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Banks, Allies Trot Out Rebuttals on Foreclosure Fraud

Practically every time that foreclosure victims and consumer advocates have made gains during the foreclosure fraud scandal, either through the courts or through the court of public opinion, the banks have revved up their fleet of top-flight lawyers and PR flaks to try and minimize the fallout. They’ve let nothing go unanswered, and have often gone after the lawyers representing foreclosure victims personally, with threats to seek charges like libel.

It’s been no different in the past two tangible victories. In New Jersey, six banks must present themselves on January 19 to a state court and explain why they should be allowed to continue foreclosures. Here’s how the banks responded to that request.

On Jan. 5, the banks responded, and in essence each said: Look judge, we’re good guys committed to keeping people in their homes whenever possible, and while we admit that in the past we had problems — teeny-tiny problems — we’ve fixed them already.

Most of the banks’ briefs then argued, with varying degrees of aggressiveness, that the court doesn’t have the power to impose a foreclosure moratorium or appoint a special master because that would break court rules, violate New Jersey’s Constitution and the U.S. Constitution — including the banks’ due process rights — and overstep the judiciary’s role. They also claimed it was generally wrong because the banks were regulated federally. Only Chase declined to challenge the court’s authority to impose the moratorium or appoint a special master.

In essence, the banks are saying that the courts of New Jersey do not have the right to adjudicate foreclosure cases winding through their own court system. It’s not the courts of New Jersey who started this mess by committing fraud and using false documents. The response here, essentially, is outrageous. Especially that the banks cry about their due process rights being violated, and not the due process rights of… well, of homeowners who they attempt to throw out of their homes without a fair trial and using phony documents.

The pattern here is for the banks to make very maximalist statements – like Wells Fargo saying “there is no basis for the Court to presume that the data in any, let alone all, the affidavits submitted by Wells Fargo are, or were, factually inaccurate” when their own employees have admitted to robo-signing – I suppose so they can bargain down to some smaller offense. But even while using these transparently absurd defenses, Citi had to acknowledge that they found problems with at least 1/3 of their foreclosure filings in New Jersey.

What the banks are trying to pull with the landmark Ibanez case in Massachusetts is even crazier. Here, the American Securitization Forum, essentially a banking trade group, tries to make the argument that Ibanez validates securitization practices:

Immediately after the Ibanez ruling, in which two foreclosure actions were voided due to the failure of the servicers to prove that the trusts who allegedly owned the mortgages had standing, the American Securitization Forum issued a press release that said:

“The ASF is pleased the Court validated the use of the conveyance language in securitization documents as being sufficient to prove transfers of mortgages under the unique aspects of Massachusetts law. Importantly, unlike the lower court, the Court also said assignments of mortgage can be executed in blank, as long as a complete chain of transfers can be shown through the applicable deal documents.”

This decision in NO way supports the securitization industry argument that the PSA itself is evidence of assignment and transfer. And we are far from the only ones to read the decision this way… The judge writing the decision SPECIFICALLY says it nixed the idea of assignment in blank, yet the ASF is asserting the exact opposite!

The spin is all being done in service to a cover-up, to portray the abuses from the banks as rare and unspectacular, to frame foreclosure fraud as isolated and insignificant, and to finger the delinquent borrowers as the real source of the problem.

Sadly, they have the resources to make this PR play work. While it’s beyond clear to everyone paying attention that we need more reforms of bank practices, they have such power and influence that they feel at ease making these absurd arguments and simply denying reality.

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David Dayen

David Dayen