Archive for June, 2011

The World is Watching Us

I just got interviewed by a Norwegian TV station.  As in Norway, the country.  Apparently, they’re flying to Florida on June 25 and coming to my seminar to shoot a video.  I’ll spare the details for when the story comes out, but this is a glaring illustration of an inescapable fact:


I’ve been saying for a long time there is more at stake here than backlogged court dockets and keeping Floridians in their homes.  The events happening in Florida, right now, are impacting the entire world.  The question hence becomes … How do we want to be seen?

Do we want to prove that America is a democracy, run by the people and for the people, and not just the rich and powerful?  Or do we let the richest 0.1% of our nation control everything? 

Will we show that home ownership is possible for the typical, middle-income family … or a privilege reserved only for society’s elite?

Do we turn the other cheek to obvious, widesread, institutional fraud simply because it is committed by rich and powerful bankers on Wall Street?  Or do we punish that misconduct as if it were committed by a typical American?

Do we try to conceal the institutional fraud to avoid risk of further exposure?  Or do we admit our misgivings, punish those responsible, and ensure it never happens again? 

The world is watching us.  What do you think it sees?

Mark Stopa

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Entitlement to Discovery in Foreclosure Cases

One of the things that frustrates me when I see homeowners back down from a foreclosure lawsuit without a fight, particularly at a hearing on a motion for summary judgment (like I explained, here) is my knowledge of just how easy it is to prevent a summary judgment by the bank. 

For instance, Florida law is replete with appellate court decisions that reversed a lower court’s entry of summary judgment where the defendant had not had an opportunity to complete discovery.  This is really basic law – a homeowner is entitled to a fair chance to procure discovery from the bank prior to entry of adverse summary judgment. 

Below are the cases I used to convince a St. Augustine judge to vacate a Final Judgment of Foreclosure, as I explained here.  The argument is really this simple: 

Judge, it would be reversible error to grant summary judgment because discovery is outstanding.  Specifically, my client has served interrogatories and a request for production and the bank has not responded.  My client is entitled to this discovery prior to a summary judgment hearing.

See Kimball v. Publix Supermarkets, Inc., 901 So. 2d 293 (Fla. 2d DCA 2005) (“before Publix complied with the discovery order, the trial court granted summary judgment in favor of Publix.  This award of summary judgment was error.”); Sanchez v. Sears, Roebuck & Co., 807 So. 2d 196 (Fla. 3d DCA 2002) (“summary judgment was granted before the facts of the case were sufficiently developed to enable the trial court to be reasonably certain that no genuine issue of material fact existed”); St. Fort v. Fla. Dept. of Trans., 688 So. 2d 469 (Fla. 4th DCA 1997) (“at the time of summary judgment, discovery was still ongoing, and the facts were not so crystallized that nothing remained but questions of law”); Henderson v. Reyes, 702 So. 2d 616 (Fla. 3d DCA 1997) (“the trial court erred in granting summary judgment in favor of Reyes while there were depositions that had not been completed and an outstanding request for the production of documents.”); Abbate v. Publix Super Markets, Inc., 632 So. 2d 114 (Fla. 4th DCA 1994) (“We are at a loss to understand how the summary judgment was entered with the plaintiff’s motion to compel still pending.”)

By no means is this an exhaustive list of cases.  In fact, I’d estimate there are 50-60 more cases just like this in Florida. 

So if you’re trying to prevent a bank from getting summary judgment (and a quickie foreclosure), serve some discovery!  Homeowners are perfectly entitled to obtain answers to interrogatories and documents from the bank before a final judgment is entered. 

Some people would argue that this discovery is unnecessary and should not preclude summary judgment.  That argument goes like this – “it’s undisputed the homeowner is in default; discovery won’t change anything.” 

I understand that argument, but I totally disagree.  Homeowners aren’t required to accept what the bank says as true.  Even if non-payment of the mortgage is undisputed, that doesn’t mean the homeowner doesn’t get to challenge the amount owed.  Banks are notorious for including fees and charges that should not be included.  This is one legitimate purpose of discovery – to see if the amount the bank says is owed is accurate. 

Discovery regarding the bank’s standing to sue is also appropriate.  For instance, if a note has an indorsement, homeowners are entitled to ask, via interrogatories and/or depositions, about the circumstances in which the indorsement was signed.  Did the bank procure the indorsement from the prior owner/holder in the normal course of business?  Or, to use an extreme example, did the bank steal the note and forge an indorsement to create the false impression it could foreclose?  That may sound like a ridiculous question, but if you know anything about securitized trusts, you know that interrogatories and even depositions are perfectly appropriate in foreclosure cases … and until such discovery is complete, summary judgment is inappropriate. 

I realize there are cases which hold that a party’s right to discovery is not without limits.  I agree.  However, the cases which allow summary judgment with discovery pending stand for the proposition that a party cannot let a case languish for three years, watch the opposing party set a summary judgment motion, and then seek discovery just to delay summary judgment.  That’s not appropriate, and that’s not what I’m advocating.  What I’m saying is that homeowners can and should force the bank to produce discovery to prove/support the claims in its lawsuit before rolling over and allowing the bank to procure a Final Judgment of Foreclosure.  The banks might not like it, and judges may not be thrilled with it, either, but homeowners are absolutely entitled to discovery before a final judgment is entered.  Who knows – that discovery may just show that the bank is either not entitled to foreclose or not entitled to the amount it claims.

Mark Stopa

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“Uncontested” Foreclosure Hearings in Bradenton

I attended a mass-motion calendar in Bradenton today, and geez, was it eye-opening.  You see, most of the hearings I attend in foreclosure cases are “special set,” meaning mine is the only case set for hearing at that time (so I don’t sit around and watch other hearings in other cases).  In the unusual instances where I have a hearing on a mass-motion calendar, they typically involve lawyers, so the hearings are contested.  Today, though, was totally different.  There were upwards of 100 “uncontested” cases set, all at the same time.  (My hearing was put on that calendar before I was retained, hence my presence at an “uncontested” hearing.)

