Robo-Deal: The Price of Crime – Neil Garfield Weighs in…

9 Feb

From: Charles Cox []
Sent: Thursday, February 09, 2012 9:11 AM
To: Charles Cox
Subject: Robo-Deal: The Price of Crime – Neil Garfield Weighs in…

Robo-Deal: The Price of Crime

Posted on February 9, 2012 by Neil Garfield

” The biggest mistake being made in the settlement is that investors are being insulted. They won’t return to the same marketplace and invest in similar offerings in the future. This puts a permanent damper on credit markets and liquidity. Investors have no reason to trust a society that ratifies criminal fraud. Investors have a high tolerance for risk, but zero tolerance for corruption. The net effect will be investments going anywhere but the credit markets based on Wall Street, which means that fund managers are going to perceive that their only safe move is to go to a more stable environment in which crime is punished and fraud isn’t tolerated.” — Neil F Garfield,

EDITOR’S COMMENT AND ANALYSIS: If you steal a little money you go to jail. If you steal a lot you get to keep it. That seems to be the net impact of the multi-state settlement. Yves Smith (see below) and Adam Levitin are among many who decry this settlement and I agree with their reasons, but I don’t agree that this is the end of this “theater.”

It is probable that world class criminals will escape prosecution and it is certainly a bad precedent to put a price — $2,000 — on committing forgery, where the loss is in the hundreds of thousands of dollars. The driving theme behind the settlement is to get this episode behind us and so, like the tobacco settlement, this new deal is intended to start us on the path of clearing out the foreclosure problem — but unlike the tobacco settlement in which people were successfully encouraged to stop smoking, this settlement is based solidly on continuing false and fraudulent foreclosures on debts that have been paid if you apply the third party payments.

Those foreclosures cannot continue without continuing the fraud. This isn’t a paperwork problem — it is an economic one in which the real parties in interest have been left out.

Yet the theater is far from over because the title issues and the individual causes of action — for those homeowners who want to pursue them — still exist, and criminal prosecutions — for those prosecutors who won’t be stopped will also continue. There is no avoiding the realization that the very banks who are parties to this settlement are not and never were parties to the loans. They never owned them and they never bought them.

Thus any document signed by these strangers to the transaction is no more than a wild deed that cannot support a chain of title. If this issue is not addressed head-on, who is going to buy anything or lend anything in a market where a growing number of supposedly ex-homeowners successfully overturn foreclosures and regain title and possession of their properties? It isn’t the number of people who succeed in this endeavor that matters — it is that the risk exists that it could happen on any property.

WHY ROBO? Take a step back and look at this picture. The Banks are settling claims for wrongful foreclosure but the wrongful foreclosure is being left intact. The obvious title problems are left intact like a disease on a rotting corpse. The question of why false declarations in false documents were used is being glossed over as though it doesn’t really matter why they did it. Isn’t anyone curious why banks would resort to widespread use of forged documents with false declarations contained in them?

This issue won’t go away. If there was a cover-up, what were they attempting to cover up? For me the answer is clear — (a) the loans contain numerous fatal defects that eviscerate the debt mortgage securing the debt and (b) that there was no right or reason to foreclose except that the banks and servicers saw an opportunity to make even more money by taking the homes after they had already taken the investors and the homeowners to the cleaners.

The bottom line is (a) that there were fatal defects in both the documentation for the origination of the loan and the documentation for the origination of the sale of mortgage bonds to investors. This was intentional, so that the banks could do exactly what they are now doing, pretending on a grand scale to be the creditors when in fact the real creditors are being left out in the cold. And (b) there remain fatal defects in both the so-called mortgages and the foreclosure process as it has progressed thus far. The only settlement that counts, therefore, is one that stops the false foreclosures by strangers to the deal on loans that are not in default and that are not secured by a perfected mortgage lien.

In the end run, how much more the banks will be required to fork over will depend upon you and others who read this blog. If you call it quits, then the most you will see if in fact anyone sees it, is $2,000 for losing a home you should not have lost and being tricked into a loan that should have been far different in both amount and terms. Those who have not yet been foreclosed are not directly affected by the settlement. So assuming that the banks and servicers persist in pursuing foreclosures in which they have no interest other than greed, nothing we have so far will change anything.

Those who press on will see a benefit from their efforts although I concede that the turmoil of litigation is daunting at the very least. The prospect of overturning foreclosures and evictions that were based upon false declarations in false documents by banks and servicers who had no privity with the homeowner remains a viable and even an enhanced option. How Judges will react to the news of indictment for criminal activity and settlement with law enforcement officials is anyone’s guess. The added factor that has not been addressed is that most of the foreclosed loans were not in actual default.

In the final analysis, the crisis in title chains is not being addressed at all and there is a lot of work to do to clear it up one way or another. But one thing is certain: continued false foreclosures is not the path of recovery.

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