Source: https://insuranceclaimsbadfaith.typepad.com/insurance_claims_badfaith/fraud/
Timestamp: 2019-04-25 12:07:02+00:00

Document:
NOT FOR CONTRACT CLAIM OR UNREASONABLE AND VEXATIOUS CONDUCT CLAIM UNDER ILLINOIS INSURANCE CODE.
A breach of a homeowner's insurance contract claim, even though the claim includes allegations of bad faith, is not subject to a "heightened fraud pleading requirement" under Federal Rule of Civil Procedure 9(b), the District Court held in Wheeler v. Assurant Specialty Prop., 125 F. Supp. 3d 834, 840 (N.D. Ill. 2015). There the breach of contract claim "exists independent of any allegations of fraud or deception contained in the complaint."
Further, a claim of unreasonable and vexatious insurer conduct is actionable under the Illinois Insurance Code, the same Court further held. Wheeler v. Assurant Specialty Prop., 125 F. Supp. 3d 834, 840-41 (N.D. Ill. 2015). The Court refused to "apply Rule 9(b)'s pleading requirements to conduct that does not necessarily sound in fraud" even if the alleged conduct sounds in bad faith. Wheeler v. Assurant Specialty Prop., 125 F. Supp. 3d 834, 841 (N.D. Ill. 2015).
In Bishop v. Progressive Express Ins. Co., ___ So. 3d ___, 2015 WL 63648 (Fla. 1st DCA January 6, 2015), a Florida appellate court was faced with an appeal from a summary judgment. The trial court entered the summary judgment, in part, on a claim of "insurance coverage by estoppel" against an insurance company. The complaint detailed the insurer's alleged conduct.
Undertaking communication, conduct, and steps in defense of an underlying action, heavily dependent upon the circumstances, may rise to a coverage by estoppel claim. This appeal involves an allegation an insurer made statements and undertook actions which led a business owner to believe she had insurance coverage for the underlying action; all this despite the insurer's knowledge of facts which would have permitted it to deny coverage.
Bishop v. Progressive Express Ins. Co., ___ So. 3d ___, 2015 WL 63648, *1 (Fla. 1st DCA January 6, 2015). "This “coverage by estoppel” claim requires a representation of material fact, reasonable reliance, and a detrimental change in position (i.e., prejudice) as a result of the reliance." Bishop v. Progressive Express Ins. Co., ___ So. 3d ___, 2015 WL 63648, *1 (Fla. 1st DCA January 6, 2015).
Here, we do not pass on the strength of the business owner's claims regarding the insurer's conduct and actions or what the business owner believed afterwards. That is for the trier of fact to determine. We write only to confirm the cause of action exists, such a claim does not sound in bad faith, and here it was for the trier of fact to determine the ultimate weight to give the insurer's conduct versus the reasonableness of the business owner's reliance. We REVERSE the court's grant of summary judgment in favor of the insurer as to this count and REMAND for further proceedings.
Bishop v. Progressive Express Ins. Co., ___ So. 3d ___, 2015 WL 63648, *1 (Fla. 1st DCA January 6, 2015).
Whether and to what future fact patterns this holding will be applied remains to be developed. However, this holding fits with a rule of law which is rarely invoked with success in Florida. The rule is what the appellate court meant in its condensed version of the rule in the first quotation from the appellate court in this case, above.
You would not necessarily know from that statement of Florida law that so far the rule of "coverage by estoppel" in cases involving liability insurance has been limited to situations involving a liability insurance company with a duty to defend undertaking the defense of its insured without a reservation of rights, and then only where the lack of a reservation misled the insured to its prejudice when the insured reasonably relied on the insurance company's undertaking of the insured's defense without reseravation.
THE BIG BAD FAITH NATIONAL MORTGAGE SETTLEMENT FOR MORTGAGE SERVICERS.
You may be wondering at the increasing number of reports about specialty mortgage servicers. The reports have it that this current brand of mortgage servicers, who bought their contract rights to service mortgages from the 5 largest mortgage servicers, are doing all the misdeeds that the "big 5" mortgage servicers agreed not to do in their big National Mortgage Settlement with the United States Attorney General and the Secretary of Housing and Urban Development, and with most of the States Attorneys General. In that big settlement, the big 5 mortgage servicers agreed to stop doing such things as robosigning, lender force-placed insurance unfair practices, and the like.
How can the specialty mortgage servicers now be doing all these things post-settlement, if the companies which sold them the mortgage servicing rights agreed in the National Mortgage Settlement not to do these things?
It turns out that the specialty mortgage servicers argue that they are not bound by the settlement their principals made.
References to Servicer shall mean [fill in the name of one of the five bank mortgage servicers] and shall include all Servicer's successors and assignees in the event of a sale of all the assets of Servicer or of Servicer's division(s) or major business unit(s) that are engaged as a primary business in customer-facing servicing of residential mortgages on owner-occupied properties.
It does not take a transaction lawyer from a white-shoed Wall Street law firm to know that the 5 Servicer's "successors and assigns" have an argument that they are not included where the sale is NOT "of all or substantially all" of the Servicer's "assets". In addition to the contract rights to service mortgages, the Gang of 5 for example could have sold furniture and fixings and other assets which they and their assigns valued much higher than the contract rights to service mortgages. In that event alone, the assigns could and undoubtedly would argue that the sale of servicing rights was NOT "a sale of all or substantially all" of the 5 Servicer's assets.