The hearing started with the court addressing those cases where the homeowners personally appeared.  (Why the court began with these cases, instead of the cases involving lawyers, is beyond me.  Respectfully, why is the court in a rush to get the homeowners out the door instead of the lawyers?  The lack of respect in this regard for defense lawyers is disturbing.)  Anyway, these all followed a disturbing pattern – the homeowner saying he/she tried to get a loan modification, the bank wouldn’t oblige, and the judge saying he couldn’t stop the bank from foreclosing.  Sale set, 120 days out.  In many of these cases, it was clear to me that what the homeowners were saying was a valid defense to foreclosure, especially for summary judgment purposes, but it was clear this judge wasn’t going to deny a summary judgment for a pro se homeowner.  In fact, of all the cases heard, summary judgment wasn’t denied, even once. 

Those cases where the homeowner did not appear (and had no lawyer) were over in a flash.  I’d say each took 10 seconds, but that might be over-estimating.  When a case was called, a plaintiff’s lawyer introduced himself and asked for a “standard date.”  When nobody said anything for a homeowner, the the “standard” foreclosure sale was set – 30 days out.  There were no arguments made, not even a perfunctory “summary judgment is appropriate.”  I’d estimate 50 foreclosure sales were set, either on July 19, 20, or 21, in this manner. 

On those cases where a lawyer was present for a homeowner, the judge did not try to hide his displeasure, noting it was supposed to be an “uncontested” calendar and that he didn’t want hearings with arguments between two lawyers.  Seeing this, I realized that the hearing on plaintiff’s motion for summary judgment in my case was probably going to get continued.  That was frustrating, because I filed a motion for continuance and asked the bank to agree, yet they refused.  But there was no way around this – I had 6-7 reasons why summary judgment was inappropriate, with case law, and the judge was clearly not going to allow that at this hearing. 

Anyway, when it got to my hearing, the judge agreed a continuance was inappropriate.  But then he arbitrarily picked a date, July 7 at 9am, and re-set the hearing.  I argued forcefully about how I didn’t have my calendar, had never seen a judge re-set a hearing like soon, and that I wanted to check my calendar before the hearing was re-set.  I asked, “Are you really going to re-set this hearing without letting me check my calendar to see if I have a conflict?”  His response – “Yes.”  My retort, “Respectfully, I find that patently unfair.”  Obviously unmoved, he said nothing and moved on to the next hearing. 

So what did I take out of this hearing? 

Homeowners who don’t show up get foreclosed, without any argument from the plaintiff’s lawyer, and got a foreclosure sale scheduled 30 days out.  Homeowners who showed up, pro se, and complained, bought themselves an extra 90 days, but still got foreclosed.  And lawyers who waited for an hour to have a hearing, like me, didn’t get a hearing at all, or even the courtesy of having the hearing re-set at a mutally-available date. 

I guess you could say “welcome to foreclosure court.”

With budget constraints prompting the end of the senior judge system, I will say this.  Many of the senior judges were fair and tried to do the right thing.  But after an experience like this, I can’t say I’ll miss the senior judge system.

Mark Stopa

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Retaining a Foreclosure Attorney Post-Judgment

I had an awesome day today, as I was able to get a St. Augustine judge to grant a motion for rehearing, vacate a Final Judgment of Foreclosure, and cancel a pending foreclosure sale.  The homeowner tried to defend himself, pro se, lost, and he got a lawyer involved just in the nick of time. 

After the hearing, when I got back to the office, a staff member asked me why I don’t accept more foreclosure cases where a Final Judgment of Foreclosure has already been entered.  I got this judgment vacated, so it was a legitimate question – particularly since we get inquiries for such cases on a regular basis. 

Here’s the problem.  No matter how erroneous a Final Judgment of Foreclosure may be, i.e. regardless of the existence of foreclosure-fraud, robo-signers, etc., there are certain procedures that must be followed to get a Final Judgment vacated, failing which it must remain in place. 

Specifically, the homeowner has 10 days to move for a rehearing, 30 days to file a Notice of Appeal, and, generally speaking, 1 year to file a 1.540 motion (for things like fraud on the court). 

If you don’t meet these deadlines, it doesn’t matter if you’re correct on the merits – you lose.  (The only exception is if the judgment is void for something like improper service and that argument wasn’t waived, but that’s relatively rare).  You can’t go to the appellate court on day 31; it’s too late.  Unfortunately, this is what happens on a regular basis – the homeowner loses the case via entry of a Final Judgment of Foreclosure (having defended the case pro se or not at all), and the sale date is set 60 days out.  On day 40 or 50, with the sale approaching, the homeowner realizes he better hire a lawyer.  But by then it’s basically too late.  Game over. 

In theory, you could still file a 1.540 motion, but that’s typically the equivalent of a Hail Mary.  And yes, you can still file a bankruptcy, take advantage of the automatic stay, and get the sale cancelled, but that’s basically just a stall – it’s not going to unwind the Final Judgment of Foreclosure. 

Hence, as much as I want to help homeowners facing foreclosure, I’m not going to take their money when they essentially have no chance of winning, for procedural reasons.  In other words, to answer my staff member’s question, this is why I don’t take many cases post-judgment – typically, the homeowner is procedurally barred from challenging the court’s ruling, even if it’s erroneous. 

So what’s the lesson here?  Don’t wait to hire a lawyer.  Get one right away.  Otherwise, it may be too late, even if your arguments have merit. 

I don’t think I’ll ever see a better illustration of that than what I saw today. 

At the summary judgment hearing, the pro se homeowner argued that summary judgment was inappropriate because discovery was outstanding (in particular his request for production and interrogatories).  He was right, too – there are dozens of Florida cases setting forth this proposition of law – but the judge entered summary judgment anyway. 

The homeowner hired an attorney, who quickly filed a motion for rehearing.  Months later, when the sale got rescheduled, he hired me.  I saw the motion for rehearing had been filed, and I like how the homeowner preserved the argument about outstanding discovery, so I took the case.  Anyway, at the hearing, the judge made a point of saying that he was perturbed at how the homeowner was pro se and was filing papers that were inartfully drafted.  He made a point of this, at length, before granting my motion.

Bear in mind, the argument I made, which the judge agreed with, was the exact same argument the homeowner made, pro se, which the judge rejected.  I’d like to think I made the argument more eloquently than my client did, and I supported the argument with case law.  But the judge was aware of that line of cases already.  Hence, in a sense, I didn’t do anything different than the homeowner did, except he lost and I won. 

