Texas Bankruptcy Lawyer

Dallas-area late mortgage rates are continuing to decline, according to an article in the Dallas Morning News:

In May, 4.8 percent of local residents with a loan on their home were 90 days or more behind in their payments.

That’s down from 5.51 percent a year earlier and 6.08 percent in early 2010, researchers at CoreLogic Inc. said Wednesday.

The Dallas-area late loan level is slightly higher than the Texas average of 4.47 percent but significantly less than the nationwide delinquency rate of 7.29 percent, the California-based firm said.

The number of homeowners seriously behind in their payments has gone down in each of the last four months in the Dallas area.

Although more Dallas-area homeowners are keeping up with their payments, the percentage of homes actually in foreclosure inched up in May. CoreLogic found that 1.52 percent of homes were in foreclosure, compared with 1.45 percent in May 2010.

The nationwide foreclosure rate was also up slightly at 3.45 percent.

A fascinating article was recently published, at Yahoo News among other places, about a Florida lawyer known as the “Foreclosure King” for the sheer volume of foreclosures processed by his firm. Many homeowners were evicted because of these foreclosures, and it now appears that most of them were wrongfully evicted. The law firm not only did the paperwork improperly, they essentially gave up all pretense of following proper procedure. One clerical worker was signing as many as 1000 foreclosure documents each day, without verifying any of them. Here are excerpts from the article:

During the housing crash, it was good to be a foreclosure king. David Stern was Florida’s top foreclosure lawyer, and he lived like an oil sheik. He piled up a collection of trophy properties, glided through town in a fleet of six-figure sports cars and, with his bombshell wife, partied on an ocean cruiser the size of a small hotel.

When homeowners fell behind on their mortgages, the banks flocked to “foreclosure mills” like Stern’s to push foreclosures through the courts on their behalf. To his megabank clients — Bank of America, Goldman Sachs, GMAC, Citibank and Wells Fargo — Stern was the ultimate Repo Man.

The worse things got for homeowners, the better they got for Stern.

That is, until last fall, when the nation’s foreclosure machine blew apart and Stern’s gilded world came undone. Within a few months, Stern went from being the subject of a gushing magazine profile to being the subject of a Florida investigation, class-action lawsuits and blogger Schadenfreude that, at last long, the “foreclosure king” was dead.

The rise and fall of Stern, now 50, provides an inside look at how the foreclosure industry worked in the last decade — and how it fell apart. It also shows how banks, together with their law firms, built a quick-and-dirty foreclosure machine that was designed to take as many houses as fast as possible.

Almost from the beginning, Stern faced trouble. In 1998, he was named in a class-action lawsuit alleging that he padded fees on foreclosed homeowners. Stern settled for $2.2 million. According to legal testimony at the time from a Fannie Mae official, Fannie was warned about troubles at the Stern firm. But Fannie continued referring cases to Stern. Fannie Mae spokeswoman Amy Bonitatibus says, “At all times, Fannie Mae has had a reasonable expectation that our servicers and the law firms adhere to proper procedures and conduct under the law. In instances where we learn that servicers or law firms are not adhering to our requirements or applicable law, we immediately engage and take appropriate action, which may include termination.”

None of the accusations stalled the firm’s steroidal growth. After the economy crashed in the fall of 2008 and ravaged the housing market, Florida, along with Nevada, Arizona and California, became foreclosure central. Stern’s caseload rose from 15,000 foreclosures in 2006 to 70,400 in 2009. His staff tripled to more than 1,200. To keep up with demand, Stern set up offices in the Philippines. When the U.S. staff responsible for entering bank data in the foreclosure files logged off, the offshore workers logged on.

With so many foreclosures flooding in, Stern’s firm couldn’t keep up. Stern took shortcuts by hiring the young and cheap. “The girls would come out on the floor not knowing what they were doing,” says Tammie Lou Kapusta, who worked in Stern’s foreclosure department in 2008 and 2009. “Mortgages would get placed in different files. They would get thrown out. There was just no real organization when it came to original documents.”

