The Obama Administration Wants to Ruin Your Neighborhood

According to this story, the Administration (in the voice of David Axelrod) sees no need to halt foreclosures while the authorities sort out the mess caused by the fraud committed by loan servicers.

“It is a serious problem,” said David Axelrod, who contended that the flawed paperwork is hurting the nation’s housing market as well as lending institutions. But he added, “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.

So Axe says “valid foreclosures” should go forward even while he admits that the servicers’ fraud is affecting the housing market.

Think about what that means. He says that foreclosures that are “valid” should go forward even as we learn more and more news about the huge numbers of foreclosures for which there may be no valid paperwork.

So the bank gets a house in foreclosure with purportedly valid paperwork. And then what?

Particularly in non-judicial states, where no one really reviews the paperwork, who is going to reassure potential buyers for that property that the title is valid?

Frankly, as someone in the market right now, I’ve begun looking critically at properties that were sold at any point during the housing boom–particularly those houses built and sold during the bubble. Because nobody knows whether that house has a clean title. And I’m not even shopping foreclosures.

In other words, until someone can do something to distinguish the clean titles from the crappy ones, savvy home buyers aren’t going to–and shouldn’t–be buying foreclosures.

But Axe says it’s a good idea to continue to force homeowners out of their home, even as the market for those homes will disintegrate until the title problem is fixed (and in his comment, he concedes the market is already being affected by this). It’s going to be harder and harder for banks–never enthusiastic property owners–to find buyers to take those homes off their hands. So those lawns will go unmowed, the houses will get vandalized, property tax won’t get paid, and–voila!–all of a sudden your home value is declining, too, making it much more likely you’ll walk away or do something to get out of the dead weight caused by the festering foreclosure problem.

This is just more of the same extend and pretend: put American homebuyers at risk while pretending that the banks did nothing legally inadequate or (more likely) fraudulent during the housing bubble, all in an effort to enable them to avoid paying any consequences for their mistakes during the bubble.

  1. WilliamOckham says:

    Particularly in non-judicial states, where no one really reviews the paperwork, who is going to reassure potential buyers for that property that the title is valid?

    That is the title company’s job. I used to work for one (in IT). This really will freeze up the market. Title companies are really risk averse. They have been raking in easy money for a long time. They will not like having to do real work.

        • bobschacht says:

          Eliot Spitzer is asking the same Q, and wants Geithner replaced. i.e., as long as Geithner is secy of treasury, the banksters won’t be jailed.

          Bob in AZ

        • scribe says:

          They will never prosecuted, let alone chided, for their conduct.

          Lest you forget, when Obama went to NY to chew them out at the NYSE or somewhere downtown (early last year), 3 of the biggest among them (Blankfein, Dimon and Pandit, IIRC) didn’t bother to show up and never got any shit for it.

          Lest you further forget, when Obama called the major banksters down to the WH later last year, for a Monday morning meeting to further jaw at them for failing to cooperate, three of them didn’t show up. Three of them (IIRC Blankfein, Dimon and Pandit, again), and their excuses were “too much fog” in NYC for their respective private jets to fly down on Monday morning.

          I said it then, and I’ll say it again now: the first of those incidents told Wall Street who was the pimp and who was the bitch, and Obama was the bitch. The second of those incidents told those in the world who hadn’t noticed the first the same thing.

      • cregan says:

        In our state, they are totally independent of realtors. And, if they insure the title with no “reservations,” you are usually very protected. But, I don’t know in your state.

        As a person who once worked at a bank, a long time ago, I know it is pretty wrenching to force someone from their home–though it wasn’t my area of work. I also know how bankers think.

        If the ultimate way they have to recover funds loaned out is taken off the table, or made less certain, the risk of any new loan is going to be that much higher. If there is a chance you can’t get your money back by a foreclosure sale, and you can’t depend on it, then you have to be VERY certain the loan will never go into foreclosure. Meaning, you will not be inclined to take any risk on any new borrower. Meaning, the qualifications you require to make the loans will be much tougher.

        This foreclosure situation is very tricky, truly.

        It already is much tougher to get a loan. This could boost that difficulty by a much bigger factor. More difficult means less loans made, less sales able to be made. Less sales, same supply; prices go down more. No economic recovery will happen at all until the housing market becomes stable.

        Like a sickness, the crap has to go through the system before you get well.

