Class Actions for Wrongful Foreclosure?

Dec 11, 2015

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This is not a legal opinion on any individual case. It is for general information only. Get a lawyer.

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When I wrote about the class actions my opinion was based upon analysis I had done several years back. I am no expert on class action, but I had previously come to the conclusion that a class action, while theoretically viable, would be difficult to certify. Upon reflection that analysis could be wrong.

As a short preface, I will outline my premise.

My factual premise is that Wall Street brokers acting as investment banks created fictitious entities (Trusts). The trust instrument was called a pooling and servicing agreement (PSA). from that trust instrument various parties had powers and authority to do certain things once a loan was admitted into the trust pool of mortgage loans. If the trust was in fact never funded, then the trust entity could not have purchased the loan as set forth in the PSA. It was the “perfect crime.” They were doing IPO’s for entities that didn’t actually exist and where the “Trustee” had contracted away any right to review or even inquire about the business of the Trust, which of course did not exist.

The facts are that the trusts were never funded, the “trustee” had no powers, the trust had no res, and none of the trusts actually acquired any loan through purchase because they lacked the financial resources to do so. The Brokers on Wall Street issued what appeared to be mortgage backed securities that were neither mortgage backed nor securities.

This caused the banks — in cases where there was active litigation — to fabricate, forge, back-date, robo-sign and otherwise create the illusion that they had the right to foreclose and that they had the right to modify, which they did not. It is on this basis that many cases have been won by lawyers (including myself and Patrick Giunta).

What they were concealing was that they were selling every loan multiple times. A foreclosure sale would be a rubber stamp from a valid governmental authority that would create the illusion that the state processed the foreclosure using the fraudulent documents prepared by or for the Banks. It implied that the proper parties had brought the action, that the balance sought was a true balance, and that the creditor, servicer and homeowner were the only real parties in interest.

A foreclosure sale enabled the Banks to report to multiple buyers of the same loan that the loan failed, thus diminishing the liability of each Bank to repay all the entities, insurers, hedge fund managers etc.. And THAT is why the modification process became so convoluted and usually led to foreclosure. A modified loan keeps the Bank’s liability as a current threat on the horizon where they might owe as much as $8 million for a $200,000 “loan.”

The TARP program is illustrative of the problem created by the Wall Street banks. At first it was issued as a bailout for failing mortgages. When it was revealed that the banks actually didn’t own the mortgages. TARP was expanded to include failed mortgage bonds issued by the trusts. When it was revealed that the bonds were SOLD by the banks, not purchased by the banks, TARP’s definition was morphed into merely the vague term “troubled assets). The Maiden Lane entities were the trash receptacles for the worst of the toxic waste created by the Banks.

There were many ways to deal with the banks who had executed a Ponzi scheme based partly on the Madoff scheme. The problem was that the illicit siphoning of money out of the U.S. Banking system had been channeled through conduits off shore and invested in non-perishable commodities like tin, copper,zinc and even lithium. There was no time to track down the money trail. So government was actually afraid that there would not be sufficient buying of US debt and that the government would collapse from lack of funds — not that the financial system would collapse because there are 7,000 regional, community banks and credit unions that use the exact sale electronic backbone for posting electronic funds transactions as the large banks. But a deal with the large banks was easier to assure continued buying of US debt instruments.

After multiple studies (2007-2011) by universities, county recorders, and other independent organizations it was quickly determined that nearly all of the foreclosures were being done by “Strangers” to the transactions (San Francisco study) and that the original notes were being intentionally destroyed (Porter study, University of Iowa) because they were evidence of misrepresentation as to the nature and amount of the actual loans the banks were approving, using the money of investors (pension funds etc.).

The short story from this point is that it was only by fabricating destroyed documents that the foreclosures could proceed. At one point LPS in Jacksonville actually published a menu of services and costs to fabricate and forge documents.

Up to this point I think my analysis holds — no class action will be certified under current rules. But there is one more factor that I wasn’t thinking about when someone recently posed the question to me.

All the banks entered into consent decrees with government agencies and a 50 state settlement in which the finding by the agency was present and the banks neither admitted nor denied those findings but agreed to pay billions of dollars for wrongful foreclosure and other alleged misbehavior and the Banks further agreed to perform reviews prior to initiating foreclosure. The banks used investor money for the fines and damages and they did not perform the reviews — because if they had, the foreclosure rate would have sunk like a stone.

My current thought, then is that if Federal and State Agencies, combined with Federal Agencies effectively treated the issue as a class action, then the problem of certification might be argued as having already been decided. Homeowners are getting paltry checks from the banks (without waiving any rights of action against the banks) for wrongful foreclosure. Those checks, in the hundreds of dollars, sometimes over a $1,000 could be regarded as a down payment. And since those checks emanated from what in substance were class actions by government entities with agency findings that have an arguable basis for being considered presumptively correct, the class action could be for the REST of the money which amounts to trillions of dollars.

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