Cunning? Perhaps. Another one of those hard decisions they tell us they had to make? Not hardly. But whatever it is, you cannot call it a Good Faith Settlement, because it isn't.
BANK EMPLOYEE INDICTED IN MORTGAGE FRAUD CONSPIRACY!
In a Grand Jury indictment written by the United States Attorney's Office for the Southern District of Florida, filed on January 7, 2014, one of the seven (7) indicted defendants was indicted as "a loan officer for Sun Trust Mortgage." (Paragraph 32, p. 6, in Download US Atty SD FLA Indictment Bank fraud and wire fraud (M Fraud N.,C.) F'd 01.07.14.) This individual is one of the few bank employees/officials to be criminally indicted as a result of allegedly criminal activities during the great financial crisis, if he is not the first of his kind.
The alleged conspiracy in which the former bank officer allegedly participated, included the signing and processing of false affidavits and declarations, and other things which were arguably released in the national mortgage fraud settlement as to five mortgage servicers. Two of the mortgage servicers released by the Federal Government and by the State Attorneys General who participated in that national settlement, are also two of the Banks which were allegedly the object of the conspirators in the recently filed criminal indictment: Bank of America and Wachovia n/k/a Wells Fargo.
This means that at least as to the extent of the conduct released in the course of the national mortgage fraud settlement, the parties released including B of A and Wells Fargo would claim that they are immune from suit now, assuming that a civil release would bar a criminal prosecution in this case.
Two other Banks are also identified in the current indictment as objects of the conspirators' mortgage fraud: Regions Bank and the indicted individual loan officer's employer, Sun Trust. They are neither of them named in the releases in the national mortgage fraud settlement. It is difficult to see how either Regions or Sun Trust could have standing to raise the national mortgage fraud settlement releases as a defense to their criminal prosecution.
Why is an individual loan officer of Sun Trust indicted because of his alleged fraudulent, conspiratorial mortgage-related conduct (see ¶ 37 p. 6; Count I ¶ 2 pp. 7-8 and ¶¶ 8-19 pp. 10-14; and Count II ¶ 2 pp. 15-16 and ¶ 5 pp. 17-22), but not his bosses or any of his co-workers at Sun Trust?
Particularly when at one point, the indictment lists fifteen (15) specific instances of alleged criminal mortgage fraud conduct (specifically, alleged bank fraud) including "[s]ubmission of fraudulent mortgage loan application, closing, and related documents" for the purpose of obtaining loans to purchase land and for the purpose of obtaining loans to begin construction on that land -- and 9 out of the 15 specific instances involved fraudulent submissions accepted by Sun Trust? Is it credible that one and only one loan officer had the power to totally review every document in every single one of these (and certainly other) loan submissions -- and that no-one else at the bank, not his superiors, not his coworkers, no-one -- reviewed either a single one of these documents or this one loan officer's job performance?
These are only some of the questions raised here. Let's start with asking these questions and we'll work our way through others.
The national mortgage fraud settlement is examined in a four-part series here and on Insurance Claims and Issues Weblog. The series began on Monday, Jan. 30,2012 on Insurance Claims and Issues Weblog. Part 2 was posted on Tuesday, Jan. 31, 2012 on Insurance Claims and Bad Faith Law Blog, and Part 3 was posted on February 1, 2012 on Insurance Claims and Issues Weblog. The final leg of the series, Part 4, was posted here on Insurance Claims and Bad Faith Law Blog on February 2, 2012.
HOMEOWNER'S INSURANCE FRAUD MADE POSSIBLE ... AND IMMUNIZED, TOO.
The Bureau of Consumer Financial Protection has issued regulations and a "Supplement to Part 1024--Official Bureau Interpretations". Popularly known as the Consumer Financial Protection Bureau or "CFPB," it has made homeowner's insurance fraud possible, and immunized it, too.
The CFPB Official Interpretations make substitute or force-placed "hazard insurance" synonymous with substitute "homeowners' insurance" or substitute "property insurance". Of course, force-placed insurance is not homeowner's insurance. Force-placed insurance provides coverage only against a small number of risks or "hazards" such as fire, and in almost every case it only protects lenders, not homeowners.
The truth is that force-placed insurance is collateral protection insurance. That is not the Bureau of Consumer Financial Protection's interpretation, however.
Congress enacted the Real Estate Settlement Procedures Act in part to require lenders and their agents, known as mortgage servicers, to send notices to homeowners-mortgagors with specific language before insurance can be placed by force upon the homeowner. The language these congressionally required notices are supposed to contain is codified in 12 U.S.C.A. § 2605(l)(1)(A), (B) and (C). The CFPB previously issued proposed forms mirroring the identical language in Appendix MS-3-Mortgage Servicing Model Forms and Clauses.
The statute and the Mortgage Servicing Model Forms and Clauses which are supposed to implement the statute, all refer specifically to forced placement of substitute "hazard" insurance. That is actually what is being placed by force, namely, substitute "hazard" insurance to protect lenders against damage to or loss of collateral protection.
Now, the CFPB interprets the notices which are required to be sent to borrowers to refer to substitute "homeowner's" insurance. To say again, the insurance that is thereby placed by force is substitute collateral protection insurance.
Worse than that, the same Official CFPB Interpretation would immunize "good faith compliance" with its "Interpretation" from liability. It is scheduled to take effect on January 10, 2014. The Comment period has expired. If the Bureau does not withdraw this "interpretation," it will apparently be up to Congress to nullify it.
