Abigail Field: Is Schneiderman’s Plan to Sue Bank of America and Wells Over Mortgage Settlement Violations a Wet Noodle Lashing?

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By Abigail Field, an attorney and writer

When the National Mortgage Settlement was announced, I called it an enforcement fraud because every major law enforcement entity in the country signed off on letting banks overcharge people, use fake documents and otherwise abuse homeowners with impunity, so long as they didn’t do it too many people for six straight months. Pigs could get fat, hogs would get slaughtered. (The legalese is in the settlement is “threshold error rate.”)

Or not; the maximum penalty for six months of too many violations was $1 million. Hard to see a deterrent effect of any kind in $1 million when the enforcement population is five of our biggest banks. (Sure, if the banks were really really bad in the same way for four total quarters the penalty could then be $5 mil, but c’mon, the settlement itself was more than 1000x that number, and the settlement didn’t drive change, it produced “threshold error rates.”)

And when this deal was done, it had Eric Schneiderman’s signature on it, something he gave for a task force that was obviously staffed to fail, as I noted at the time. But now it seems he’s got buyer’s remorse.

Now that that A.G. Schneiderman’s learned that Bank of America and Wells Fargo have failed to service 339 New Yorkers according to the standards dictated by the Settlement, he’s served notice he intends to sue. Not for money; for “equitable relief.” Though I’ve not seen a filing, I imagine if he actually will seek an injunction to get Wells and BofA to start complying with (specific performance of) the four servicing standards Schneiderman is targeting in his press release:

1. Borrower must receive written acknowledgement of receipt of a loan modification application within 3 business days or receipt.

Note, I didn’t find a metric to measure compliance with this. (Metrics in Table E-1 here.)

2. Servicer must notify borrower of all missing documents or deficiencies in the application within 5 business days of receipt of the borrower’s initial loan modification application.

Metric 6.b.i. measures compliance with this; 5% is the “threshold error rate.” I’ll bet that the 210 Wells violations, and the 129 BofA ones–collected over a year–are many fewer than 5% processed by either bank in a given quarter. So even if AG Schneiderman’s right, these violations alone wouldn’t be enough to trigger the monitor to take action.

3. Servicer must give borrower 30 days to submit missing documentation or correct a deficiency.

Same metric, same “threshold error rate.”

4. Servicer must make a decision on a complete loan modification application within 30 days.

Metric 6.b.ii measures this, and its threshold error rate is 10%.

To be fair to Schneiderman, the metrics are irrelevant from his perspective. He thinks he can enforce the servicing standards as presented in the glittery golden exhibit A. That is why his letter to the monitoring committee focuses on the standards in A, not the metrics in E.

I hope he’s right about that; I’m not sure. The Consent Judgment has language for both sides. Section II, top of page 3 says: “Defendant shall comply with the Servicing Standards, attached hereto as Exhibit A, in accordance with their terms and Section A of Exhibit E, attached hereto.” That part of Exhibit E has to do with the timeline for implementation. So far, so good for Schneiderman.

But then “Part IV. Enforcement,” at page 4 says “The Servicing Standards and Consumer Relief Requirements, Attached as Exhibits A and D, are incorporated herein as the judgment of this Court and shall be enforced with the authorities provided in the Enforcement Terms, attached hereto as Exhibit E.” That makes it sound like specific performance of A is defined in E.

Also troubling for Schneiderman is IX.A.2 of Exhibit A, a subsection under “IX. GENERAL PROVISIONS, DEFINITIONS, AND IMPLEMENTATION”:

2. In the event of a conflict between the requirements of the Agreement and [law or contract] … such that the Servicer cannot [comply with both without risking penalty], Servicer shall document such conflicts and notify the Monitor and the Monitoring Committee that [law or contract trumps the settlement]. Any associated Metric provided for in the Enforcement Terms will be adjusted accordingly.

That is, when Exhibit A talks about implementation of its standards, it references the metrics.

I’d love to hear from experienced litigators what they think “specific performance” means under the settlement–compliance with A or E?

What Schneiderman Can Get By Suing

Either way, here’s what Schneiderman can sue for:

Equitable Relief. An order directing non-monetary equitable relief, including injunctive relief, directing specific performance under the terms of this Consent Judgment, or other non-monetary corrective action.

At first blush it looks good: Schneiderman can go to the D.C. District Court and ask for an injunction ordering BofA/Wells to specifically perform–meaning live up to the letter–of the terms of the Consent Judgment. (See Exhibit E at J2 and 3 here.)

