Third Way “Solution” to Foreclosure Fraud? Limits on Rule of Law

The Third Way has just released a response to the US Bank v. Ibanez decision that purports to offer a solution to the foreclosure problem.

I’m sure others will point out other problems with this document: its embrace of the “strategic default” myth, its focus on the Uniform Commercial Code rather than the Pooling and Servicing Agreements that govern securitization, its confusion of the dual track problem with the robo-signer problem, its apparent ignorance of other problems in foreclosure fraud, such as insufficient notice to homeowners, even though that, too was an issue in Ibanez.

But I wanted to point out something about the first step in its purported remedy, in which it describes how to protect injured homeowners. It includes among its injured homeowners:

  • Those who were current on their mortgage payments but who were foreclosed on anyway
  • Those who were robo-signer foreclosed via on while awaiting a modification decision
  • Those who were robo-signer foreclosed while in the process of short-selling their home
  • Those who had made a payment on delinquent mortgage but were foreclosed “because of a faulty process that failed to take that payment into account”

Note how carefully this paper avoids admitting the improper payments that servicers often use to force people into foreclosure, which are a separate problem from robo-signing?

In any case, here’s the remedy the Third Way advocates:

These aggrieved borrowers should be entitled to four things: (1) the immediate suspension of foreclosure proceedings; (2) the right to sue for actual damages caused by a wrongful signed foreclosure; (3) access to a 30-day expedited application process for loan modification if they have an application pending (but without a guarantee the modification will be granted); and (4) a refund of any fees and charges assessed by the bank, as well as protection from any deficiency judgments (if a borrowers was seeking a modification or short sale). [my emphasis]

It goes on to suggest that banks should be in charge of points 1, 3, and 4. That is, while elsewhere it espouses putting the Consumer Finance Protection Board in charge of standardizing servicing, it does not want the government involved in the process of “protecting injured homeowners.” Maybe that’s so it can retain for the banks–as it does later in the paper–sole discretion whether or how to modify loans. That is, even while the paper admits Ibanez shows that the banks still have a shitpile problem, it doesn’t want banks to take the hit for the fact that they don’t have legal standing to foreclose on the loans they’re foreclosing on. Nor does it really provide a solution for what to do with truly delinquent loans on which banks do not have legal standing to foreclose. Nor does it say what happens when people are denied a modification by a bank that doesn’t have the legal right to foreclose.

Meanwhile, the paper remains silent on who should be in charge of point 2.

You know, the right to sue, that right protected by the Constitution?

But of course, point 2 is not actually a protection. Rather, it is a limitation on their protection. Rather than admit that property owners have the right to sue in this country, the Third Way thinks that we can best protect them by limiting their right to sue to actual damages.

And the Third Way supported limit to rule of law goes further. It calls for Congress to bail out the banks holding shitpile by:

  • Eliminating foreclosure challenges on vacant or abandoned homes
  • Eliminating foreclosure challenges on borrowers who defaulted 18 months ago who have not cured the default
  • Instituting 12-month statutes of limitation on “paperwork-related” lawsuits

To begin with, their envisioned bailout doesn’t account for many realities: homeowners who were harassed into leaving their home, homeowners who are only in default because of the often-undisclosed and exorbitant fees banks slap onto late payments, and homeowners who did not get proper notice of the foreclosure. The Third Way wants to take away the right to sue of all these people, even though they have a legitimate grievance.

But don’t worry, Third Way says, this does not amount to letting banksters avoid any consequences for their actions:

What it emphatically does not do is shield bad actors from the consequences of their behavior. A safe harbor and statute of limitations will do nothing to protect banks and their lawyers from the investigations currently underway by state attorneys’ general across the country.15 Nor will it prevent disbarment and other consequences that are likely to be suffered by lawyers at the “foreclosure mills” at the heart of the robo-signing scandal. The now infamous firm headed by David J. Stern in Florida, for example, “has seen its fortunes plummet, with major clients, like Fannie Mae, Freddie Mac, and Citigroup, cutting ties to Stern. Stern’s operation has also laid off hundreds of employees in recent weeks.”

The consequences the Third Way believes are adequate for bankster trying to take property they don’t have legal standing to take, resorting to legal fraud to do so, involves an Attorney Generals’ investigation that itself says will include no criminal charges, disbarment no one expects to happen, and the loss of business.

