With all of the press robo-signing has gotten, it is a bit surprising that everyone is having such a hard time concluding whether these practices effect California foreclosures. My assistant even said to me today, “but the banks say that it doesn’t matter because California is non judicial.”
Because the topic has not gotten the treatment it deserves, I will gladly do the job. The following are by no means a complete list, but are the most clear LEGAL reasons (setting aside pure moral questions and the U.S. Constitution) that the Robo-Signer Controversy will lead to massive litigation in California.
In short, Robo Signers are illegal in California because good title cannot be based on fraud, robo signed non judicial foreclosure sales are void as a matter of law, the documents are not able to be recorded in California if they are not notarized, which we know was often not done properly, and finally, because they robo signed forgeries ARE intended for judicial proceedings, including evictions and bankruptcy relief from stay motions.
Mr. Rooney, the author, is a real lawyer who works in this area. His analysis (as a matter of fact and law) matches mine as a non-lawyer – that is, you can’t base something on a fraud, and thus that which flows from that fraud is legally void as if it never happened.
If I sell you something and you “pay” me with counterfeit currency the sale is void as you never gave actual consideration. Not only did you commit a felony passing the bad currency but as a matter of basic contract law since you never provided the consideration you promised in the original bargain passage of ownership of the thing you bought never happened. You may have physical possession but you obtained through a fraudulent artifice and as such the conveyance is void.
I am regularly surprised at how many people of otherwise-reasonable intelligence and understanding keep professing that all this robosigning and bogosity in various documents are “no big deal”, especially in non-judicial states. In point of fact while the foreclosure may be non-judicial if there’s someone in the house you still need a writ or other judicial act, even if perfunctory, to evict the current resident. Since the “robosigned” (or just plain bogus) documents are used as the predicate of that proceeding they are in fact used in a court proceeding and thus still constitute knowingly-false swearing before a court – the definition of perjury – as well.
For those who live in a non-Judicial state and thus think they have no recourse, they’re wrong. You do.
What I’d really like to see is more attorneys like Mr. Rooney start digging into the conveyance aspect of things, because I continue to assert (as I have since this all began four years ago) that the real problems lie there.
We will only clear the market, and resolve the problems with land titles and lending, when these deals are all fraud-audited and we find out who has the paper, what was and what was not delivered as required by the PSAs in these deals, and thus, who currently in legal and actual fact is owed money at this point in time.
If these investigations disclose that the securitizer or originator still has the loan but was paid for it in full then the MBS buyers have every right and reason to force the unwind of the transaction. What they don’t have the right to is the cash flows, including payments and recovery during foreclosure, on a note they don’t actually own!
Again, this does not result in a “Free House” lottery. Someone is owed money. The loan may be unsecured or the holder may not have “holder in due course” protections as a consequence of the willful and intentional acts during and after the closing of that loan but the money is, in fact, owed. But until we re-join the ownership of the note with the lending of the capital, which in my opinion is likely to require the unwinding of many of these deals, there is no way to know for any particular loan what its status is in terms of security interest, whether holder-in-due-course protections apply or not, and whether the best option for the actual entity that owns the paper and is owed money is to modify the loan (perhaps including a writedown of principal), a short-sale the property, an unsecured debt collection action (which may include bankruptcy for the borrower) or foreclosure.
Such a determination cannot be made without first establishing who holds the actual paper and what their actual economic interest is in that paper, which means we must begin with fraud audits on all of these deals. Before we foreclose on anyone we must demand conclusive proof that the transfers of the loan are in order in accordance with the PSA governing the deal (for a securitized mortgage) and that the flow of capital allegedly given in exchange for that paper actually occurred.