Wednesday, November 30, 2011

Huff Post: Journalist finds foreclosure fraud with respect to his own property

George Knapp, Las Vegas Journalist, Becomes Victim Of Foreclosure Fraud He Reported On [WATCH]

Improper foreclosure practices are so widespread in Las Vegas that one reporter trying to expose them instead found he too was a victim of foreclosure fraud.
George Knapp, chief investigative reporter for Las Vegas CBS affiliate KLAS, was investigating how "tens of thousands" of people who thought they were homeowners turned out not to actually own their homes due to fraudulent paperwork, when he discovered that he was in that exact situation. (h/t MediaBistro).
Las Vegas foreclosure attorney Tisha Black told Knapp that nine out of 10 foreclosure filings aren't done properly, jeopardizing the ownership status of the house in the future.
"I gave her my address, because I bought a home out of foreclosure three years ago this month,"Knapp said on KLAS during the conclusion of his report. "The Attorney General's office confirmed to me that I don't own my home because of bogus signatures and improper filings."
More than a tenth of all homes in Las Vegas received a default notice last year, according to a RealtyTrac report cited by CNNMoney. The national foreclosure average was five times lower than that of Sin City's. In September, Las Vegas-area home prices fell to their lowest level since the start of the recession, according to a Tuesday report by Standard & Poor's.
Knapp told Poynter Institute journalist Al Tompkins that the episode put him in a "very weird spot to be in" as a reporter. After considering not including Knapp's part of the story in the report, he says his managers decided Knapp's coincidence illustrated "one of the central issues in our project... namely, that very bad things have happened to people who essentially played by the rules."
Indeed, Knapp isn't alone when it comes to faulty title transfers causing lost homes. In addition, to the "tens of thousands" cited by KLAS in Las Vegas, one couple and their 18-month-old daughter faced foreclosure in Houston, Texas even though they had stayed current on payments since 2008,because their title wasn't transferred properly.

Continued here.

Tuesday, November 22, 2011

Ron Paul: Congress and the Fed Have a Symbiotic Relationship

Matt Stoller: Nevada Attorney General Catherine Cortez Masto Cracks Open the Financial Crisis

By Matt Stoller, the former Senior Policy Advisor to Rep. Alan Grayson and a fellow at the Roosevelt Institute. 