For a best case look, let’s assume Schneiderman can enforce Exhibit A without regard to Exhibit E. Let’s assume A.G. Schneiderman goes to D.C., gives a D.C. District Court Judge his documentation of the 339 violations, and promptly gets an injunction ordering specific performance of the four the standards in Exhibit A he’s focused on, without regard to the metrics. What then?

Well, either Wells/BofA suddenly overhaul their operations in a way they failed to do when they were facing down all 50 AGs and the Department of Justice, or they keep on keeping on. I’ll bet on the latter. In that case, presumably AG Schneiderman will find it reasonably straightforward to document more of the same kinds of violations. That is, he will be able to prove that Wells/BofA is in contempt of the injunction. What then?

I guess it depends on things not yet known, such as: will any bank bigwigs be named individually in the injunction, and thus at personal risk of contempt? Who will the judge be?

The law of civil contempt means that if the judge agrees Schneiderman can enforce Exhibit A without regard to E, and if the judge is genuinely interested in coercing compliance, the judge can. See this recitation of the standard in a 2011 U.S. District Court civil contempt order (admittedly Florida, not D.C.; anyone know if it’s dramatically different?):

In fashioning a remedy or sanction for civil contempt, a court has broad discretion, measured solely by the ‘requirements of full remedial relief.’” U.S. v. City of Miami, 195 F.3d 1292, 1298 (11 Cir. th 1999) (quoting Citronelle-Mobile, 943 F.2d at 1304). For example, a court may impose a coercive daily fine, a compensatory fine, attorney’s fees and expenses, and coercive incarceration. See U.S. v. United Mine Workers of Am., 330 U.S. 258, 303-04 (1947); see Smalbein >v. City of Daytona Beach, 353 F.3d 901, 907 (11th Cir. 2003). “In establishing the amount to impose, the court must consider several factors, including the character and magnitude of the harm threatened by continued contumacy, the probable effectiveness of any suggested sanction in bringing about compliance, and the amount of the contemnor’s financial resources and consequent seriousness of the burden to him.” Matter of Trinity Indus., Inc., 876 F.2d 1485, 1493-94 (11th Cir. 1989).

If the D.C. Circuit standard is similar, the judge has the power to coerce the banks to comply with whatever the judge deems appropriate–Exhibit A or E. If E, it’s not clear that a violation can be proved on what Schneiderman alleges. But assuming Schneiderman gets an injunction, documents non-compliance, and seeks contempt, would a judge be coercive? Would the judge order a high daily fine, or simply a “compensatory fine” that’s as arbitrary and useless as the checks from Rust Consulting?

Will Schneiderman Be Allowed to Sue?

Before Schneiderman can sue, he has to give the monitoring committing a chance to take over the action, which is a kind of lawsuit right of first refusal. The Committee, now in receipt of Schneiderman’s notice, has three weeks to decide whether or not to sue. If they say no, he has to (inexplicably) wait another three weeks before suing. So it may be 42 more days before the injunction is requested. (See Exhibit E at J2 here.)

What does it mean if the Committee decides to bring the suit? Is that more or less potent than Schneiderman going alone? People with more political insight would know better; I wouldn’t assume that the Committee taking the suit over is good, but sure, it could be. I’d rather see a bunch of AGs join Schneiderman’s suit and bring their own cases against the other three big banks that he could join. Enforce the 304 servicing standards a handful at a time. (Again, if Exhibit A is the standard; if it’s Exhibit E it’s not worth it.)

The Bottom Line

It’s really hard to see how this effort–even if A.G. Schneiderman triumphs–leads to the kind of systemic change that was possible when all of the liability for the banks’ bad acts was still on the table. You know, pre-settlement, when A.G. Schneiderman and a few other Democratic A.G.s looked like they were going to stand up for America and insist on a meaningful deal.

Consider, the most that can come of this is two of the five banks complying completely with four of the 304 Servicing Standards.

I’m not trying to trash this injunction effort; at least it brings the banks’ continuing bad acts, their seemingly constant bad faith, and the impotence of the enforcement fraud settlement back into the public eye. And maybe the threatened suit will even do some good for some New Yorkers. But it’s hard to be confident that this suit is the most effective way to be taking on the banks.

For example, the settlement’s liability release doesn’t cover all these new bad acts. When the SEC finds new acts in violation of prior injunctions, it typically brings new (albeit equally ineffective) enforcement actions. Maybe AG Schneiderman could use the new bad acts to bring a meaningful, new enforcement action. Or maybe there’s a different genre of banker bad action that could lead to more meaningful penalties, drive business model change and put bankers in jail.