But nowhere does the Third Way envision the banksters will have to take a financial hit on the value of these loans, much less any legal consequences for fraud. Now, ultimately, the former may well be negotiated by the Attorneys General. But the Bill Daley-connected Third Way seems to see the Ibanez decision as a moment to offer pseudo-solutions that are not only inadequate, but stop short of what would otherwise come out of the Attorneys General “investigation.”

In short, this seems like an admission by the Third Way that the shitpile remains a serious problem. But also an attempt to preempt processes already underway to solve the shitpile. Not to mention eliminate legal recourse for many of the people who have been wronged here.

Update: The more I think about this paper, the more it seems like Third Way is saying, “Congress, we’ve had a major setback in the courts. Can you please make sure to 1) limit access to the courts and 2) preventing any more of these judgments that will reveal just how deep the shitpile really is?”

  1. earlofhuntingdon says:

    A bankster-protecting proposal from a supposedly grass-roots, consumerist perspective. What will the banksters think of next? Did I see a reference to reforming the Bankruptcy Code to allow for cram downs of first mortgages, as an encouragement to bring banksters to the table and to help homeowners stay in their houses, which entails all the positive knock-on effects for their communities?

    On your update, I bet Congress is listening, because there once again is the implied threat that if it doesn’t get them out of this further mess of their own devising, they will once again bring down the system – or threaten to do so and lay blame at the feet of uncooperative liberals. That doesn’t bode well for the inevitable further gas clouds rising from that pile, such as the looming losses stemming from credit card frauds.

  2. DeadLast says:

    The big problem I see is that this approach also assumes that a bank has the right to foreclose. The SCOMA decision was pretty clear: the banks could not foreclose if they did not own the note at the time of foreclosure. In addition, an act of congress to change this would upset almost all constitutional contract law as well as violate states’ rights provisions in the constitution. The banks like to argue that since they are federal-chartered, state laws don’t apply to them. However, in this case and most cases, the banks are arguing that they are the TRUSTEEs in the cases, not the actual owners. Federal banking laws do not regulate the trustee functions of banks, rather state laws do. If being a trustee function is deemed part of the banking relationship, then the banks have a big conflict-of-interest mess on their hands in terms of acting as trustees, since many of their trustee actions would now be rolled up under the banking regulations.

    One thing is clear, this decision got a lot of people’s attention!

    • jpe12 says:

      Minor correction: the SCOMA decision was about who held the mortgage. Because in MA the mortgage doesn’t follow the note, the ownership of the note had no bearing on the case and, accordingly, wasn’t germane to the decision.

      • DeadLast says:

        I disagree. Much of this case is that it is a land case and not a security case. The decisions states:

        In a “title theory state” like Massachusetts, a mortgage is a transfer of legal title in a property to secure a debt. See Faneuil Investors Group, Ltd. Partnership v. Selectmen of Dennis, 458 Mass. 1, 6 (2010). Therefore, when a person borrows money to purchase a home and gives the lender a mortgage, the homeowner-mortgagor retains only equitable title in the home; the legal title is held by the mortgagee. See Vee Jay Realty Trust Co. v. DiCroce, 360 Mass. 751, 753 (1972), quoting Dolliver v. St. Joseph Fire & Marine Ins. Co., 128 Mass. 315, 316 (1880)
        (although “as to all the world except the mortgagee, a mortgagor is the owner of the mortgaged lands,” mortgagee has legal title to property);Maglione v. BancBoston Mtge. Corp., 29 Mass.App.Ct. 88, 90 (1990). Where, as here, mortgage loans are pooled together in a trust and converted into mortgage-backed securities, the underlying promissory notes serve as financial instruments generating a potential income stream for
        investors, but the mortgages securing these notes are still legal title to someone’s home or farm and must be treated as such.

        Looking at some of your other comments, I suggest you read the decision. It is quite clear as to the points of law. The banks actually tried to make many of the arguments you a positing, and they were firmly rejected.

        • jpe12 says:

          Let’s look at the parts of the decision you cited:

          In a “title theory state” like Massachusetts, a mortgage is a transfer of legal title in a property to secure a debt.

          IOW, the case is about mortgages. Not notes. They discuss notes briefly only to explain that mortgages don’t follow the notes, so the status of the notes is irrelevant. Instead, they need to look at the assignment of the mortgages.

          You should try reading the decision and *then* commenting.

          • DeadLast says:

            I am not trying to get into a pissing match with you. I used the word “note” and “mortgage” interchangeably. A mortgage, in MA, was decided by the court to be one form of owning title, which I equate with ownership (one of the ‘bundle of rights’.