Learn the name Catherine Cortez Masto, because she just took a big leap in front of every public servant in the country in terms of restoring faith in government. As Nevada AG, she actually indicted someone for blowing up our housing system. Specifically, she handed down 606 counts of felony or gross misdemeanor indictments on robo-signing against two employees of big bank subcontractor Lender Processing Services.
It’s pretty clear from the indictment that these are mid-level employees, one level up supervisors of fraud rather than top CEOs. And yet, even if this were as far as it goes, it would still be a big deal. These would be the only charges served involving the housing crisis and its link with the structurally corrupt securitization chain so far. By itself, these indictments signify that the fraudulent foreclosure game is over for the big mortgage servicers in Nevada, which is the center of the foreclosure epidemic. It says the rule of law matters, in at least one corner of the country. But you don’t throw 606 counts against someone if all you’re going for is jail time for that person; this is about starting at the bottom, and flipping people. It could be the takedown of the mortgage servicer mafia, and then back to the origination.
The Nevada AG office has said they will follow the trail as far as it goes.
The AG’s office has not made allegations against banks themselves, he said. “We simply don’t know if the major banks were aware of what these individuals were doing,” according to Kelleher.
If banks sanctioned the alleged robo-signers’ activities, Kelleher said, they could be the subject of future actions. “Our charge is to prosecute criminal activity by whomever may be committing it,” he said. “There’s no provision under the law for an industry to collectively decide to circumvent Nevada statutes.”
Masto has been by far the most aggressive AG on the civil side, suing Bank of America for multiple violations of a consent order on mortgage servicing, and even making the dreaded nuclear chain of title claim on foreclosures. It’s no surprise she’s taking the lead on criminal matters. Given that her office basically has no native resources or sector expertise in mortgage backed securities, it does make me wonder just what every other AG in the country and DOJ official is doing now that she’s proved bringing charges for fraud is not in fact impossible.
At this point, Masto has gone further than any other official in terms of restoring some sort of social contract. And that’s saying something. Leadership can come from anywhere, especially when the corruption seems to be everywhere. And with California AG Kamala Harris putting immense pressure on Fannie/Freddie on foreclosures, it suggests the tide is turning on this issue somewhat.
Our essential economic problem is that our economy allocates resources through a mediating system of banks that are broken and/or corrupt. If you look at a chart of the recession, and then the recovery, you’ll notice that business investment perked up, but residential investment did not. The Fed lowered rates, bought Treasury bonds, and bought mortgage backed securities to lower rates for homeowners. But it’s not really working, because the monetary channel is corrupt. This indictment gets to that problem, it alleges tens of thousands of forged documents (or as a friend told me sarcastically, an afternoon’s worth of work for LPS). These documents represent foreclosures, economic loss, and clouded title. The indictments handed down, and the ones to come, show that corrupting our property laws and the basis of our economy is a crime.
First President Bush, and then President Obama, tried to reconstruct an economic system based on a corrupted transmission mechanism from the Fed to the real economy. This was the financial crisis, it’s why abstract derivatives based on subprime mortgages knocked trillions of productive output off of the economy. Corruption is really inefficient.
Let’s bring this back to Attorney General Eric Holder, and President Obama. Right now, the narrative of the Obama administration is being written, just in case he’s a one-term President. Factions want to put pen to paper and make sure they escape blame by showing they understand how things went wrong.
Ezra Klein has an essay in the New York Review of Books on Ron Suskind’s Confidence Men, which is basically such an assessment. Klein asks an important question – could Obama have done better, with different advisors? That is after all the central premise of Suskind’s book, that Obama was taken in by experienced Wall Street charlatans, namely Geithner and Summers. Klein concludes his review by essentially saying, not really. At the margins, he argues, Obama could have appointed a different Fed Chair perhaps, and filled empty seats on the Fed. But Obama had to deal with a Congress that was unlikely to deliver a bigger stimulus, or any other meaningful policy change.
Klein furthered his critique in the Washington Post with an explanation that the Presidency just, well, isn’t that powerful.
If you believe that the state of the economy drives the electorate’s evaluations of our political leaders — and you should believe that — then you have to grapple with the fact that the president is primarily responsible for economic conditions and needs either Congress or the Federal Reserve to join him in making economic policy.
To some, this reads like a subtler defense of Barack Obama. An attempt not so much to defend his record but to distract from it, to offer an explanation for low approval numbers and high unemployment that doesn’t impinge on the president’s decision making. So perhaps it would help to start by stating my opinion on Obama’s presidency more clearly.
I think, from 2009 to 2010, the Obama administration operated on the frontier of the policy possible. They did about as much, and perhaps a bit more, than they could reasonably have been expected to do. The stimulus, health-care reform, financial regulation, the end of “don’t ask, don’t tell,” the passage of the START treaty, the expansion of the Children’s Health Insurance Program, the imposition of new regulations on tobacco, the stress tests, the SERVE America Act … that’s quite a lot for a two-year period. That’s not to say there weren’t mistakes, of course. Their housing policies were insufficient, and they were absurdly slow with nominations. But I would grade their first two years fairly highly given my estimation of what was achievable.
Mike Konczal has a gentle rebuttal premised on certain fiscal arguments by the Obama administration showing that it wasn’t political constraints preventing more aggressive fiscal actions, but intrinsic belief. And the argument, no doubt, will go on.
But I think it’s important to begin considering criminal justice as a core element of economic policy. I’d like to hear from Suskind, Klein, Krugman, and others just where they think allowing massive systemic fraud fits into the analysis of what went wrong. After all, Eric Holder had ample prosecutorial discretion, so none of the usual arguments about political constraints apply. Allowing the corrupt monetary channel to continue was simply a policy choice. If the under-resourced Nevada Attorney General could make such a different policy choice, then a powerful by comparison White House and Justice Department could make it as well. And this sort of show of power does not operate in a vacuum. Taking on, and taking down, corrupt members of the elite would also have exposed all sorts of fracture lines, and would likely have change the Congressional dynamics that people argue is immutable. Bank executives would have had a strong personal incentive to fix housing problems and excessive debt loads, and politicians react differently when an act is officially deemed a crime.
The demand for justice, for a society to place certain activities outside of the bounds of socially acceptable, is not just about satisfaction of the public for wrongs committed. I get the sense that fraud for most economists is considered something of a side issue, a kind of aesthetic political problem to be ignored in favor of more significant questions of stimulus and regulatory policies. This is a baffling attitude. One of my favorite financial legal bloggers, Carolyn Sissiko, has pointed out that fraud actually can have significant macro-economic impacts by distorting bank balance sheets.
A more significant attempt to look at this problem comes from a paper by Claudio Borio and Piti Disyatat of the Bank of International Settlements. They attempt to fill in some of the gap between how financial systems work in practice, with bankruptcy, lending, and different institutional arrangements, and the macro-economic models that assume no friction and a natural interest rate.
The felony indictments from the Nevada AG’s office are the first sign that the law enforcement community can take financial crimes seriously, that blowing up the economy through financial mismanagement can carry costs. There’s a lot of research to be done on the costs of fraud, and the costs of foreclosures. We don’t know that much about these costs, because there haven’t been investigations and there isn’t a lot of good public data. After all, we mostly just take our property rights system for granted, the notion that clouded titles or a broken $10 trillion mortgage market could inhibit growth simply was not imaginable a few years ago. What is clear is that there is a deep public hunger for justice. And I suspect, that if that hunger had been satiated a few years ago and if Holder had begun handing down indictments, mortgage servicer executives would have begun a serious loan workout program.
And our economy would probably be in much better shape. When you throw your capital into the hands of people who have no incentive to use it wisely, the economy suffers. When you enforce the rule of law, sound business models prevail and ordinary citizens have more confidence in the system and spend and invest accordingly. As an economic policy, justice works.