The official cite for the Official CFPB Interpretations is 12 C.F.R. 1024, Supp. I, and the official site is somewhere on http://www.consumerfinance.gov/regulatons. When there, check out the "2013 Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules".
NEW YORK COURT REQUIRES LENDER, SERVICER TO ANSWER FPI COMPLAINT.
In Casey v. Citibank, N.A., 915 F. Supp. 2d 255 (N.D.N.Y. 2013) the Court was confronted with motions to dismiss by all defendants. The case was based on claims alleging force-placed insurance. Specifically, the plaintiffs complained that the defendants committed a variety of wrongs by forcing the plaintiffs to pay premiums for flood insurance policy limits that went way beyond their remaining loan balances.
The Federal Court agreed. The claims were upheld at the pleading stage with respect to all defendants except defendant Citigroup, Inc. The claims against that defendant were dismissed but without prejudice. The remaining motions to dismiss were all denied and the claims upheld as against all the remaining defendants: Citibank, N.A.; Citimortgage, Inc.; MidFirst Bank, N.A.; and FirstInsure, Inc.
The parties dispute whether the mortgage agreements give defendants the discretion to set and change the amount of flood insurance required. Making all reasonable inferences in plaintiffs' favor at this early stage of the litigation, their interpretation of the contract language is plausible. Plaintiffs thus state plausible causes of action for breach of contract, conversion, and breach of the implied covenant of good faith and fair dealing.
Similarly, plaintiffs sufficiently allege that defendants' receipt of commissions and/or kickbacks related to the force-placed flood insurance was neither disclosed in the mortgage agreements nor permitted by federal law. They also adequately allege that defendants mismanaged their escrow funds. Therefore, plaintiffs state plausible causes of action for unjust enrichment and breach of fiduciary duty.
Finally, the amended complaint contains clear allegations that defendants misrepresented the amount of flood insurance required under the mortgage agreements, initially accepted a lesser amount of coverage, and failed to provide proper notice and disclosure before force-placing unauthorized and excessive flood insurance on plaintiffs' properties. Plaintiffs thus state plausible claims for violations of the NYDPA [New York Deceptive Practices Act] and TILA [the Federal Truth in Lending Act].
Casey v. Citibank, N.A., 915 F. Supp. 2d 255, 267 (N.D.N.Y. 2013).
SECRET SETTLEMENTS: THE BAD FAITH ISSUES.
Apparently the New York Fed is making secret settlements again. AIG found out about one of them recently after it filed a lawsuit against Bank of America. AIG sought to recover on some of its losses on Residential Backed Mortgage Securities allegedly caused by BofA. It learned that the New York Fed previously "released" BofA from liability for those losses, or tried to. See Gretchen Morgenson, "Fair Game / Don't Blink, or You'll Miss Another Bailout" p.1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, February 17, 2013). This certainly brings back memories of secret settlements that the Treasury Department and the New York Fed made with investment banks allegedly responsible for causing the Great Recession. See, for example, "Residential Mortgage-Backed Securities Group: The Final Installment" article posted here on February 2, 2012.
Any portion of an agreement or contract which has the purpose or effect of concealing a public hazard, any information concerning a public hazard, or any information which may be useful to members of the public in protecting themselves from injury which may result from the public hazard, is void, contrary to public policy, and may not be enforced.
Fla. Stat. § 69.081(4). The statutory definition of a “public hazard” includes any “person” or “procedure” “that has caused and is likely to cause injury.” Fla. Stat. § 69.081(2). That is a pretty broad definition, which can apply to a wide array of conduct. It was probably meant to.
No Court shall enter an order or judgment in a case subject to this Florida Statute, “[e]xcept pursuant to this section,” which has, among other things, “the purpose or effect of concealing a public hazard” or “of concealing any information which may be useful to members of the public in protecting themselves from injury which may result from the public hazard.” Fla. Stat. § 69.081(3).
Similarly there may be issues of Bad Faith in secret settlements under the laws of other jurisdictions besides Florida.. Cf. Kreuger Int'l, Inc. v. Federal Ins. Co., 2008 WL 5264021 (E.D. Wis. Dec. 16, 2008).
As many attorneys do in many kinds of cases, the attorneys for the parties in a recent Federal Declaratory Relief action stipulated that certain Insurance Coverage information would be produced under seal. In fact, the attorneys apparently stipulated to a Protective Order saying so. Thereafter, they filed some of those materials in the Federal Court File.
The Federal Judge said that although the secrecy stipulation arguably facilitated discovery, the parties could not stipulate that everything they filed in the Court records was confidential and so they could not keep those materials by that expedient forever from the public eye.
*A small child confronted one of the ballplayers who threw the World Series. The player had pretended to do his best. That is what he told people before he was brought up on charges of throwing the World Series. The little kid said, "Say it Ain't So, Joe!" The young child's comment has inspired the title of this post article. Thank you.
This is really a follow up on the Mortgage Fraud Settlement in which four large Mortgage Servicers settled national claims against them for fraud. The claims were apparently never written in a Complaint filed in any Federal Court, nor filed in any State Court, nor filed with any Agency, State or Federal. However, the national settlement was produced in writing after several weeks following the announcement of the settlement in which its provisions were not known to the public.