        It is really a on one hand, and then on the other dilemma. It ought to be certain the documents and procedures are followed as required. A break of a month or two to make sure is reasonable.

        • emptywheel says:

          Well, yeah, that’s why massive mods are in the benefit of everyone (they always were, but at this point that is particularly true). It’s the quickest way to make sure that whoever owns the loan still gets paid. It shares the blame for the inflated house purchases during the bubble between homeowner and banksters, and it slows teh devaluation of housing stock more generally.

          • thatvisionthing says:

            Am I wrong in thinking massive mods really don’t address the problem? Because I’m sure I’ve read that it would have been far cheaper up front in terms of fixing things if the TARP money had simply paid off all the mortgages, because it’s not the mortgages that are the big problem, it’s all the Wall St. casino bets on the mortgages, the unregulated, unaccounted credit default swaps, which there is not enough money in the world to pay off? It’s like musical chairs with a million people and one chair, so the “best” thing is to keep the music going? And now the systemic problem is that all the MERS/CDO crap is in everyone’s pension funds. It’s not just the houses, it’s the p e n s i o n s (air). GWB didn’t just play air guitar while New Orleans drowned, he played air money. Honey, I blew up the economy? Puff puff puff it’s a balloon? Puff puff puff *POP!* Sorry, I’m skittering. And I also wonder about what something else Ellen Brown said in her article:

            As was pointed out in a San Francisco Chronicle article by attorney Sean Olender following the October 2007 Boyko [pdf] decision:

            The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.

            . . . The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail . . . .

            because it’s not just the houses or the pensions, but then it’s the fraud lawsuits too. And it’s not just us, it’s the world. Honey, we blew up the world?

            The economy has already been blown up. We just don’t know it all yet. That’s Obama’s reality test, and so far… squat.

      • Synoia says:

        Title companies are not the same company as the realtor.

        However, listing Reltors generally try to specify the title company for the complete transaction. What’s not disclosed is that there are two title policies in most transactions.

        One to insure the sellers title is free and clear and a second required by your lender to ensure there are no encroachments. Get your own title company for the policy for which you are paying.

        You don’t just want a preliminary title report, which is just an offer of insurance. You need to demand a legally binding title abstract and chain of title.

    • thatvisionthing says:

      California’s a nonjudicial foreclosure state and thus is NOT one of the 23 that halted foreclosures. IWIWAL or IWIHAL but IANAL, nevertheless a couple of things to note:

      Ellen Brown’s article Homeowners’ Rebellion: Could 62 Million Homes Be Foreclosure-Proof?, that got picked up everywhere a couple of months ago, talked about a California case In Re Walker where Rickie Walker (Eastern Dictrict, with a Sacramento attorney) won a ruling that said MERS could not foreclose and Citibank could not collect. Brown quoted attorney Jeff Barnes, who blogged:

      This opinion . . . serves as a legal basis to challenge any foreclosure in California based on a MERS assignment; to seek to void any MERS assignment of the Deed of Trust or the note to a third party for purposes of foreclosure; and should be sufficient for a borrower to not only obtain a TRO [temporary restraining order] against a Trustee’s Sale, but also a Preliminary Injunction barring any sale pending any litigation filed by the borrower challenging a foreclosure based on a MERS assignment.

      Well that sounds hopeful, IIOHAL.

      The other thing I’d note is website Chase Chase I found that seems to keep a list of California cases that go for the homeowner against banks. I was surprised/delighted to see a (federal?) case where Vaughan Walker was the judge, since he seems like our hero here. Pasting in his paragraphs here, and if that’s not acceptable just go to the website and his case is the third one down. Would love to hear thoughts of lawyers here on this. I am loving this website especially because it links to court documents.

      <Sharma v. Provident Funding Associates, Case No. 3:2009-cv-05968
      Vaughn R Walker, Judge, U.S. District Court, Northern District of California
      Marc A. Fisher, attorney for Anilech and Parma Sharma

      Defendants attempted to foreclose and plaintiffs sued in federal court, alleging that defendants did not contact them as required by Cal Civ Code § 2923.5. In considering plaintiffs' request for an injunction to stop the foreclosure, the court found that plaintiffs had raised "serious questions going to the merits" and would suffer irreparable injury if the sale were to proceed. Property is considered unique. If defendants foreclosed, plaintiffs' injury would be irreparable because they might be unable to reacquire it. Plaintiffs' remedy at law, damages, would be inadequate. On the other hand, defendants would not suffer a high degree of harm if a preliminary injunction were ordered. While they would not be able to sell the property immediately and would incur litigation costs, when balanced against plaintiffs' potential loss, defendants' harm was outweighed.