Tuesday, November 15, 2011

GA does it again: homeowners are third party beneficiaries of HAMP (dauhh!)

Thanks to Karl Denninger for uploading this:

Eleventh Circuit (GA): foreclosure mill can't collect by foreclosure if its client has no right to the loan

KIMELYN A. MINNIFIELD, Plaintiff-Appellant,
No. 11-10347
D.C. Docket No. 1:10-cv-00009-TWT
October 28, 2011

Non-Argument Calendar

Appeal from the United States District Court
        for the Northern District of Georgia
Before BARKETT, MARCUS and KRAVITCH, Circuit Judges.
Page 2
        Kimelyn A. Minnifield, an attorney proceeding pro se, appeals from the district court's dismissal of her claims brought pursuant to the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §§ 1692e-1692g, and Georgia common law.1Minnifield argues that the district court erred in dismissing her claim brought under § 1692f because at the time Johnson & Freedman, L.L.C. and Johnson & Freedman II, L.L.C. (Johnson & Freedman) initiated foreclosure proceedings against her, their client, Wells Fargo Bank (Wells Fargo), did not have the present right of possession of her property, as required by the FDCPA. She also argues that the district court erred in dismissing her claim for actual damages, in the form of emotional distress, under the FDCPA and her state law claim for fraud because Johnson & Freedman wilfully misrepresented the validity of her debt and Wells Fargo's legal status in reference to her debt.
        We review the grant of a motion to dismiss under Fed. R. Civ. P. 12(b)(6) de novo, accepting the allegations in the complaint as true and construing them in the light most favorable to the plaintiff. Speaker v. U.S. Dep't of Health & Human Servs., 623 F.3d 1371, 1379 (11th Cir. 2010). To avoid dismissal, a complaint
Page 3
must allege "enough facts to state a claim for relief that is plausible on its face" and that rises "above the speculative level." Id. at 1380 (citation omitted). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citation omitted).

