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Foreclosure-Gate Settlement--More Thoughts

posted by Adam Levitin

[Updated 3.8.11]

Some bloggers on the left (e.g. here) and on the fringe right (see here)  are upset with the servicing standard term sheet that got leaked because they think it just prohibits things that are already illegal.  This is an incorrect reading of the term sheet.  Let me give three examples.

1.  Prohibition on false affidavits and sworn statements.  

Filing a false affidavit or sworn statement with a court is likely already illegal in every jurisdiction. But what some bloggers have missed is that the definition of "affidavit or sworn statement" in the term sheet is broader than what the law already covers. At best, the law currently covers statements filed with the court--that means in judicial foreclosures. The term sheet mandates certain affidavits and sworn statements in nonjudicial foreclosures and includes them under the definition of "affidavits and sworn statements" to which the false statement prohibition applies. That's an important step.  

2. HAMP requirements.  

The term sheet appears to repeat some existing HAMP requirements.  What bloggers have missed is that the CFPB and AGs currently have no authority to enforce HAMP violations. The inclusion of these terms makes HAMP violations a violation of the settlement with the AGs/CFPB, which means that the AGs and CFPB can enforce these violations. Given Treasury's unwillingness to demand serious HAMP compliance, that too is an important step.  

3.  UDAP and Good Faith/Fair Dealing Requirements

I'm not entirely sure of the purchase of deeming violations of the agreement unfair and deceptive acts and practices (UDAP). It might mean that the penalty for violation would track UDAP penalities for each state or CFPB. Or it might, just might, give homeowners grounds for a suit.

On the "good faith and fair dealing" requirement, yes it is currently an implied term of every contract, but note that this term sheet doesn't define good faith or fair dealing. News flash:  they don't mean a lot under the revised UCC. Good faith is simply "honesty in fact." By leaving the term undefined, it is arguably broader. 

I don't think the AGs and CFPB were just piling on fluff requirements. This settlement is a pretty extensive and well-thought through document designed to give the AGs and CFPB broad ability to reform the servicing industry, and the inclusion of these provisions seems well-thought out (although I haven't cracked the 3d one). 


Adam, here in MA, unfair and deceptive business practices are the bread & butter of AG enforcement actions. A successful claim brought under the MA statute, M.G.L. c. 93A, is automatically reported to the AG's office.

If a violation of the settlement becomes a per se 93A violation, it moves into the wheelhouse of AG enforcement and certainly opens the door to private cause of action by citizens.

On the other hand, 93A counts are so routinely included in complaints (and nearly just as routinely dismissed by defendant's motion) that it's hard to get a read on the practical effect of this absent trial court precedent.

Are you serious? Bloggers on the 'left'? I'm as constitutional as it gets. So is Mr. Denninger. Considering that if you look at our 'About Us' page, you'll see we were the original founders of the Tea Party movement, as it was INTENDED to be, a movement against bad economic policy, hidden taxation without representation and bailing out of insolvent institutions with public moneys, I fail to see how this can be classified as 'left.'

While you point out some small improvements that might make a nominal difference in court (although completely irrelevant in non-judicial states), you have failed to make a substantive argument against the fact that this is still literally a big nothing. THIS took 50 AGs to work out? I made better 'deals' in my legal arguments class.

I'd like to point out these are not really "sworn affidavits" The oath was never actually solemnized. Meaning the notary was not present so there was no swearing " so to speak. This means there is no perjury. I've seen cases that positively say that , without the swearing ,there is no perjury. What you really have is uttering a false instrument . Possible even falsifying a government record.That would hinge on some complications as to whether a notary is a court officer created by State Constitution , or an executive officer created by statute or a common law officer simply recognized by statute (like sheriffs in Massachusetts).

There is so much fraud and the land records right now we need to drop the hammer. Just check for yourself sometime. Look at some random assignments online. Dates are messed up. Notaries are from different states than the affiant etc....

The respect and dignity of the power of a
has been neglected. Now it's biting us in the butt.

Karl Denninger just completely shredded this post and made a total fool out of Mr. Levitin http://market-ticker.org/akcs-www?post=181796.

Read my rebuttal here: http://market-ticker.org/akcs-www?post=181796

There's so much BS in this post that I can't manage to cover it in the comment box....