Employee depositions paint a picture of a firm under constant pressure from the banks to move faster. The longer it took to foreclose, the more money the banks stood to lose. Like so many in the industry, Stern had a strategy to cope with all the volume and velocity: robo-signing. One employee testified that Stern’s chief lieutenant, a one-time file clerk named Cheryl Samons who rose to become the firm’s chief operating officer, signed as many as 1,000 foreclosure affidavits a day without reading a single word. The employee said Samons’ hand got so tired that she told three other employees to forge her signature. Samons also signed numerous mortgage assignments with a notary stamp that didn’t even exist at the time of signing. Notary stamps are only valid for four years. The only way Samons could have signed mortgage assignments at the time they were supposedly notarized was if she had been capable of time travel.

In October, one by one, the megabanks started to withdraw their cases from Stern’s firm. Fannie fired Stern on Oct. 22. Stern’s staff of 1,200 has dwindled to 200.

The firm’s fall has spawned more chaos in Florida’s circus-like foreclosure courts. A slew of homes Stern foreclosed on that sold for $240,000 each during the credit bubble sold at auction as orphaned cases for $200. Recently, even the most infamous “rocket docket,” in Lee County, where judges were reported to have signed off on a foreclosure every 30 seconds, ground to a virtual standstill as the Stern firm withdrew from case after case. Some of Stern’s remaining lawyers show up court with greasy hair, fleece jackets and food-stained clothing. As for Stern, if federal and state prosecutors file criminal charges, he could end up in prison.

Meanwhile, Stern’s payment on his $12 million line of credit with Bank of America is late. So is the rent on his headquarters.

He’s now in default.

The Washington Post (10/30, Elboghdady, 605K) reports, “Across the country, struggling homeowners are increasingly tripped up by mortgage lenders that press ahead with foreclosures regardless of any effort they make to provide borrowers with relief on unaffordable mortgages. … Mortgage companies have established a dual-track approach toward troubled homeowners, negotiating with them over loan modifications while trying to seize their homes. Top government officials have been urging lenders to redouble their efforts at modifying burdensome loans,” but “mortgage companies, however, have continued to pursue this two-track strategy, with a widening toll especially on those homeowners who have been trying to resolve their mortgage difficulties before they snowball.”

“Underwater” homeowners a drag on economy. The Los Angeles Times (11/1, Lee, Times, 681K) reports “a bigger problem” than the post-2008 wave of foreclosures “may turn out to be the millions of Americans who are still faithfully paying their mortgages, but on houses worth far less than before the bubble burst.” With home prices “stagnant in much of the country, payments on mortgages that are underwater could absorb billions of dollars that might be used for other forms of consumer spending – a drag on family finances, the housing market and the overall economy. And the drag could persist for years.” Of the “estimated 15 million homeowners underwater, about 7.8 million owed at least 25% more than their properties were worth in the first quarter of this year, according to Moody’s Analytics’ calculations of Equifax credit records and government data.”

Foreclosure crisis gains defaulting homeowners equivalent of $2.6B per month. The Wall Street Journal (11/1, Whitehouse) reports on the potential for many people to benefit from the foreclosure crisis by being able to continue living in their homes for free, calling the situation something of an unintentional stimulus. The piece notes that banks and mortgage bond investors will face costs from the crisis, though the homeowners in arrears will collectively gain by some $2.6 billion per month.

Paperwork scandal extends to general debt collection industry. The New York Times (11/1, Segal) reports on the large numbers of signatures required to be made manually by employees of large banks and accounting firms, relating this to the recent foreclosure document crisis, and noting that banks “have been under siege in recent weeks for widespread corner-cutting. … But lawyers who defend consumers in debt-collection cases say the banks did not invent the headless, assembly-line approach to financial paperwork. Debt buyers, they say, have been doing it for years. ‘The difference is that in the case of debt buyers, the abuses are much worse,’ says Richard Rubin, a consumer lawyer in Santa Fe, N.M. ‘At least when it comes to mortgages, the banks have the right address, everyone agrees about the interest rate. But with debt buyers, the debt has been passed through so many hands, often over so many years, that a lot of time, these companies are pursuing the wrong person, or the charges have no lawful basis.’” The Times explains that there are millions of debt collection affidavits filed across the country, and that the FCC says that documentation problems are “legion.”

