Michael Olenick: Mortgage Industrial Complex Continues Its Push Against Rule of Law

By Michael Olenick, creator of NASTIACO, a crowd sourced foreclosure document review system (still in alpha). You can follow him on Twitter at @michael_olenick or read his blog, Seeing Through Data

The meaning of the word “chutzpah” varies by context. In criminal court, it might refer to murdering one’s parents then asking for leniency because the perpetrator is an orphan. In family court, it might be invoked when abandoning a child, then pleading the child has been alienated from the parent who left.

We now have a property court usage: perpetrating a massive, well documented fraud then complaining that court bottlenecks – which exist solely because of fraud perpetrated by bank lawyers – cause expensive delays. An Oct. 9 article published by Lord, Whalen, LLC “Tail Risk: Kamala Harris Declares War on Lenders, Loan Servicers in CA,” sets forth this nervy argument.

Bank maven Chris Whalen’s analyses are normally top notch but he seems to have fallen under a Svengali spell of the parasitic foreclosure support industry – particularly foreclosure mill lawyers. Like fingernails drawn against a blackboard, foreclosure attorneys, analysts, and even the FHFA relentlessly rant that judicial foreclosure must be eliminated, and that recent legislation expands judicial foreclosures.

Due solely to gross abuses of process by foreclosure lawyers, California – a state that all but outlawed foreclosure defense lawyers – has passed legislation to ensure foreclosure lawyers follow the law. The California Homeowner Bill of Rights, which is effectively a pro-borrower escalation in the bank-led war against the rule of law, is causing the parasites to fume:

“Saying just follow the law and you won’t have a problem is complete and utter non-sense [sic],” reads a quote from Bob Jackson, president and attorney of Irvine, CA Jackson & Associates.

Jackon’s firm describes their mission statement as “representing the REO and default industries in post-foreclosure legal matters.” Translation: he owns a CA foreclosure mill. Jackson refers to homes in foreclosure as “Occupied REO,” a non-sensical pugnacious new term.

Bob Jackson is the father of Paul Jackson, publisher of Housing Wire, and also a shareholder in Housing Wire parent company LTV Publishing, a fact exposed by David Dayen of FDL News in “The Corruption of the Financial Press: A Look at Housing Wire,” published Mar. 25, 2011. As proof, Dayen linked to a LinkedIn page, presumably for LTV, which unsurprisingly no longer exists. I’m willing to take David’s word that it was once there, disappearing without a trace like the fraudulent documents Jackson argues are perfectly fine.

In Whalen’s piece, Housing Wire stories are used extensively to back up the older Jackson’s nonsense. This proves the elder Jackson either instilled his values in his son or at least taught him the lesson of obedience. That is, Bob Jackson may be incoherent but at least he’s a good father by most standards. I’d prefer that my son find his own job – it’s better for grown children to succeed or learn the lessons of failure on their own – though I digress.

The argument by Jackson Sr. reminds me about the cries from insurance companies forced to pay out meritorious claims for insurance policies they wrote. “Paying out claims will increase premiums,” paraphrases their consistent answer. Nobody seems to push back that not paying out claims makes the insurance entirely worthless; the premium’s a waste and the product a fraud. Similarly, forcing the seller of a good or service, including legal services, to provide what is paid for does drive down profitability: returns are great when you can pocket money and provide nothing in return. But you’d think the banks, if not various regulators, would cringe when their lawyers argue they needn’t follow the law lest it lower profitability.

As if the Whalen article couldn’t get stranger, it does. “Within a year, lawyers in shopping malls across CA will have a template for filing these (wrongful foreclosure) claims, a template provided by state and national trial lawyer associations,” Whalen continues. However, when one clicks through to the provided link, the website for the American Association of Justice, the only packet that remotely addresses this field is 662 pages entitled “Debt Collection.” They summarize: “Sample case materials include a complaint, responses to a motion for summary judgment, letters to debtors, payment plans, spreadsheets, and client communications.” This packet is for creditor lawyers, like Jackson. There is nothing related to foreclosure defense, or anything related to defending borrower rights. It’s no wonder the author whines about the website; he must see it as a potential competitive risk.

Whalen finally tilts towards an outright harangue, complaining about debtors rights in Spain where “borrowers are receiving debt relief en masse via rescission of investments.” Huh? Spain has strict deficiency judgment rules, and harsh garnishment provisions, leaving borrowers on the hook, forever, for the difference between the value of the loan and what the home is sold for.