The ONLY thing that will prevent these "servicers" from continuing to make a sham of our legal system is a REQUIREMENT OF A CLEAR, UNBROKEN CHAIN OF TITLE.

If THIS language were installed, the forgeries would end. The fraudulent filings in our land records would end. The "declaration" required in Washington State at "penalty of perjury" would end. PERIOD.

Any other requirements? Just a sham to our legal system.

I love it when so called "educated" people get schooled in PUBLIC. Karl....great job schooling this clown.

LOL - that "update" just makes it worse!

Please stop before you hurt yourself.

Protip: When making updates, make sure the update is CORRECT (failed), COMPLETE (failed), and ADDRESSES THE SUBSTANCE INSTEAD OF CALLING NAMES (failed).

Wouldn't "some bloggers are upset..." sufficed?

A notary is nothing more than a government sanctioned witness. If there is no witnessing, there is no function performed making the document and complete forgery.False affidavits are uttering . As soon as they pass the document as good,it's uttering.

Notarized documents are self-authenticating as evidence. They are presumed good. The burden of proof is on the party objecting to the document. It's pretty hard to come up with hard evidence of fakery when you aren't present.

This is way this is so important. It skips a step of determining whether evidence is admissible. A vital step.

All in all though , this would mean the distinction expressed between judicial and non-judicial affidavits is non-existent. This stuff is illegal no matter what. Counterfeiting. might apply too,

To constitute an uttering and publishing of a forged instrument there must be a representation of its genuineness; but such representation need not be made by express | words. It may be indirectly made, and he ] evidenced by the action and conduct of the party. 3 Greenl. Ev. § 110; Commonwealth v. Searle (Pa.) 2 Bin. 339, 4 Am. Dec. 446.

"In common parlance, a counterfeit is a likeness or resemblance intended to deceive, and to be taken for that which is original and genuine, and, when applied to persons, is seldom used in an innocent sense." Thirman v. Matthews (Ala.) 1 Stew. 384, 386.
The word "counterfeit" means to make tn imitation of something else, with a view to defraud by passing the false copy for genuine or original. State v. McKenzie, 42 Me. 392, 394 (citing Webst Dict).
A counterfeit is an instrument falsely made in similitude of a genuine instrument United States v. Barrett (U. S.) I11 Fed. 309, 372.

My own .02....

"The term sheet mandates certain affidavits and sworn statements in nonjudicial foreclosures and includes them under the definition of "affidavits and sworn statements" to which the false statement prohibition applies."

Great that affidavits and sworn statements are addressed but judicial vs. non-judicial foreclosure states means little to nothing. You can lie six different ways on an affidavit in a non-judicial FC state. The only time the veracity of an affidavit, or ANY document in an NJ state matters is when that affidavit or sown statement makes it before a judge. But if you're if you're before a judge then.... it's no longer a "non-judicial" foreclosure action...

The other thing is that, at least in NH, there is a carve out in NH UDAP actually preventing any private rights of action. The Banking Dept. was given exclusive jurisdiction with regard to mortgage and banking consumer protection related issues back in roughly 2002. And the NH Banking Dept. does little or nothing on behalf of individual borrowers in this regard. I know this b/c back in 2002 they shuffled 30 (+/-) of us Fairbanks victims off to the NH AG who, in turn, shuffled us to the FTC. And every time a claim for violations of state consumer protection laws is brought in litigation it gets laughed out of court for this very reason.

I left Karen Gorham, apparent head of the "foreclosure fraud" division of the NH AG, VM this morning after reading to let her know my thoughts.

Original Tea Party? Is that like Ice-T's O.G. Original Gangster? Or KFC Original Recipe? Or is it more like Ernst Röhm as the original NSDAP? I'm not sure whether to be amused or scared.

Regarding Denninger, whoever he is, anyone who thinks that a vague attribution of "left" is an "ad hominem attack" that merits escalation into a blogorant is just an ass. There's no point discussing substance with someone who is so angry at the world that he doesn't get that servicing standards are orthogonal from the question of criminal sanctions.

Oh really Adam? If I'm an ass then perhaps you can explain your rant that you posted in which you called me "Derringer" repeatedly..... and which you've now tried to hide?