If you think this is unfair, and the result shouldn’t be different simply because it is argued by a lawyer, I wouldn’t disagree with you.  But here’s the point.  Judges in foreclosure cases are, in my opinion, more likely to follow the law when a lawyer is arguing for the homeowner.  The way I presented the argument, I made it clear to the judge, in a respectful way, that if he didn’t vacate the Final Judgment that I would procure that result in the appellate court.  To illustrate, after showing him several cases which reversed judgments where discovery was outstanding, I asked the judge, as an alternative argument, to cancel the sale and stay the case pending appeal.  Pro se homeowners just aren’t able to do that, and without the threat of appeal, judges are more likely to what they think is fair.  Often, given how many judges feel about foreclosure cases, that is a Final Judgment of Foreclosure. 

Think about it this way – if you know your boss is looking over your shoulder while you’re working, aren’t you a little more cautious about crossing your Ts and dotting your Is?  That’s my take on how judges are in this context.  Judges often don’t want to let pro se homeowners live for free.  They’ll often do so if the law requires, but if a lawyer isn’t there showing them the law, they’re more likely to do what they want.

In sum, if you’re wondering how a lawyer can help, remember this case.  I made the same argument this pro se homeowner did, but he lost and I won.  And if you’re wondering when to hire a lawyer, remember those procedural bars.  This homeowner was lucky; many wait too long, and at that point, they’re out of luck.

Mark Stopa

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When it Makes Sense to Stop Paying Your Mortgage

The following was a question/comment I received from a subscriber.  It’s a great question, as there are undoubtedly many people in this situation.  So I’m posting the question (anonymously) and my answer for all to see.  

Question:  My husband and I are retiring in about 5 years.  We’re underwater in our home by at least $150,000 (and we realize there is no way our home will rebound in that short window).  I’m also facing permanent disability from my job in the next year or two so our income will be substantially reduced.  We’re wondering if we would be better off to stop paying our mortgage, line of credit and HOA dues?  That would be a savings of $2,275.00 that we could set aside in a savings account.   Could a deficinecy waiver take that money down the road?  Even if we bought a small home out of the state of Florida?  Would appreciate your advice

My Answer:  I firmly believe (and have said so on this blog many times) that if you see the day coming, whether it’s next month or in two years, when you know you’re not going to be able to afford your monthly mortgage payments, then it’s probably better to stop paying now, rather than later.  Otherwise, you’ll deplete all your savings and still get sued for foreclosure (and wind up with no home and no money).  For instance, if you pay for the next two years, you’ll have paid about $48,000 (instead of having that money in your pocket) and, once your income decreases, will still get sued for foreclosure.

By contrast, if you stop paying now, you’ll be able to accumulate some savings, putting some money in your pocket instead of the bank’s.  Down the road, you may use that home to buy another home, or whatever else you may choose, and if you make that home your homestead, it should be homestead protected (in Florida, anyway).  I view that as a totally legitimate strategy.  What’s the alternative?  Spend your last dime on your mortgage, knowing you’re entering your retirement/disability years, and get sued for foreclosure anyway?  

You’re right to be concerned about deficiency, but don’t fret.  It’s quite possible you could get a deficiency waiver (particularly if the bank gets weary of trying to win a foreclosure case that we are vigorously defending).  Also, even if a deficiency is entered, it may not matter – you’ll have your homestead and be retired, so a deficiency may not be collectible anyway. 

I do note that it’s generally a bad idea to stop paying association dues, for a variety of reasons.  First, the amount you owe is much smaller (than a mortgage payment), so paying isn’t as much of a problem.  More importantly, if you don’t pay, associations tend to be very aggressive in prosecuting a lawsuit, often with a foreclosure, and those cases are often difficult to defend.  Let’s put it this way – what good does it do avoid foreclosure by a bank if the association forecloses on you in the meantime?  Plus, association dues have a snowball effect.  A $2,000 balance quickly becomes $4 – 5,000 or more with late charges, interest, and lawyer’s fees.  In my view, it’s not worth retaining a lawyer to fight over amounts like that (if you can avoid it).  Basically, it’s better to pay the association dues as they accrue to ensure you don’t get foreclosed by the association during the pendency of the mortgage foreclosure suit. 

Mark Stopa

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Dismissal for Lack of Prosecution

We all know that banks often prosecute foreclosure cases at a slow pace, particularly when competent foreclosure defense lawyers are defending them.  But you might not have known that the bank’s failure to advance a case towards judgment can constitute grounds to dismiss the case altogether.  Florida Rule of Civil Procedure 1.420(e) provides:

(e) Failure to Prosecute. In all actions in which it appears on the face of the record that no activity by filing of pleadings, order of court, or otherwise has occurred for a period of 10 months, and no order staying the action has been issued nor stipulation for stay approved by the court, any interested person, whether a party to the action or not, the court, or the clerk of the court may serve notice to all parties that no such activity has occurred. If no such record activity has occurred within the 10 months immediately preceding the service of such notice, and no record activity occurs within the 60 days immediately following the service of such notice, and if no stay was issued or approved prior to the expiration of such 60-day period, the action shall be dismissed by the court on its own motion or on the motion of any interested person, whether a party to the action or not, after reasonable notice to the parties, unless a party shows good cause in writing at least 5 days before the hearing on the motion why the action should remain pending. Mere inaction for a period of less than 1 year shall not be sufficient cause for dismissal for failure to prosecute.

What does this mean in layman’s terms?  It’s simpler than it sounds.  If it’s been 10 months or more without any filings in a case, i.e. if a review of the docket shows that nothing at all has been filed in the past 10 months, then a defense can file/serve a Notice of Intent to Dismiss.  If there is nothing filed in the 60 days thereafter, a defendant can file a motion to dismiss for lack of prosecution.  At that point, to defeat the motion, a plaintiff must show “good cause” why the case should remain pending, and that’s a pretty high standard. 

This doesn’t come up terribly often because it’s so easy to avoid dismissal under the rule.  For instance, any filing at all in the 10 month period re-starts the clock at zero.  And if the plaintiff pushes the case to judgment in the 60-day period, it’s the same thing – the clock re-starts at zero.  However, I’ve had success employing this rule in recent weeks because sometimes, quite frankly, the banks are so dilatory and so lax in their prosecution of foreclosure cases that they don’t do anything for a 12-month period. 

