Archive for August, 2011

Parsing the AHMSI v. LPS Documents

We have been pouring over the docs submitted in American Home Mortgage Servicing, Inc.’s lawsuit against Lender Processing Services.  We have finally obtained a copy of the entire complaint, including all exhibits, which can be read here and which we have already posted about this morning.

We knew the devil would be in the details, and in this case, the devil in in the exhibits.  Specifically, Exhibit K.  While this may be a little technical for some of our readers, we think it is important to point out exactly what LPS admitted it was doing, why AHMSI wants over 9 million dollars from LPS, and what it means to homeowners.

Exhibit K is a letter from Sheryl L. Newman, Sr. Vice President and Chief Litigation Counsel for Lender Processing Services, to Eric J Spett, VP & Associate General Counsel for AHMSI.  Ms. Newman (and yes, every time I say her name I think of Seinfeld), was responding to a demand letter from Mr. Spett seeking indemnification for improper assignments from various entities to AHMSI, thereby allowing AHMSI to proceed with foreclosures in every state in the Union.

The main basis of the complaint, and the basis of various demand letters from AHMSI to LPS, is that LPS was using “surrogate signers” to sign on behalf of officers of AHMSI, (these “officers” were actually employees of LPS but did in fact have limited signing authority granted by the board of directors of AHMSI).  Essentially, LPS forged the names of these special officers, had those signatures notarized, and recorded the the transfer documents in various county recorder’s offices to allow AHMSI to proceed with foreclosures.  Surrogate-signers, robo-signers, it all means the same thing, and readers of our blog know why this is so important.  Namely, AHMSI was relying on documents in its foreclosure practice that were fraudulent.  This fraud, then, has the effect of potentially making the foreclosures themselves fraudulent, and exposed AHMSI to various liabilities ranging from  the foreclosure being void all the way up to civil damages.  This all depends on the state in which the foreclosure took place.

Ms. Newman, as you can read for yourself in the full complaint linked to above, or in the letter attached to the complaint as Exhibit K below, calls this fraudulent activity “notarization error”.

Notarization error = fraud.  Simple as that.

If you had your home foreclosed on by AHMSI, it is imperative that you contact an attorney to review the case.  It is possible everything was done above board and the foreclosure was proper.  However, based on LPS’s own admissions, it is also possible that the foreclosure was improper, if not illegal, and you may be entitled to various forms of redress depending on the state you live in.

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What Does AHMSI’s Lawsuit Against Lender Processing Services and DocX Mean for Homeowners?

The big news in the mortgage and foreclosure world was that servicer American Home Mortgage Servicing, Inc. filed a lawsuit against Lender Processing Services, Inc. (LPS) and its subsidiary, DocX, in Dallas County District Court in Texas for breach of contract (among other claims).  Or at least that is what was alleged in the petition.  Translated into plain English, AHMSI sued LPS and DocX for LPS and DocX for widespread robosigning, which potentially calls into question the validity of documents on more than 30,000 mortgages–according to the lawsuit.

I highly recommend reading the lawsuit and its many exhibits, as it is a roadmap of how at least a piece of the mortgage servicing industry works.  And, it’s a look at what happens if your loan is serviced by American Home Mortgage Servicing, Inc./AHMSI and you are facing foreclosure.

But enough about the particulars of the lawsuit itself.  What does this mean for homeowners?

I believe this lawsuit calls into question virtually every foreclosure attempted by AHMSI.  This alleged fraud was not simply a few isolated incidents–over 30,000 cases have been claimed.  More importantly, this is not just some suspicion or claim by an attorney or a story on 60 Minutes–this is an actual admission in a court document by one of the parties to the transactions.  This is huge for homeowners.

The practical effect for homeowners, in my opinion, will be that it will be a little less difficult to stop AHMSI foreclosures in court.  This lawsuit (and its accompanying exhibits) will be attached to applications for temporary restraining orders as “Exhibit A.”  I certainly plan to use it, and I believe judges will take a second look at foreclosures that AHMSI and LPS and DocX have touched.