NYTimes says banks profiting from foreclosures. The New York Times (11/1, 1.01M) says in an editorial that “what makes the latest scandals” in banks’ foreclosure practices “so outrageous is that even after the financial meltdown and taxpayer bailout- and all those vows about accountability – the regulators are still behind the curve. The fundamental problem is that the banks’ drive to profit from the foreclosure process is all too often at odds with the interests of mortgage investors, homeowners and the economy’s health.” That is “a big reason that the Obama administration’s antiforeclosure effort, with its voluntary participation by banks, has fallen so short.”

From the American Association for Justice news release.

The CBS Evening News reported that the Administration’s “foreclosure prevention plan was labeled a failure today by a government watchdog. Of the 1.3 million people the Treasury claims to have helped, the Inspector General of TARP said fewer than half have actually received permanent loan modifications.”

Politico (10/26, Aujla) also reports that a report from TARP IG Neil Barofsky “criticizes TARP for failing to save enough struggling homeowners from foreclosure. … ‘The most specific of TARP’s Main Street goals, “preserving homeownership,” has so far fallen woefully short,’ the report said.”

Treasury reports new low in mortgage modifications. The New York Times (10/26, Streitfeld, Appelbaum) reports, “Only 28,000 defaulting borrowers received permanent loan modifications in September, the Treasury Department said,” which “was the lowest number since last fall when the program to help struggling homeowners stay in their homes was just getting started. … The data from the government’s signature effort to help homeowners get new mortgages — formally called the Making Home Affordable Program — shows a program whose effects are, at least for the moment, dwindling.” Paul Willen, senior economist at the Federal Reserve Bank of Boston, “said Monday that the series of government programs aimed at helping borrowers avoid foreclosure amount to ‘three years of failed policy.’”

Bernanke: Fed probing banks’ foreclosure processes. The CBS Evening News (10/25, lead story, 2:35, Mason) reported that the Fed “is putting the mortgage mess under the microscope.” Fed chair Bernanke was shown saying: “We are looking intensively at the firm’s policies, procedures, and internal controls related to foreclosures and seeking to determine whether systematic weaknesses are leading to improper foreclosures.” CBS noted that Bernanke “says more than 20% of borrowers are underwater.”

The AP (10/26, Aversa) reports that “in remarks to a housing-finance conference” in Arlington, Virginia, Bernanke said “federal banking regulators are examining whether mortgage companies cut corners on their own procedures when they moved to foreclose on people’s homes. … Preliminary results of the in-depth review into the practices of the nation’s largest mortgage companies are expected to be released next month.”

According to the Financial Times (10/25, Braithwaite), Bernanke also cautioned that “more than 20 per cent of borrowers owe more than their home is worth, and an additional 33 per cent have equity cushions of 10 per cent or less, putting them at risk should house prices decline much further.” According to Bernanke, “With housing markets still weak, high levels of mortgage distress may well persist for some time to come.”

Bloomberg News (10/26, Lanman) notes that “after discussing foreclosures,” Bernanke “devoted much of his remarks to the Fed’s housing-market efforts, such as studies, conferences and events serving troubled borrowers.” According to Bloomberg, Bernanke’s remarks “build on New York Fed President William Dudley’s Oct. 19 remarks that the central bank is working with other regulators to review foreclosure practices, governance and documentation at mortgage servicers.”

Bair: “warning signs” were missed by regulators. The Los Angeles Times (10/26, Puzzanghera) reports that at the same conference, FDIC chair Sheila Bair “admitted” that “regulators should have foreseen a wave of suspect foreclosure paperwork coming.” Bair is quoted as saying, “In retrospect, there were warning signs that servicing standards were eroding. Those signs should have caused market participants and regulators alike to question current practices. … We should have been asking how servicers were able to achieve such efficiencies without sacrificing quality,” but, “sadly, those questions were not asked.”

Reuters (10/26, Clarke, Costa) notes that Bair also warned that “the litigation generated by this issue could ultimately be very damaging to our housing markets by prolonging those foreclosures that are necessary and justified.”

