Posted by kevin on December 24, 2017 under Foreclosure Blog | 
I became involved with foreclosures in the late 1980’s representing both lenders and borrowers. By 2000, however, my only involvement with foreclosures was an outgrowth of my bankruptcy practice. Around 2007, I began reading articles from bankruptcy attorneys, including Max Gardner, about the looming problems in the mortgage markets. In 2008 with the fall of Bear Stearns, I read more about how the US (and the world) had gotten itself into the problem that we now call the mortgage crisis. Securitized trusts, Fannie and Freddie lowering requirements to buy loans, variable rate loans and negative amortization loans, stated income loans and no income loans, robo-signing and servicing “irregularities”, predatory lending and outright fraud. The conservative mortgage lending industry became like Las Vegas.
In NJ, foreclosures averaged about 15,000 per year. But by 2008, the numbers were tripling or more. I wanted to get involved again with foreclosures. But this time, representing borrowers only. So, I did my research by looking at the electronic “advance sheets” to see how the courts were dealing with foreclosure cases. They were still treating foreclosures like it was 1980, and they were not listening to borrower arguments that the system was broke.
I knew that I had a general understanding of the then environment but I also knew that I did not know enough. I needed help. In mid-2009, by chance, I met Mike Lucey. He was an FHA underwriter who was working with borrowers facing foreclosure. More so, he was educating attorneys who represented borrowers about how to given the new lending environment.
Mike grew up in Brooklyn. He was a 240 lbs tough guy with hands like catcher’s mitts. He talked fast and expected you to pay attention. He knew all the lenders and servicers. He knew the people on Wall St who put together the deals. He understood Pooling and Servicing Agreements and how to exploit them. He could formulate arguments in foreclosure matters better than any attorney I had ever met. He taught me how to be an effective foreclosure defense attorney. Now, that is not to say that he did not drive me crazy at times, and we did not have our fair share of arguments loaded with expletives. But because of Mike, I was able to help scores of clients keep their homes.
Mike died yesterday from cancer and its aftereffects. He put up a valiant struggle. For all the people that I helped over the years, I want you to know that I could not have done it without Mike. Please say a prayer for Mike and his family.
Posted by kevin on August 26, 2013 under Foreclosure Blog |
Earlier this month, newspaper articles surfaced which stated that the US Justice Department has stepped up its investigation of Bear Stearns’ mortgage dealings in the run up of the mortgage crisis. Bear Stearns was purchased by JP Morgan Chase, with more than a little arm twisting by the feds. Now, JP Morgan is holding the bag.
At the same time, US prosecutors in California have been investigating JP Morgan based on Bear Stearns sale of mortgage bonds.
Back at the beginning of the mortgage crisis, the Justice Department indicted two executives of a hedge fund set up by Bear Stearns on the basis that they defrauded investors. Notwithstading huge losses and some rather questionable emails sent and received by these individuals, the jury did not convict. The Justice Department backed off, but it appears that they are engaged once again.
I had a case against JP Morgan based on a piggyback loan which was bought and then securitized by Bear Stearns. The key to the case was that I was able to get my hands on the “real” closing file from the mortgage broker. In that file was a set of underwriting documents which indicated that Bear Stearns did not want the borrower to produce any documents which verified the income of the borrower. Coupled with the testimony from the mortgage broker that Bear Stearns would not have bought the loan unless the mortgage broker followed the instructions of Bear Stearns, I was able to fashion a very favorable settlement for my client. The settlement was approved by the bankruptcy court.
Unfortunately, we rarely get to see the “entire” file in discovery. Plaintiffs in foreclosure cases produce significant amounts of documents but, from our perspective, it probably is not the entire file. The problem from our end is that it is difficult to pinpoint something that is not there, especially considering that closing documents are not uniform. You always get the note, mortgage, HUD-1, TILA Disclosure Statement and like documents. What you never get is the underwriting criteria of the originator or more aptly, the sponsor of the securitized trust (that is the entity that is calling the shots).
While borrowers may not get the key documents, the DOJ should not be in the same position. They have the power of the government behind them. Clearly, the government is starting to use its vast powers, at this late date, to expose the lenders and investment houses for their role in the mortgage meltdown.
Posted by kevin on April 14, 2013 under Foreclosure Blog |
http://www.youtube.com/watch?v=Xvi7RNr8s4A.
Check out the You Tube. It’s only about 4 minutes. Elizabeth Warren takes two federal bank regulators to task for waffling on whether their agencies will provide evidence of illegal activity of the banks to families who were victimized so the families could bring lawsuits against the banks.
Bank regulators are supposed to serve the public by regulating the banks. Instead it appears that they are protecting the banks. Why? Well, when I was an intern at the SEC many years ago, my boss told me that the only to get to the bottom of a complex factual/legal scenario was to follow the money. The great criminal of the early 20th century, Willie Sutton, was asked why he robbed banks. Sutton reply because that is where the money is. Regulators know that one day, they will leave government service. Then, they would need to get a job. Ponder the choices. Get a job with a large bank where the money is and where you have made friends, or go to work for a consumer group? You got a mortgage and two kids to educate. Not a real tough choice. No wonder why some of regulators appear more interested in not pissing off their prospective employers than in protecting the public.