I wish I could get excited about this threatened lawsuit. Just like I wish that watching SchoolHouse Rock’s I’m Just A Bill and Preamble didn’t make me cry. And yet I let my preschoolers watch them because I want them to grow up believing in the America that can be, if we Americans bring the transnational corporations and their parasitical executives to heel. It’s been done before, and can be done again. But deals like the National Mortgage Settlement, with all those law enforcers’ signatures, show that this President and this Congress aren’t going to do it.

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  1. jake chase

    Schneiderman has already proved himself a first class putz whose only objective is capturing personal headlines. Were I a betting man I would bet this is going nowhere, slowly.

    Anybody wanna bet?

    1. Skeptic

      Just more smoke and mirrors. Trillions up in smoke and no one can find a PERP!

      The Legal Profession is corrupt, Judges, Prosecutors, Lawyers, Clerks, etc. The test of an honest lawyer is one who will tell you that. The Law Schools like the business schools churn out more and more of these Criminals every year.

      There should be a Rule Of Law Index, like CPI and others, that measures the level of actual Crime (not just pot smokers)and the total failure of the Injustice System to deal with it. Such an index might get people to understand the problem.

      Some criminologist or other skilled legal professional should actually try to put a number on how many Business Criminals we now have running around. And determine if the number is rising. It certainly should be since there are no penalties or prosecutions.

      My rough number would be at least over a Million serious business criminals operating in the US with IMPUNITY! Then there would be all the Underlings…………

      1. jake chase

        This may be an overstatement, but IMHO law began going disastrously wrong when it became enamored with pretrial discovery. It soon descended into pointless paper shuffling, and since nobody could possibly read all the papers, hardly anybody reads any of them. Judges are simply overmatched. Most were failures as lawyers and are political cartoons grateful for three meals a day, a roof over their heads and people addressing them as ‘your honor’. Lawyers see all this and mostly shrug. They generate the pointless paper and use it to excuse the enormous hourly bills. I have advised more than one client to represent himself and break his adversary by generating motions and interrogatories and depositions. Several seem to enjoy the process and one became quite good at it despite lacking any higher education. I don’t know why people seem so surprised that law doesn’t work. I mean, after all, what does?

        1. dolleymadison

          No Kidding – the putz at the foreclosure firm who sued me (and lost) actually cited a case that was IN MY FAVOR – the kids had no idea what he was doing and admitted he never bothered to check his facts because I was the only one to ever contest. AND HE RAN FOR JUDGE LAST YEAR AND NEARLY WON. His name is now up for consideration for gubernatorial mid-term appt. for judge. As he is father is a huge donor to the governor he’ll proably get it. Lord Help us all.

        2. MaroonBulldog

          “I don’t know why people are so surprised that law doesn’t work: a California perspective” Most civil disputes are resolved without anyone filing a lawsuit. Most civil lawsuits are resolved by settlement. Apparently, the function of formal “law” is to make the rules so vague and pretrail procedures so costly that outcomes are unpredictably risky and anyone who is at all reasonable will settle … for something. Now, even this questionable system is breaking down. In California, budget cuts and furloughs have made the state courts even more sclerotic than they were in good times, and now sequester will affect the federal courts as well. Why even settle and give something up, when the day of reckoning is further and further postponed?

  2. profoundlogic

    The most effective way to be taking on the banks would be to indict and prosecute obvious criminal abuses. Instead, we have a political circus with a ringmaster cheering about reform from 40,000 feet. Schneiderman is just another of the many entertainers entrusted with the task steering our attention away from the facts.

  3. JTMcPhee

    Biological analogies get dissed by “realists” who have mastered bits of lingo and have a familiarity with the quasi-analytical tools of certain “sciences.” But the whole mess limned so brilliantly by Yves and Lambert and contributors here, extended into the culture at large, looks to this low-level nurse an awful lot like a great case of “disseminated intravascular coagulation.” http://www.webmd.com/a-to-z-guides/disseminated-intravascular-coagulation-dic-topic-overview

    Which is where, due to cancer or parasitic infestation or pathogenic infection or intake of toxins, the body forms small and large and very inappropriate clots in rapidly increasing numbers of random spots. The clotting releases chemicals that accelerate the clotting elsewhere, all leading to generalized organ failure via choking off of the flow of blood and hence delivery of oxygen and energy and removal of waste products. All those clots lead to depletion of clotting factors and disruption of the immune system, which lead, in a wonderful irony, to blood leaking or pouring from all the little spots in your circulatory system that regulated clotting and repair functions ordinarily keep in check.