Does this mean that every document that AHMSI, Lender Processing Services, and DocX created is fraudulent?  No.  But the practice was widespread enough that it calls into question virtually every foreclosure they are now attempting.

In the grand scheme of things, the AHMSI lawsuit against LPS and DocX didn’t say anything that wasn’t already being alleged across the country; namely, that there are serious inconsistencies in foreclosure-related documents.  But to have this admission come from one of the parties themselves is a major change and another reason for homeowners to take control of their own fate instead of leaving it up to the whims of the bank.

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Thank you, Jones Day

In representing American Home Mortgage Servicing, Inc., Jones Day recently filed a complaint against Lender Processing Services, Inc.  The details are in the complaint, and you can read them for yourself, but the gist of the matter is, we were given a gift.  A gift of judicial admission that everything we have been alleging, preaching about, even yelling from the mountain tops was true.  Not because we think it is true, or believe it to be true, or hope it to be true, but because the guys on the other side admitted it was true.

So, in the spirit of Christmas in July (or August), we say “Thank You” to Jones Day and wish them a happy new year!

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Obama Administration Pressuring States to Accept Deal with Banks

News is starting to leak out about the Obama administration pressuring the 50 state AG’s to accept a deal, any deal, with the Banks on their handling of foreclosures over the past 5 to 10 years.  As we have blogged about here and here, this is clearly a terrible idea.  Mostly because it allows these banks to get away with murder for little more than a slap on the wrist.

The New York Times goes a step further in their editorial yesterday, calling the settlement not only “flawed”, but essentially stating the the Administration has their head in the sand thinking this is going to create any type of real relief for homeowners.

Yves Smith over at nakedcapitalism offers a scathing rebuke to what she is now calling a “corrupt” administration, and their desire to see this swept under the rug, while your Attorney General is left helpless in going up against the likes of Bank of America, Citi, JP Morgan Chase and Wells Fargo and their potential illegal activities for a few million dollars.  In stating it perhaps as succinctly and accurately as I have seen it anywhere, Ms. Smith states “Not only have they caused a colossal economic train wreck, but sadly, they remain such central actors that they need to be involved in remediation. Letting them off cheaply would be tantamount to putting a band-aid on gangrene.”

I don’t care what state you are in, you need to contact your AG’s office (you can find yours here), and let them know this is not only a bad idea, but it is not in the best interest of the people they are sworn to protect.  By selling out any potential claims a state may have, for much less than 30 pieces of silver I might add, it will greatly hamper efforts to hold these banks responsible for the meltdown we are currently going through.  Further, it will potentially prevent homeowners from pursuing their own claims against the banks as the weight of taking on a lawsuit can be so daunting, most homeowners may simply chose to give up and good precedent will not be set.

This is not the answer.  There are a few AG’s out there that get it.  If your’s is not one, raise hell.  This could be the biggest economic issue of a generation and it is no time to simply back into a corner and look the other way.

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Bank of America to Sell $73 Billion in Home Loans to Fannie Mae

CNBC is reporting that Bank of America has agreed to sell part of its home loan portfolio to Fannie Mae, in part to limit its exposure to the troubled mortgage market.  The deal is reported to involve 400,000 loans with unpaid principal balances of $73 billion.

So what does this mean for folks outside of Wall Street?

Well, as a taxpayer, I’m a little troubled by this story–particularly given the fact that just a few days ago I wrote here that Fannie Mae was asking for another $5.1 BILLION in government bailout money.  Fannie Mae has been a colossal money pit and recipient of our tax dollars for years.  And now they’re adding 400,000 more loans to their inventory?  It appears this beast is being fed rather than strangled.  Expect more and more of our tax dollars to bail out Fannie again in the quarters and years to come.

With respect to homeowners, I see the potential for even more headaches when dealing with the bank.  Every time a loan is transferred, there is the potential (I would argue a likelihood) for paperwork and tracking to be messed up.  This simply adds one more potential pitfall.  We’ve seen countless instances of banks not properly documenting transfers (which was a major force behind the robosigning controversy).  I fully expect mistakes will be made on some of these 400,000 loans.  This, in turn, creates title issues and, more importantly, a risk of payments being misapplied with wrongful foreclosures to follow.

