Pervasive fraud and the legal system

In a major ruling in the Massachusetts Supreme Court today, US Bank and Wells Fargo lost the “Ibanez case,” meaning that they don’t have standing to foreclose due to improper mortgage assignment. The ruling is likely to send shock waves through the entire judicial system, and seriously raise the stakes on foreclosure fraud. Bank stocks are plummeting at this hour.

For the uninitiated, standing is a legal concept that basically means, "you have the right to file a grievance." For example, I might think that what happened with BP in the Gulf of Mexico is atrocious, but I don't have "standing" to file a claim against BP, because I live in Colorado, and any potential harm that's been suffered by me is too attenuated to get me time in front of a judge. I might argue that my shrimp weren't as tasty for a few weeks, but that's dubious, despite what you've heard from Rush Limbaugh and non-lawyer sensationalist, the legal system isn't down with giving people the time of day who haven't suffered.

In this case, a couple of banks have tried to foreclose upon a homeowner who hadn't paid the mortgage in months. Simple enough, the only problem is, they didn't have the proper paperwork to show that they owned the home. Through the process of securitization, the paperwork had been lost. If you don't have proper title, you don't own a home. My neighbor might be late on her mortgage, but that doesn't mean I can initiate foreclose against her. If I want to do that, I have to show that I am the mortgagor with proper title in hand.

If you can't do that, guess what? You just gave someone a free house.

Our system is deeply flawed, but the one thing this country has done well over the years is to protect the rights of property holders. And I would argue that the accumulated wealth we've acquired over the past 234 years is a result of that respect for the rights of property holders. If the government takes your land to build a highway, it's gotta pay you for it. Even when we dumped Japanese-Americans in internment camps in World War II and took away their freedom, this country still let them keep their land and property.

According to one of the concurring judges:

I concur fully in the opinion of the court, and write separately only to underscore that what is surprising about these cases is not the statement of principles articulated by the court regarding title law and the law of foreclosure in Massachusetts, but rather the utter carelessness with which the plaintiff banks documented the titles to their assets. There is no dispute that the mortgagors of the properties in question had defaulted on their obligations, and that the mortgaged properties were subject to foreclosure. Before commencing such an action, however, the holder of an assigned mortgage needs to take care to ensure that his legal paperwork is in order. Although there was no apparent actual unfairness here to the mortgagors, that is not the point. Foreclosure is a powerful act with significant consequences, and Massachusetts law has always required that it proceed strictly in accord with the statutes that govern it. As the opinion of the court notes, such strict compliance is necessary because Massachusetts is both a title theory State and allows for extrajudicial foreclosure.

This matters. It matters to whomever gets the property next. It matters to the person who isn't late on his mortgage but still gets and eviction notice (an increasingly common practice lately). It matters that we respect property rights and demand that banks do the same. If we don't, there is nothing separating us from a medieval culture where the powerful could take from the poor anything they wanted at any time, without recompense. That may sound a bit dramatic, but concrete property rights are more firmly rooted in our culture than any abstract notion of freedom. If we lose them, there ain't much lef.

The executive and legislative branches have completely failed to punish the banks for their pernicious roles in this housing quagmire. Here's to hoping that some judges with backbone will have the courage to act responsibly.