transformers: foreclosure

New fronts are opening in the foreclosure mess.

A lot of people have wondered why no one has gone to jail over what by commonsense standards is fraudulent activity. The possibility that the violations were indeed criminal is finally being investigated. From the Washington Post:

Federal law enforcement officials are investigating possible criminal violations in connection with the national foreclosure crisis, examining whether financial firms broke federal laws when they filed fraudulent court documents to seize people’s homes, according to people familiar with the matter.

The Obama administration’s Financial Fraud Enforcement Task Force is in the early stages of an investigation into whether banks and other companies that submitted flawed paperwork in state foreclosure proceedings may also have misled federal housing agencies, which now own or insure a majority of home loans, according to these sources.

The task force, which includes investigators from the Justice Department, Department of Housing and Urban Development and other agencies, is also looking into whether the submission of flawed paperwork during the foreclosure process violated mail or wire fraud laws. Financial fraud cases often involve these statutes.

Yves here. On the one hand, I would not underestimate the ability of Team Obama to give the banking industry a free pass when tough action is warranted. On the other hand, there is a proud tradition of the Federal government rousing itself when measure by the states run the risk of showing it to have been complacent to the point of negligence (one well known example is when state securities law suits force the generally lapdog SEC to take swing into gear). So if state or even private lawsuits expose enough damaging material, it will be hard for this task force to sit on its hands.

On another front, the ACLU is starting to obtain information to determine whether foreclosures in Florida (the so called rocket docket) violated Constitutional “due process” requirements:

The American Civil Liberties Union and the ACLU of Florida today filed public records requests with judicial officials in Florida to determine whether homeowners are having their constitutional rights violated during foreclosure proceedings and being unlawfully removed from their homes.

In Florida, where almost half a million foreclosure cases are pending, the state legislature recently spent over $9 million to create special foreclosure courts, staffed by retired judges, with the intent of speeding through the state’s backlog of such cases. But recent media reports in Florida and around the country, which reveal rampant error and fraud in the foreclosure process, have shown that courts should take particular care with foreclosure cases. Instead, in the rush to push foreclosure cases through the courts, Florida may be taking shortcuts and, in the process, forsaking constitutionally-required due process protections….

Filed with the Office of the State Court Administrator and the chief judges of all 20 of Florida’s circuit courts, the requests seek access to, among other things, all documents related to special court systems created to dispose of foreclosure cases and the rules and procedures in place that govern those systems…

Copies of the ACLU’s public records requests are available online at: www.aclu.org/racial-justice/aclu-seeks-information-about-constitutionality-florida-foreclosure-courts

Yves here. These initiatives are only in the early stages, but both show that the foreclosure crisis is moving from narrow legal issues to much bigger ones.

Banks have disclosed some legal challenges from homeowners, but the class action lawsuits they are facing have not been national in scope.

In defending one Indiana class action, Bank of America has echoed the conclusion reached by some plaintiff lawyers in arguing that the borrower cannot show harm because they would have lost their home anyway.

Plaintiff attorneys are usually paid a portion of the damages they recover.

Some plaintiff lawyers who have devoted resources to the issue haven't walked away yet. Bruce Simon, with Pearson, Simon, Warshaw & Penny, said this week that his firm still intends to file a national class action.

And Lieff Cabraser Heimann & Bernstein's Eric Fastiff said his firm is still examining the issue. "Investigations take time," he said.

Andrew Friedman of Cohen Milstein said he strongly believes many foreclosures were done improperly.

But getting a judge to certify a national class action is difficult, he said, because homeowners have wildly varying circumstances in terms of their relations with servicers.

That, combined with the damages issue, makes a class action tough.

"I've looked at it pretty seriously, but I keep running into the same buzzsaw," Friedman said.

(Reporting by Dan Levine; Editing by Tim Dobbyn)

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