Yes, the dismissal is “without prejudice,” meaning the bank can file a new lawsuit.  However, it’s certainly not a bad thing to force the bank to start a case all over again.  After all, if they are so lax that they let the case languish for a year, who knows if/when they’ll care enough to pay a new filing fee and file a new case.

Mark Stopa

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Foreclosure Humor

These cartoons would be funnier if they weren’t true. 

Mark Stopa

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When to Retain a Foreclosure Defense Attorney

I was just perusing the comments to these blogs and I saw a good question, one worthy of its own blog:

“At what point do I need to retain an attorney; I am currently two months behind [on my mortgage payments]“ 

Here’s my take.

No matter what, I urge everyone to retain a foreclosure defense attorney within the first 20 days after being served with process, i.e. after a process server or sheriff serves you with a Summons and Complaint.  It is far, far better (and, often, much less expensive) to retain counsel from the outset than to wait until the last possible minute to retain a lawyer.  Many homeowners don’t realize it, but by trying to defend the case yourself (or not at all) you may waive viable defenses, putting your lawyer in the position of not being able to assert defenses that otherwise would have been meritorious by not filing them soon enough.  Don’t make this mistake; make sure you have a lawyer on board as soon as you’ve been sued. 

This begs the question of whether a homeowner should retain counsel prior to being sued?  Honestly, that’s not absolutely necessary, but there’s certainly an argument for it.  For instance, many homeowners enjoy the piece of mind of knowing that an attorney is on board, ready to defend the case, once the foreclosure suit arrives.  Also, if you’ve retained an attorney, it is easier to deal with those harassing phone calls that inevitably come when you’re behind on your mortgage – all you need to do is say: “Stopa Law Firm is my attorney on this matter.  Don’t call me any more.”  Under the Fair Debt Collection Practices Act, those phone calls should cease from that point forward, and if they don’t, you have additional defenses to foreclosure as well as possible counterclaims. 

So when is the best time to hire a foreclosure defense attorney?  As soon as you go into default, or, at worst, right after you’ve been sued. 

That said, if your case is still ongoing and you haven’t retained a lawyer, don’t give up.  During a free consultation, Stopa Law Firm can quickly and easily evaluate whether it’s still possible to defend your foreclosure case, even if it’s been pending for a long time.  Time and time again, we find that it is.  Just don’t wait too long – it’s a totally different dynamic after the court signs a Final Judgment of Foreclosure.

Mark Stopa

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The Practicalities of Discussing Settlement with a Bank

For many weeks, I’ve been in the midst of trying to resolve numerous foreclosure cases with one particular client.  We have several cases pending, including commercial cases and residential ones.  It’s with a big, national bank.   

I’ve gotten this bank to the point where they’re willing to discuss deficiency waivers, which is basically the client’s goal.  So that’s good, especially since there are millions of dollars at stake.  But here’s the hangup. 

The client wants to include the residential cases as part of a global settlement.  And the person running the commercial cases for the bank, as well as the bank’s commercial lawyers, want to do so as well.  It’s totally reasonable to do so – if we’re going to settle big, commercial cases, we might as well do the residential ones, too.  But nobody with the bank can get anyone from the bank’s residential department, or the lawyers on the residential cases, on the phone.  And this has gone on for two weeks now!  The point person for the bank’s commercial department acknowledges the problem, even saying she has nobody with whom she can communicate; that she is relegated to calling the bank’s 800 number. 

I don’t know if this is sadly ironic, pathetic, or both.  Here we have both sides who want to agree on a deal, resolving millions of dollars in dispute, but the bank’s residential department is so disorganized, and its lawyers so apathetic and impossible to communicate with, that this is holding up a resolution.

Insert your own insults in the comments.

Mark Stopa

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Fear, Shame, and Guilt? Or Reason?

Below is a fascinating article about strategic default.  There are a ton of terrific arguments and one-liners, but two parts I really like: (1) the conclusion it is unethical to pay a mortgage; and (2) criticizing foreclosure defense lawyers who advocate against strategic default, concluding that position is a byproduct of fear, shame, and guilt, not reason. 

Here’s the article. …

Submitted by Greg Lemelson At Amvona

On the ethics of mortgage loan default

Is it ethical for the American homeowner whose mortgage has been securitized to default, even If they are not financially distressed?  

First, consider it is unlikely that marketable, fee simple, insurable title can be obtained as a result of fulfilling the obligations of the related promissory note.  On the contrary the titles to some 60 million homes in America are badly clouded.  Secondly, encouraging investment in an asset class that has been artificially inflated, then deliberately destroying the price of the asset, as part of a separate profit making scheme is unethical, and any agreement based on this type of fraud is grounds to consider the original debt instrument used in the agreement null and void.  Fortunately these grounds are unnecessary, as increasingly US courts are ruling that these mortgages are already invalid for numerous other reasons.

On November 12th, 2010 we published our article “Tattoos, Pyramid Schemes and Social Justice” in which we advocated that homeowners consider suspending their mortgage payments.  In the article we enumerated reasons why we felt this action is both ethical and prudent.   On January 11th, 2011 we published our articles “Ibanez– Denying the Antecedent, Suppressing the Evidence and one big fat Red Herring” which outlined the legal realities of securitized mortgages, and the impact of the landmark Ibanez decision on homeowners, particularly in Massachusetts.  We affirmed our conviction that Massachusetts homeowners with securitized mortgages might want to consider suspending their mortgage payment, and place instead their funds into an escrow account.

Both articles were widely published and read, and in both cases we received also some negative feedback, although strangely, only from foreclosure defence attorneys.  Their sentiment was universal “we would never advise a client to stop paying their mortgage” – we marvelled.  When challenged on this point, or presented with the evidence, none could provide any reasoning for this advice that they would so confidently given their clients, nor could they identify a fallacy in the arguments we had made, or a fact we had misrepresented.

Perhaps they recognized the intrinsic problem in responding simply “because that is what people do, and we should take it for granted that because people do it, it is correct.”  Such inductive reasoning at the corporate level can not be defended as anything more than “group think“.