        The FDCPA prohibits the "[t]aking or threatening to take any nonjudicial action to effect dispossession or disablement of property if . . . there is no present right to possession of the property claimed as collateral through an enforceable security interest." 15 U.S.C. § 1692f(6)(A). Although Georgia law allows contracts to have retroactive effect between the parties to the contract, the retroactive date is not effective against third parties to the agreement. See Outdoor Systems, Inc. v. Wood, 543 S.E.2d 414, 417 (Ga. Ct. App. 2000).
        In support of her argument, Minnifield notes that on September 14, 2009, two weeks after the foreclosure, Johnson & Freedman filed an assignment, on behalf of Wells Fargo, executed on August 28, 2009.2 The assignment indicated
Page 4
an effective date of May 29, 2009, before Johnson & Freeman's initial correspondence with Minnifield in June 2009. But the retroactive effect of contracts cannot be effective against Minnifield as a third party and the retroactive effective date does not provide Wells Fargo retroactive standing to initiate the foreclosure proceedings. Thus, it was error for the district court to dismiss Minnifield's 1692f claim on the sole basis that Georgia allows contracts to take effect retroactively. Therefore, we vacate and remand the district court's grant of the motion to dismiss Minnifield's § 1692f claim.
        The FDCPA also allows a plaintiff to recover "any actual damage sustained" as a result of a violation of the statute. 15 U.S.C. § 1692k(a)(1). Actual damages under the FDCPA include damages for emotional distress. Johnson v. Eaton, 80 F.3d 148, 152 (5th Cir. 1996) (noting that the FDCPA not only requires that the debt collector compensate the debtor for any monetary damages, but also for "emotional distress or other injury that the debtors can prove the debt collector caused."). Because we conclude that Minnifield sufficiently
Page 5
alleged a violation of § 1692f to survive Johnson & Freedman's Rule 12(b)(6) motion, we also vacate and remand the district court's dismissal of her emotional distress claim under FDCPA.
        Minnifield next argues that the district court erred when it dismissed her claim for fraud. Under Georgia common law, the tort of fraud has five elements: (1) a false representation by the defendant; (2) scienter; (3) intention to induce the plaintiff to act or refrain from acting; (4) justifiable reliance by the plaintiff; and (5) damage to the plaintiff. Dockens v. Runkle Consulting, Inc., 648 S.E.2d 80, 83 (Ga. Ct. App. 2007). Additionally, allegations of fraud must be pled with particularity. Fed. R. Civ. P. 9(b). Georgia courts have held that there was no justifiable reliance to support a fraud claim where the plaintiff knew that the representations were false, Baranco, Inc. v. Bradshaw, 456 S.E.2d 592, 593-94 (Ga. Ct. App. 1995), or where the plaintiff did not rely on the representations, Steimer v. Northside Bldg. Supply Co., 415 S.E.2d 688, 689-90 (Ga. Ct. App. 1992).
        Because Minnifield failed to plead any facts with sufficient particularity to demonstrate scienter on the part of Johnson & Freedman, and failed to plead that
Page 6
she justifiably relied on its false representation, she has not stated a viable common law fraud claim. Thus, the district court's dismissal is affirmed.
        After a thorough review of the record and consideration of the parties' briefs, we vacate and remand the dismissal ofMinnifield's § 1692f and emotional distress claims, and affirm the dismissal of her common law fraud claim.

        1. Minnifield challenges only the dismissal of her § 1692f claim, not her claims under §§ 1692e and 1692g. Thus, those issues have been abandoned. See Timson v. Sampson, 518 F.3d 870, 874 (11th Cir. 2008).
        2. Generally, if matters outside the pleadings are to be considered by the district court, a Rule 12(b)(6) motion must be converted into a Rule 56 summary judgment motion, except that, "[i]n ruling upon a motion to dismiss, the district court may consider an extrinsic document if it is (1) central to the plaintiff's claim, and (2) its authenticity is not challenged." Id. at 1379. Thus, we may consider the assignment document on appeal because neither party has challenged the document's authenticity, both parties attached it to their pleadings, and the document is central to Minnifield's claim that Johnson & Freedman initiated foreclosure proceedings against her before Wells Fargo had a security interest in her property.