Florida Attorney General Pamela Bondi firmly announced that she alone negotiated $300 Million on behalf of Florida residents who were defrauded by the Mortgage Servicers. See "Mortgage Servicers, Mortgage Settlement: Dealing Fairly in Financial Good Faith," published here on October 25, 2012. The monies were to include mortgage loan reductions, financial counseling, and many other good things, Ms. Bondi's office announced to us.
It is now reported that Ms. Bondi has negotiated another deal for the $300 Million and Ms. Bondi's office again tells us that this is a good thing for us. With her agreement, the Florida Legislature has taken a cut of about 25% of that $300 Million which Ms. Bondi, alone, previously negotiated. See Toluse Olorunnipa, "Pam Bondi Reaches Deal on Florida's $300 Million Foreclosure Settlement" (Tampa Bay Times Online, Friday, November 2, 2012). She negotiated this deal also. 25% to the Florida Legislature.
Say it ain't so, Pam.
"Lies, Lies, And Da*n Lies": RMBS Born From "Systemic Fraud".
A new complaint was filed on Monday, October 1, 2012 arising out of residential mortgage-backed securities ("RMBS"), an investment vehicle at the bottom (with other vehicles) of the current Great Recession. The complaint is by the State of New York against JPMorgan Securities, JPMorgan Chase, and EMC Mortgage.
Basically the complaint is based on two sets of alleged manifestations of fraud, deception, and misrepresentation: First, in promoting and selling RMBS, and second, "systemic fraud" in failing and refusing to correct "defects" after due diligence and quality control procedures revealed that RMBS presented serious problems to the finances of investors and Homeowners. Here is a copy of the complaint: Download Complaint.New York v. JP Morgan Securities LLC etc. et al (Filed in N.Y. Supreme Court on Monday, Octo ber 1, 2012).
This is reportedly the first time that the claim of systemic fraud has been collectively alleged against the promoters and servicers of residential mortgage-backed securities as a class, as it were. Gretchen Morgenson, "JPMorgan Unit is Sued Over Mortgage Securities Pools" (New York Times Online, posted October 1, 2012). The reason is a New York law, General Business Law 352, et seq., known as the Martin Act, which allows for broad claims of fraud against groups of financial actors allegedly committing fraud. See Michael J. de la Merced, "In JPMorgan Case, the Martin Act Rides Again" (Dealbook Blog on New York Times Online, posted October 2, 2012). More about New York's Martin Act later.
Another commentator who reads the complaint like it is a newspaper, finds that the complaint does not contain any news and is not newsworthy. Peter J. Henning, "In JPMorgan Suit, a Lack of New News" (Dealblook Blog on New York Times Online, posted October 2, 2012).
Perhaps the new complaint presents issues of Good Faith and Fair Dealing that are worth a little more attention. Those issues will be explored here.
QUESTIONS OF GOOD FAITH AND FAIR DEALING BY BANKS AS MORTGAGEES.
Some important questions implicating Good Faith and Fair Dealing by Banks as Mortgagees are asked by Gretchen Morgenson, "Fair Game / How to Erase a Debt That Isn't There" p. 1, col. 2 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday September 30, 2012).
It is reported that Mortgagee-Banks including Bank of America and JP Morgan Chase have sent letters to Homeowners forgiving Mortgages that were discharged in Bankruptcy years ago.
The letters also reportedly advise the Homeowners that the Banks' forgiveness of these debts which do not exist, will be reported to the IRS. Id.
Some questions arise, the answers to which do not appear to be entirely clear. See id. Will the Mortgagees-Banks claim that they are entitled to a credit for forgiving debts that do not exist, against their $25 Billion worth of obligations which include forgiveness of Mortgage debts? They voluntarily assumed those obligations earlier this year when they agreed to their Mortgage Fraud Settlement with some States and the Federal Government. See, for example, the post and links in it here on July 26, 2012, "BAD FAITH SETTLEMENT AGREEMENT: MORTGAGE SERVICERS, ATTORNEYS GENERAL, AND OBAMA ADMINISTRATION."
If the Banks report their forgiveness of debts to the Internal Revenue Service, the burden will shift to the Homeowners to explain to the IRS why the Banks made a mistake in reporting this forgiveness of nonexistent debts. Will the Banks seriously report forgiveness of these debts which do not exist, to the IRS?
Readers of this blog are invited to EMail and write these questions to the Mortgagees-Banks. Please take a moment to look up their addresses online and send them these simple questions. They should have the answers.
Fair Dealing: The Law Already Got There. More is Needed.
Much has been written about Municipal Bond Insurance. That includes posts here and especially under the category of Bond Insurance which address the need for enforcement of duties of Good Faith and Fair Dealing in this arena.
Now comes news that "fair-dealing rules" have been in place "for decades" in the municipal bond market. "Rules requiring fairness in this market state that participants must not be deceptive, dishonest or unfair in their practices. The regulations apply to the sale of municipal bonds to investors and to underwriters' interactions with issuers; fraud need not be alleged in a fair-dealing case." Gretchen Morgenson, "Fair Game / Police Protection, Please, for Municipal Bonds" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, August 5, 2012).
From recent news coverage it is clear that at least certain firms and individuals who make their money from Wall Street, have taken advantage of relatively less financially sophisticated school board members or water management district board members, for example. Even so, the Securities and Exchange Commission seems to be overloaded with George W. Bush-era political appointees who still see their mission as doing nothing so that others can accuse the Federal Government of not acting. The SEC has recently asked for more power to enforce regulations in the municipal bond market while ignoring the regulations that have existed for almost as long as the SEC itself. This is perhaps an exaggeration, but only a slight one.