In such a case, we suspect fear, shame and guilt are more powerful drivers than reason. Further, such thinking serves only to exaggerate the anxiety that stems from the perceived consequences of default.  This is not a coincidence, or something which is “hard-wired” into the human person.  These are emotional controls that have been cultivated over many decades that encourage borrowers and in particular homeowners (those in possession of real property), to follow unnatural social norms, even at the expense of critical thinking and reason.  Thus the context in which such financial obligations exist go almost entirely unexamined.

Financial and ethical considerations in which default is not only feasable but perhaps even a moral imperative are ignored.  In sharp contrast are the standards lenders within the same culture abide in their quest to maximize profits.  Needless to say, this asymmetrical ethic, leads to the possibility of abuse, and widespread economic injustice.  In our society, it is now the case that debtors, and in particular home owners are akin to indentured servants.  The severity of the condition is directly and inversely proportionate to the misdeeds of the financial system which gave rise to it.

Ultimately we were forced to conclude, that those who possess too much fear and too little confidence are acting in fact on the basis of emotion, even though the prospective outcome is not what they would otherwise choose.  A spirited response in reason is what is necessary to ensure that such emotions do not distort rational thought and overcome it.

We hope the above articles, along with the following serves as a practical, financial, and above all ethical framework for understanding the risks involved in continuing to make mortgage payments on securitized loans and their derivatives in light of what is known today about the serious defects in chain of title, and the abuses that took place by many in the securitization process.

We do not make such suggestions lightly.

A catastrophe of “epic proportions”

Despite our concern over the seriousness of the advice given, we never wavered in our conviction that we were “right”, even if unpopular. 

On May 25th, 2011 a report was released based on a Massachusetts investigation that identified fraudulent documents clouding the titles to Massachusetts properties.  The report cited the example of homeowners who were already in some stage of default for financial reasons, and discussed the issue of fraudulent conveyances as a result of perjury.  It would be an error to present this information only as a means to stave off foreclosure for those who no longer have choices.  Perjury is the fruit of a system built on many layers of fraud that diseased the entire securitization process.  However, the important aspect of the report was not the examples of those who are financially distressed, but rather, (and correctly) the implications to those who are neither in foreclosure, nor financially distressed.

Although it took only 8 words to say what took us just about 6,000 in our last article to say, and although it came about 7 months after our initial article, the unmistakable words “…the ownership of your house is in question” finally had emerged in main stream media.

The problem is hardly unique to Massachusetts.

We also hope that the foreclosure defence attorney’s (or more importantly their clients) who so strongly criticized our thinking on the matter, will listen to the words of John O’Brien, Register, Southern Essex District Registry of Deeds – his proclamation does not leave much room for interpretation; “This is a catastrophe of epic proportions.” 

The report is limited in scope as it cites only one example of a name used (namely “Linda Green”) to commit perjury and cloud thousands of titles to Massachusetts homes.  However, there exists far more names other than “Linda Green” which have been used to commit perjury – the math is not difficult.

Nonetheless, the report barely touches the tip of the proverbial Iceberg, for the issue of perjury pales in comparison to the fundamental and irreparable harm done in the securitization process, which universally affects securitized mortgages nationwide – a fact that will be increasingly revealed. 

For example a review of what has been said on the Ibanez matter makes any investigation into mere perjury wholly unnecessary.

In the November 2010 article we wrote:

“Americans have a duty to ask critical questions about the operations of their financial institutions, and if evidence has been presented that a deal was made, but not everyone was playing by the rules, than those deals need to be looked at again. It is not good enough any longer to say, if it doesn’taffect“me” than, I’m not getting involved. We have a duty to one another as Americans, and more importantly as human beings, to care about truth and justice. What’s more, apathy, so long as we are not affected, is a short lived consolation. Ultimately, this crisis will affect everyone …”

Mr. O’Brien goes on to say of Massachusetts homeowners who have not necessarily defaulted on their mortgages, but whose mortgage documents have been perjured:
“They may not be able to sell their home, and they may not be able to refinance their home. And that is a major, major problem.”

Here is another excerpt taken from the November article:

“It has been made to appear as if those who have fallen on hard times are a matter of “incidental” inequalities in an otherwise procedurally just system. However, it is precisely the opposite which is true. Our financial institutions have created deliberate inequalities, through the use of procedurally unjust systems.”

Marie McDonnell, a Forensic Mortgage Analyst provided the following comments in the same May report (referring to the titles to Massachusetts properties):

“I’m speechless. The scope of the problem is unimaginable; the depth of the fraud is shocking.”

 You mean there is something in it for the bank?

People are not stupid and ought not to be treated as such.  They make mistakes from time to time, but that is not the same thing as being stupid.

The value of your home may be going down, but this condition will not last forever – obvious though it may be, it’s still wroth stating; nothing last forever, including rates of increase or decrease in asset prices.  In the meantime, a few folks from your bank or the government (not clear if they are necessarily separate entities any longer) may try to convince you that there are some things you can do with your home to improve your lot, and help you transfer this “unwanted” asset to themselves (even if it does provide shelter – Investment qualities aside for a moment).

Here’s the recent Menu:

1. “The sucker trade” aka refinancing.  It goes something like this:  “Can I exchange your big unsecured “credit card-like” debt which was improperly secured for a properly secured mortgage on your home?” And what do you get for this trade?  A fraction of a point off the interest rate on your note.  Never mind one was unsecured and the other secured. 

There is secured debt and there is unsecured debt.  The two are not the same in value to the borrower, nor are they the same in value to the lender.  We would challenge anyone to find a business in the world that would choose secured debt over unsecured debt (regardless of their financial condition), for a fraction of a point.  Why should consumers be any different? There is one adage in business that is eternally true: “there is no free lunch”.

This is why so much mortgage loan activity in the last 1.5 years has been refinancing.  Banks are not interested in taking on new risk, they are interested in mitigating old ones.    These new notes and mortgages don’t find their way to MERS, and they do not follow the “old” securitization process.  These original wet-ink notes find their way to actual bank vaults this time. 

