Foreclosure-Gate 2.0 Take Action!
An item from last week that I sat on still seems worthy of comment, so consider this a turn of year post.
I’ve said that the efforts to clean up mortgage abuses will not have gone far enough until we see some foreclosure mill attorneys disbarred, and better yet fined and/or put in jail. And that is harder than it ought to be.
One of the frustrating issues in trying to rein in fraud is the way that essential accessories, namely, accounting firms and law firms, are close to beyond the reach of the law. For instance, if a law firm clearly permitted perjury or engaged in document fabrication that led someone to have their house foreclosed upon when they were actually current on their mortgage, the wronged homeowner could not sue the law firm. It could only sue the party that was the plaintiff in the suit (presumably a trust). Perversely, the only parties to a transaction that can sue banks and accountants are their clients, even when those firms were integral actors in scams. As we described in ECONNED:
Florida illustrates the difficulties prosecutors have (at least in some states) in bringing down miscreant firms. (One firm, the Default Law Group, had already been under investigation when the probe was extended last August to three other firms, Shapiro & Fishman, the Law Offices of David J. Stern and the Law Offices of Marshall C. Watson; at least two other firms were added in December).
Admittedly, the state attorney general’s probes of the leading foreclosure mils in the state has already done damage to those firms as they have lost important clients. But the effort has already hit a significant procedural obstacle. A subpoena by the attorney general was successfully opposed at the lower court level, with the ruling being that any regulation of the practice of law was under the authority of the Florida bar and the Florida courts.. The state attorney general has appealed, arguing that the Florida Deceptive and Unfair Trade Practices Act allows the AG to investigate “any trade or business”and establishes the AG as the enforcement agent. Hat tip Lisa Epstein for these court filings:
Petition Writ Certorari – State of Florida v. Shapiro & Fishman
The response, effectively, is that law is not a trade or business:
Response Petition Certiorari – State of Florida v. Shapiro & Fishman
Now this all may seem a wee bit circular, at least if you read this as I do, that the state AG is fighting an uphill battle. How can you get lawyers to adhere to professional standards if its own enforcement body sits on its hands, the courts have not taken action, and the AG faces constitutional hurdles in stepping in? In some other states, the AG and the courts appear to work far more fist in glove in enforcement. For instance, in South Carolina, the AG loves getting lawyers disbarred over botched real estate closings (the theory being if an attorney can’t even do something as simple as a real estate closing correctly he has no business practicing law). For instance, in this South Carolina Supreme Court case, an attorney was disbarred and and the matter was brought by the state attorney general for the Office of Disciplinary Counsel, which is the arm of the court that rides herd on lawyers. I’m not clear on the procedures, but one can infer that the AG and the ODC work together actively.
No doubt how this particular conflict will play out will vary by state. I would imagine one major variable is to what degree the courts have been packed with business friendly judges. It would be very helpful to get reader insight into this topic.
I’ve said that the efforts to clean up mortgage abuses will not have gone far enough until we see some foreclosure mill attorneys disbarred, and better yet fined and/or put in jail. And that is harder than it ought to be.
One of the frustrating issues in trying to rein in fraud is the way that essential accessories, namely, accounting firms and law firms, are close to beyond the reach of the law. For instance, if a law firm clearly permitted perjury or engaged in document fabrication that led someone to have their house foreclosed upon when they were actually current on their mortgage, the wronged homeowner could not sue the law firm. It could only sue the party that was the plaintiff in the suit (presumably a trust). Perversely, the only parties to a transaction that can sue banks and accountants are their clients, even when those firms were integral actors in scams. As we described in ECONNED:
Legislators also need to restore secondary liability. Attentive readers may recall that a Supreme Court decision in 1994 disallowed suits against advisors like accountants and lawyers for aiding and abetting frauds. In other words, a plaintiff could only file a claim against the party that had fleeced him; he could not seek recourse against those who had made the fraud possible, say, accounting firms that prepared misleading financial statements. That 1994 decision flew in the face of sixty years of court decisions, practices in criminal law (the guy who drives the car for a bank robber is an accessory), and common sense. Reinstituting secondary liability would make it more difficult to engage in shoddy practices.The net effect is that if the clients themselves don’t sue (and they have plenty of reasons not to, starting with not wanting to air dirty linen and potentially open up privileged communications), the only recourse is sanctions by bar associations or prosecution. But state bar associations typically focus their policing efforts on solo practitioners. Bigger firms are often active in the bar association, and not surprisingly, the officialdom is seldom inclined to act against social acquaintances, particularly ones at concerns that also pay a lot in the way of dues.