Rolling Stone: Finally, a Judge Stands up to Wall Street

Federal judge Jed Rakoff, a former prosecutor with the U.S. Attorney’s office here in New York, is fast becoming a sort of legal hero of our time. He showed that again yesterday when he shat all over the SEC’s latest dirty settlement with serial fraud offender Citigroup, refusing to let the captured regulatory agency sweep yet another case of high-level criminal malfeasance under the rug.
The SEC had brought an action against Citigroup for misleading investors about the way a certain package of mortgage-backed assets had been chosen. The case is very similar to the notorious Abacus case involving Goldman Sachs, in which Goldman allowed short-selling billionaire John Paulson (who was betting against the package) to pick the assets, then told a pair of European banks that the “designed to fail” package they were buying had been put together independently.  
This case was similar, but worse. Here, Citi similarly told investors a package of mortgages had been chosen independently, when in fact Citi itself had chosen the stuff and was betting against the whole pile.
This whole transaction actually combined a number of Goldman-style misdeeds, since the bank both lied to investors and also bet against its own product and its own customers. In the deal, Citi made a $160 million profit, while its customers lost $700 million.
Goldman, in the Abacus case, got fined $550 million. In this worse case, the SEC was trying to settle with Citi for just $285 million. Judge Rakoff balked at the settlement and particularly balked at the SEC’s decision to allow Citi off without any admission of wrongdoing. He also mocked the SEC’s decision to describe the crime as “negligence” instead of intentional fraud, taking the entirely rational position that there’s no way a bank making $160 million ripping off its customers can conceivably be described as an accident.
“Why should the court impose a judgment in a case in which the SEC alleges a serious securities fraud but the defendant neither admits nor denies wrongdoing?” And this: “How can a securities fraud of this nature and magnitude be the result simply of negligence?”
Rakoff of course is right – the settlement is nuts. If you take Citi’s $160 million profit on the deal into consideration, what we’re talking about then is a $125 million fine for causing $700 million in damages. That, and no admission of wrongdoing.
Just imagine a mugger who steals $70 from some lady’s wallet being sentenced to walk free after paying back twelve bucks. Magritte himself could not devise a more surreal take on criminal justice.
It gets worse. Over the last decade, Citi has repeatedly been caught committing a variety of offenses, and time after time the bank has been dragged into court and slapped with injunctions demanding that they refrain from ever engaging the same practices ever again. Over and over again, they’ve completely blown off the injunctions, with no consequences from the state – which does nothing except issue new (soon-to-be-ignored-again) injunctions.
In this current case, this particular unit at Citi had already been slapped with two different SEC cease-and-desist orders barring it from violating certain securities laws. Here’s a summary from Bloomberg:
The commission already had two cease-and-desist orders in place against the same Citigroup unit, barring future violations of the same section of the securities laws that the company now stands accused of breaking again. One of those orders came in a 2005 settlement, the other in a 2006 case. The SEC’s complaint last month didn’t mention either order, as if the entire agency suffered from amnesia.
The SEC’s latest allegations also could have triggered a violation of a court injunction that Citigroup agreed to in 2003, as part of a $400 million settlement over allegedly fraudulent analyst-research reports. Injunctions are more serious than SEC orders, because violations can lead to contempt-of-court charges.
But the SEC avoided the issue of the 2003 injunction by charging Citi with a different type of fraud. But, as Bloomberg points out, it probably wouldn’t have mattered much if they had accused Citi of violating the 2003 injunction, since the bank had already done that once and not been punished for it:
In December 2008, the SEC for the second time accused Citigroup of breaking the same section of the law covered by the 2003 injunction, over its sales of so-called auction-rate securities. Instead of trying to enforce the existing court order, the SEC got yet another one barring the same kinds of fraud violations in the future.
So to recap: a unit of Citigroup, having repeatedly violated the same laws and having repeatedly violated the SEC’s own cease-and-desist orders and injunctions, is dragged into court one more time for committing a massive fraud.
And what does the SEC do? It doesn’t even bring up Citi’s history of ignoring the SEC’s own order, slaps the bank with a fractional fine, refuses to target any individuals, allows the bank to walk away without an admission of wrongdoing, and puts a cherry on the top by describing the $160 million heist not as a crime, but as unintentional negligence.

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