            One of the big problems with this whole mess is what the various terms mean. For example, discussing the idea of “chain of title” has become very muddled in this crisis, so much so that one commentator has suggested that we start using “chain of MERS” so as not to muddle the discussion.


            • jpe12 says:

              It’s hardly my fault you don’t know what the terms mean.

              If you don’t, maybe you shouldn’t accuse others of not reading legal opinions that you clearly don’t understand.

  3. orionATL says:

    clicking on “just released a response” brings one face-to-face with this:

    [ Fixing “Foreclosure-gate”

    by Anne Kim and Jason Gold

    Late last week, Massachusetts’ highest state court upheld a lower court ruling invalidating two foreclosures due to improper paperwork by banks. This case is certain to set off a massive wave of litigation by homeowners and lawyers eager to challenge a pending foreclosure.

    Before “foreclosure-gate” opens the floodgates for both litigation and greater market uncertainty, policymakers need to step in with a common sense solution. As egregious as the paperwork failures were in the Massachusetts case, it would be far more damaging to the American economy if every foreclosure and every securitization were suddenly open to question.

    This new Third Way memo outlines a set of solutions aimed at ending the potential crisis touched off by the Massachusetts ruling. ]

    that last sentence tells me all i need to know about The Third Way’s funding or policy leanings -finance industry funded astro-turf org masquerading as a thoughtful, non-ideological answer to our political prayers:

    “…This new Third Way memo outlines a set of solutions aimed at ending the potential crisis touched off by the Massachusetts ruling.”

    – “potential crisis” for whom?

    homeowners cheated out of their homes?

    local govts cheated out of settlement taxes AND real property taxes?

    a legal system cheated out of a long-established property recording and tracking system?

    or poor bundled-mortgage slicers and dicers and sellers?

    -what might that crisis be, in detail?

    insolvent banks?

    more govt bailouts?

    and how about that speed, huh?

    looks some folks at the third way must not have gotten much chance to watch football last weekend – or to sleep.

  4. MsAnnaNOLA says:

    Don’t forget that some of these things that they are doing to homeowners are “Mortgage Servicing Fraud”. See this website for some horror stories:

    It really gives you pause to take out a mortgage for a home. You have no control whatsoever over what company has the rights to service your mortgage. They can and absolutely do steal peoples homes and equity.

  5. Mary says:

    Drive by – I haven’t read any of it, but I’m thinking rather than “Universal” Commercial Code they must be talking about the Uniform Commercial Code. ?

    • jpe12 says:

      Yeah, they reference the Uniform Commercial Code in the course of noting that securitization is, theoretically, a legitimate transaction.

    • tammanytiger says:

      Drive by – I haven’t read any of it, but I’m thinking rather than “Universal” Commercial Code they must be talking about the Uniform Commercial Code. ?

      Yes, but NBC Universal bought the rights to the UCC. It is unknown how many state legislators it also acquired in that transaction.

  6. lsls says:

    I’m sure this sounds stupid, but it really seems like “someone” is amassing enormous amounts of real estate at pennies on the dollar for what…eventual resale…or for land?

    • jpe12 says:

      It’s about servicers limiting their losses. The longer a property is in foreclosure, the less they make (or, rather, the more they lose). Profit for servicers w/re/to foreclosure looks like a negative parabola: they make a lot in fees if a borrower is in arrears for a little, but the longer they’re in default, that profit starts to turn into loss.

      • PJEvans says:

        It’s about the banks hoping the real estate market recovers quickly, so they can get back all the money they think they’re owed on all that real estate that’s now worth 25 to 30% less than what the mortgage was written for.
        (Ain’t gonna happen. They should have accepted cram-downs when they had the chance.)

    • prostratedragon says:

      Land has always been my conjecture.

      It does take a lot of time and patience to pay off, though. If you just let it sit there while you wait, you don’t get any income from it.

  7. victorx says:

    Your second paragraph begins: “I’m sure others will point out other problems with this document: its embrace of the “strategic default” myth”

    Following the link provided leads to Mike Konczal’s blog but all it says is that Mike doesn’t like the standard that Experian used to define a strategic default in its analysis. He doesn’t offer alternative calculations or explain away the Federal Reserve’s related findings.

    I haven’t formed an opinion as to whether “strategic defaults” are an epidemic or not. If you could cite anything that supports your position that it’s just a myth, that would be greatly appreciated.

  8. DrDick says:

    Can we dispense with the pretense that the “Third Way” clowns are anything other than moderate Republican corporatists who hate the Teabaggers who have taken over their party? This is a perfect example of their agenda to protect corporations and their profits from any accountability to the American people.