Mortgage processors face scrutiny. The Washington Post (10/26, A11, Cha) reports, “The more banks foreclosed on homes, the more a little-known company in Florida called Lender Processing Services saw its revenue and stock price soar. For a fee, the Jacksonville company would locate and assemble the documents necessary for a lender to foreclose on a borrower who defaulted on a mortgage. Working on behalf of the biggest names in the industry, including J.P. Morgan Chase, Bank of America and Citigroup, LPS says it handles more than half of all foreclosures in the country,” but “amid reports of shoddy and possibly fraudulent paperwork, LPS as well as a handful of other document processors and law firms are coming under scrutiny for the criminal investigations into the foreclosure debacle.”

Lawsuits allege lenders sabotaged mortgage modification efforts. The Los Angeles Times (10/26, Reckard) reports, “Financially strapped homeowners struggling to obtain mortgage modifications are taking their frustrations to court, accusing banks and loan servicers of misleading them or breaking promises to help them hold on to their homes.” According to the Times, “The lawsuits go to what” HUD Secretary Donovan “has described as the heart of the government’s anti-foreclosure efforts: ensuring that banks work in good faith from the start to help borrowers. … A theme of the lawsuits filed by homeowners is that banks have denied permanent modifications to borrowers who make their payments on time and otherwise hold up their end of the agreements.”

NYTimes calls on the Administration to slow the foreclosure process. The New York Times (10/26), in an editorial, says the Administration “needs to ensure that the taxpayers’ interests come first. Until now, the White House has focused far more energy on shoring up the banks — a stance that may have made sense in the thick of the financial crisis but is increasingly suspect now. … The White House needs to work with Congress to ensure that no foreclosures proceed — not just those with questionable paperwork — without homeowners’ first being offered fair and timely loan modifications.”

From the American Association for Justice news release.

The New York Times (10/12, B1, Appelbaum) reports that the “swelling outcry over fast-and-loose foreclosures has thrust the Obama administration back into the uncomfortable position of sheltering the banking industry from the demands of an angry public.” While “senior Congressional Democrats join the calls for a national moratorium on foreclosures,” the White House “once again is arguing against punishing the industry, just as it did in 2009 amid the outcry over the unbreakable habit of paying large bonuses. ‘Irresponsible banks need to be held accountable, but if we have not found a problem with a bank’s process we do not believe that we should impose a moratorium where that can hurt the market and hurt individual buyers,’” said HUD Secretary Shaun Donovan. According to the Times, the Administration’s “basic logic has not changed since it took office in the depths of the financial crisis: Hitting the financial industry, officials argue in private and in public, hurts the broader economy. A moratorium on foreclosures may provide short-term political satisfaction in an overheated election climate, but the administration fears it will only delay the inevitable and necessary process of forcing many Americans out of homes they cannot afford.”

The Wall Street Journal (10/12, Whelan, Simon) reports although many US lawmakers have called for a national moratorium on home foreclosures, Administration officials are not endorsing such a move. Secretary Donovan said that some servicers “need to suffer the consequences for their irresponsible actions,” but added, “Where we have not found problems with particular servicers…we do have some risk of going too far.”

Meanwhile, the AP (10/11, Fram) reported White House adviser David Axelrod “questioned the need Sunday for a blanket stoppage of all home foreclosures, even as pressure grows on the Obama administration to do something about mounting evidence that banks have used inaccurate documents to evict homeowners.” Axelrod said, “It is a serious problem. … I’m not sure about a national moratorium because there are in fact valid foreclosures that probably should go forward’ because their documents are accurate.” The AP adds that Attorney General Eric Holder “said that the government is looking into the matter, and Democratic lawmakers urged bank regulators and the Justice Department to probe whether mortgage companies violated laws in handling foreclosures.”

The Hill (10/11, Needham) reports the White House “is pressing for banks to move quickly to determine whether mistakes were made in foreclosure documentation to avoid delays that could hinder the housing market’s recovery.” Axelrod “urged caution in calling for a nationwide moratorium on foreclosures ‘because there are, in fact, valid foreclosures that probably should go forward where the documentation and paperwork is proper.’ ‘But we are working closely with these institutions to make sure that they expedite the process of going back and reconstructing these and throwing out those that don’t work,’” he said Sunday.

fFrom the American Association for Justice news release.