    Adding clotting factors while trying to treat the cancer, infection or whataver just increases the clotting. Adding anticoagulants just increases the bleeding-out rate. And the process also stops the production of new blood constituents. So there ain’t much of any way out.

    The end point is a nasty, painful, fearful death, or if you survive, you are thoroughly trashed.

    Though, of course, the parasites, the pathogenic bacteria or viruses, or the malignant metastatic cancer, or the folks who profit from adding the toxins to your intake, do just wonderful, in their system of values, as they measure “success,” right up to when they kill the host. That’s YOU, of course, and maybe your family and others to whom you might have some stupid, inefficient, unprofitable emotional attachment…

  4. Alejandro

    Authentic respect would not refer to this as “fodder”. My guess is that your comment has more to do with linking to your site than the issue at hand. I can only say is take your own advice and “stay on issue”.

  5. Susan the other

    Last nite Chris Hayes interviewed Schneiderman. Like some kinda hero. But when Chris asked his perennial question: Will this finally get the banks under control because nothing has worked so far? Schneiderman hedged. Well we just don’t know but we can try. Schneiderman has dropped his stance on MERS. Which is mind boggling because if the AGs went after MERS they could take down the entire racket. And the danger that now lurks in MERS is that with the TPP and Atlantic Pact, financial corporations and their “services” are protected against individual national laws. So if we do not expose MERS now doing it next year will be virtually impossible. Of course Schneiderman isn’t going to touch this with a ten foot pole. But he did suggest that the DoJ was going to take some action here one day soon. What a clown.

  6. Charles Reed

    What I am not getting is in New York from all the report out of there that “No Standing” is a big issue because the requesting parties were not in title under some magic by MERS, You got 100,000 at least wrongful foreclosure dealing with Federal Government insured loans and the IFR settlement even further proves that to be true.

    You cannot pay 1.6 million homeowners something with out stating what it was other than they were denied or not even review a modification and simply paid from $300 to $6,000 and call it a day. We know that a group got paid more if the requested a review from the IFR and 80% of those request were also not reviewed.

    Is this the twlight-zone or is all America stupid. So the banks/servicers agree to $10 billion and 4.2 million are receiving something while losing there homes to groups that cannot even show that they own the debt they are claiming they are owed!

  7. Yearning to Learn

    I wonder…
    will the big banks get the dreaded “admit no wrongdoing and promise to change in the future… double pinky promise” settlement?

    I’m sure they’re shaking in their boots.

  8. Thom Tobiason

    Bank of America and Wells Fargo may not like the negative publicity of being sued for screwing their customers. It may hurt them competively. This negative PR may be the best we can hope for.

    1. down2long

      I do so wish you were right. But even progressive Americans are so inured to bank malfeasance it’s become part of the accepted business model. Some great tenants of mine, driven to L.A. post Katrina knew of Chase “electively foreclosing” on my current loan on a the historic bldg I had personally restoredover 5 years. Suddenly they all All had Chase accounts. I told them if I could I would refuse all chase checks but WTF was their reasoning inopening Chase accts.? “Convenience.” I despair.

      Or maybe in our 11 dimensional chess game America as per that wicked comment yesterday about telling other people your problems “20% don’tcare and 80% glad you have them!” Mabe they were glad to do it! Ha!

  9. Richard Davet

    “What the mind does not know, the eye cannot see”

    It’s called “the GSE Business Model”.

    Congress bet all of our wallets on it granting first implied and now explicit guarantee which doomed it to failure in the first instance.

  10. kevinearick

    Empires, Monuments to Denial

    The impetus for control is maladaptation, insecurity and fear. The empire education system projects maladaptation onto its input and stratifies its output accordingly, to preserve the status quo, to justify / compute / replicate / comport itself. It’s an observation prism acting as a gravitational multiplexer.

    All politics are local, aggregated. All money is generated on the margin locally, in the underground economy, and leveraged up. Without local organic growth, the central banks, feds, states and counties can only print to dilution, which is why the speculators have moved into gold.

    There are two basic forms of ‘unlawful’ printing, illicit operations and technology development. All government workers are not a-holes, but they are all dependent upon a-holes without organic growth – cops, firefighters, doctors, etc that control the drug trade, and your second and third tier kids providing public, private, and non-profit corporations with best business practices out of the university system, like the unprosecuted digital financial instruments causing so much angst.