Florida illustrates the difficulties prosecutors have (at least in some states) in bringing down miscreant firms. (One firm, the Default Law Group, had already been under investigation when the probe was extended last August to three other firms, Shapiro & Fishman, the Law Offices of David J. Stern and the Law Offices of Marshall C. Watson; at least two other firms were added in December).
Admittedly, the state attorney general’s probes of the leading foreclosure mils in the state has already done damage to those firms as they have lost important clients. But the effort has already hit a significant procedural obstacle. A subpoena by the attorney general was successfully opposed at the lower court level, with the ruling being that any regulation of the practice of law was under the authority of the Florida bar and the Florida courts.. The state attorney general has appealed, arguing that the Florida Deceptive and Unfair Trade Practices Act allows the AG to investigate “any trade or business”and establishes the AG as the enforcement agent. Hat tip Lisa Epstein for these court filings:
Petition Writ Certorari – State of Florida v. Shapiro & Fishman
The response, effectively, is that law is not a trade or business:
Response Petition Certiorari – State of Florida v. Shapiro & Fishman
Now this all may seem a wee bit circular, at least if you read this as I do, that the state AG is fighting an uphill battle. How can you get lawyers to adhere to professional standards if its own enforcement body sits on its hands, the courts have not taken action, and the AG faces constitutional hurdles in stepping in? In some other states, the AG and the courts appear to work far more fist in glove in enforcement. For instance, in South Carolina, the AG loves getting lawyers disbarred over botched real estate closings (the theory being if an attorney can’t even do something as simple as a real estate closing correctly he has no business practicing law). For instance, in this South Carolina Supreme Court case, an attorney was disbarred and and the matter was brought by the state attorney general for the Office of Disciplinary Counsel, which is the arm of the court that rides herd on lawyers. I’m not clear on the procedures, but one can infer that the AG and the ODC work together actively.
No doubt how this particular conflict will play out will vary by state. I would imagine one major variable is to what degree the courts have been packed with business friendly judges. It would be very helpful to get reader insight into this topic.
Posted: 02 Jan 2011
One of the most frustrating parts of the financial reform game is how powerless most of us really are, most of the time. Take this story: Top policymakers at the Federal Reserve are fighting efforts to rein in widely reported bank abuses, sparking an inter-agency feud with the FDIC and the Treasury Department. The Fed, along with the more bank-friendly Office of the Comptroller of the Currency, is resisting moves to craft rules cracking down on banks that charge illegal fees and carry out improper foreclosures.The same day the New York Times takes note of how banks are breaking and entering on a regular basis during the foreclosure process, we learn that the Fed is trying to prevent even the meekest regulations on their behavior.
This time, though, there is a way to stand up against the banks. And the reason is because in this case, Sheila Bair at the FDIC actually wants to do the right thing. There’s an open letter from Wall Street reformers to regulators advocating a wide range of new measures on the mortgage and securitization fronts. Congressman Brad Miller, who has been on predatory lending since 2004, penned a letter to the regulators. His effort is getting traction.
And now there’s a petition that you can sign, at StopServicerScams.com. If you missed it before the holidays, sign it now. We will be submitting the signatures today by the end of the day today. We up to 12,000, which is a large number for this sort of initiative, thanks to the efforts of Credo, FireDogLake, Mike Konczal, Chris Whalen, and Josh Rosner (the total on the site does not reflect the signatures obtained through some of these channels). We added a comment field, so your comments will be delivered to Geithner, Bair, Bernanke, and Walsh. Tweet it. Put it on Facebook. Send it to your friends and family.
This is meaningful action that every citizen can take.
If you aren’t trying to be part of the solution, you ARE part of the problem. Take action. www.StopServicerScams.com.
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