This is an area deserving of research. "So far, the commission's reticence to act on behalf of municipal issuers has left those issuers to take on Wall Street alone. Few have done so." Gretchen Morgenson, "Fair Game / Police Protection, Please, for Municipal Bonds" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, August 5, 2012).
There does not seem to be a similar impediment to lawsuits involving allegedly failed advice to munis when they are investors rather than issuers. The City of St. Petersburg is one example. The City successfully sued for over $10 Million in a case involving alleged failure or unfair dealing in financial advice to the City on an investment. See "Bad Faith Financial Services: No Comparative Negligence in Lawsuit," posted on April 5, 2012.
This area is worth taking time to research the law so that the law may be applied.
It is worth your time, too.
... One Our Father, and One Glory Be. Now say a Good Act of Contrition.
Opposing the facts in yesterday's post, here, with false opinions, SHAUN DONOVAN, the Secretary of HUD, has had an opinion piece published under his name at Shaun Donovan, "Mortgage Pact Helps Floridians See Light at End of the Tunnel" p. A19, col. 1 (Orlando Sentinel, Friday, July 27, 2012).
In his piece, Mr. Donovan points out that the entire settlement agreement between the Banks and the State and D.C. Attorneys General is said to total "$25 Billion," and that "$8 Billion" will in some unexplained way "forc[e] lenders to reduce the size of unaffordable loans and to refinance loans for underwater homeowners." Id. If that were happening, it might be a good deal. But that is not what is happening. See again yesterday's post and the authorities discussed in it.
One further note of, frankly, what is either fantasy or more stuff for Mr. Donovan to confess the next time he unburdens himself in the Confessional. He says that the settlement agreement "also provides an additional $334 million in state aid" that Pamela Bondi, Florida Attorney General, will use "to help homeowners through proven tools like housing counseling." Id. And if you believe that, Mr. Donovan and Ms. Bondi have some swamp land to sell you in South Florida as they say.
BAD FAITH SETTLEMENT AGREEMENT: MORTGAGE SERVICERS, ATTORNEYS GENERAL, AND OBAMA ADMINISTRATION.
Newspaper columnists are pointing out the failures of the Obama Administration since 2007-2008 to provide relief to Homeowners in Foreclosure. Rightfully so. E.g., Beth Kassab, "Like Many Homeowners, Hope Adrift" p. A3, col. 1 (Orlando Sentinel Tuesday, July 24, 2012); Gretchen Morgenson, "Fair Game / Into the Bailout Buzz Saw" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, July 22, 2012).
However, it is easy to point a finger at Government miscues and inaction. Perhaps too easy. Let's take a look at a contract, a settlement agreement, made by the Banks in exchange for immunity from Government criminal and civil prosecution over their Mortgage lending practices.
The Banks made a deal to pay $2.5 Billion to the States which would include loan modifications. (Their deal included other money and other provisions as well. They announced the deal weeks before they posted their agreement online. See the posts here and links in them on January 31, 2012 and on February 2, 2012.) The deal was supposed to include debt forgiveness to be included in that amount. There is no deal, it appears, and there is no $2.5 Billion for loan modifications.
By way of background, in January of 2012 a global settlement agreement was announced. The agreement involved 5 major Mortgage Servicers but, since all 5 happened to also be Banks which lent money to Homeowners, the deal was expanded to include their practices as Banks and not just as Mortgage Servicers. Of course, once the deal was expanded to address the questionable practices of Banks lending Mortgage money to Homeowners, the Bank practices were arguably expanded to the Mortgage practices of all Banks.
On the other side of the deal were the State and District of Columbia Attorneys General. They were reportedly holding out for far more money and concessions if they were going to expand their deal to confer immunity on Banks for anything more than the so-called "robo-signing" practices which triggered their joint investigation in the first place. Under pressure from the Obama Administration through Sean Donovan, Secretary of Housing and Urban Development, they caved and took a deal that included the fictional 'loan modifications' and '$2.5 Billion' in question. Furthermore, they gave credit to the Banks for all the money spent by the Banks toward that $2.5 Billion figure that not even the Banks' lawyers probably thought they would get in 2.5 billion years. Pretty soon, there was little or nothing left of the $2.5 Billion and the loan modifications that were supposedly part of the deal.
If there ever were any enforceable provisions with respect to loan modifications included in that deal -- and that is a big "if" -- then they were not only negotiated in Bad Faith but they are seemingly being performed in Bad Faith. It does not help that many observers have been aware since the deal was announced in January, 2012 that this was coming. Homeowners asking for loan modifications under the deal are finding that out now, in July, 2012.
Foreclosers in Florida Follow Foreclosure "Mistakes Are Made" Business Model.
The problems dumped on Florida's Judicial system by Foreclosure Fraud -- and on the Courts in other jurisdictions as well -- have been the subject of many posts here. See, for example, the series on "Immunizing Foreclosure Frauds is Not an Option," posted on 09.29.11, 10.06.11, and 10.13.11.
Solutions have been proposed to these problems. For example, a set of several solutions was posted here almost a year ago, on June 8, 2011, "Foreclosure Lawsuits Problems Attmept Overcoming Court: No. 1, With Solutions." The State of Missouri has followed one of its own solutions: Missouri is criminally prosecuting Forgery initiated by Florida Foreclosure Facilitators, and the Missouri prosecution was posted here on February 9, 2012.