      The court issued a preliminary injunction enjoining defendants from selling the property while the lawsuit was pending.

      [Links are all to PDFs:]

      * Complaint for Wrongful Foreclosure filed 12/21/2009
      * Points & Authorities In Support of TRO
      * Plaintiff’s Declaration in Support of TRO
      * Order Granting Preliminary Injunction filed 1/08/10

      I think what I walk away from is that one by one, if every one had a lawyer, they have grounds to win. But this reminds me of Grayson’s attempt to get the Florida Supreme Court to shut down foreclosures, and they said they did not have that authority and that he should go to the bar. Since just one of Florida’s foreclosure mills bags 70,000 houses a year, my analogy then was that the courts are like a deadhead train wreck about to happen, and the only way to rescue the 70,000 passengers is one at a time. Good luck with that.

      Help me Jerry Brown, you’re my only hope — ?

  2. Mason says:

    Apparently Axelrod is clueless, or he is aiding and abetting the massive fraudulent foreclosure conspiracy.

    Either way, he shouldn’t be in a position of trust and authority.

    What does it say about Obama’s judgment that he has faith in Axelrod?

  3. MadDog says:

    I know this is OT, but I’d appreciate if any of the resident lawyers (bmaz, Mary, etc.) could comment on this story:

    Gov’t won’t appeal decision to ban witness in NY

    The U.S. government has decided not to appeal a judge’s decision to ban a key prosecution witness from testifying at the first civilian trial for a Guantanamo Bay detainee, saying it would cause a delay.

    The government announced the decision in a letter Sunday to U.S. District Judge Lewis A. Kaplan, saying it would be ready to begin the trial against Ahmed Khalfan Ghailani on Tuesday.

    In the letter, Assistant U.S. Attorney Michael Farbiarz noted that the government disagreed with Kaplan’s decision and that it was something that would merit an appeal. But he said the government was prepared to prove its case without witness Hussein Abebe, and that other witnesses and victims had already traveled to New York for the trial…

    What I’m asking is whether the government in allowing Judge Kaplan’s ruling to stand will make for any precedent in regards to other pending or future detainee cases.

    I’m guessing not, or at least not much, but IANAL and would appreciate a more expert opinion.

    And a second question comes to mind: Does the government’s decision not to appeal preclude the government from ever appealing on this particular point?

    • scribe says:

      No. By not appealing the decision, there is no precedential value for future cases.

      It is neither easy nor simple to reduce the complexitites of when a decision is or is not a binding precedent to a general rule of thumb. However, what it boils down to is this: if the decision is appealed to the Circuit, then the Circuit’s decision is binding precedent in all District Courts in the Circuit. If there is no appeal, then the binding precedential value of the District Court’s decision is limited to (A) that particular district and (B) that particular case only. In this particular case, that would be the Southern District of NY and only the pending case (this part is called the doctrine of “law of the case”). This is because the District Court’s decision is grounded in the application of law to facts, while an appeal would be deciding whether the law is correct/ what the correct law is. The District Court’s decision, while not binding precedent requiring a specific result, remains what courts call “instructive”, i.e., other courts can (and likely should) look at it as an exposition of how to apply existing law to their facts. But they are not bound by it because they inevitably have different facts in their case.

      So, the government has decided to not appeal an adverse decision for fear of making it worse for the government’s torture programs. They did much the same when confronted with an adverse decision in Jose Padilla’s original case in the SDNY, where he was initially held. When the court ruled against the government on the habeas petition, they moved him to a different state and invoked a doctrine in habeas cases saying that the habeas case has to be brought in the state where he is located, so the New York decision was invalid. That was affirmed in Padilla’s first trip to the Supreme Court.

      So, in short, the government is milking the system to get the results it wants and negate the power of the results it does not want.

      And please disabuse yourself if you think Kaplan’s decision means some new dawn of justice on the issue of torture – he stated in his opinion that the government might still take the defendant into indefinite detention even if he was acquitted. It was pretty much an open invitation to them to do so.