No need to worry about the 30+ pts. you’ve lost on what is probably your biggest investment –  because of the asset bubble you did not see, understand, or create – after all, why worry about what may take more than 20 years to recover in value when you can save a fraction of a point on the cost of your debt – listen to the radio adds, and the brokers – there has “never been a better time” (sounds creepily like 2005).

2. “The Kumbaya”or the “we’ll get through this together” offer – aka the ‘short sale’ option.  Think of it as making smoresand singing Kumbaya with your servicer.   Only when you go home from camp, you lose everything, and they gain everything thanks to PMI, GSE guarantees, credit default swaps and deficiency judgments.  If this continues unabated, use the mortgage escrow account we suggested setting up to start buying stock in Wells Fargo or US Bank – the money will be better spent – at least you’ll be on the other side of the asset transfers.

3. “The Gandhi” – aka “just give me your house because I asked nicely, and you’re an honorable person and we know you want to do the ‘the right thing’ ” option or ‘Deed in Lou of foreclosure’.  By far the best choice for the peacemakers of our modern society.  If you think you can take this high road, get ready to also walk around barefoot, spin cotton on a simple gin for hours at a time, live in a tent, and give up marital relations with your spouse – because that‘s what it means to be like Gandhi – pacifist through and through (never mind true pacifist are one in 10 million, or maybe less).  A great many who are actually afraid, claim instead to be pacifists – this might be a good time to do a Myers Briggs personality test.

4. “The Pinocchio” or “free lunch” option (don’t worry, there is really no cost) – our personal favorite which is now being espoused by an anxious Wall Street government.   Payments to homeowners who surrender their real estate, rather than raise legitimate legal challenges to the ownership of the home you and your family live in.  You will only have to trade in “real” property, for a few pieces of paper (that will get you by for a few months), backed by nothing, that make cell phones look depreciation-resistant.  For some reason the image of Pinocchio turning into a donkey keeps coming to mind.

Imagine all that work with  no self-interest, bankers are a generous bunch, perhaps when they come, they will even ‘greet you witha kiss’.    A great many mortgage brokers who represented predatory lenders were also willingto offer their advice duringthe golden years of the housing uber-bubble.  These are the same people, with a different slant.  At that time, the refrain was “prices will only keep rising, so you can do something like pay any price” because by this logic, if prices keep rising, no price is too high.

Now the financial industry which has helped us move from a country which makes things, to a country which makes things up, are chanting their inglorious antiphon – prices will only keep sinking, so let us take that house off your hands, after all, we’re in it together and both parties are taking a loss. Right?  This way you can get rid of the discomfort of having to deal with this.  By this logic, no value is enough to fight for your home, because prices will keep sinking and thus, the value will ultimately go to zero. 

Both statements are logical fallacies and indeed two sides of the same coin – although they have distinct attendant emotions.

In every transaction there is a buyer and a seller – no matter what monetary instruments are used in the consummation of the transaction (debt, equity, currency, etc.)  Your home is no different.  It may help to not think of it as shelter for a moment or as “the American dream” (needless to say the dream needs to be elevated).  Try for a moment instead to think of it first as just 2 x 4’s and drywall.  If this is hard to do, consider thinking of your American dream as being fortunate enough to live in a still largely free country of plenty, to have had a mostly good life, reflect on your positive memories – and let your house just be an object (last time we checked there were no shortages for future reacquisition) – that is what it is after all, it’s just an object.

Once you arrive at this moment of honest detachment, then you might want to consider how those who are interested in your home, see the world.  Humans are animals in a way, and they are also far more.  Through our choices we move closer to the animal kingdom of primal instincts or closer to another kingdom that is very different than that of mere animals.   Let’s just say that your bank, your servicer, the trusts, the depositors, the trust administrators, the investors, the engineers of derivative products, the CDO salesmen, the ratings agencies, the intermediaries entities, and certainly their lawyers, have made choices (not that it can’t be undone) to be a little closer to the animal kingdom – keeps this in mind when speaking to them – it’s important.   To this group your house has nothing to do withdreams– it has to do with one thing only; little sheets of green paper.   Now think of money for a moment as a redemption slip on society, and if you have many of these “redemption slips”, you in affect have much you can ask of society if you so choose.

Ad Misericordiam

These folks want to redeem a number of these “slips” on you as a member of society.  Perhaps your claim to your home is weak, if it appears that the debt is greater than the equity (understandings of both debt and equity need to be examined carefully), or because you have struggled to make your mortgage payments, or because you are legitimately concerned about getting clear title to your home, or perhaps you just don’t want to participate in a pyramid scheme that causes others to suffer.  That is ok, we understand, everyone will want you looking at yourself full time, and if it applies, your misfortunes in life.  If you have a personal misfortune such as divorce, loss of a job, or heaven forbid a sick family member, expect it to be used against you.  You might as well go lookinthe mirror and read yourself your Miranda rights before you get on the phone with your servicer and divulge every detail of your personal and financial life just because they asked nicely and said they would “help”.  

Try to remember, you’re not calling Mother Teresa.  That isn’t to say you shouldn’tempathize withthose who would like to take your home.  Wall Street bankers and their progeny are human too.  They suffer just like you.  They have personal short comings like you.  Although their personal shortcomings less often involve layoffs and confusing financial burdens – their suffering is of a different variety altogether – nonetheless they suffer. 

It is better to keep your suffering to yourself, they are not genuinely interested in hearing about it, and it is best to vet who you share with in the first place, including the details of your personal finances. There is nothing wrong with that information being entirely private, although if you were raised in America, you were not raised to understand this.  By preserving yourself, you will also preserve your dignity – even if all else is lost, nobody can take this last item away from you, and it is worth more than all of the homes in America. 

It is a harsh saying, and we wish we could find something more subtle, but we could think of no other saying that more accurately describes what we are speaking of here, that is to say “Do not give dogs what is sacred; do not throw your pearls to pigs.”  If at some point this seems like a good idea after all, it may be worth reading the line which follows from the one cited – the consequences are fairly clear.

Self-pity rarely achieves much.  Instead, if the urge to sadness at your portion in life can’t be overcome, then do it in private.  Perhaps think of those who have less than you in life – perhaps orphans in Haiti or those in some other seriously underprivileged society, than you will feel rich.  We have poor in America, but we don’t have too many who are starving just yet.    Prepare yourself to fight a good fight.  Even if you lose, you will have the swagger that you fought for what is right and just, which is easier to describe at parties than the procedure for rolling over and playing dead.