The issue is whether Florida banks should be able to escape punishment if they drop a foreclosure case because they realize they have fraudulent documents. They are allowed to do so and then refile the case with proper documentation.
Kathleen Haughney, "Florida Justices Weigh 'Robo-Signing' Sanctions" p.A3, col. 1 (Orlando Sentinel, Wednesday, May 9, 2012).
The Florida Supreme Court has scheduled Oral Arguments on the issue for today, Thursday, May 10, 2012.
Reportedly, groups of bankers have filed briefs in which they take the position that they should be allowed to continue their foreclosure 'mistakes are made' business model. See id.
If mistakes were the only issue, then perhaps.
But mistakes are not the only issue. See all the posts and links, above. No, the business model is the issue. It is not compatible with the Justice system in Florida -- or anywhere else.
Is This a Mortgage Fraud "Settlement"? Or Just a Fraud?
Criticism of the supposed Mortgage Fraud Settlement is being reported from many points of the compass. A chief criticism of the arrangement between the Federal and State Attorneys General, on the one side, and five huge Mortgage Servicers which are also investment Banks on the other side, is that the Gang of Five are credited in their agreement with things they would do anyway. See Shaila Dewan and Jessica Silver-Greenberg, "Foreclosure Deal Credits Banks for Routine Efforts (New York Times Online, posted March 27, 2012).
So how, you understandably are asking, is this a negotiated settlement? Good question. A lot has to do with the nature of this arrangement. It is likely that the settlement documents are not complete. It is a certainty that the settlement documents that do exist, were written first, before a Complaint was written -- which as most lawyers and every Banker knows is the opposite of the way things are handled in a negotiated settlement. See March 18, 2012 post here, "After the Settlement ... They Wrote the Complaint".
... They Wrote the Complaint.
Settlement between five Mortgage Servicers/Banks, on the one hand, and the United States, and all but one of the Attorneys General of the States and the District of Columbia on the other hand, was announced in early February, 2012. They settled unalleged differences over unknown things.
Their Settlement Agreement was not made available until it was posted this past week online, at www.nationalmortgagesettlement.com.
The only people who could look at it in the meantime, are the ones who wrote it. See February 26, 2012 post here: "Is There a Mortgage Foreclosure Fraud Settlement?
In an unusual development, the Complaint was not written until after the settlement was announced. Also this past week, a Complaint was posted for the first time.
It is not dated. A date would, well, date it.
It does not show a Case Number, nor does it bear any Clerk's "Filed" stamp. Presumably, it looks the same as the original filed in Court.
Without a case number, the parties listed in the style are too generic to yield any PACER search results. PACER is of course the online electronic docket of the Federal Courts. I have tried PACER searches for the lawsuit, without success, yet. I plan to continue. If you want to try a search yourself, on PACER or otherwise, the parties' names on the Complaint are United States of America, et al. v. Bank of America Corporation, et al.
Here is a copy of the only Complaint made available in the interim from the www.nationalmortgagesettlement.com website: Download Undated, Unfiled Complaint. It is 99 pages long. I have not finished reading it, at this time. I plan to comment further regarding it, in a later post.
There are as many Settlement Agreements posted on the website as there are Mortgage Servicers: Five. A look at the Settlement Agreement reached with the first-named "Defendant" in the Complaint, Bank of America Corporation, shows that it is a potentially intimidating 317 pages long.
To summarize where we are to this point: There was a settlement, after which a 99-page complaint was written, and thousands of pages of settlement documents were also written, and all of which reading material was released for public review a month after the press notices were released announcing a settlement of unknown, unidentified allegations.
And now, a Federal Judge is going to be asked to approve it all. Judge, correct me if I am wrong, but this smells. Perhaps it is just the way it was cooked.
The prevailing applicable rule of law followed by Federal Judges in reviewing actions of administrative agencies, is one of "deference". In the 21st Century, this standard of review rule or at least the way it is being argued in recent similar cases, has frankly outlived any basis in reality it once had. The Governments' argument is essentially that Federal Judges are duty-bound to rubber stamp whatever settlements the Governments make.
That is the binding rule of law at this time, at least according to one Second Circuit panel. See Edward Wyatt, "Ruling Gives Edge to U.S. in its Appeal of Citi Case" p. B1, col. 6 (New York Times Nat'l Ed., "Business Day" Section, Friday, March 16, 2012).
Perhaps there will be one United States District Judge honest enough to say that the evidence submitted in support of the bare allegations in the "Complaint" is not enough, but prevailing law requires approval of this settlement anyway simply because an administrative agency of the Federal Government made it.
Is There a Mortgage Foreclosure Fraud Settlement?
And if there Is a Mortgage Foreclosure Fraud Settlement Agreement, why can't we see it? If it displays Good Faith, Would It not be displayed? You would think.
There is no Settlement Agreement on the website set up for the Foreclosure Fraud Settlement.
The reports of an Agreement may be premature.
There is an Executive Summary, and something called a fact sheet. There are no dates in them.
The Mortgage Foreclosure Fraud Settlement was announced 3 weeks ago, as this post is written.
I am interested in how the reported 'settlement' affects Banks' and Mortgage Servicers' liability for past practices that allegedly committed fraud upon the Courts. Things like submitting Affidavits as proof without personal knowledge despite the signers' oath that they had personal knowledge of what was in the Affidavits they executed. Things like at least some Foreclosure Plaintiffs' allegations that Notes and Mortgages were lost and could not be found, although allegedly the Notes and Mortgages are in the files of the Foreclosure Plaintiffs who made such allegations. I have been looking for any information and in researching the entire Internet on this subject, I have found one source of information.
