By Howard Goodman
Florida Center for Investigative Reporting
Rob a 7-Eleven and there’s a pretty good chance you’ll go to jail. Seize the homes of thousands of people through sloppy, unjustified or just plain fraudulent foreclosure proceedings, and you’ll get away scot-free.
That basically has been the story since the housing market’s collapse put some 11 million Americans underwater on their homes — including a whopping 45 percent of Florida homes. So far, the banks, financial companies and law firms that helped turn the U.S. mortgage industry into a Wall Street casino have escaped serious penalty.
But, finally, we might see the arrival of the sheriff. Yesterday, attorneys general of the 50 states were being polled to see if they’re on board with a multibillion-dollar settlement with the nation’s biggest banks over the awful foreclosure practices of the late 2000s.
Hopes were rising because California and New York, which had held out, were taking a warmer view of the potential settlement. The AGs in those states had wanted more leeway to probe banks’ past misdeeds, and more oversight to make sure the banks abide by the deal and give out the money — a potential $25 billion — to worst-hit homeowners.
The New York Times explained:
The settlement would require banks to provide billions of dollars in aid to homeowners who have lost their homes to foreclosure or who are still at risk, after years of failed attempts by the White House and other government officials to alter the behavior of the biggest banks.
The banks — led by the five biggest mortgage servicers, Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — want to settle an investigation into abuses set off in 2010 by evidence that they foreclosed on borrowers with only a cursory examination of the relevant documents, a practice known as robo-signing. Four million families have lost their homes to foreclosure since the beginning of 2007 …
As it stands now the deal would set aside up to $17 billion specifically to pay for principal reductions and other relief for up to one million borrowers who are behind on their payments but owe more than their houses are currently worth. The deal would also provide checks for about $2,000 to roughly 750,000 who lost homes to foreclosure.
Less than two weeks ago, Florida’s attorney general, Pam Bondi, blasted states that wouldn’t sign on to the settlement. But now it looks as though the holdouts had it right in forcing tougher terms on the financial institutions.
Last week, Bondi watched her own foreclosure-mill investigation fall apart when an appeals court denied her request to take an adverse ruling to the state Supreme Court.
Her office had been trying to investigate David J. Stern, whose Plantation law firm churned out an astounding 200 foreclosure cases per day on average at the height of the housing crisis, and several other law firms.
The strategy, however, was to use the Florida Deceptive and Unfair Trade Practices Act. The act governs trade and commerce, but was unclear whether it covers law firms. In December, the state’s 4th District Court of Appeals ruled that it doesn’t — and last week the court punctuated that ruling by saying the AG couldn’t appeal to the Supreme Court.
Now the future of the prosecutions is in doubt. As reporter Kimberly Miller put it in the Palm Beach Post: “More than a year and a half after the investigations were announced during a news conference convened by former Attorney General Bill McCollum, [Assistant Attorneys General Theresa] Edwards and [June] Clarkson have been fired, two of the firms have closed, and it is debatable whether there is a legal path to hold the Florida firms accountable.”
Some critics think Bondi is crying crocodile tears over the cases’ disarray. Other avenues are available to prosecutors, so why insist that this court ruling ties kills fraud investigations? “An unbelievable bit of chutzpah,” said the progressive Firedoglake blog.
Of course, there’s a long history of government institutions dragging their feet or looking the other way when it comes to foreclosure fraud. A great case history was provided in Sunday’s New York Times by the redoubtable business reporter Gretchen Morgenson. She told the story of Nye Lavalle, a Naples businessman who suspected he’d been fleeced when his family lost a home to foreclosure in the 1990s. Lavalle began investigating the mortgage industry and sent a load of evidence of improprieties — including shenanigans at the Stern law office — to mortgage giant Fanny Mae. That was back in 2003 and 2005.
In hindsight, what he found looks like a blueprint of today’s foreclosure crisis. Even then, Mr. Lavalle discovered, some loan-servicing companies that worked for Fannie Mae routinely filed false foreclosure documents, not unlike the fraudulent paperwork that has since made “robo-signing” a household term. Even then, he found, the nation’s electronic mortgage registry was playing fast and loose with the law — something that courts have belatedly recognized, too.
In 2006, Fannie Mae’s lawyers wrote a 147-page report corroborating most of Lavalle’s findings. But they didn’t act on what they found. They didn’t make the report public. They didn’t even send a copy to Lavalle. He didn’t even know the report existed — until a few weeks ago when Morgenson informed him.
It’s a story of epic blindness. A must-read.
Lavalle, by the way, now works as an expert witness, advising lawyers in Orlando and Boca Raton. He told Morgenson: “From my own personal experience and 20 years of research and investigation, nothing — and I mean nothing — that a bank, lender, loan servicer or their lawyer says or puts on paper can be trusted and accepted as true.”