Unfortunately it was published for long enough that it got captured, along with the comments before it was taken down. And I'll be de-constructing that too.

That which is said on the Internet cannot be un-said.

As for whether servicing standards are orthogonal from criminal sanction, they're certainly not when the servicing (including foreclosure by servicers) include commission of illegal acts, including those that carry criminal penalties.

PS: I'm on the fringe that is labeled "the rule of law means something and must be enforced." Whatever that fringe might be.

It's a lonely fringe.

Golly. Lowercase "r"s look a lot like "n"s if your eyesight isn't perfect. If I wanted to insult Mr. Denninger, there are a lot of better ways of doing so.

As for why I took the post down, again nothing nefarious--after some reflection, I figured that this wasn't a topic I wanted to blog about. There's no insult, conspiracy, or secret code there. Sometimes a pipe is just a pipe. And yes, I'm aware of Google caches. So what?

Let me try to get the essential point through again, however: at issue is a term sheet about servicing standards. That's not the place one would discuss criminal actions related to servicing. This is about standards for servicing going forward. Criminal sanctions are individual prosecutions for past actions, and they are highly confidential. Something like this would almost assuredly go through a grand jury and isn't leaked lightly.

All of this is a side-show, however. Denninger was wrong in his statements about the requirements of truthfulness in affidavits, HAMP compliance, and UDAP because he didn't understand who has the ability to enforce what and didn't read the term sheet particularly carefully. The term sheet would actually give the AGs and CFPB tools in all of those areas that they currently lack. Mr. Denninger might prefer that the AGs use napalm, which makes all fo these _legal_ distinctions irrelevant (and perhaps he's sore for being called out on it), but for anyone who lives and works in the real world of law and servicing, this term sheet would be an advance and a real one, and frankly would be the most serious action against the banks that the government has taken in the financial crisis.

Adam, what do you think about the death penalty for corporations?

JP--I'd just frame the idea a little differently. A corporation's life is its charter. The OCC can strip a national bank of its charter. It's virtually never done, but that's the equivalent to a death penalty for a bank. It would wipe out almost all shareholder value. If the OCC ever did that, there would presumably be a deterrence effect.

Looking up the circumstances under which OCC's authority has been used before sounds interesting. What about corps such as MERS and LPS that don't have banking charter?

I've heard the idea put forth that the TBTFs can't be resolved by a domestic authority since they are multinational entities, and that a global regulator is needed to resolve these corporations. Would the effect of stripping a national banks charter end the corporation, or merely prevent it from operating as a banking institution in the US?

If the banks continue to think like you do Mr Levitin, then there will be public lynchings. Tread carefully.

Attorney and legal scholar Alan Dershowitz espouses a philosophy where morality is defined in terms of a cost/benefit ratio to society. Under this scheme, laws are relative to the situation hand, and they devolve into just another negotiation, or an expense entry on a business ledger. It seems the large banks (along with men like Mr. Levitin) find this legal system attractive, convenient, and no doubt profitable. Not me, I don't care to live in a society that operates its justice system like a commodities trading pit.

Seriously Adam...haven't you had enough? The truth will always get you in the end. Karl has been on top of this before YOU and the OTHERS like you even knew this problem existed. If you have ever read any of his pieces he has been vigilant and one of the LEADING voices here.

Do you really enjoy having your head handed to you??? IF so...keep going after the likes of those MORE EDUCATED THAN YOURSELF. I truly enjoy reading him as he takes your piece apart...point by point.

All we ask for is the rule of law be followed AND ENFORCED by the relevant parties. When banks are passed over for such cases it is an embarrassment to our society. The fact that YOU HAVE FAILED to see this is an embarrassment on your profession......


Mr. Denninger has just challenged you to a debate http://market-ticker.org/akcs-www?post=181834.

Good luck, you're going to need it!

Thank you for your analsis Adam. It will be interesting to see how close the final settlement is to these summaries.

Don't settlements normally involve the wrongdoers paying penalties? In any case, the bankers only care about the size of their bonuses and what they can get away with so since meaningful punishment hasn't been dealt to them, they'll assume they can get away with violating the terms of this so-called "settlement." This "settlement" is not worth the paper it's printed on.

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