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Banks Continue to Fabricate Documents, Commit Foreclosure Fraud

Goldman Sachs, Litton Loan Servicing and Ocwen Financial have agreed with a state regulator in New York to “end robosigning.” I’m not really sure what that means. First of all, Goldman sold Litton Loan Servicing to Ocwen, so I’m not sure why they are in this story at all, save for the name ID. Second, robo-signing is illegal, so agreeing to end it is like saying “I’ve agreed to stop running over people with my car.” The New York banking regulator does not have the ability to pursue criminal or civil prosecutions, though they could happen on a parallel track. But this is essentially akin to Litton and Ocwen saying “we won’t do it again.”

And 14 top banks have already agreed to end robosigning, through their consent decrees with the Office of the Comptroller of the Currency. Litton and Ocwen were not part of that agreement, but if anything would set a precedent for other regulators, it would be the OCC action. And yet, as Kate Berry at American Banker reports, those banks continue to fabricate documents and defy the consent order:

Some of the largest mortgage servicers are still fabricating documents that should have been signed years ago and submitting them as evidence to foreclose on homeowners.

The practice continues nearly a year after the companies were caught cutting corners in the robo-signing scandal and about six months after the industry began negotiating a settlement with state attorneys general investigating loan-servicing abuses.

Several dozen documents reviewed by American Banker show that as recently as August some of the largest U.S. banks, including Bank of America Corp., Wells Fargo & Co., Ally Financial Inc., and OneWest Financial Inc., were essentially backdating paperwork necessary to support their right to foreclose.

Some of documents reviewed by American Banker included signatures by current bank employees claiming to represent lenders that no longer exist.

Berry follows on reporting from Reuters and AP, and something well known to anyone who follows the various foreclosure fraud sites out there. This is the dirty secret about robo-signing: it’s still happening. So are the forgeries and the document fabrication and the fraud upon state courts. After the scandal erupted last October, the banks promised to fix their operations. They did so by waiting everyone out and engaging in the exact same practices.

And you see, the banks HAVE to fabricate documents. Because they destroyed the private property system through improper and sloppy securitizations and lost or missing mortgage assignments during the bubble years, and as such they cannot prove standing to foreclose without lying. Robo-signing is a crime, but it’s also a cover-up for a much bigger crime, which involves MERS and improper mortgage transfer and securities fraud. The robo-signed, forged, fabricated documents are the smokescreen being used to foreclose and get the real problem off the books. Banks are trying to wriggle off the hook by saying they are merely “memorializing” past actions with the fake documents. Some courts aren’t buying it; the pooling and servicing agreements stipulate that all assignments showing transfers must take place within 60 days, not years later through “memorialized” actions.

And some state AGs, like Eric Schneiderman in New York and Catherine Cortez Masto in Nevada, are on to this as well. They both filed with courts allegations of improper securitizations and the lack of standing to foreclose. They know that the robo-signing and document fraud is a cover-up as well as a crime. Max Gardner, the godfather of foreclosure defense, explains one of the scams:

North Carolina consumer bankruptcy lawyer O. Max Gardner III says servicers and trustees often submit promissory notes in court without proper endorsements, which show the chain of title from one lender to another. Then, after the fact, there will be “a magically appearing note with a stamped endorsement,” Gardner said.

When plaintiff’s lawyers then try to depose the person whose name is stamped on the endorsement, “we’re being told the person is no longer employed by the servicer or by the party for whom they signed,” Gardner says.

Linda Tirelli, a New York bankruptcy lawyer, calls such mortgage documents “Ta-Da!” assignments because they seem to appear out of nowhere.

These are crimes in and of themselves. The idea that “we won’t do it again” is sufficient doesn’t make any sense. And at least some state law enforcement officers know that.

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David Dayen

David Dayen