Martin Andelman, ML-Implode

ACT ONE – The shot across all bank bows

As the month of August came to a close, Nevada’s attorney general, Catherine Masto, filed her second amended complaint against Bank of America and friends.  Yves Smith provided the analysis in her post on Naked Capitalism,Nevada Lawsuit Shows Bank of America’s Criminal Incompetence, and all I can tell you is that it reads like a John Grisham or even a Robert Ludlum novel, I don’t know if it quite rises to the level of a John le Carre, but it’s a great read.  Oh, and spoiler alert… there’s going to be a sequel.

She says that the litigation by the attorney general is “significant not merely due to the damages and remedies sought, but because it paves the way for private lawsuits.”  So, that I like the sound of that… private lawsuits are good where Bank of America is concerned.  Here’s what she had to say about the complaint itself…

And make no mistake about it, this filing is a doozy. It shows the Federal/state attorney general mortgage settlement effort to be a complete travesty. The claim describes, in considerable detail, how various Bank of America units engaged in misconduct in virtually every aspect of its residential mortgage business.

The complaint describes abuses from the very outset of the securitization process: how borrowers were mis-sold mortgages (it describes how entire products were effectively predatory), how investors were misled as to their quality, how they were not conveyed properly to securitization trusts, how borrowers were subject to abusive servicing (as in charged improper and impermissible fees), how promises made under the old consent decree regarding mortgage modifications were violated (for instance, even though interest rate reductions were promised, instead modifications often resulted in HIGHER interest rates), and the filing of fraudulent paperwork to execute foreclosures.

Metaphorically, this complaint was a shot across all the bank bows.

ACT TWO – A robo-felony is born

Next, on November 7, 2011, the Wall Street Journal, in its article titled: Nevada Foreclosure Filings Dry Up After ‘Robo-Signing’ Law, described a new felony law that Nevada’s state Assembly passed and that took effect on October 1, 2011, that’s designed to crack down on “robo-signing.”  That’s what we call it when bank employees sign off hundreds of thousands of legal filings, lying about having personally reviewed each case.

The new law holds individuals criminally liable for such false representations and provides for civil penalties of $5,000 for each violation.

Early results say the law is working. In fact, during the first month after the law took effect, notices of default fell from 5,380 to just over 600, a drop of 88 percent, according to data tracked by ForeclosureRadar.com.

The new law also bans trustees from handling foreclosures if a subsidiary of the foreclosing bank, which means that Bank of America’s use of subsidiary, Recon Trust, in Nevada, is no longer allowed.  And ReconTrust didn’t file any NODs in October, about which a Bank of America spokesliar declined to comment.

Of course, the banking lobby is going with the SOP, claiming that the law is going to slow foreclosures, which we all know, hurts everyone.  And then I’m sure there was something about how there’s going to be no lending in Nevada in the future, and stuff like that.

Those behind the bill cleverly, if transparently, say that it’s not about stopping foreclosures, it about guarding against potential title defects that can lead judges to later invalidate foreclosures, as has happened in both Michigan and Massachusetts.  Tisha Black Chernine, a real-estate lawyer in Las Vegas who helped draft the bill, was quoted by the WSJ as having said the following when talking about healing the housing markets…

“This is not at all about preventing foreclosures. It is about helping end users.  We need to make sure foreclosures are done properly.  People taking title pursuant to a bad foreclosure run the risk of having no title at all.”

Okay, so that her story and she’s sticking to it, I suppose.  And if people are buying that, and it’s working with the bank, then I’m in favor of saying it.  Heck, I’d tell BofA scary bedtime stories about all sorts of thing every night all year if I thought it would get them to do a Scrooge-like turnaround as far as the foreclosure crisis is concerned.

So, while Nevada’s NODs dropped by 88 percent, foreclosures picked in the other 49 states.  Looking at loans bundled and sold as mortgage-backed securities without any government guarantees, Fitch ratings attributed the spike in foreclosures to making up for time lost pretending to investigate robo-signing, which started during the fall of 2010, and caused intermittent delays for several months.

Read more here