    • nonquixote says:

      Third Way, No Labels, same astro-turf.

      Today, Kathleen Dunn hosted WPR call-in radio guest, Sean Gibbons, Director of Communications, The Third Way. Topic was more about needed civil discourse in politics related to Tucson, etc. Gibbons completely minimized and dismissed a caller who suggested that incivility was partly due to corporate control over the media message and iirc mentioned Citizens United. Gibbons kind of said, well what corporations exactly and the caller was not answered. I tried challenging the guest by phoning in but was not put on the air. Not having any luck downloading the archive of the show with dial-up at the moment.

  9. jpe12 says:

    e. In addition, an act of congress to change this would upset almost all constitutional contract law as well as violate states’ rights provisions in the constitution.

    Mortgages certainly impact interstate commerce, so Congress can clearly regulate them (as they have multiple times, such as w/ the Truth in Lending Act)

  10. BeachPopulist says:

    Nobody here really expects the Obama Bankster Crime Administration and its capos in Congress not to step in and insure the screwing of the homeowners, do they?

    I mean, is anybody still delusional enough to believe that justice and the rule of law will prevail? Obama will be using his powers of indefinite detention without charge to put lawyers and judges in jail before he’ll allow anything faintly resembling justice to happen.

  11. Sebastos says:

    In Deadly Spin, Wendell Potter points out that astroturfers routinely try to portray the very industry that is the source of the problem as “part of the solution”. It’s SAP (Standard Astroturfing Procedure).

  12. rickg says:

    Mary @ 8: I believe you are correct about it being the Uniform Commercial Code (UCC).

    The foreclosure endgame is a mysterious one, as there really isn’t a whole lot of market for the current vintage of foreclosures. Investors aren’t looking to pay retail and the mortgage amounts due are large premiums to market price. So why foreclose? As best I can tell, it is all about keeping the accounting “kick the can down the road” activity alive and kicking, so the banks don’t really have to “realize” the actual loss on the property.

    I had occasion to check a sheriff sale listing in New Castle County Delaware in July 2010, as there was a property nearby listed. When I went back to check the results, that foreclosure vanished along with a bunch of others. Of the approximately 70 properties that were brought to auction, only 2 sold to anyone other than the mortgage holding bank. I am guessing this circular pattern allows for some deferral of the ultimate day of reckoning.

    I also am familiar of another nearby property with a “hard money” mortgage lender, where the remodeled and expanded home is incomplete, the “owner” bailed 2 months ago and is four months behind in payments. The electricity has been turned off for two months. The house doors are unlocked. The lender knows this and has done nothing.

    He has two or three potential buyers for the place, but isn’t taking any action. The lender has to just be running on fumes of hope that the grifter deadbeat (male) who bailed on the house finds some lonely divorcee with a bank account and a credit rating to rescue him. (He’s tried and failed on this three or four times already)!

    The shitpile along with a bunch of other things will take us to Eric Janzen’s “post catastrophe” economy.

  13. MadDog says:

    OT – Via the AP:

    Senators say military cyber ops not disclosed

    The Pentagon failed to disclose clandestine cyber activities in a classified report on secret military actions that goes to Congress, according to a Senate document that provides a public peek at oversight concerns surrounding the government’s computer war capabilities…

    This comes as a total surprise. NOT!

  14. seabos84 says:

    turning thieving by despicable rich pig scum into some legal 10,000 page indecipherable tome is a brilliant strategy by the scum, for the scum, of the scum.

    this is REALLY a simple math problem:

    IF it is complicated AND requires too many rules & lawyers, THEN us peeeons are getting fucked.


  15. MarkH says:

    If there’s a national interest in resolving this in some unique ad hoc way, then I would like to see the information proving it.

    The Democrats tried to offer the cram-down law to help everyone ease through this difficulty, but the Republicans and banks said “No”. They picked this (current law) way because they thought it was to their favor. Now let them deal with it.

    Rule of Law !!!!!!!!

    As the old saying goes, “Be careful what you wish for.”

  16. orionATL says:

    jpe12, deadlast, or other knowlegeable folk,

    in how many other states, following sale or refinance, do the mortgage doc and the note go their seperate ways?


    in how many states is the possession of the mortgage doc the legal criterion for foreclosing?

    please do not focus too much on “in how many states”; maybe you can speak only about your state, or only about the northeast, ca, swest, south…

    the point of my question is curiosity about how generally (or not) the mass sup ct decision might
    apply to real estate law and legal custom in other states.

