As I have pointed out before, the banks need to do some time. Perjury is a jailable offense, and it is perjury to sign a false affidavit. The banks have admitted to signing false affidavits, a large part of the robosigning scandal. Instead, the Federal regulators are determined to let the banks escape punishment and to not even require any meaningful change in practices.
After the robosigning scandal became public, the states' attorneys general began an investigation that has resulted in a weak draft settlement. I have written about the proposed settlement and its problems on this blog before.
Around the time of the weak proposal by the attorneys general, the Fed stated it had performed a cursory review of a few foreclosure files and concluded that there was not problem. The Fed maintained that no foreclosure was done where there was not a "substantial default." As I mentioned in a previous blog post, this was a mischaracterization of the evidence--foreclosure in the absence of any default by the homeowner is extremely common. Moreover, the Fed ignored due process. Even if one is in "substantial default," one is entitled to legal protections. These include the right to notice and the opportunity to be heard about the alleged default (due process) and the right to cure the default and save the home (redemption).
Now, it appears that Federal regulators will let the banks off the hook with a settlement even weaker than the proposed attorney general settlement. The settlement is in the form of a consent decree (court order), making it more likely that the banks will try to use the settlement to say that homeowners have lost their rights to any legal action for the banks' wrongdoing.
The settlement allows banks to appoint their won "monitor"--a committee chosen by the Board of Directors of each bank. The bank's committee will tell the Fed what needs to be done.
The primary duty of the banks under the settlement is to comply with existing law. Problems like assignments from Mortgage Electronic Registration Services (MERS) are handled on a business as usual basis--with banks promising to get the documents required to do a foreclosure from MERS this time. This is a legal requirement that should have been followed in every foreclosure.
The banks can retain an independent consultant to conduct reviews of completed residential foreclosures. The review will only cover those with judgments or foreclosure sales (auctions) from January 2009 until December 2010.
The independent consultant will set criteria for evaluating the reasonableness of fees and penalties set during the foreclosure process. This circumvents another requirement that the review will include evaluating whether fees and penalties were consistent with the loan documents.
In the end, the bank can give a "reasonable" sum of money if mistakes were made in a foreclosure.
These procedures, under control of the banks, further circumvent due process by placing a stamp of approval on foreclosures that were already completed. This indicia of legitimacy may be invoked to stop actions by the states or by individual homeowners to redress the mistakes made by the banks.
The provision for payment of money shows perhaps the greatest disregard for the special position of homeowners and the right of redemption. Law in the United States recognizes that real estate is non-fungible. For example, one cannot be compensated for losing the opportunity to own one house by substituting another or with payment of money. This is true even if one is buying a McMansion in a tacky subdivision--if the buyer selects the McMansion on Lot A, he or she cannot be forced to instead accept the identical McMansion on Lot B. This is because the law recognizes that real estate is unique, the opposite of money--where one $1 bill is generally as good as the next.
Because of this special status, additional barriers exist before real estate is taken away. One of the most notable of these in the foreclosure area is the right of redemption. This is the right to pay off the sum owed and save the property. Preventing someone from doing this--for example, by refusing to take the money or making it impossible to pay--is called "clogging the equity of redemption."
If homeowners in foreclosure were charged too much in fees and penalties that had to paid to redeem the property, then the right of redemption was clogged. A home was lost where it might have been saved through exercising the right of redemption if the extra fees and penalties had not created a "clog." The mere payment of money is not sufficient to make these homeowners "whole," or in the same position as they would have been had the equity of redemption not been clogged.
It is upsetting that many consumer advocates bemoan the possibility that the settlement will be used to prevent future lawsuits or actions, but do not grasp the harm that has been done to the concepts of due process and redemption. These ideas protect the rights of every litigant, and the concept of redemption helps guarantee a home can be saved in many circumstances. Actions that undermine these concepts make it more likely that a home will not be a good investment in the future--it will remain subject to being taken in an arbitrary and unjust way.
The rush of the Fed to bargain away your rights is one more reason to consult with a HUD-certified housing counseling agency or reputable lawyer right away if you are in foreclosure. If it becomes more difficult to vacate (set aside) wrongful foreclosures, it will be more important than ever to fight each foreclosure carefully when it is initially filed in court.
The entire proposed settlement is here: http://cdn.americanbanker.com/media/pdfs/040111CandD.pdf