  4. Arbusto says:

    I expect Title Insurance t&c’s will soon be modified to muddy their requirement for payout on houses that ever went through foreclosure, even though proving clean tile is currently part of their service. Who reads the insurance policy prior at close of escrow and how many companies give boiler plate to their customers to read prior to close of escrow?

  5. parsnip says:

    I think this is more like HAMP2, which was meant not only to extend and pretend, but also to squeeze a few more payments out of those who otherwise may have stopped paying without a ray of ‘HOPE’. Gonzalo Lira writes that HAMP was exploited by Fannie to make it look profitable, putting thousands into HAMP, then dumping them after three months whether they qualified or not.

    After reading The Finality of Foreclosure Sales it seems clear that the plan now is to stall a bit longer while the banks foreclose on as many homes as possible before the window slams shut for a long time. So I see a comparison with this notion of ‘valid foreclosures’ and HAMP. And is David Axelrod personally deciding which foreclosures are ‘valid’? What a puketastic perception management term that is. ‘Valid foreclosures’ = ‘Mortgage Deadbeats’ = the new Welfare Queens.


    Many have asked how can one get title insurance on any home sold, that has had a mortgage in this decade, even if it has no foreclosure? The same busted chain of title would still apply. There’s no way to unbreak it, just because the mortgage gets paid off… some entity….that may not actually own the note.

    • emptywheel says:

      I think it must be. I was agonizing in the airport over whether that was it or not but decided I wasn’t sure enough to drop the $$.

      Gonna have to find it and try it again. Cause if that’s it, that was wonderful.

  6. PJEvans says:

    It’s going to be harder and harder for banks–never enthusiastic property owners–to find buyers to take those homes off their hands. So those lawns will go unmowed, the houses will get vandalized, property tax won’t get paid, and–voila!–all of a sudden your home value is declining, too

    I’ve heard that banks are moving slowly on foreclosures where the ‘homeowner’ is still living in the place, because the banks don’t have to pay for security and upkeep if someone is actually there. (This is not necessarily a good assumption: I know people who are in foreclosure, living in the house, and not doing any more maintenance than they absolutely have to. (Not that they were doing much before, either….))

  7. thatvisionthing says:

    “It is a serious problem,” said David Axelrod, who contended that the flawed paperwork is hurting the nation’s housing market as well as lending institutions. But he added, “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.

    Excuse me, just what secret intelligence does Axelrod have access to about valid foreclosures that probably should go forward? That is one amazing statement. Carnack the presidential advisor channeling Carnack the judge opining on The Bank of Carnack’s suit?

    Also, we go to senseless wars and kill a million innocent people to “protect” us, and we lose our civil liberties and our Constitution to “protect” us, right? That’s what presidenting’s all about, right? Yet with all this public evidence of fraud, Obama won’t step up and protect us for real, for once?

  8. prostratedragon says:

    Oh not to worry, for a few title insurers appear, or appeared, to have, on a piecemeal basis, already stopped writing some policies to cover certain new purchases out of foreclosures initiated by one or two particular servicers.

    The largest such insurer so far appears to be Old Republic, which is one reason the move seems to be more a shot across someone’s bow, or maybe just a signal flare.

    (Yeah, caution is more than justified, you know, on a personal basis right in through here, if one is interested in buying. At least.)

  9. thatvisionthing says:

    Reading the article EW’s writing on. And in that corner with Axelrod, we have… Eric Cantor:

    The No. 2 House Republican, Rep. Eric Cantor of Virginia, said a national moratorium would remove the protections that lenders need.

    “You’re going to shut down the housing industry” with a national stoppage, Cantor said. “People have to take responsibility for themselves.”

    * GASP *

  10. pdaly says:

    The troubling detail I read from Congressman Grayson’s letter (via Cynthia Kouril’s post on The Seminal) to Geithner and the FSOC

    Obviously these originators and servicers didn’t keep good records of who owed what to whom because the point was never about getting paid back, it was about moving as much loan volume as possible as quickly and as cheaply as possible. The banks didn’t keep good records, and there is good reason to believe in many if not virtually all cases during this period, failed to transfer the notes, which is the borrower IOUs in accordance with the requirements of their own pooling and servicing agreements.

    has me wondering about houses with good titles before this mess began. Let’s say a homeowner took out a mortgage in the 2005-2008 time period on a house with a good title. In thirty years when this mortgage is paid off, will there be a similar lack of standing among the servicers/banks to confirm that the deed can now transfer in whole to the homeowner? Same question if the home owner sells early, before paying off the mortgage.