Bloomberg splashes a dose of reality into the Spanish system in an Oct 9, 2012 article entitled “Spain Foreclosures Spread to Once Wealthy: Mortgages.” “The kids lose their homes, go live with mom and dad and then mom and dad lose the home that they worked all their lives to pay for because it backed their children’s debts,” reports Bloomberg Destroying the economic foundation of entire families, forever, sounds overly lenient. I think mass executions – or maybe labor camps to appease the liberal pussies who believe productive people should be given a second economic chance in life – would be a more reasoned response.

Although Whalen apparently believes extracting blood from stones is good for business, Bloomberg reports

The economic crisis is wiping out businesses and the finances of families that were comfortably off .. foreclosures are not massively threatening businessmen and families in high income areas.

OK, so maybe it’s great for foreclosure lawyers like Jackson, or New York’s Steven Baum (if it’s not pronounced bum it should be), or maybe Florida’s own stellar David J. Stern, who remains an attorney in good standing even after every major client fired him. Everybody else, not so much…

Finally there’s even the question of whether the core premise – that non-judicial foreclosure speeds recovery and should be expanded to all states – is true. Florida Statute 702.065, passed in 2001, legislates that if a mortgagee waives the right to a deficiency judgment the court must enter a final judgment within 90 days. That is, Florida bank lawyers have an option to opt for a California model; if they waive the right to collect deficiency judgments the system moves along as fast, and with as little paperwork, as California.

I’ve argued that delays in foreclosure court are illusory; the Chief Administrative Judge of Miami-Dade, in charge of foreclosure court, said there have been no delays in her courtrooms for two years. Where once we pretended there was an imaginary non-problem – a massive housing bubble – now the same people are pretending there is an imaginary problem, judicial foreclosure. Fiction trumping fact, a common theme since the beginning of the bubble, remains alive and well.

Finally, while pundits have argued about the judicial/non-judicial divide they’ve ignored that many of the real-estate gains are spurred by foreign cash buyers in desirable retirement communities. Non judicial Phoenix real-estate is doing great, and odds are rising that we’ve reached at least a temporary floor in Las Vegas, but condos in judicial state Miami are also booming. Foreigners in border towns carrying suitcases of cash have always attracted attention, but when they’re buying real-estate the attention seems more positive than in the past.

I’ve heard credible anecdotal reports, from multiple sources, that banks – especially consumer banks – have had it with the status quo. When all is said and done “winning” foreclosures while losing one’s customers, the ordinary American’s who increasingly hesitate to deposit and store money in TBTF checking accounts, is a net loss. Borrowing an old cliché winning the battle and losing the war sucks, but losing half the battles on the way to inevitably losing the war sucks worse. It is telling that bank lawyers, who stand to collect easy fees, are supportive of Whalen. However conspicuously missing are consumer bankers; those who stand to lose their jobs as depositors flee the tarnished brands of their once well regarded banks.

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  1. jake chase

    We have to keep in mind that the bubble was caused by both reckless borrowing and reckless lending. No reckless borrower (sometimes known as a ‘homeowner’) went into these deals in reliance upon arcane foreclosure rules that now trump enforcement in ‘judicial foreclosure’ states. MERS was designed to facilitate securitization and greedy bankers pumped out mortgages for resale to greedy ‘institutional investors’ who never bothered to consider how their secured status was undermined by the very procedures of securitization. Nobody who participated has clean hands in the resulting mess. That criminality has characterized foreclosure practice is a complicating detail that plays nicely for those determined to nominate villains and victims. But do we really want mortgages to be utterly unenforceable, because by letter of law just about all of them are exactly that?

    1. Yves Smith Post author

      Have you read anything on this topic here since 2010? What you just wrote is remarkably off base.

      1. The reckless borrower meme is a canard and I’m frankly offended to see you running it. Go read Two Income Trap and see why housing got bid up. The people who did buy too much house for the most part defaulted early. A surprisingly high percentage of defaults are SERVICER INDUCED. Most of the people who’ve defaulted in the 2009 period onward are victims of the banks blowing up the economy, or traditional causes of default: medical emergencies and divorce.

      2. Borrowers are always overly optimistic (optimism is a well documented cognitive bias), and a few are outright crooks. That is true in every type of lending. That is why the onus is on LENDERS to be conservative. I have no sympathy for lenders who did a bad job blaming borrowers. They were derelict in duty.

