After a 16-day review of its foreclosures, Bank of America (BAC) has pronounced itself satisfied: It found no problems at all with any of them, and it's ready to resume processing foreclosures. The bank told The New York Times it has "not found a single example where a foreclosure proceeding was brought in error," and "We did a thorough review of the process, and we found the facts underlying the decision to foreclose have been accurate."
Let's be blunt: That's a claim so unbelievable it doesn't pass the straight-face test.
First, Bank of America has already foreclosed on a couple of houses bought with cash, which is the banking equivalent of a hospital's "never event": a mistake like amputating the wrong limb -- so basic and so bad it should never occur. And just as smaller, albeit still serious, errors in medical care occur more frequently than those tragic "never events," it's hard to imagine that foreclosures on two cash-bought homes were the only errors among BofA's many, many foreclosures. (Similarly, another major national bank that insists it has no problems with foreclosures -- JPMorgan Chase (JPM) -- tried to seize a home it hadn't foreclosed on.)
What About Fraud at Outside Contractors?
Second, one big foreclosure mill -- the Law Offices of David J. Stern in Florida -- foreclosed on homes using documents that reflected incorrect amounts owed, inflated charges, wrong dates and even the wrong bank foreclosing, according to the sworn testimony of former employee Tammi Lou Kapusta, which was partially corroborated by the testimony another former employee, Kelly Scott. (The substance of their depositions only overlaps in part.)
These substantive problems go beyond the issue of robo-signing as a matter of course, and refute any blanket claims that robo-signed documents were true, but reviewed and signed badly.
Kapusta's testimony makes it clear that the volume of foreclosures and the pressure to do them quickly, using inadequately trained staff, was what led to these fraudulent practices. So unless BofA never used David J. Stern -- or any other law firm that took similar shortcuts -- how can it be sure that none of its foreclosures were compromised? Given the ubiquitous pressures on foreclosure attorneys, and the large number of foreclosure mills in this country, it will be shocking if Stern turns out to be the only firm that played fast and loose with the law.
At Stern, only Fannie Mae and Freddie Mac routinely audited their foreclosure files, according to the depositions. But Scott points out in her testimony that those audits weren't particularly effective, because unbeknownst to Fannie and Freddie, the firm hid files -- hundreds at a time -- that they knew wouldn't stand up to audit scrutiny.
Did BofA's review include an audit of its outside foreclosure law firms, as Fannie and Freddie "audited" David J. Stern? If so, how confident is the bank in the results of that audit, given that Stern successfully hid its problems from similar oversight? And if it didn't audit its outside firms' work, how can it claim to be sure there are no problems?
Judges Aren't Giving Banks a Free Pass on Perjury
Bank of America Home Loans released a statement Monday that speaks of submitting new documents in 102,000 pending foreclosures in the judicial states, and makes clear these are re-submissions. Presumably, all 102,000 involved robo-signed documents, if nothing else. But despite the bank's implication that those soon to be re-submitted documents will cure any problems that might exist with those 102,000 foreclosures, it's unclear that the judges in the cases will agree.
Not every judge is going to allow a do-over. Imagine if Roger Clemens decided he wanted to go back and change his testimony so that he could make his perjury prosecution go away. As Ohio Attorney General Richard Cordray told The Wall Street Journal, resubmitting documents "doesn't unring the bell." Nor should it. If document substitution of this nature is allowed as a matter of course, it will be some of the clearest proof ever that the banks obey one set of laws, and the rest of us another.
Judicial backlash against the banks for robo-signed documents is rising. For example, New York's Chief Judge Johnathan Lippman has required attorneys to certify -- under penalty of perjury -- that they have spoken to their bank clients, verified that the bank's document signer has personally reviewed the documents supporting the substance of the filings, and that, based on the conversation and the attorney's "own inspection of the papers filed with the Court and other diligent inquiry," the attorney believes the filings to be accurate. The form itself makes clear that this new rule is aimed at ending robo-signing and its associated problems.
No Clear Title, No Way to Foreclose
Finally, BofA faces potential title problems -- and thus, right to foreclose problems -- with its many securitized mortgages. These fundamental title issues can be traced back to loans that may not have been securitized properly. Indeed, one reason so many bogus documents were created for the robo-signers appears to be because documents were missing or were never properly created in the first place. The other, and perhaps bigger reason for bogus documents is the volume of foreclosures and pressure to finish them quickly.
If a bank can't prove ownership or servicing rights on a property because the title chain is broken, it can't foreclose. Similarly, if a mortgage has been pledged two or three times, as Bank of America claimed has happened in a court filing, who owns it isn't clear, which means it's not clear who has the right to foreclose. Does BofA's claim that there were "no problems" in its foreclosures mean that it checked each securitized mortgage it's foreclosing on and found that in every case the securitization was done properly, and no title problems exist in any of them?
Given all the above issues to review, how could BofA complete a competent review in only 16 days? We don't know how many mortgages it reviewed. Do the 102,000 that need new documents represent every case, or did the bank examine more, and these are only a subset? Even if the whole review was "only" 102,000 files, that's a lot to cover in 16 days, particularly in light of the revelations about the Stern firm, the chaotic practices occurring in the courts, and the cash foreclosures -- all of which suggest that mortgage files aren't in good shape.
Trust Us, We're Bankers
So here's the question: Does BofA really mean to tell us that it thoroughly checked, to the level of scrutiny that a lawyer will now require before filing a New York foreclosure, that for every mortgage it's foreclosing on it has the right to foreclose? Take note: That's completely different than verifying in each case that a borrower is in default to someone.
Sorry, Bank of America, but it's as hard to take seriously your claim that you have no ability-to-foreclose problems as it is to take seriously Lender Processing Service's attempts to reassure investors about the robo-signing and the class action suits filed against it.
What's really going on here? Is Bank of America just hoping courts and investors won't insist on looking more closely? Does it really think that at this stage people will simply take a bank at its word about everything?
At least one Illinois sheriff isn't persuaded. Sheriff Thomas J. Dart is going to stop evicting people unless the banks can persuade him their foreclosures are legitimate. He's serious, too: He stopped doing evictions in 2008 because of concerns that residents weren't being given proper notice. He's given the banks until Monday to answer, and it'll be interesting to see what happens next. And of course, many answers are yet to come from all of the governmental investigations under way.
Two final points of note: I spoke with Bank of America's media department and asked detailed questions about the review process that led to it lift its foreclosure moratorium: As of now they have not responded, but I'll update this article with any response they provide.
Also, much of this article could have been written about GMAC, which has also decided to resume foreclosures, or any other bank that insists it has no foreclosure problems. All these denials remind me of the Wizard of Oz telling Dorothy to "pay no attention to that man behind the curtain."
Dorothy wasn't fooled either.
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