To me, this story is as much about what it didn’t say as what it did.  Bank of America is scaling back its mortgage business.  Most likely, loans it acquired through its takeover of Countrywide are to be included in this 400,000 loan pool.  Part of this downsizing is probably in compliance with “Too Big To Fail” legislation whereby BoA needed to get a little smaller.  However, I think Bank of America’s decision was partially based on current and future problems in the mortgage industry. 

Don’t be mistaken–we’re in the middle of a foreclosure crisis.  It’s hitting homeowners and banks alike.  Homeowners, who often times do not fight foreclosure when it is imminent, are continuing to lose their homes in near-record numbers.  Banks, on the other hand, are facing increasing resistance from a growing number of homeowners who refuse to be run over (this is what I do as a foreclosure defense attorney).  While I have no sympathy for the banks, this increased resistance is beginning to impact their bottom line–a trend I believe will continue.  In many ways, I view this as almost a tacit acknowledgement of the problems in the residential mortgage industry and the difficulty the banks will have cleaning up their loan mess.

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Fannie Mae Seeks an Additional $5.1 Billion Handout

The big news out of Washington lately has been the showdown over the budget and the debt crisis.  In its simplest terms, there’s been a huge dispute over what to do about the fact that the United States government is spending at an unsustainable level.

Which seems like a terribly inappropriate time for Fannie Mae to come crawling for yet another bailout.  The Dallas Business Journal is reporting that Fannie Mae needs another $5.1 billion–that’s right, BILLION–in aid. 

Fannie Mae, which has been operating under the federal government’s conservatorship, is seeking $5.1 billion from the Treasury Department to balance its books.  Fannie Mae received $8.5 billion from the U.S. Treasury to wipe out its net worth deficit at the end of the first quarter.  Including this latest bailout request, Fannie Mae and Freddie Mac have sought more than $170 BILLION in government support.

Keep in mind that Fannie Mae, the Federal National Mortgage Association, is the exact same entity that has foreclosed on thousands upon thousands of houses instead of working with borrowers on solutions that keep them in their homes.  In many instances that I’ve seen, the homeowners may have gotten behind a month or two because of a lost job, but now, but now they’re working again and they’re willing and able to make their mortgage payment.  But Fannie Mae would rather foreclose than work with them.

Now Fannie Mae wants its own “modification.”  In reality, more like its 10th or 11th modification.  Except that this “mod” isn’t just a reduction in interest or tacking a couple of months of arrears onto the end of the mortgage–they want $5.1 billion more dollars–in addition to the billions and billions they’ve already gotten.  So while they refuse to work with you, they want a freebie from the government.

I know I’ve said this before on this blog, but I’ll say it again. People as me why I do foreclosure defense, since most people facing foreclosure “simply haven’t paid their mortgage,” as my critics are fond of pointing out.  For starters, it’s usually not quite that simple.  But more importantly, I just want everyone to play by the same set of rules–to be equal under the law.  Why is it that a mortgage giant like Fannie Mae, which has been hemorrhaging cash for years, gets bailout after bailout after bailout from the federal government and never has to face any consequences for its mismanagement?  But hardworking homeowners, who may have lost their job through no fault of their own, get almost no accommodation from this very same company?

I understand if Fannie Mae wants to “simply enforce its contracts” (as it like to point out).  But in my opinion, they shouldn’t get to pick and choose which contracts get enforced and which laws get applied.  Government sponsored entities (GSE’s) like Fannie Mae and Freddie Mac played an important role in the mortgage business, but it’s become clear that at least Fannie Mae is broken beyond repair.  How many small businesses have gone under in the last five years because they lost money?  Plenty.  Any in many instances, Fannie Mae has foreclosed on those small business owners’ homes.  Perhaps it’s time that Fannie Mae is simply put out of business as well.

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