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Let’s face it, people hate bankers. There are a lot of reasons to hate them these days, given that unbridled greed and a total lack of concern for anything other enriching themselves is in large part why we are in the mess we are right now. This is why you are likely to see more of what we are seeing in New York State right now.

In some counties in New York judges are not putting up with the shoddy and frankly fraudulent work in foreclosure cases. We have heard about the major banks delaying foreclosures for a while as they "Checked the paperwork process" then declaring that everything was copasetic and going back to full steam ahead in foreclosing on properties. However there really was no chance that they could fix a massive system filled with massive problems in the three weeks that they held foreclosures in abeyance.  

"Originally posted at Squarestate.net"

The reality is that it is job of the courts to scrutinize the paperwork of the banks in any foreclosure case, just as it is the banks' responsibility to file the correct paper work with a clear chain of standing if they want to repossess property from the current owners. In Nassau, Suffolk and Kings county if you bring shoddy or fraudulent paperwork before the judges you are likely to get a nasty surprise.

According the Washington Post, last year a Long Island judge decided that he had enough. He found that the mortgage companies paperwork was so flawed and their behavior so repugnant (the judges word not mine) that he voided the mortgage and gave the house to the family. The judge found that based on the paper work which was presented the mortgage company could not prove that it had standing to foreclose. The chain of evidence as to who the loan was sold to was so broken and unclear the judge felt justified in granting ownership the family.

Of course this case is being appealed but it may also be the start of a trend. From the WaPo article:

It is not the only case that has big banks worried. Spinner and some of colleagues in the New York City area estimate they are dismissing 20 to 50 percent of foreclosure cases on the basis of sloppy or fraudulent paperwork filed by lenders.

Their decisions illustrate the central role lower court judges will have in resolving the country's foreclosure debacle. The mess came to light after lawsuits and media reports showed lenders were routinely filing shoddy or fraudulent papers to seize the homes of borrowers who had missed payments.

The reason this is likely to continue and expand is pretty simple. Judges are people too. They are involved with the law, and while that constrains them in some ways they are still just as likely as anyone to decide that someone or some organization is not credible. More so in cases like foreclosure where they are seeing the same companies' attorneys again and again and again.

Once you lose your credibility with a judge you can be in a world of hurt. Nothing you assert will be taken at face value and they are more likely to start to dig into your claims and paper work. If you are actually committing fraud by not reviewing documents that you sigh an affidavit for, then you’ve gone from the frying pan to the fire. This is what we are seeing in these three counties in New York.

Banks know they are in trouble too. JP Morgan Chase  (why is it whenever I type that I hear Darth Vaders Theme from Star Wars? Never mind) has gone as far as to have mortgage servicers segregate all the foreclosure paper work from those three counties and has assigned a high level executive to review and sign off on them.

This just shows what how important an effective judicial system is. The people of Kings, Nassau and Suffolk counties can be relatively sure that if there is a foreclosure finding against them, it is legal and above board. What we really need is to have this nation wide.

These judges are not being activist or fairy godfathers and mothers to the folks in their counties. They are merely insisting that if someone is to be deprived of property, then it has to be done according to the law. By making it clear that they will not put up with shoddy and in some cases illegal practices in their court rooms they make a stand for the rule of law over all.

Of course the banks hate this and are fighting it tooth and nail. The idea that if they continue their highly profitable but illegal actions they might lose any claim to the property is all but making them wet their pants. Who better than they know the amount of mistakes and outright fraud that is involved in the originating and selling of these loans as well as the processing? After all Goldman-Sachs (more Darth Vader theme, weird) was at the same time bundling risky home loans that they managed to get rated AAA while shorting the market with AIG. That is not a isolated incident, but the SOP for most investment banks right before the housing collapse nearly killed our economy.

The other reason that they are scared is that judges are often elected at the local level. While it is never a good idea for judges to be politicized it is easy to see how a judge might look at the level of rampant fraud and shoddy work and decide that he or she will become a champion of the people by beating up the hated banks. Especially when it is just and proper to do so.

Does all of this mean that many of the millions of people who are facing foreclosure will get their houses free and clear? Probably not. If the Yano-Horoski decision stands though, a few will, by way of example to the banks and mortgage companies that bringing fraudulent paper work in to court and failing to negotiate in good faith has a very high cost.

Our system of law only works when everyone is held accountable to it. The people who stop paying on a house must face the legal consequences, but so should the rich and powerful banks. Expect this trend to accelerate, and expect the bankers and their lobbyists to try to get the Federal Government to do something about it, obviously in their favor.

The floor is yours.

Originally posted to Something the Dog Said on Tue Nov 09, 2010 at 06:20 AM PST.

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