“What we’re seeing is a systematic fraud on the courts of Ohio”


Oh…my Cordray, it’s not just Ohio, my friend.  You just happen to be one of the few AGs willing to stand up and do something, even if it means angering the people with the money.  That’s the problem when politicians are charged with defending the ‘little guy’ – they’re still beholden to those rich, powerful people to give them campaign money.  Well, it’s time for choosing America.  The attorneys general of all 50 states are going to have to make a choice here.  Do they side with those they swore an oath to protect or do they side with those who donate large sums of money to their election campaigns?  Well, I’ve got a tip for you guys:  rich bankers don’t vote.  They only speak with their wallets.  Poor people hoping to have their voice heard DO vote.  So, best remember that in November.

Ohio AG Richard Cordray: “What we’re seeing is a systematic fraud on the courts of Ohio”

Late yesterday, I had the opportunity to speak with Richard Cordray, Ohio’s Attorney General, who became the first to sue a mortgage lender over incidents of foreclosure fraud. The lawsuit against GMAC Mortgage and its parent company Ally Financial seeks damages for individual violations of fraudulent documentation of up to $25,000 per incident, additional restitution for homeowners, and an immediate injunction on all foreclosure activities by GMAC/Ally in the state. In addition, Cordray sent letters requesting meetings with other top lenders in the state, seeking information on their foreclosure activities. A lightly edited transcript of our conversation follows.

Q: So have you heard anything from these other lenders with whom you sought meetings, any news to report there?

Richard Cordray: Just yesterday we transmitted the letters, and I’m on the road today. I wouldn’t expect to hear within 12 hours. But we hope to hear from them shortly.

Q: How big can this get? I calculated out that if this were standard practice in the mortgage lending industry going back to 2005, with the 450,000 foreclosures in your state, the cost to the industry overall would be over $11 billion dollars.

Cordray: I’m not making the assumption that all the foreclosures filed in Ohio are using false affidavits. We do know through depositions about certain robo-signers. It may be that way for every foreclosure. It may not be. That will come out during discovery. But I think we’re on strong legal grounds to treat each separate case of false affidavits as a separate incident.

Q: What are the main goals for this lawsuit with GMAC?

Cordray: So, what we’re trying to achieve: first of all, GMAC has said they will put forth an unspecified pause while they sort out procedural infirmity. It wasn’t clear what pause meant. Does it apply only to foreclosure evictions, or does it apply to pending cases in the system? How long will this pause last? So our preliminary injunction would put those questions under the supervision of the court, to stop any foreclosures from GMAC until the court satisfies itself. Then as you mentioned, we seek damages for false affidavits, and other provisions as part of case, which will be sorted out in due course. The consumer restitution, we left that unspecified, and it will be refined by discovery.

Q: Do you know of any GMAC/Ally foreclosure operations that are ongoing, despite their claim that they have stopped those processes?

Cordray: We don’t know. They have pledged their willingness to have a pause. Does that mean filing no new foreclosures, or just about ones in the pipeline, or ones where they’ve already filed papers? It’s just very vague. So it should be put under the supervision of the court.

Q: But you haven’t heard any specific complaints from constituents with GMAC mortgages being foreclosed?

Cordray: We may well have those complaints. But the big picture is, what we’re seeing is very disturbing. GMAC has committed a systematic fraud on the courts of Ohio. You put that together, it should be put in a court’s hands. We shouldn’t rely on the same folks who have defrauded courts. Doesn’t seem right to me.

Q: Knowing what you know about this issue, as a citizen and not the Attorney General would you join the call of many to have a nationwide moratorium until this gets worked out?

Cordray: I don’t want to jump the gun. I don’t want to start leaping to wild conclusions. There is an indication that this was an industry wide practice. But it might not be. We will see where it goes. We’ll get to those conclusions, through the discovery process.

Q: How long do you expect all of this to play out, both with the lawsuit and the meetings with the other servicers?

Cordray: Our letter to Bank of America and JPMorgan, where there are already indications of the same processes, asked for a response within 3 days of transmitting letters. We were not quite as pointed with Citi and Well, because they have not yet admitted the same problems. We suspect that everybody was doing similar things. And we’re looking to hear back quickly. As for the court filing, we are moving as quickly as we can on a preliminary injunction.

Q: What are you hearing from other AGs across the country about this? What has there reaction been?

Cordray: Among the AGs, there’s a lot of concern with what people are seeing and hearing. Nobody’s very comfortable with the notion that people are committing fraud upon the court on a deliberate and systematic basis. This is not just about sloppy paperwork.

Q: I’m sure you heard about the President’s veto yesterday of a bill that may have made it harder for individuals to challenge foreclosure documents. It’s a moot point now, but do you think it would have had an impact on your case?

