What Do HSBC's Foreclosure Moratorium and Robo-Signing Claims Really Mean?

In HSBC's 2010 annual report, the bank asserted that it had stopped "processing foreclosures" and that it "suspended foreclosures" in December, even though the information wasn't made public until Feb. 28, when HSBC (HBC) filed the report with the SEC.

But based on at least two cases still working their way through Florida's courts, that delay in disclosure apparently also meant that HSBC didn't tell attorneys bringing foreclosure actions in the bank's name to put their cases on hold. Indeed, if HSBC had systematically put its many pending foreclosure cases on hold in December, the news surely would have come out before now. So it's appropriate to ask: What does the moratorium announcement really mean?

HSBC has also repeatedly asserted that it doesn't robo-sign. Despite those denials, HBSC's annual report concedes foreclosure document problems that certainly sound like those caused by robo-signing: "certain deficiencies in the processing, preparation and signing of affidavits and other documents supporting foreclosures. . .including the evaluation and monitoring of third-party law firms retained to effect our foreclosures."

Even if that language refers to something other than robo-signing -- and frankly, anything else it could refer to would be worse -- the servicer foreclosing in HSBC's name in the two cases below is using robo-signed documents. So, is it really valid to say HSBC doesn't robo-sign? (That's a claim the bank made again this week, after the annual report was released.)

What Else Can This Mean?

The two issues are linked, because the document "deficiencies" were significant enough to trigger HSBC's alleged moratorium: "We have suspended foreclosures until such time as we have substantially addressed the noted deficiencies in our processes," wrote the bank. "We are also reviewing foreclosures where judgment has not yet been entered and will correct deficient documentation and re-file affidavits where necessary."

As far as I can tell, there's no way to manipulate those sentences to mean: "We've got real problems with our documents, but we're going to let all our pending cases go forward -- we just won't file new cases until we've solved our problems." But based on how easy it was to find two HSBC foreclosure cases involving robo-signed documents that aren't on hold, and the fact that the "moratorium" didn't become public in the first few months of its existence, it seems that interpretation is closer to the truth.

HSBC had not replied to a detailed request for comment by deadline. If it replies, we will update this story.

UPDATE: Late Friday afternoon, Neil Brazil, HSBC North America's vice president of public affairs, responded: "In cases where HSBC is acting solely as trustee for a trust which holds a mortgage loan, HSBC does not service those loans, a master servicer does and has the authority to handle matters such as foreclosures. You would need to review any foreclosure matters with them."

The statement about the master servicer is true, of course -- but irrelevant. Even in those cases, the foreclosures are being done in HSBC's name, and the proceeds go to the trusts HSBC administers. For the bank to wash its hands of what its agents are doing in its name just doesn't fly. To illustrate the point, let's take a look at those two active foreclosure cases in Florida.

Two Cases that Challenge HSBC's Storyline

In two active Florida cases, Wells Fargo is trying to foreclose as the loan servicer for HSBC, which is the plaintiff and will, if the foreclosures are successful, get the properties. The case names reflect HSBC's role: HSBC v. Harley, and HSBC v. Shinneman. Both are set for trial later this month, and as of March 3, had not been not affected by HSBC's foreclosure moratorium.

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Jacksonville Legal Aid attorney April Charney represents Harley, while attorney Todd Allen represents Shinneman. Both reached out to their opposing counsels repeatedly after the HSBC moratorium became public. Both opposing counsels told them on Thursday that the cases were going forward. (When I contacted the attorney for HSBC in the Shinneman case, Travis Harvey, his response was "no comment." HSBC's attorney in Harley, Michael Winston, didn't reply to my email.)

It has been three months since December, when HSBC says it began its "moratorium." Surely the bank has a list of all the foreclosure actions being taken in its name. In the age of email, sending a mass communique to all the necessary parties to halt those foreclosures shouldn't take this long.

Robo-Signed Documents in HSBC Cases

In Shinneman, the affidavit of indebtedness -- the document HSBC gives the court to prove how much Shinneman is in default, justifying the foreclosure -- is signed by known robo-signer Xee Moua (see pp. 28-29). If you look at the document, don't be confused by the fact that Moua says she works for Wells Fargo. Wells services the loan, but it's HSBC foreclosing -- check out the case caption on the top of the document. So, even if the robo-signer acted at Wells Fargo's request, the robo-signed document is being used by HSBC to foreclose on a home.

Similarly, in Harley, the assignment of mortgage was signed by Cheryl Samons of the infamous David Stern law firm, also a known robo-signer. Again, the assignment is from Wells to HSBC via MERS, but that doesn't insulate HSBC from the robo-signing. First, MERS assignments of mortgage are often done by employees or agents of the company receiving the assignment. In this case, that's HSBC. But even if Wells created the robo-signed assignment (by hiring Stern), the document is still being used by HSBC to foreclose on the home.

HSBC's annual report asserted the purpose of the foreclosure moratorium was in part to review and correct documents in pending foreclosure actions. Both the Shinneman and Harley cases are ones HSBC might want to review. The homeowners in each have challenged the validity of the papers, specifically the right of HSBC to foreclose.

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In Harley, the mortgage was securitized, and the homeowner argues the securitization contracts prevented HSBC from taking ownership of the loan in January 2006, when it claims it did. Beyond that, the robo-signed assignment of mortgage from MERS also supposedly assigned the promissory note, though it's unclear how that can be because MERS doesn't own notes. Most basically, the assignment was signed after the foreclosure had begun, and in Florida a plaintiff must have the right to foreclose when it file suit. Plaintiffs can't "fix" the issue later.

In Shinneman, among other issues, the note was not endorsed in a way that gave HSBC standing when the foreclosure was filed. Recently, however, a version with a new endorsement has appeared. (New endorsements have appeared in many foreclosure cases across the country.)

What Does "We" Mean?

So again I ask: What does the bank's moratorium really amount to? And will HSBC continue to insist it isn't robo-signing documents? If so, what were the document "deficiencies" it disclosed in its annual report? And how does it justify the statement in light of robo-signed documents being used in its name to foreclose?

HSBC's "we don't robo-sign" is as lawyerly an evasion as President Bill Clinton's infamous line, "it depends what the meaning of the word 'is' is." In this case, the bank appears to be trying to skate away on the definition of the word "we." But paying someone else to do the robo-signing and foreclosing for you doesn't get you off the hook.

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