ForeclosureGate – How Do We Resolve It?

I’ve been reluctant to write about ForeclosureGate because a lot of other people are writing much better analysis of the problem.  I’m going to approach this topic from the view of someone who doesn’t understand what the hubbub is about. (Yes – I understand that the rule of law was broken, we’ll get to that).
David Streitfeld, in today’s NY Times, tells the story of the house in Maine that kicked off the entire crisis (by the way, if you have no idea what I’m talking about, a good place to start is here).  Let’s pull some facts from Streitfeld’s article:
“Nicolle Bradbury bought this house seven years ago for $75,000, a major step up from the trailer she had been living in with her family. But she lost her job and the $474 monthly mortgage payment became difficult, then impossible.”
She got foreclosed on, and contacted a non-profit legal group for assistance.
“Mr. Cox realized almost immediately that Mrs. Bradbury’s foreclosure file did not look right. The documents from the lender, GMAC Mortgage, were approved by an employee whose title was “limited signing officer,” an indication to the lawyer that his knowledge of the case was effectively nonexistent. 
Mr. Cox eventually won the right to depose the employee, who casually acknowledged that he had prepared 400 foreclosures a day for GMAC and that contrary to his sworn statements, they had not been reviewed by him or anyone else.”
She hasn’t paid her mortgage in a long time…
“It has been two years since she last paid the mortgage, which surprises even her lawyers.
“Had GMAC followed the legal requirements, she would have lost her home a long time ago,” acknowledged Geoffrey S. Lewis, another lawyer handling her case.”
How did she get into this house in the first place?  With a zero down loan, plus another loan for renovations:
“In 2003, her brother-in-law at the time offered to sell her a house on property adjacent to his. It was across from a noisy construction supply site. But it was ringed by maple, evergreen and willow trees, and who does not want to be a homeowner, especially when GMAC Mortgage will give you a loan for the entire purchase price and then another loan to improve the property?”
But the key point here is that GMAC “cheated” in the foreclosure process – they did not follow due process, the Rule of Law.  The second paragraph below has the details – signing officers are fraudulently attesting to statements of fact:
“Mr. Cox vowed to a colleague that he would expose GMAC’s process and its limited signing officer, Jeffrey Stephan. A lawyer in another foreclosure case had already deposed Mr. Stephan, but Mr. Cox wanted to take the questioning much further. In June, he got his chance. A few weeks later, he spelled out in a court filing what he had learned from the robo-signer: 
“When Stephan says in an affidavit that he has personal knowledge of the facts stated in his affidavits, he doesn’t. When he says that he has custody and control of the loan documents, he doesn’t. When he says that he is attaching ‘a true and accurate’ copy of a note or a mortgage, he has no idea if that is so, because he does not look at the exhibits. When he makes any other statement of fact, he has no idea if it is true. When the notary says that Stephan appeared before him or her, he didn’t.””
The end of the article:
“GMAC, which this week expanded its foreclosure freeze to the entire country, is not giving up on Mrs. Bradbury. It will try for the third time to evict her when the case goes to trial this winter. 
If Mrs. Bradbury is not quite victorious, she is still in her house, and for her that is the only thing that counts. If she can get her pickup fixed, she will go back to looking for a job. 
“I am not leaving,” she said this week, standing out on her front lawn, the autumn splendor spread all around her. “We have nowhere to go.””
Now, let’s discuss this, shall we?  Because I don’t think this article helps the layperson (myself included!) understand how this problem gets fixed, or what the solution is.
The facts as I see them are these:
-GMAC was grossly incompetent – they gave Mrs. Bradbury a loan she probably never should have gotten (zero down + a second mortgage!), and then couldn’t even foreclose on it properly.
– The result of GMAC’s incompetence is that Mrs. Bradbury has been able to stay in her home longer than she should have – she’s the beneficiary of GMAC’s incompetence.
– Mrs. Bradbury hasn’t paid her mortgage in two years – a wicked long time, even by her own lawers’ admission, and should have been foreclosed on legally already
– But GMAC’s foreclosure process was flawed – the signing officer who signed the documents didn’t actually review them.
Now – I ask the readers – What is the solution here?
Have someone look at the docs, verify the information, and foreclose on Mrs. Bradbury? 
Actually, GMAC already tried that, and they screwed it up again!  From the article:
“In a ruling late last month, Judge Powers said that GMAC, despite its expensive legal talent and the fact that it got “a second bite of the apple” by filing amended foreclosure papers, still could not get this eviction right.

Even the amended documents did not bother to include the actual street address of the property it was trying to seize — reason enough, the judge wrote, to reject the request for immediate foreclosure without a trial.”

Note – I’m talking about THIS SPECIFIC CASE.  There are clearly other cases where there are disputes about exactly how much money is owed on a mortgage balance, and the banks don’t have their details down. 
In the end, I’m not sure Mrs. Bradbury’s case is a very good example of the real problems (relating to questions of title and ownership) behind ForeclosureGate.  It seems that this case is more one of gross incompetence on GMAC’s part, and how it results in a delinquent homeowner being able to benefit for a period of time from that incompetence.

The bigger problems lie where the banks are missing the actual mortgage notes (I didn’t get the impression that was the problem in this case) – what do we do in those cases?    Do we tell the bank that if they can’t produce Mrs. Bradbury’s (or others’) Note then she gets to keep the house?   Something else?

There is a whole other issue too, aside from the homeowners.  The purchasers of mortgage backed securities have clauses in many of their issues that say that they can “put” the notes back to the issuing bank (ie, force the banks to buy them back) if the notes aren’t delivered.  See Mike @ Rortybomb’s multi-part series on those details.

-KD

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