Cordray: We’re not clear that it would’ve had an impact on the case. We understood that the bill was about out -of-state affidavits. If that’s all, it wouldn’t have had the slightest impact. I don’t imagine the Congress would have said to a court, accept fraudulent evidence in your case. It is a little harder to enforce sanctions on an out-of-state signer, however. But if it did nothing more than put out-of-state signers on the same footing, that would not implicate any of this.

So we can add Ohio’s Attorney General to Mr. Cooper from North Carolina, who we profiled here yesterday.  Ohio’s neighbor to the north still hasn’t made a peep.  Yoo hoo?  Mr. Cox?

There is a strong rumor that attorneys general in 40 states may be deciding to join together to investigate the foreclosures mess.  Here’s to hoping Attorney General of Michigan Mike Cox is one of those 40.  If not, I’ll do my level best to be sure he leaves that office in January with his head hanging in shame.

Bloomberg published this today about the rumor:

Attorneys General in 40 States Said to Join on Foreclosures

Attorneys general in about 40 states may announce by next week a joint investigation into potentially faulty foreclosures at the largest banks and mortgage firms, according to a person with direct knowledge of the matter.

State attorneys general led by Iowa’s Tom Miller are in talks that may lead to the announcement of a coordinated probe as soon as Oct. 12, said the person, who asked not to be named because an agreement wasn’t completed. The number of states may change because several are deciding whether to join, the person said. New Mexico Attorney General Gary King said yesterday in a statement that his office will join a multi-state effort.

Lawyers representing the banks expect a widening investigation, according to Patrick McManemin, a partner at Patton Boggs LLP, a Washington-based law firm that represents banks, loan servicers and financial institutions. Bank of America Corp., the biggest U.S. lender, yesterday extended a freeze on foreclosures to all 50 states.

“We are aware of or involved in a large number of investigations that lead us to believe there are in the neighborhood of 40 state attorneys general who have initiated investigations or expressed an interest,” McManemin said in a telephone interview.

Justice Department

Officials in at least seven states have already announced probes into claims that employees at home lenders and loan servicers signed court documents without ensuring the information was accurate. On Oct. 7, Miller said in a statement that he was working with state officials, banking regulators and the U.S. Justice Department to launch a coordinated review. Attorneys general in Ohio and Connecticut have said some of the practices may amount to fraud.

The Senate Banking Committee plans to hold a hearing Nov. 16 to investigate mortgage servicing and foreclosure practices, according to its website.

“American families should not have to worry about losing their homes to sloppy bureaucratic mismanagement or fraud,” the panel’s chairman, Connecticut Democrat Christopher Dodd, said in a statement. “Regulators at the federal, state and local levels have a responsibility to uphold the law and protect consumers from unfair foreclosure.”

Frozen Foreclosures

Bank of America, JPMorgan Chase & Co. and Ally Financial Inc. already froze foreclosures in 23 states where courts supervise home seizures, amid allegations that employees used unverified or false data to speed the process. Litton Loan Servicing LP, a mortgage-servicing business owned by Goldman Sachs Group Inc., said yesterday it’s halting some foreclosures to review how they’re handled.

Senate Majority Leader Harry Reid, a Democrat from Nevada, called on other banks and mortgage firms to follow Bank of America’s lead and “review their practices to ensure that they are not unfairly targeting homeowners in Nevada and across the nation,” according to a statement yesterday.

“There are reasons for these procedures and those are to make sure the banks own the homes they are foreclosing on,” Robert Lawless, a professor at the University of Illinois College of Law in Champaign, said in a telephone interview. “At the same time I don’t think it is going to be a tidal wave of relief for homeowners. My bet is that there will be a delay.”

Vickee Adams, a spokeswoman for San Francisco-based Wells Fargo & Co., and Mark Rodgers, a spokesman for New York-based Citigroup Inc., said the companies were still processing foreclosures. Thomas Kelly, a spokesman for New York-based JPMorgan, and Gina Proia, spokeswoman for Detroit-based Ally, declined to comment.

Homes Taken

Lenders took possession of a record 95,364 homes in August and issued foreclosure filings to 338,836 homeowners, or one of every 381 U.S. households, according to RealtyTrac Inc., an Irvine, California-based data vendor.

“If you have a national moratorium on foreclosures, that’s a problem,” Paul Miller, an analyst for FBR Capital Markets Corp. in Arlington, Virginia, said in a phone interview. “The longer you drag out foreclosures the longer it takes to get through” the housing slump, he said.

To contact the reporters on this story: Dakin Campbell in San Francisco at [email protected]; Prashant Gopal in New York at [email protected]

A shot at redemption, AG Cox.  Don’t waste it.