In a kind of Alien vs. Predator scenario that's playing out across the backdrop of America's housing crisis, lawyers have put lax bankers in their sights, hoping to unravel foreclosures by exposing flawed paperwork.
Lawyers Peter Ticktin, left, and Josh Bleil look at stacks of depositions from 150 robo-signers last week. The attorneys allege that the court documents reveal an industry-wide banking scheme to defraud homeowners.
The revelation that "robo-signers" at banks don't review loans became a scandal last month, and forced Bank of America and other institutions to review their processes.
But as The Wall Street Journal reports, the strategy has been used since at least 2006 — when Florida attorney James Kowalski "helped keep one couple in their home six years beyond their last mortgage payment."
And Bloomberg says the trend began even earlier — in 2002, when Boca Raton accountant Joseph Lents stopped paying his $1.5 million mortgage. He challenged Washington Mutual to find the promissory note, which they failed to do. DLJ Mortgage Capital, which bought the loan, didn't have it, either.
As of now, Lents owes around $2.5 million in debt, taxes and penalties, according to Bloomberg. But he's still living in that house.
Stories like those have led to the creation of a legal subspecialty called foreclosure defense. There's been a proliferation of Web URLs with names like "foreclosuredefense.com."
And a recent search for "foreclosure defense attorney" on Google returned more than 3 million results — and five out of the top six results point to lawyers and firms in Florida.
As the Journal's Robbie Whelan reports, both homeowners and lawyers have something to gain from trying to find a flaw in the banks' record-keeping:
In the 23 states where foreclosures entail a court hearing, the bank may be ordered to pay the homeowner's legal bill if a lawyer can convince a judge that the bank has submitted false documents, such as affidavits saying employees personally reviewed the details of loans when they didn't.
This might seem like the start of a new epidemic — but the idea of fighting a foreclosure is not yet common. Most people simply pick up and leave when they realize they're about to be evicted from their house.
But some attorneys — who have been facing an employment crisis of their own — are seizing on foreclosure defense as a way to pay the bills, Whelan reports. As one attorney in Philadelphia says, the work "is academically challenging, and I'm hoping it'll be financially rewarding. I'm hoping the banks rewrite the mortgages, cover my fees. That's my end game."
Of course, it took more than lax attitudes toward paperwork to produce the housing crisis. Over at Planet Money, Jacob Goldstein has a concise overview of the "messy" situation involving banks, foreclosures — and bonds.