We've got a quartet of Foreclosuregate stories for you from over the last few days that are definite losses for the banks. First in Maryland,
some 10,000 foreclosures have been tossed by the courts.
In a major ruling Friday, a coalition of nonprofit defense lawyers and consumer protection advocates in Maryland successfully got over 10,000 foreclosure cases managed by GMAC Mortgage tossed out, because affidavits in the cases were signed by Jeffrey Stephan, the infamous GMAC “robo-signer” who attested to the authenticity of foreclosure documents without any knowledge about them, as well as signing other false statements.
The University of Maryland Consumer Protection Clinic and Civil Justice, Inc., a nonprofit, filed the class action lawsuit, arguing that any case using Jeffrey Stephan as a signer was illegitimate and must be dismissed. In court Friday, GMAC agreed to dismiss every case in Maryland relying on a Stephan affidavit. They can refile foreclosure actions on the close to 10,000 homes, but only at their own expense, and subject to new Maryland regulations which require mandatory mediation between borrower and lender before moving to foreclosure. Civil Justice and the Consumer Protection Clinic also want any cases with affidavits from Xee Moua of Wells Fargo, who has also admitted to robo-signing, thrown out, but that case has not yet been settled.
Second,
the floodgates for massive MERS losses are opening in Utah too.
A Utah court case in which the owner of a Draper townhouse got clear title to the property, even though he still owed $132,000 on it, raises new legal and financial questions about a property-records database created by mortgage bankers.
The award of a title free of liens means that whoever owns the promissory note on the Draper property — likely a group of faraway investors — no longer has the right to foreclose to collect on a delinquent loan. Indeed, the townhouse owner has sold the property and kept the money. Those who own the promissory note probably don’t even know what occurred.
Decisions such as the one 3rd District Judge Glen Iwasaki handed down in the Draper case could have a big impact as the state wends its way through hundreds of lawsuits involving foreclosures, loans on properties for more than they’re worth and predatory lending practices that led Utahns to lose their homes as the real-estate bubble burst.
For those of you new to the blog here in 2011, let's recap the Roaches series and Foreclosuregate for 2011.
Both of these developments are bad, bad news for the banks. Remember, the banks sold blocks of mortgages to investors as AAA-rated securities opportunities. In order to process all this, they created the computerized MERS (Mortgage Electronic Records System) to do it with. But MERS never kept track of all the paperwork that was required by law. The banks blew it big. More and more state court rulings are coming out saying the banks broke the law by using MERS and not keeping track of the pysical mortgage paperwork.
Worse, the banks then used MERS and "robo-signers" to sign off on tens of thousands, perhaps hundreds of thousands of foreclosure notices illegally and improperly. All the foreclosures processed by MERS are now in question. Do the banks really own the property to be able to foreclose? Since they bundled the mortgages into investment blocks (called tranches in the biz), the answer is "Who knows?"
So since the banks don't officially own the property deed, they can't foreclose because they don't own it. If they don't own the property, then the investors who bought the mortgage block investments suddenly have worthless pieces of paper. Enough of these cases go against the banks and then investors say "We want our money back." people will begin to question their investment and these big investors will want out. They will want their money and want it now.
Money the banks don't have. Their assets are tied up in hundreds of thousands of homes they don't have the title to. Oops. But here's the real killer: some of these foreclosed properties the banks are trying to get back.
But there are thousands more foreclosures that banks are simply walking away from.
Research to be released Thursday, the first of its kind locally, identifies 1,896 "red flag" homes in Chicago — most of them are in distressed African-American neighborhoods — that appear to have been abandoned by mortgage servicers during the foreclosure process, the Woodstock Institute found.
Abandoned foreclosures are increasing as mortgage investors determine that, at sale, they can't recoup the costs of foreclosing, securing, maintaining and marketing a home, and they sometimes aren't completing foreclosure actions. The property, by then usually vacant, becomes another eyesore in limbo along blocks where faded signs still announce block clubs.
"The steward relationship between the servicer and the property is broken, particularly in these hard-hit communities," said Geoff Smith, senior vice president of Woodstock, a Chicago-based research and advocacy group. "The role of the servicer is to be the person in charge of that property's disposition. You're seeing situations where servicers are not living up to that standard."
And who is getting stuck with those properties when the bank walks away because the MERS shortcuts were the only way to foreclose on the properties and still make any money off them? You guessed it:
local city and county governments, already stressed to the max, are getting stuck now with thousands of vacant homes that the banks are refusing to foreclose on
because they would be a net loss if they did!
You see here the framework for the next big financial crisis, one I've been talking about in this series of posts now for the better part of a year. And if this doesn't kill them on MERS,
now it looks like at least one big bank has repeatedly violated federal law.
One of the nation's biggest banks — JP Morgan Chase — admits it has overcharged several thousand military families for their mortgages, including families of troops fighting in Afghanistan. The bank also tells NBC News that it improperly foreclosed on more than a dozen military families.
The admissions are an outgrowth of a lawsuit filed by Marine Capt. Jonathan Rowles. Rowles is the backseat pilot of an F/A 18 Delta fighter jet and has served the nation as a Marine for five years. He and his wife, Julia, say they’ve been battling Chase almost that long.
The dispute apparently caused the bank to review its handling of all mortgages involving active-duty military personnel. Under a law known as the Servicemembers Civil Relief Act (SCRA), active-duty troops generally get their mortgage interest rates lowered to 6 percent and are protected from foreclosure. Chase now appears to have repeatedly violated that law, which is designed to protect troops and their families from financial stress while they’re in harm's way.
A Chase official told NBC News that some 4,000 troops may have been overcharged. What’s more, the bank discovered it improperly foreclosed on the homes of 14 military families.
That's just about a complete goose egg for the banks in the last several days on the foreclosure front.
Keep your eye on this. It will blow up very, very soon...and when it does, we're in deep economic trouble.
We're about to see how big Too Big To Fail is.