      3. The servicers have run roughshod over the rule of law, abusing both homeowners and investors. I can pull an investor report on a mortgage securitization, any one, and show you mulitple examples of servicers cheating investors. They do the same to borrowers, particularly in the foreclosure process. Dirt law is extremely settled. The banks have no excuse for complaints about the law. And the provisions that are being put in place in most states do NOT in fact change procedures (save some states are prohibiting dual tracking, but in fact they have obligations under their PSAs which require them in most cases to do mods, which they’ve refused to do, so this is simply another vehicle to try to get them to respect the law) but create more severe consequences if they break the law. And that is clearly fully warranted given how little respect they’ve shown for it.

      1. skippy

        As soon as he utilized the “We have to keep in mind that the bubble was caused by both reckless borrowing and reckless lending.” – Jake

        Well it became a ‘No True Scotsman TV Trope skit’, personally I think he’s done a Double Subverted: But there is an invisible wall around her and them, and it’s clear that she’s been alienated from them somehow. They also talk about her when she goes to the bathroom to fix her lipstick when she’s done eating.


        Skippy… Jake, never took you for a comrade sort… cough… Royal ***WE***

      2. jake chase

        You get offended more and more often. Regarding point one, every commercial transaction involves a con. When borrowers ignore common sense they always have an excuse. You ignore all the people who lived within their means and watched housing prices run away from them. Most of them are now getting screwed again by ZIRP. Do you or don’t you want mortgages to be utterly unenforceable?

        1. indio007

          Unenforceable or enforceable i a Hobson’s choice of pro-fraud semantics.
          I refuse.

          By making these so-called mortgages enforceable you are making the Statute of Frauds unenforceable.

          Take your PR based linguist twisting to bed.

          The Statute of Frauds was the 16th century remedy to the same fraud that is happening now.
          Should we through it out? Or should we enforce it?
          People that have run afoul of it have had 3 centuries advance notice of the proper way to transfer land.

          The banks have tried to intermingle 2 laws. The law merchant that applies to promissory notes and the Statute of Frauds that applies to transfers of property. They want to make the property pass along like so much cash i.e.. easily stolen if left unattended.

    2. talktotennessee

      Now that everyone is underwater (or the majority of us) the argument of buying too much house is tired picked over meat. No one buys it now even though moral hazard specialists and politicians still alibi with it. The fact is that there is massive forgery and false papers, some not even recorded. This is what isn’t disclosed except in small individual increments. In non-judicial states, the lenders are getting by with ‘stealing’ back their mess and scrubbing it by short selling with the seller’s blessing, removing the deficiency in some cases. Those people who pleaded to keep their homestead and have a little principal reduction or interest rate, forbearance anything, these are ones that got screwed. Some hotshot investor LLC buying these products in bulk now and the bank walks scot free and he is out of the mess. This is today’s game. Even those states that are judicial are ramming these things through and the homeowner doesn’t even have a prayer!
      This is might and power and they wilkl make it right with the Courts’ help, by God!

  2. Jim A.

    At the end of the day, many people pledged their homes as security for a loan the terms of which they were unable or unwilling to satisfy. So as a matter of equity, I don’t have a problem with servicers going up in front of a judge and trying to convince him or her that a foreclosure is the propper end-state, despite “lost my homework,” MERS problems. But Damn, if they couldn’t comply with the straightforward requirements to get their DoT’s or mortgages propperly recorded, they surely shouldn’t be able to seize property without going through a judge. And the propper response to failure to file the paperwork correctly isn’t mass forgery, it’s submission of the business records that they DO have and a plea for leniency, not insisting that of course this is okay, it’s the way we’ve always done it. Because it isn’t. This half-assed subversion of the system of recording real property is actually pretty recent.

  3. indio007

    You left the active cold calling sales pitches to mortgagees during the boom imploring them to refinance into an adjustable mortgage.
    Part of the schtick was to promise them the ability to refinance into a fixed mortgage when the loan ballooned.

    That promise never materialized and you had people paying 12%+ interest rates which happened to be 3 times the average rate.

    By hook or by crook as they say.

    1. Mike Whitney

      Yves, Please expand on your comments here in a full post.
      While I liked the article by Olenick, I thought your comments were even better, particularly this gem:

      The reckless borrower meme is a canard and I’m frankly offended to see you running it. …. A surprisingly high percentage of defaults are SERVICER INDUCED. Most of the people who’ve defaulted in the 2009 period onward are victims of the banks blowing up the economy, or traditional causes of default: medical emergencies and divorce.