    First tier technology developers are stacking in a global hash table beyond the empire’s control. Propulsion to the future is fueled by selling the past short. The majority, residing in the master and slave chain of event horizons is “learning” that only they will accept the fiat currencies; their economy is rudderless, which is why boomers committing suicide in McMansions now exceeds auto fatalities.

    The economic clutch is engaged. The ‘Boom Heard Round the World,’ as Mr. Buffet knows, will come from labor, not from capital. The part of the middle class not consumed by the imploding corporate vortex, those not inhibited by currency, will engage to cross the bridge before it collapses. Labor is selling everything short but its development.

    An empire is a pyramid of small gears combined to transmit / translate large gears. Drop it dead, take one step back in the cycle, from the end to the beginning, and jump forward. You have only talked yourself into the perception of falling back. Relative to the empire, look out from the inside of the multiplexing mirror, in both directions.

    Pension collapse began decades ago, and has reached the tipping point, with associated outright capital confiscation; defined contribution plans were just one point among many along the way.

    Book of Miracles & Prisoners Dilemma

    “Do not look for food that spoils, but for food that endures to eternal life…a slave has no permanent place in the family, but a son belongs to it forever…The reason my Father loves me is that I lay down my life – only to take it up again. The hired hand is not the shepherd and does not own the sheep…So when he sees the wolf coming, he abandons the sheep and runs away…They walk about in darkness; All the foundations of the earth are unstable…You are gods…

    If we let him go on like this, everyone will believe in him, and the Romans will come and take away both our temple and our nation…and not only for that nation but also for the scattered children of God, to bring them together and make them one…Yet at the same time many even among the leaders believed in him. But because of the Pharisees they would not openly acknowledge their faith for fear they would be put out of the synagogue; for they loved human praise more than praise from God…We have no king but Caesar…So from that day on they plotted to take his life…

    [T]he Spirit of truth…the Advocate, the Holy Spirit…will teach you all things…I do not give to you as the world gives…The world cannot accept him, because it neither sees nor knows him. I am the true vine, and my Father is the gardener. He cuts off every branch in me that bears no fruit, while every branch that does bear fruit he prunes so that it will be even more fruitful…Yet because I tell you the truth, you do not believe me!

    [T]he prince of the world is coming…In this world you will have trouble…A woman giving birth to a child has pain because her time has come; but when her baby is born she forgets her anguish because of her joy…Very truly I tell you, when you were younger you dressed yourself and went where you wanted; but when you are old you will stretch out your hands, and someone else will dress you and lead you where you do not want to go.

    Silver and gold I do not have, but what I do have I give you. And in your seed all the family of the earth shall be blessed. And when they saw the boldness of Peter and John, and perceived that they were uneducated and untrained men, they marveled. And they realized that they had been with Jesus. So they called them and commanded them not to speak at all nor teach in the name of Jesus…Be saved from this perverse generation…Your sons and your daughters shall prophesy…

    And the rulers gathered together…for all those who were possessors of lands and houses sold them…Indeed, we found the prison shut securely, and the guards standing outside the doors; but when we opened them, we found no one inside…the Most High does not dwell in the temples made with hands…Your money perish with you.”

    De-list and Re-enlist, dc to ac. Apple isn’t borrowing to juice because its money is real.

  11. JerseyJeffersonian

    Although many of the posters have made great points on the clusterfuck that was – and still is – the horrendous miscarriage of justice of the settlement, I think you may be missing one important thing.

    Schneiderman has discovered, to his dismay, that he sold his soul for not one, single thing of benefit to himself, and this faux outrage, with not a prayer in hell of succeeding, is some sort of Hail, Mary pass to resurrect his political prospects in New York State. Insofar as vaulting (as in AMBITION…) on to the Big Stage by selling out the citizenry, well, he got bupkus, and now his only fall-back is to try to return to his home state’s political life. And he’s trying to sell his fellow New Yorkers on the idea that he’s just so really, really outraged that those Big, Bad Banksters have wronged his fellow citizens, and, and, by golly, he’s gonna do something about it! Lotsa luck with that one, Eric. I suspect that anybody with half a brain in New York will see your Epic Fail for what it is, and will be unwilling to elect your weasely ass to the post of dog catcher in future.

    It’d be nice if there WERE principles motivating Mr. Schneiderman, but I think that his interests are far more parochial, being limited to his own personal political survival in the wake of his catastrophic miscalculation.

    Just my two cents…

    1. Nathanael

      Don’t underestimate the power of *anger at being personally cheated* as a motivation. If it’s as powerful as I think it is, Schneiderman may nail these banksters to the wall with nailguns.

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