Robosigning 2.0: Mortgage Foreclosure File Reviewers
Article by Professor Adam Levitin
Do you have what it takes to be a Mortgage Foreclosure File Reviewer Level 2? An intrepid researcher forwarded to me a job ad for a mortgage foreclosure reviewer who will be reviewing bank foreclosures per the OCC/Fed servicing fraud consent orders. I have seldom seen a document that says more about the
bullshix malarkey that the OCC and Fed are trying to pass off to cover for the banks than this job ad. I think it demolishes even the thin fiction that the OCC/Fed servicing consent orders are anything more than Potemkin villages. Instead, what we have here is nothing less than a federally-blessed Robosigning 2.0.
The ad is for a Mortgage Foreclosure File Reviewer Level 2 (whatever Level 2 means). It states that the:
Key responsibility will be to determine if there was financial harm to the borrower.
It further states that the MFFR-L2 will:
Conduct a complete review of the foreclosure file to ensure all default timeframes were processed accurately.
Review to determine if ownership of the note and mortgage was properly documented when foreclosure was initiated, and document any exceptions.
Determine if the foreclosure was processed in accordance with applicable state and federal laws, to include SCRA and US Bankruptcy Codes, and document any exceptions.
Validate fees and penalties charged and assessed were reasonable, customary and within the applicable state and federal laws, and document any exceptions.
Now I'm just a simple law professor, but gosh, these sure look like legal questions to me. A determination of whether there is financial harm (as in whether the harm is legally cognizable) is a question of law, not a question of fact--it would go to a judge, not a jury. The amount of the damages are a fact question, but that's a secondary inquiry after one determines that there was a legally cognizable harm. Similarly, proper documentation of the "ownership" of the note and mortgage is a legal question (and the legal terminology is not about "ownership" if the note is negotiable--itself a serious and unresolved legal issue). And how about determining of the foreclosure was processed in accordance with applicable state and federal laws? That sure seems like something one would want a lawyer reviewing. Same thing with the legality of fees and penalties.
So given this job requires a determination of a whole number of legal questions, it's a job ad for a lawyer right?
Nope. No law degree required, much less experience in legal issues relating to foreclosure (and appropriate conflicts screening). Instead, consider the "Minimum Requirements" for the position:
- Mortgage Servicing/Foreclosure experience (minimum of one year with Foreclosure experience)
Hmmm. I did a year of robosigning after graduating high school. Do I qualify? Sure seems like it.
- Audit experience (Ability to independently review foreclosure files)
This is "audit experience"? For real? Not even Arthur Anderson would have made this sort of claim with Enron. This ain't an audit in the CPA sense of the word. Instead, I take the "ability to independently review foreclosure files" to mean that no one is going to double-check your work. Or put in legal terms, a second set of eyes via appellate review is more expensive than the OCC will make the banks shell for.
- Pay rate is $19 - $23/hr DOE.
That's a huge pay increase relative to a robosigner. Assuming 2000 hours a year, that's $38-$46k. Let's just say that in the DC suburbs, at least, this is only slightly more than a teenage babysitter makes hourly and is about equivalent to what a cleaning person makes hourly (and probably annually). This isn't what one pays to get someone with the relevant background for determining legal questions examining the files. At least it isn't being outsourced, like a lot of the foreclosure work itself.
Bottom line here--it's hard to take the OCC/Fed consent orders seriously when all they mean is that a marginally more skilled employee is reviewing the robosigners' original work. And one can easily imagine an LPS red light/green light world in which they are incentivized to review more files faster and less carefully...
But this just brings us to a pair of perhaps more serious underlying problems. Even if the banks were paying for top grade legal talent (and it's a buyers market for legal services now), they can't determine that there was no financial harm done to the borrower--they simply lack the information to do so.
First, it's not clear that the banks have maintained files on their foreclosures dating back to 2009, when the consent orders run. Without the original files, there's really no good way to figure out if the homeowner was harmed financially. I'm not ready to assume that there's great record keeping on past foreclosures.
Second, even if a lawyer looked at the bank's file, that's insufficient for determining if there has been harm. One would need to know something about the borrower's potential defenses before making such a determination.
Consider this situation: the homeowner was in default. The servicer filed a foreclosure. The homeowner filed for bankruptcy. Can either Legal Eagle or Robosigner 2.0 determine if there was financial harm?
I don't think so. Here are just some problems--going in a sequence in which there is real financial harm to the homeowner, but not in any way detectable from the bank's files:
(1) Can the reviewer tell if any of the documents were robosigned? Not always. Some robosigning will be obvious. Others not. Does the servicer know with certainty what LPS or its network firms were doing and vice-versa? Doubtful.
(2) Can the reviewer tell if the assignment was backdated? That was require determining the real date of the assignment. That would involve looking at the original note, determining when an allonge was created, looking at the PSA and making sure that there is an executed copy with original schedules that sufficiently describe the property in question. The precise requirements might vary from state to state. This ain't an easy task. And then we have to add in MERS, and how that might affect things.
(3) Based on the backdated assignment, the servicer might have appeared to be a holder-in-due-course (HDC), and therefore impervious to "personal" defenses to the enforcement of the note, including fraud in the inducement. Can the reviewer tell if the homeowner was harmed by a wrongful assertion or at least implication that the servicer was a HDC based on a backdated assignment? Of course note. Whether or not there was direct financial damage depends on whether the homeowner could have raised a "personal" defense to the foreclosure, such as fraud in the inducement. Oh, does our foreclosure reviewer even know wtf a HDC is? Does the reviewer know if the note is negotiable or note (if not negotiable, then HDC is irrelevant, and so is possession of the note).
(4) Does the foreclosure reviewer know why the homeowner filed for bankruptcy and what the financial harms are of that? Was the bankruptcy because of the foreclosure or for unrelated reasons? Trying to determine the financial harms here are difficult, not just because there's the question of harms from bankruptcy (pace TOUSA), but also because those harms may depend on the timing of the bankruptcy filing for the homeowner. To take a really obscure one, the timing of a bankruptcy filing may determine whether the homeowner is able to treat an extra year of (non-dischargeable) federal taxes as a priority expense and therefore maybe pay them off, rather than paying off debt that would otherwise be dischargeable. If you aren't following this twist, that's fine, but do you really think that the foreclosure reviewer level 2 is going to know, care, or be able to hash through this?
Or how about this one: homeowner was in default, the affidavit of indebtedness (AOI) was robosigned, but factually correct. The foreclosure sale resulted in a deficiency judgment. As a result of the robosigning, the foreclosure sale happened faster than would have occurred had things been done legally. The sale happened in a market that actually picked up post-sale. If the sale had been done later, there would have been a smaller deficiency judgment because the homeowner would have benefitted from the market uptick.
Financial harm? Yes. How much? Impossible to determine. Will it be considered? Not a chance. Welcome to Robosigning 2.0.