      Bravo! Finally, a counter argument to the “everyone was guilty” baloney.

      1. Jackrabbit

        Yves, maybe it is worthwhile to create meta-topics that can be displayed at the top of the blog for easy accessibility. TBTF Banking; TINA Politics, Myths refuted, etc.

        While people can find posts using search, the most relevant topic for this particular request is “Real Estate” with an off-putting 1229 entries.

        1. Cugel

          I would second this request. After all, these same themes come up again and again and again. And have to be re-argued again and again. It would be nice if this site could accumulate a kind of database of established articles so we don’t have to re-argue the same economic themes every other week.

          It’s like constantly having to re-invent the wheel.

          Yes, people can use the search function, but that is too tedious for most people. They just won’t do it and you wind up going over the same ground over again.

  4. Susan the other

    If enforcing mortgages can only be done by breaking the law then it’s a no brainer. We would lose far more than all the mortgages in the country are worth if we allow the banks to foreclose by fraud and deceit. What is more valuable, the law or the profit of profiteers? Who in their right mind wants to literally destroy the law? It is getting uncomfortably close to that now. It is why the DoJ is paralyzed. It is why they stuffed a sock in Schneiderman. It is why the Fed is buying up MBS as fast as it can. It is why banks can’t talk some judges into ruling in favor of their blatant forgeries in spite of the banks’ long, long history of favorable treatment by the courts. This isn’t a game. This is the heart and soul of justice. Forget Chris Whalen. He’s conflicted. But never forget the law.

  5. gozounlimited

    Let me tell you how I might just get that free house:
    by sharpenu

    1 I lost a MASSIVE amount of money last year, when my hours at work were cut, I lost my second job, and my wife lost hers. We declared chapter 7.

    2 The bank I thought was my mortgage holder showed up to the hearings, claimed to be the owner and holder of the promissory note, and produced and filed a copy of that note with the bankruptcy court. They also produced affidavits that stated that they were the owner and holder of the note. My attorney and I had no reason to doubt this, as this bank had been the mortgager since I bought the house.

    3 Four months later, the bank filed a foreclosure, and stated that they were in fact NOT the holder of the note, but the servicer for investors who were actually the holder. It turns out that the bank had not been the owner of the note for at least 3 years. In other words, they committed perjury in the bankruptcy court.

    4 During discovery, they produced a photocopy of what they claimed was the promissory note. The problem is, it isn’t the same note that they produced for the bankruptcy court. The document has my signature, but isn’t the same document as in the other case. In other words, they forged one of them. We demanded that they produce the original note. They asked for more time.

    5 That was a year ago. They still can’t produce it.

    This puts the bank in a funny spot. If they cannot produce the original note, they are stuck. Since they themselves have stated that they are not the owner, the statute of limitations is running. That statute in Florida states that they have seven years to from the day of default to foreclose. If they cannot produce that note within the 7 years, they cannot take it. Ever.

    Free house.

  6. Skeptical

    Since when Whalen’s is rant out of character?

    On Bloomberg, he blamed JPM’s London Whale losses on financial reform.
    He staunchly opposes the Volker rule.
    He opposed Congress lifting the debt ceiling.
    And he is a tireless advocate of The Big Lie about government housing policy causing the housing crisis.

    I’d bet he advises Paul Ryan.

    1. Yves Smith Post author

      Whalen has the same problem as Michael Shedlock. He’s a good analyst when he keeps his politics out of it.

  7. sierra7

    Jake Chase:
    “You get offended more and more often. Regarding point one, every commercial transaction involves a con. When borrowers ignore common sense they always have an excuse. You ignore all the people who lived within their means and watched housing prices run away from them. Most of them are now getting screwed again by ZIRP. Do you or don’t you want mortgages to be utterly unenforceable?”

    Once the “ordinary” citizen realizes that in this financial system we embrace we are nothing but “mark” targets and that most all “selling” involves some kind of “fraud” maybe the system will be changed or just given the “boot”! (By non-participation).
    Each and every individual in our system is a financial market to be exploited. Period.

    I also as a senior citizen totally agree that the elderly, those living on modest pensions, SS, and also modest savings are further being crushed by the criminal (financial) ZIRP program.

    Our system is sick, sick, sick…..(both political and financial)

    Ah, “What is to be done?”

  8. Tom Lawler

    Can Michael Olenich just lay out the factors that led to his bad forecast for 2012? And explain what his view is given his really bad forecast for 2012? As he ofen says, lets see data!

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