We owe it to one source among the many weighing in on this reported 'settlement,' who describes what if any provisions are made in it concerning the liability of Banks and Mortgage Servicers for past practices which allegedly perpetrated fraud upon the Courts. An Assistant Attorney General in Wisconsin writes on the website of the Wisconsin Bar that in the settlement, the participating Banks/Servicers are completely released from all such claims which might be pursued by the Federal Government and the participating State Attorneys General, based on alleged fraud upon the Courts of the States and of the United States. See Holly Pomraning, Esquire, Assistant Attorney General, Wisconsin Department of Justice, "Wisconsin Joins $25 Billion Mortgage Settlement" posted on February 13, 2012 on State Bar of Wisconsin website.
If Attorneys General will not ensure that fraud is not committed upon the Courts, who will?
We would likely be better off if the reported settlement was never born, as they say. See "Mortgage Foreclosure Fraud Settlement: This Settlement is a Fraud," posted on February 16, 2012 on Insurance Claims and Bad Faith Law Blog.
Mortgage Foreclosure Fraud Settlement: This Settlement is a Fraud.
Last week, the Obama Administration announced a settlement of all claims by any agency of the Federal Government or by any State Attorney General, of Mortgage Fraud committed by or on behalf of five huge Mortgage Servicers which are also Banks and which issued Mortgages as well. Many features of the settlement have been written up in Press Releases and published in many newspapers.
However, the actual Settlement Agreement is not posted online yet as of this writing.
As noted, this is getting to be too much. It seems pretty clear that the participants are not posting their Settlement Agreement because they just do not want other people to look at it. They would rather have their Press Releases published instead.
An "executive summary" without the actual provisions has just been released. Download Philip A Lehman Asst A G N C Executive Summary of Multistate Federal Settlement of Foreclosure Misconduct Claims (undated c 02 15 12) It is four pages long.
Three paragraphs address the Release given by the Federal Government and by the State Attorneys General.
The "executive summary" of their Release is that they have released all claims that they might file on account of the Foreclosure Frauds allegedly committed upon Homeowners who are losing their homes in these Foreclosures. The alleged Fraudulent activities are not mentioned, but past allegations of their Fraud include the submission of Affidavits which are not based on personal knowledge, or which are allegedly false and misleading, and including also the filing of Foreclosure lawsuits and the pursuit of nonjudicial Foreclosures where permitted, which are allegedly brought by persons or corporations which do not hold the Note behind the Mortgage in question, and who swear or affirm that they cannot account for its whereabouts, even as they pursue their Foreclosure claims based upon those same Notes and Mortgages.
Individuals and their lawyers are not bound by this settlement, and they can still pursue claims and defenses based upon these Frauds, the executive summary helpfully summarizes for us.
What the executive summary leaves out, however, is that most of these Foreclosure Defendants do not have a lawyer.
There is often no-one involved in their Foreclosures who knows enough to look for evidence of the Foreclosure Plaintiffs' Mortgage Fraud if any. That leaves the United States Department of Justice, all the Federal agencies involved, and the 50 State Attorneys General to raise the issues -- only they have just settled out.
Mortgage Fraud Settlement: This Settlement is itself a Fraud. Just in time for the upcoming 2012 elections.
MISSOURI INDICTS FLORIDA FORECLOSURE FACILITATORS FOR FORGERY.
"Robosigning" is the act of signing someone else's name, or yours, to papers that will be used to evict people from their homes whether they deserve it or not.
Forgery is a felony in most jurisdictions. It is certainly a crime in Missouri, where a Grand Jury handed up indictments of "DocX" and its founding former president on "136 counts of forgery in the preparation of documents used to evict financially strained borrowers from their homes." Gretchen Morgenson, "Company Faces Forgery Charges in Foreclosures in Missouri" p. B1, col. 2 (New York Times Nat'l ed., "Business Day" Section, Tuesday, February 7, 2012).
DocX reportedly employed people for the purpose of signing other people's names and notarizing the signatures on "millions of mortgage documents for big banks and loan servicers". Id. Doc X was a part of Lender Processing Services located in Jacksonville, Florida, until DocX was "closed" a year-and-a-half ago.
You and your clients might be wondering if forgery is a crime in other States besides Missouri? Of course it is.
You might also be wondering in what other States has forgery been prosecuted as a crime? One. Nevada, where some individuals have been charged with "notary fraud". Id.
You might wonder why not? Why have there not been criminal prosecutions for forgery and Fraud?
Except in Missouri and Nevada?
Mortgage Insurance Companies and Title Insurance Companies faced with more and higher payouts on their Policies would like to know the answer to that question, too.
So would the rest of us.
Residential Mortgage-Backed Securities Group: The Final Installment.
Unidentified "people close to the talks" say that State Attorneys General have until tomorrow to decide whether to settle with Mortgage Servicers which are also Banks, on undisclosed terms which may involve a Release of "civil state and federal lawsuits about servicing misconduct and faulty foreclosures, and state lawsuits about how they made some of the loans." Aruna Viswanatha and Rick Rothacker, in a copyrighted Reuters news story as it appears on OrlandoSentinel.com on Thursday, Feb. 2, 2012, entitled "States to Decide This Week on Mortgage Deal".
