When private attorneys gathered proof that foreclosing lenders cut corners and broke the law in conducting foreclosures, the attorneys general of all 50 states and the Fed had an opportunity. If homes were taken from owners under fraudulent pretenses, then there was potential to return homes or money to consumers. Future foreclosures could be subject to additional scrutiny to prevent people from wrongfully losing their homes. Those who purposefully falsified documents could, in some cases, go to jail.
This hope, prevalent in Fall 2010, fizzled Thursday. Consumer advocates were told the Fed's investigation found no wrongful foreclosures among several thousand foreclosure files examined. According to advocates at the meeting, "wrongful foreclosure" was defined very narrowly: a foreclosure when the homeowner was not "substantially" in default. (See http://www.huffingtonpost.com/2011/03/10/fed-reports-finds-no-wron_n_834010.html .)
The finding that the foreclosure process has been pristine comes while a proposed settlement agreement by the attorneys general that does little more than rubber-stamp the past bad acts of the lenders is pending. The settlement reiterates existing law at its best, allows an inadequate amount to compensate homeowners by allowing writedowns of loan balances, and provides no relief for those who lost their home because of falsified documents.
Bernanke, and the Fed, are wrong.
Relying on "substantial defaults" by borrowers to justify breaking the law in the process of foreclosure ignores due process and the right of redemption. Both are ancient legal doctrines on which the United States is based. Each of these ideas provides protection to everyone involved in a legal dispute.
Due process means that action is not taken against you in court without your having notice and the opportunity to be heard. This concept is flexible, and varying interpretations have been applied. It is almost undisputed that anyone who is a defendant in a lawsuit must recieve a summons and copy of a complaint.
Due process also means the right to confront witnesses who testify against you. A witness often appears in court, raises his or her right hand, and swears to tell the truth. Most of us realize that if we do this and then lie, we can look forward to a jail sentence for perjury. After the witness testifies, you (usually through your lawyer) have the right to cross-examine the witness. You can ask questions to clarify whether the witness is telling the truth or to bring out facts in your favor.
Foreclosures are not the basis for good Perry Mason episodes. Because foreclosure lawsuit rely heavily on documents, much of the testimony is often done by affidavits--written statements. The person signing an affidavit promises to tell the truth just as if she or he were in court. For this reason, we call affidavits "testimony substitutes."
Affidavits are also cross-examined. You (or your lawyer) have the right to read the affidavit and examine the facts it discusses. This is largely accomplished by attaching all paperwork relied upon by the person signing the affidavit to the affidavit. If this done, you or your lawyer can look though the paperwork and find errors in accounting or other mistakes. However, most lenders attach no paperwork to the affidavits.
Another way your lawyer can cross-examine the person who signs an affidavit is by taking his or her deposition--asking questions while the person is under oath. This means the affiant must be knowledgable about what the affidavit says. In the case of robo-signing, the person was not knowledgable. Robosigners signed affidavits without reading them, without attaching paperwork, without checking the facts, and without understanding anything about the cases. These "affiants" sat in front of a large stack of papers and signed without reading.
In addition to ignoring due process, the rubber-stamping of past foreclosures also violates the right of redemption. Rights of redemption vary from state to state. Generally, it is your right to save your home sometime before or after it is sold in a foreclosure auction by paying the money you owe.
In medieval England, it was not uncommon for a person buying land to lose it if the payment was a "day late or dollar short." Courts came to see this could be harsh--someone losing their land to due a late payment, even if it was the last payment due and every other payment was on time. Judges created "redemption" to help in this situation.
Bernanke wants to take us back to the European Middle Ages--before redemption. Virtually every step in modern foreclosure practice is designed to keep you aware of your rights, aware of the allegations in your case, and able to pay off your loan if possible. By rushing the cases through and not following the steps, lenders ensure homeowners cannot take advantage of this important right. Interfering with this right is called "clogging the equity of redemption."
An important step in the foreclosure process that involves both due process and redemption is that the bank has to prove its allegations before the home is taken. Laws vary, but generally a lender has to prove that it has the right to foreclose (owns the note), that you are in default, and the amount you owe.
Many people, like Bernanke, think this isn't important. If you are accused of missing a payment, your home should be taken with no trial. It is easy to understand why this is wrong by thinking of a car accident in which you rear-end another vehicle.
In the car example, you are, in some states, presumed to have caused the accident because you hit the other car from behind. This would make you liable for all damages.
However, even with this presumption, the other driver must follow all the usual steps to sue you. You receive a summons and complaint, you have the opportunity to answer, and your case can proceed to trial to decide whether you really hit the other car, how much damage was caused, and other facts.
In foreclosure, the bank should have to prove its allegations. This includes the sum you owe, which you must know in order to be able to redeem the property.
When people like Bernanke urge that homeowners are not entitled to fair and equal treatment in the courts, they threaten to take away rights that evolved over hundreds of years. Rubber-stamping bad bank behavior after the fact puts homeowners in a unique position, deprived of basic legal rights. Merely stating that one is "substantially in default" is not enough to win any other legal case. However, Bernanke and others are prepared to allow banks continue to take homes away without due process and without respect for the law.