It is a curious thing to witness the endless talk of ”helping homeowners”, and of perpetual applications to “modifications” and “forbearance”.   If a person draws you into a crime unwittingly and unknowingly, a context in which you expend great time, energy and resources, believing the circumstances to be quite other than they in fact are, is it anything other than insulting when the same person offers to “help” you with your “situation”?  Does an “appeal to pity” seem like the most appropriate of responses?

Arbitrarily asserted, arbitrarily denied

These folks want you looking at yourself, because they don’t want you looking at them.  This behavior is so deeply ingrained in our culture that even seasoned consumer and home owner advocates fall prey to the proclivity of discussing primarily the circumstances of the debtor rather than that of the creditor.   However, the question isn’t how good is your claim to the security interest in the real property you call home.  The real question is how good is the security interest of those who seek to take it from you?  And how did something so simple and mundane as a mortgage become so irreparably harmed?  Could it really have been mere incompetence? 

Possession is an important part of the law.   If there is a serious and legitimate dispute over ownership, which has now been well established for about 60 million properties and some 7 trillion in securitizedmortgages, why would you give up your legitimate claims?  Perhaps you would do this only if you did not realize just how legitimate your claims are (default or not), and how illegitimate theirs are, because after all it is not the topic of the many phone conversations with your servicer.

In fact, given the gravity of the question over clear title, the only seemingly prudent thing to do is to suspend mortgage payments, weather you can afford them or not, and to instead place those funds into a private escrow account, as we had previously advised.   That is why they want you to be highly circumspect of your condition in life, because you will be too distracted to notice the thief in front of you.  Remember if greed doesn’t work, fear will, and vice versa.  Think of them as the commensurate emotions associated with bubbles and collapses – they vacillate, one to the other, but the transfer of assets abides at a steady clip to those who feel no emotions.

These folks will try to help you undervalue yourself.  Don’t.  You were not designed or built to be a slave to another man through debt.  It is, for lack of a better word, a sin.  If you don’t have a Ph.D in finance from Harvard, you probably couldn’t design this Ponzischemeif you’re life depended on it.  Are you accountable?  You are.  But they are more accountable.   It is important to think for yourself when someone tells you something ridiculous like “prices will always go up”.  Intellectual inertia with a streak of greed is wrong, but it is also minor on a relative basis, and very prevalent.  However, using superior knowledge and power to prey on the ignorant in a calculated way is more serious.  You have a stronger claim to the security interest in the property than they do, on many grounds, not the least of which is ethical.  That isn’t to say you will win, but you have to try.

If they are to assert their claims arbitrarily, than you can arbitrarily deny them – should the burden of proof not be symmetrical?

It has been said that “time reveals truth and justice”.  Do not worry about what others say about you today, or next week.  Worry about what people will say about you in ten years or more.  For it is only when we look back and remember, that we bring our experiences of life into complete focus, and others see us for the intentions which work inside us, and not merely the outward appearances which can be misleading.   If somebody calls you a “deadbeat” or a “squatter” thank them, for is it not widely known that people judge others according to the way they feel about themselves inside?  Or as the great prophet Bob Marley once said “Judge not, for you judge yourself”.  Besides is there any more obvious way to poison the well, than to use such loaded language?

Your servicer wants updated details of your financial condition in order to decipher if it is cost affective to sue you for a deficiency judgment after your home is taken (if it is to be sold in the near term, they will want the fastest sale, not the highest sale), it is not primarily, as you may be told, to determine qualification for a modification.  For example, they would like to know where your bank account is so that they can attach it, and they would like to know where you work, and see a recent pay stub, so they can eventually garnish your pay.  Think through it – you live in the most litigious society in the world.

After all, you are going to pay the difference, either through a judgment, or such things as your involuntary ownership of the GSE’s (another form of indirect wealth transfer).  It is a peculiar thing indeed when we believe it is ok to hand over the details of our financial and personal matters to perfect strangers on the phone, because they have “represented” that they are the counterparty in interest to a loan that was taken out as part of our (unknowing) participation in a global pyramid scheme.

We now know much about predatory lending.  We know about liar loans that were wholly executed by highly compensated brokers.  We know that the more CDO’s and synthetic CDO’s that were sold with AAA ratings (despite being jam-packed with sub-prime paper), the more billions investment banks made.  We know that banks understand that their security interest to the real property used in the MBS trusts is not there, and that they are willing to use forgeries, and perjury as their means.  Basically, the lesson of the last few years is that the engineers of this hyper-pyramid scheme will do anything to get what they want.

Have things changed?  Is that what the evidence points to?  Or is that what we want to believe about human nature?  That these folks are not “that bad”?  Because we want to believe something, does it make it reality?  An objective review of the evidence does not indicate the players involved in your mortgage have your best interest in mind.  It would be best to accept that upfront, so that a reasonable plan, that actually has a chance at success, can be made.

This is not about “sticking it to the bank”.  This is about legitimate questions.  Protecting yourself and your family’s financial future, and comingto a reasonable business solution to this very bad situation, that does not involve your subjugation and further humiliation.   There may have been intellectual inertia, even greed, in your actions, but where is it written that you must live withthat mistake forever? and who qualified the bank to do the judging?  At some point there has to be an agreement, and a settlement, but you ought to meet the bank at the negotiatingtable at least as an equal, if not a superior, for your misdeeds are minor in light of theirs.  Do you call their CEO, Board members, or shareholders and ask for the details of their personal and financial lives before you’ll “discuss” anything?

All that should be said by a homeowner is that the asset prices were wrong when you bought your home.  You had no control over the setting of those prices – but the folks who did have responsibility for the setting of asset prices, knew something you didn’t and stood to profit from that special knowledge.  That’s why they owned credit default swaps and not real estate when the bubble popped.