This ends a series begun on Monday, Jan. 30,2012 on Insurance Claims and Issues Weblog. Part 2 was posted on Tuesday, Jan. 31, 2012 on Insurance Claims and Bad Faith Law Blog, and Part 3 was posted yesterday on Insurance Claims and Issues Weblog.
When we ended Part 3 of this series, we made note of the fact that none of the websites of any of the three State Attorneys General who have expressed reservations about, or withdrawn from, the Mortgage Servicers-Banks Mortgage Fraud settlement talks, even posted a press release or any other news about the Federal Residential Mortgage-Backed Securities Working Group.
By way of further information identifying the lawsuits and reservations of these Attorneys General about the 'talks,' the California Attorney General withdrew from the talks and is pursuing California's own prosecution of Mortgage Fraud. October 4 and October 27, 2011 posts on Insurance Claims and Bad Faith Law Blog; see November 1, 2011 post on Insurance Claims and Bad Faith Law Blog.
As if there was not already enough pressure being applied to the California Attorney General to agree to return to the 'talks' and agree to sign the Release demanded by the Banks of all their potential liabilities in the Mortgage Fraud Fiasco, known and unknown, there is this news: Reportedly if those 'talks' result in a settlement, the Banks will pay more money if California signs on to the Release. Aruna Viswantatha and Rick Rothacker, Reuters news report, supra.
The Attorney General of Massachusetts has also filed suit on behalf of her State over Mortgage Fraud. December 4 and December 6, 2011 posts on Insurance Claims and Bad Faith Law Blog.
The Nevada Attorney General has similarly filed suit on behalf of Nevada citizens who have allegedly been damaged by Bank misconduct during the Mortgage Fraud Fiasco. See January 9, 2012 post on Insurance Claims and Issues Weblog, and the links to other reports in it.
No suit appears to be pending against the Banks over their alleged involvement in the Mortgage Fraud Fiasco, which was filed by the Federal Government.
There is however tremendous pressure, as we have seen, which is being applied to State Attorneys General to settle, sight unseen, with the Banks over the Banks' involvement if any in the Mortgage Fraud. We have seen in particular that extreme pressure is being applied by the Administration to three strong women Attorneys General who have rejected the idea of settling, sight unseen.
Given the activities of recent days which result in as much pressure as can be brought to bear by the current Federal Government, it will not be at all surprising if the positions of one or more of the State Attorneys General change.
Time will tell. In the meantime, Mortgage Insurance Companies and Title Insurance Companies will continue to bear the cost of the Mortgage Fraud Fiasco, more or less alone.
Part 2 of 4: The Residential Mortgage-Backed Securities Working Group.
... Is the Fix In?
This is Part 2 of 4 Parts. Part 1 was posted on Insurance Claims and Issues Weblog on Monday, January 30, 2012.
The Federally fashioned Residential Mortgage-Backed Securities Working Group has come into being seemingly independent of the settlement talks addressing "Mortgage Fraud" by Mortgage Servicers. As noted in Part 1, the other side of those talks has been occupied by a diminishing group of State Attorneys General while the settlement under discussion has expanded. The Mortgage Servicers, all Banks, want desperately to form a 'global settlement' that would settle all their exposure in the Great Finanicial Fiasco -- even if, especially if, the Banks' activities have not been fully investigated.
The RMBS Working Group is not seemingly independent of the Federal Government, however.
The Working Group has been placed under the leadership of a Task Force headed by Attorney General Eric Holder, as noted in Part 1.
HUD Secretary SHAUN DONOVAN was prominently featured in photographs released of the announcement of this new Working Group to the press. As was also noted in Part 1, Mr. DONOVAN has reportedly been in charge of Administration efforts to apply "pressure" on the State Attorneys General who remain in the ongoing settlement talks with the Mortgage Servicers-Banks, to settle. HUD is part of the new Working Group too. Edward Wyatt, "New Fraud Investigation Group Issues Subpoenas to Financial Companies" p. B3, col. 1 (New York Times Nat'l ed., "Business" Section, Saturday, January 28, 2012).
One of at least five (5) "Co-Chairs" is now the New York Attorney General, Eric Schneider. See, e.g., "New Residential Mortgage-Backed Securities Working Group Hopes to Restore America's Trust in Financial Sector," Securities Law Prof Blog, posted January 27, 2012; Edward Wyatt, New York Times, supra.
*This is the person who reportedly stated that an SEC settlement is as good as a judgment. See Part 1 of this series.
**The appointment of the U.S. Attorney for the District of Colorado to this Working Group, is a puzzle. Why was this presumably fine lawyer actually selected for this particular Working Group involving Fraud in Residential Mortgage-Backed Securities? The website for the U.S. Attorney, District of Colorado, displays his "Community Service Projects"; none involve Mortgages, Residences, Securities, or even Foreclosures. His website also lists all of his press releases, and the first press release related to RMBS Fraud is his press release announcing that he has been named a Co-Chair of the RMBS Working Group. See for yourself: Website of the U.S. Attorney for the District of Colorado.
The Working Group will be staffed by 55 employees of the Federal Government including "attorneys, analysts, agents and investigators." Press Release of the New York Attorney General, January 27, 2012, "A.G. Schneiderman and Federal Officials Detail Joint Investigation Into Mortgage Crisis".
This is the end of Part 2. Part 3 in this series will resume tomorrow, on Insurance Claims and Issues Weblog.

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