    In other words, is foreclosure somehow different than the above or is it merely bringing the problem of missing documentation to light decades early?

    • bobschacht says:

      What I want to know, in today’s climate, as a home owner who bought my house a year ago, should I be worried about my title? Should I ask questions, or would that just open a can of worms for me?

      Bob in AZ

    • bobschacht says:

      Cynthia Kouril’s article is a must read. Grayson is acting like a real public servant! I hope his letter gets lots of press coverage.

      Could this provide Elizabeth’s first major test as Presidential Assistant?

      Bob in AZ

    • wavpeac says:

      At some point there were multiple postings from people who just bought a house, were not late on payments and were being foreclosed on. I found them on complaints boards as I was researching my situation with GMAC. There were multiple complaints from folks who bought a house, never missed a payment, but whose mortgages were sold to another company and suddenly they were in foreclosure.

    • thatvisionthing says:

      succinct Grayson:

      When lenders – many of whom are now out of business – originally lent money to borrowers, they often did so knowing that the terms of the loans could not possibly be honored. They sought fees, not repayment. These lenders put people in predatory loans, they induced massive amounts of fraud, and Wall Street banks misrepresented these loans to investors when they moved through the securitization chain. They were stealing money from investors, and from homeowners.

      succincter Grayson:

      So far, banks are claiming that the many forged documents uncovered by courts and attorneys represent a simple ‘technical problem’ with foreclosure processes. This is not true. What is happening is fraud to cover up fraud.

      succinctest Grayson:

      They were stealing money from investors, and from homeowners.

      What is happening is fraud to cover up fraud.

      • pdaly says:

        Some Harvard Business School person on NPR today couldn’t muster the word “fraud.”

        To paraphrase he stated the sudden interest in the ‘sloppy paperwork’ was due to greed on the part of lawyers looking to make a quick buck. Lawyers taking advantage of understandable paper mistakes that occur when you’re dealing with large amounts of transactions, blah, blah. No mention of systemic fraud, fraud on the courts, fraud on the investors, fraud on the homeowners foreclosed upon.

  11. pdaly says:

    And what happened to the early reassurances after the housing market crashed that it is China’s problem now, because the tranched and repackaged mortgages had been sold off in large part to China?
    (I think this one came out after ‘poor families buying houses they couldn’t afford’ and after ‘it’s all Barney Frank’s fault’ had been trial ballooned in the press).

  12. klynn says:

    It’s not just ruining neighborhoods. It is ruining schools. Our district was not suppose to have an operating levy for two more years. Due to the foreclosure rate, the district is being forced to have a levy.

    If it does not pass, the cuts will be drastic.

    • thatvisionthing says:

      A lovely qui tam lawsuit paragraph for local governments in Ellen Brown’s article:

      Local governments deprived of filing fees may also be getting into the act, at least through representatives suing on their behalf. Qui tam actions allow for a private party or “whistle blower” to bring suit on behalf of the government for a past or present fraud on it. In State of California ex rel. Barrett R. Bates (PDF), filed May 10, 2010, the plaintiff qui tam sued on behalf of a long list of local governments in California against MERS and a number of lenders, including Bank of America, JPMorgan Chase and Wells Fargo, for “wrongfully bypass[ing] the counties’ recording requirements; divest[ing] the borrowers of the right to know who owned the promissory note . . .; and record[ing] false documents to initiate and pursue non-judicial foreclosures, and to otherwise decrease or avoid payment of fees to the Counties and the Cities where the real estate is located.” The complaint notes that “MERS claims to have ‘saved’ at least $2.4 billion dollars in recording costs,” meaning it has helped avoid billions of dollars in fees otherwise accruing to local governments. The plaintiff sues for treble damages for all recording fees not paid during the past ten years, and for civil penalties of between $5,000 and $10,000 for each unpaid or underpaid recording fee and each false document recorded during that period, potentially a hefty sum. Similar suits have been filed by the same plaintiff qui tam in Nevada and Tennessee.

      The internal link goes to Case 49097, Department 1, California Superior Court, Lassen County – First Amended Complaint, but I don’t know how to follow that in court. Lawyers here?

  13. timbo says:

    What the Obama administration officials are ignoring is the impact this is having on local tax revenues and businesses in neighborhoods where foreclosures continue apace. The reason for a third party in the next Presidential election cycle continues to grow every day…