When the bank is willing to discuss a settlement of your unsecured debt (as in they cannot legally foreclose on your securitizedmortgage), then you can talk about a number that makes sense for bothpartiesto avoid protracted and expensive litigation that might lead to a judgment, which at any rate will be collected over many years if at all.  Is this not the same as a principle reduction today, particularly when future payment on a hypothetical judgment will be made in dollars which are sure to be worthless.  At least in the event of a write down, your bank has the opportunity to re-invest the residual loan value in something that might actually appreciate, as opposed to fixed payment in devalued future dollars.  But then again, perhaps they already know this, which is why their first preference is foreclosure.  For one, the value of your home does not have to be impaired on their balance sheet, and secondly, although nobody is telling you this, your home will appreciate again, and has far superior prospects of beating the doubled edge sword of taxes and inflation, than the bank wants you to know.

There is a right way and a wrong way to plunder

Plunder?  We confess it is a strong word, and probably seems like a) it only corresponds to a small fraction of the loans made that are now clearly understood as “predatory” in nature or b) is hyperbole.  Neither is correct, it is rather the only way to describe the mortgage securitization industry in the last decade.  There is one characteristic of greed which is constant – the addict always over stays their welcome (just ask casino operators or stock brokers about the psychology of some of their clients).

Here are a few points to consider:

1. Why would such products exist which have variable features as a function of time.  For example, low front end interest rates with a later reset, or terms which allow for the annexation of more collateral at a later date (deficiency judgment).   Not unlike an actuary for an insurance company, a banker makes a decision on risk based on a statistical profile of the barrow, since past-time can only be known at that moment, why would future characteristic of the loan be determined in present time, when the future cannot be known?  Unless there is in fact some designs being made on the future.

Remember, these folks make their living from investments, and investors think far into the future.  Most barrowers make their living from a paycheck, and their future projects about as far as the Friday after next. 

The case of variable rate loans:

– If at a future date, the interest rate is static, the bank gains nothing by adding this feature.  
– If at a future date, the interest rate is lower, the bank stands to lose, when the customer refinances inside or outside the bank.
– If at a future date, the interest rate is higher, than the customer may not be able to afford the loan, in which case, the bank stands to make a windfall through foreclosure.

Since our economists have long held that both inflation and housing price appreciation are steady, why would these loans ever exist?  As a sort of actuary, the bank would determine the price for the risk based on historical patterns,  set the terms, and a deal would either be done or not, and every one would move on.  But that is not what happened with these “innovative” products.  There was a “lead-in” and a carefully planned design made on future time.

2. However, it will quickly be pointed out that many barrowersagreed to misrepresent both their financial history and circumstances in order to obtain these loans.  This is true.  Here are some important points to remember:

a. There are both qualitative and quantitative differences in the behavior of barrowers who made misrepresentations and lenders who planned predatory loans.  In quantitative terms it is the business of lenders to make loans, that is to say market debt.  If there were no buyers for such loans, life would continue on, and we may well have a healthier society.  However, the same cannot be said of the lender, for if they do not issue debt, they have no business so to speak of, and life does not “go on” for debt is the instrument by which their income is earned, and unlike the barrower, represents an “asset” to the bank under normal conditions.  Therefore both motives and incentives for the making of new loans are far greater on the part of the lender.

b. In qualitative terms, the business of the lender is a) risk assessment and b) asset appraisal.  In a consumer society it is critical that entire generations of consumers (including consumers of financial products) never learn how to do either competently.  We have largely succeeded at this task in America.  The result is that the intricacies of risk assessment are overwhelmingly within the circle of competence of lenders, and completely outside that of the barrowers.  Again the balance of power is asymmetrical.

To suggest than that the conduct of the two groups is ethically symmetrical is incorrect, and masks the truth that the real risk of systemic predation is inherently on the side of banks.

The common refrain is that it was the lack of restraint on the part of barrowers which caused the crisis, but this is nothing more than to establish a false cause.  That is to say it draws a highly questionable conclusion about the cause and effect relationship.    The child of a false cause is naturally, a false dilemma.  The bank bailouts were precisely that; a false dilemma sold to the American people, and a prototype of the much larger wealth transfer operation that was about to take place in the form of foreclosure.

In the construction of the bailout package, the US treasury reduced the options Americans had to consider to just two, which were sharply opposed and unfair to the American people to whom It was presented (i.e. bail out the banks, or else we will be facing “…the Collapse of the Global Financial System”).  It is like being victimized twice.  By accusing the American people (falsely) of being the cause, then forcing a false dilemma, those responsible have not played fair, and have caused a great many to overlook alternative explanations which are far more accurate.

Nonetheless, the fact remains that banks lent vast sums to Americans at interest rates that did not reflect prudent risk management.  There are only two possible explanations:

a) Our financial institutions somehow suddenly lost (or perhaps never possessed) the acumen that is part of their circle of competence; that is to say risk assessment and asset pricing, and were revealed to in fact be imbeciles.

b) The loans made were predatory by design and served a purpose in their ultimate failure.

Despite many Ivy league degrees, bankers are involved in a business model which is no more sophisticated than borrowing  pieces of paper (usually from their friends) for zero interest and loaning out the same at a rate of interest above zero.  Given the simplicity of their business model, we are tempted to select option “A” (our various and sundry encounters with bankers has served only to affirm this preference).  However, “B” is in the only option which excludes absurdity from the calculation.

This taken into consideration with the certainty of asset price manipulation, and other abuses in the origination, and reselling of these loans ought to be carefully considered.

In truth, greed paints you into a corner.  The only way out this time has been excessive liquidity, to blanket over the fallout, like snow over an ugly landscape.  Yet, with excessive money supply, comes excessive inflation, and with excessive inflation comes a preference for hard assets over fixed income; in short, your bank would rather have your home, than your mortgage payments, modified or not.  Imagine, at the rate we are going now, what the value of your future mortgage payment denominated in dollars will be at the expiry of your loan term say 25 years from now.  No interest rate is high enough now to outpace the real rate of inflation – and if a few rounds of golf with the folks at FASB allow you to keep your land grab on the books at unimpaired prices in the near term; well even better.

If we ascribe to a traditional definition of ethics, than we must concern ourselves with that which we do voluntarily, and not what we do because we are forced.  In this sense, the question ought not to be “is it ethical to stop paying your mortgage”?  The real question in light of everything that has been revealed, and the very real human suffering that has been caused is; “is it ethical to pay your mortgage.”

Mark Stopa

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