    • DeadLast says:

      One of the big issues is whether the foreclosure occurs in a judicial foreclosure, meaning that a judge has to review the documents (like in Florida) or whether the process is completed as “a sale on the courthouse steps — a non-judicial foreclosure. Some states do both, altough I don’t know what the logic is.

      This website lists the states by foreclosure type.

      One of the issues with robo-signers was that their paperwork was being presented to judges in judicial foreclosures as being factual and accurate. Here in California, that was not a big issue. This may end up being quite big.

  17. john in sacramento says:

    OT but I signed up for emails from Townhall, so I’d know what they’re talking about, and in my inbox today was this

    Townhall Magazine Identifies the Top 50 Most Dangerous Liberals in the U.S.

    Every conservative knows that liberals are working hard every day to recreate this country in their own image, tarnishing our great history and the hard-working people who live here. While some of the faces of the Left are too clownish to be taken seriously (see Keith Olbermann) others shy away from the limelight in order to push their agenda from behind a veil. Those people are some of the most dangerous liberals that threaten our way of life. Not to take away from some of the more obvious liberals, like the Barack Obamas and the Barney Franks of the world, there are many who push the leftwing radical agenda.

    In the latest issue of Townhall Magazine we have identified the top 50 most dangerous liberals in America. We also have exposed their secret agendas, some as devious as any threat to the United States. Below are a few snippets from the list. Take a look and then get Townhall Magazine today!

    Subscribe to Townhall Magazine today to get the entire list and you’ll also receive a FREE book from a conservative author!

    Here’s the pic that came with the email

    You’d think that four days after what happened in Az, that someone would say, ‘not the greatest timing’ for this headline

  18. shekissesfrogs says:

    The “Third Way” is interchangeable with the DLC, it’s full of Blue Dogs and New Democrats. They specialize in orwellian rebranding.

    The DLC states that, [3] “Starting with Bill Clinton’s Presidential campaign in 1992, Third Way thinking is reshaping progressive politics throughout the world. Inspired by the example of Clinton and the New Democrats, Tony Blair in Britain led a revitalized New Labour party back to power in 1997…

  19. orionATL says:


    your comments are much appreciated.

    thanks for taking the time to inform us

    (“us” including many, many readers who never comment but are deeply interested in these matters and silently follow along).

  20. lawgrace says:

    American consumers are at the mercy of State Attorneys General to vigorously investigate and prosecute economic fraud –of all types. Even prior to AG Tom Miller’s “deal” with mortgage lenders who deliberately engage in foreclosure fraud, scores of people needed to be jailed so that mortgage and foreclosure fraud can be deterred. On the other hand, understandably, limited facts and evidence can leave authorities with little choice except to “deal” (like plea bargain).

    Instead of hope and demand that out-of-control judicial and political systems somehow right itself, Americans need to DO our part –or at least weigh what IS our part. Pro-action accomplishes better results than (notwithstanding any justification) posting commiserating, blaming, or angry comments and statements on the Internet regarding our nation’s mortgage crisis. Ethical lawmakers, activists, news media –and particularly investigative reporters who put their safety on the line, are not solely responsible for exposing fraud and corruption.

    Contained in the petition, “Request for Congressional Foreclosure Panel to Examine Foreclosure Lawyers” @ are details and illustrations about foreclosure frauds being carried out by some lawyers who file foreclosure proceedings in civil as well as bankruptcy courts. Individual consumers can help law enforcement to curtail and / or prosecute frauds associated with foreclosures by providing facts and information similar to descriptions in that petition. (It is certainly the BETTER ROUTE than people copying / buying various publications via the Internet, and thinking that they can take on court systems –particularly in light of the few grounds for opposing foreclosures successfully, instead of delaying them.)

    Hopefully people continue signing and sharing the petition. But hopefully they will also heap upon offices of Attorneys General, information / evidence about foreclosure-judicial wrongdoing.

    *Additional discussion about foreclosure illegalities at: “Commentary on: “Emerging Battleground on Mortgage Abuses: Foreclosure Mills” @

  21. DyingTruth says:

    You do know that “the Rule of Law” is not an expression as to a ‘Rule’ as in ‘Rules’, but is actually the established sovereignty under the ‘Law’ as our ‘Ruler’, like our King during its reign. In England the basic system was “Rex Lex” -latin- “the King is Law”, our country adopted an opposite design “Lex Rex” -latin- “the Law is King”.

  22. Jim says:

    Isn’t also fraudulant to sell a home that you don’t have the deed for? Isn’t that what the banks have been doing for 10 years?