoff

        Yankee, you’re absolutely correct in saying who you cannot trust doing business with. Those businessmen and politicians who become extremely rich get there by theft and swindle. It may be legalized, but just the same thats exactly what it is. I however wouldn’t trust a gangster or drug dealer as far as I could throw them. They’re also in the theft and swindle game, just the minor leagues vs the majors.

  5. diptherio

    Yes, quite telling that the metrics only look at “documented policies and procedures” and don’t mention actually following those policies and procedures. Also, interesting that fees can be overstated so long as they are “within tolerances” (!) while there’s no mention of understated fees anywhere. Of course, everyone knows that if the banks can be depended upon to do one thing it is NOT undercharge. Ha!

    We need universal impeachment for everyone related to this fiasco, imho.

  6. diptherio

    It’s interesting to read the list of things banks will now do in Exhibit A as the list of things banks haven’t been doing up till now. You know, like ensuring that “7. Affidavits, sworn statements and Declarations, including their notarization, shall fully comply with all applicable state law requirements.” And that, “8. Affidavits, sworn statements and Declarations shall not contain information that is false or unsubstantiated.”

    ‘Cause banks have to have a special settlement to require them to not lie to the courts…sounds like a thinly veiled mea culpa. Isn’t submitting a “sworn statement” that “contains information that is false or unsubstantiated” like, you know, a crime?


  7. Tom Stone

    I hate this. I sell used houses for a livibg and these people are close to killing the Real Estate Business. I don’t dare put a buyer in a bank owned home. I looked at an REO located at 5352 Daywalt Lane 95472, it’s a nice little place and would suit one of my clients very well. It’s a BofA REO according to the listing agent and the Sales Addendum on the MLS is from BofA. It’s horrible, there’s no way I would sign it or allow a client to. And when I checked the Sonoma County PRMD website for a permit history by APN it shows the owner as BoNYMellon TR. It will sell, the price is good and the house is nice, but someone is buying a nightmare.

    1. PL

      You are so right. Don’t let your client touch it with a ten foot pole. Legal notices from last August state the property was being sold at Trustee’s Sale and the amount owed was $851,500. Today it’s listed for REO sale for $344,900. Properties that drop in price by half a million dollars in less than one year probably have an undisclosed and rather nasty title problem.

  8. Westcoastliberal

    Abigail is 100% correct. We the people are screwed one more time, but this time it’s not by the Banksters themselves but by our elected representatives who got the cart before the horse….settlement BEFORE investigation.
    This episode will go down in history as the biggest rip-off of the people of all time. I am constantly amazed at the patience of the American people, but it’s not unlimited. This country is a ticking time bomb.
    And I’m still waiting for ANY information on the review of my Chase Home Finance foreclosure by the OCC. They received my very detailed paperwork in early December 2011. Other than confirmation they received it, I’ve not heard a peep.

    1. ajax

      Yes, today I learnt that the metrics are based on what
      the policies are.

      But I wonder how much education and studying is needed
      to see such truths … [ and see that they are truths ].

      How many Americans are familiar with notaries, real or
      fake auditing, financial statements and all that?

      Too few, in my opinion, for all the mumbo-jumbo doubleaspeak
      out there, coming from Chicago economists and others.

  9. Petroleum Spirits

    “You’d think the top law enforcers in 49 states, the Department of Justice, and regulatory agencies would be concerned with defending the rule of law.”

    Why would anyone think this? What regulatory agencies?
    OSHA? FDA? Agriculture? Interior? Holy schmokes – books have been written about the wholesale incest within our Gub’mint.

  10. Tom Crowl

    I’m sorry to point out the obvious… repeatedly.

    But when you can click a link in an email and give as little as 25 cents to back your own ‘lobbyist’… for example pushing a bill to break up the TBTF banks…

    You’ll get a lobbyist with teeth.

    Do the damn math.

    The networked political microtransaction is a fundamental of political speech.

    While the concept and method were actually developed before both the Citizens United decision and the housing crisis… the fact that I was cut off at the gate by this has at least given me great motivation.

    P.S. the article Michael Hudson on the Federal Reserve posted here yesterday should be shared widely… and force fed to the Democratic Party’s leadership who’ve betrayed the common interest they claim to espouse…. AND to the Republican Party’s leadership who’ve betrayed the pragmatism of Adam Smith… THE COMMON GROUND BETWEEN A LARGE SEGMENT OF THE TEA PARTY… AND A LARGE SEGMENT OF THE OWS MOVEMENT IS THE IS THE POLITICAL COALITION THAT CAN BREAK THE DUOPOLY.

    And its a lobbying system designed for ad hoc coalitions of citizens that can catalyze its potential.

    This concept needs and deserves air. It won’t be implemented by the duopoly unless they’re shamed into it. I don’t believe its the path to anarchy that some apparently seem to assume.

  11. briansays

    glad i own my home free and clear
    when people start walking into banks and committ tragic random criminal acts of violence and terror everyone will be shocked and ask why in surprise
    its not complicated
    when you put people up against a wall
    strip them of hope
    some will snap

    1. David

      How bout this: You got that right. And the courts are in on it too: I had a to file another Chapter 11 to stop a foreclosure sale on a property, while I was waiting for the discharge petition to be granted from my new on the bench BK judge. She came down from the Trustee side, so she has spent the last umpteen years going after debtors and letting the banks do what they want. (Other than Judge Magner court in Louisiana when have you ever heard a Bankruptcy Trustee go after a bank?)

      Long story short, despite me paying off all my creditors and qualifrying for a discharge, the “Judge” set my discharge hearing for two months hence and then had the clerk discharge my new bankruptcy because I was in pro per (not illegal or disallowable) and because I had another BK case opened (which she was fully aware of when she refused to grant my discharge.

      My attorney tells me this is the new thing in the Los Angeles Bankruptcy court – just dismiss all Pro Per cases ( and thus clearing the road for the banks to foreclose.)

      Not sure once people get started they will stop at the banks.

    2. Sleeper

      Well maybe the “Stand your ground law” has some good points.

      Does anyone feel threatened by the banks ?

  12. Nate

    Just as any contract written cannot contain anything illegal, contract can be enforced only if the condition it is written for upholds lawful realities.

    With the residential real estate market with over 10 trillion dollars worth of contracts, if this market where the contractual agreement hinges on was tempered by the very banks that issued the loan contracts then every single written agreement is invalid.

    Supreme court shall act to unconditionally cancel all of the residential real estate contracts in America.

  13. dani


Comments are closed.