It is no different on the state level. Clearly, there has been an overabundance of predatory lending. Yet, I have not seen any reported decisions in NJ finding predatory lending since the mortgage crisis. Is that because the borrowers’ attorneys never raise this issue? No. Or could it be that Countrywide, WAMU, New Century and the like made sure that their loans were clean as the driven snow because of the fear of swift and definite punishment for violation of the law in NJ? I don’t think so.
The Romans had a phrase that summed up their view of business. It was “Caveat Emptor” Let the buyer beware. In other words, it was assumed that the seller of a product or service would try to rip you off. So, it was up to the buyer to defend himself and family from the predatory seller. Over the centuries, however, the courts realized that a large seller and a buyer were not on equal footing. In the mid-twentieth century, consumer laws were enacted to protect the little guy. Our leading law is the Consumer Fraud Act which applies to mortgages. Isn’t it about time that the courts turn to the CFA big time to level the playing field. If it is done, 30-40-50 times, the banks will get the message, settlements will miraculously appear, and the housing crisis will end much sooner than it will under the present course.
Posted by kevin on December 8, 2012 under Foreclosure Blog |
Last week, the Wall St. Journal ran the above captioned editorial in which it chides the government for losing mortgage crisis cases which are directed against individual bankers. While admitting that the government has had some small success in suing banks (which settle without any admission of guilt or liability), WSJ states that when the Obama Administration tries to prosecute a specific individual for a specific crime, it turns out there was no crime.
To support its position, the WSJ then cited two civil cases brought by the SEC involving collateral debt obligations or CDO’s where the defendants got off. First, these were not criminal cases. Second, CDO’s are complex and pretty much involve high stakes gambling between big time players. It is a difficult case to prove that one billlionaire got taken advantage of by another billionaire, and who really cares. Not much jury appeal and little wonder why these cases are not winnable. These types of cases are bad examples to support a premise that no crimes were committed.
The editorial goes on to say that pundits are saying that the government should go after the CEO’s. WSJ’s retort is if you cannot prove criminality against the lower level guys that were supposedly doing the bad things, how could you nail the CEO’s who are removed by layers of buffers. Sort of sounds like Michael Corleone before the Senate committee in Godfather II.
The next point made by WSJ is that people are blaming incompetence at the SEC or at the Department of Justice. But WSJ finds no fault with the quality of the regulators.
Finally, the WSJ concludes by saying that the fact that Washington can’t find a real criminal should focus public attention back on the real crime. That was Beltway policy. In effect, the WSJ is blaming the entire housing crisis on the government.
Now, that is a pretty disingenuous editorial. Sort of reminds me why I gave up my New York Times subscription. Allow me to briefly retort.
First, there is a difference between criminal prosecutions and civil lawsuits. The main difference is the level of proof needed to win. In a criminal matter, the prosecutor must prove that the defendant is guilty beyond a reasonable doubt. That is a tough standard. Given the complexity of the underlying financial transactions, and the money that defendants have to spend on top notch lawyers, criminal cases are not easy to win. That is why you see that most of the cases brought are not by the Department of Justice, which handles criminal matters, but the SEC and the civil sections of AG’s offices which handle civil matters.
Second, does the WSJ really believe that the CEO’s of the major banks and investment houses did not know that their underlings were peddling bad paper to the public? I doubt it. They knew that the securitized trusts were putting hundreds of millions of dollars in the firm’s coffers during the heyday. You mean to say that the guys in the penthouse never discussed how the young hot shots were bringing in gazillions of dollars to the firm. I do not think so. (The real question is why didn’t the Justice Dept use Sarbannes Oxley to go after the CEO. That law makes CEO’s liable.)
Third, the SEC is not what it used to be, unfortunately. I was an intern at SEC Enforcement in the mid 1970’s. Stanley Sporkin was then Director of Enforcement. He was one tough guy who had no qualms about going after investment banks or commercial banks. SEC enforcement was feared and kept bankers in line. Now, SEC enforcement is headed up by the ex-general counsel of Deutsche Bank, a big time player in securitized trusts, CDO’s, and other derivatives. Now, I am not saying that the current director is rolling over for Wall St ( I’ll let other say that); however, he is no Stanley Sporkin. And the WSJ knows that.
Finally, the WSJ concludes by saying that the fact that Washington can’t find a real criminal should focus public attention back on the real crime. That was Beltway policy. In effect, the WSJ is blaming the entire housing crisis on the government.
There is an element of truth to this accusation. The government, by re-pushing the Community Redevelopment Act, by repealing Glass Steagall, by allowing Fannie Mae and Freddie Mac to threw out underwriting standards, by bailing out the banking system with TARP, by failing to allow Chapter 13 cramdown, and by allowing servicers to make a mockery out of HAMP, allowed the banksters to run wild. Just like Prohibition allowed Al Capone to establish a criminal empire. Yeah, there is political blame.
And that may be the real problem. When I was an intern at SEC, my boss told me that best way to investigate a complex situation was to follow the money. If you follow the money in the mortgage crisis, it seems like the bulk of it went to the banks. The federal government did not do that by accident. So, why would the federal government want to throw in jail the very people it invested in.
