Triage Time At Belial Bank – U.S. Bank vs. Flynn

Have Big Banks Become Deer in the Headlights?

“…any assignments of the beneficial interest must be recorded in order for a non-judicial foreclosure to comply with the Oregon Trust Deed Act.  The defendant [borrower] presented evidence in Exhibit 104 that by December 4, 2009, and apparently through December 11, 2010, Freddie Mac was the owner of the mortgage and therefore the holder of the beneficial interest in the property.  No evidence that this transfer of the beneficial interest was ever recorded was presented by plaintiff [bank], so I am concluding that the recording never occurred.”  Honorable Jenefer Stenzel Grant, Circuit Court Judge, Columbia County, Oregon. [Memorandum Opinion, June 23, 2011. Parentheticals mine. PCQ]

Once again, the best and brightest minds in the banking, servicing, and title industries are on yet another conference call, as they continue to hear the distant drumbeat of defeat.  In addition, we are joined by Belial’s version of cub reporter Jimmy Olson, honest but naïve, legal intern, Les Guile. The title industry is represented by Liz Pendens, whose has had previous contentious exchanges with Dee Faulting, the feisty representative of the default servicing industry.  Damian Faust, Belial’s lead counsel and hatchet man, and its chief schemer and PR man, Kenneth Y. Slick III (aka “K.Y.”) have joined the conversation, as well. Lucy Furr, B.L. Zebub’s loyal secretary, has dutifully transcribed the conversation, presumably scrubbing it for any admissions that might result in a perp walk like Lee Farkas.  Regretfully, I cannot reveal how this purloined post has fallen into my hands. – PCQ

B.L. Zebub:  “Well gang, it’s certainly been an eventful few months, hasn’t it?  Visitors 10, Home Team, zip.  I’ve hastily called this phone conference to see if we can’t figure out what’s happening to our industry, and how we can turn things around.  I want solid contributions from each of you. No handwringing Liz, and no bickering, Dee.  I’m tired of the blame game.  Les, if you have a question or two, go ahead and ask.  We want to make sure your internship is a memorable one.  KY, let’s start with you – and by the way, I enjoyed that “confidential” interview you gave that ended up on the Internet, with not one single redaction.  You sounded pretty full of yourself – what were you thinking when you let yourself be interviewed without first having that reporter take a TSA-style enhanced body search by our security team?  That hidden tape recorder was your undoing.”

K.Y. Slick: “B.L., believe me, that will never happen again.  That “reporter” was the most gorgeous gal I’ve ever seen.  She was a perfect ‘10’.  I took her at her word when she whispered that I was the most fascinating and mysterious banking exec she’d ever met.  Of course, it didn’t help that we’d had a couple of shots of Devil’s Springs Vodka at Lucifer’s Lounge before the interview.  Anyway, back to business.  My take on this mess, B.L., is that we’re getting pilloried by the press.  It seems that whenever there’s a win for the little guy, the press picks it up and splashes it across the front page; but when we are successful in kicking another family out of their home, no one seems to notice.  I just don’t get it.  My thought is that we should jump-start our PR machine; get them out into the street.  Have them follow the U-Haul trailers around town to see if another family has lost their home to a successful foreclosure.  Hang out at the courthouses and talk to some of the foreclosure mill attorneys.  Find out which cases look promising, and then stand ready near the courtroom when the judge evicts the borrowers from their home.  These are human interest stories too – just the other side of the mirror. The press is sure to pick them up. And remember, “Any ink is good ink.”

Les Guile: “Let me get this straight, Mr. Slick.  So, you think that giving the banks ‘equal time’ in the news, even if it’s a story about people losing their homes to the banks and their foreclosure mill attorneys, will create good will?  I know I’m just an intern, but I do have a conscience, and this doesn’t sound right to me.  B.L., if I might be so bold, I think every time you go to court to kick a family out of their home, you underscore everything people don’t like about Big Banks.  It seems so me that instead of the phony “We Care” platitudes the industry places on its websites, it might start doing something to get people to believe the lending and servicing industry are actually helping people to transition their lives.  I’m not suggesting they stop all foreclosures, but they should make business-like decisions about which cases to pursue and which ones to quietly resolve.  In the words of Kenny Rogers, Know when to hold ‘em, and know when to fold ‘em. ’ The Big Banks just don’t get it.”

K. Y. Slick:  “Guile, you seem to forget, we’re “too big to fail.”  We don’t have to show weakness to get our way.  We’ve got friends in high places.  The Office of the Comptroller of Currency is in our pocket.  Hell, they’re run by one of our former lobbyists!  So while they pretend to be angry at us, we plead with them to do anything they want, so long as they don’t throw us into the briar patch.  Didn’t you read about our latest ruse?  On June 30, the OCC posted a bulletin on the Internet, requiring all the big servicers to undergo an examination of their practices, from documentation to notarization.  But the catch is that we get to do the examination ourselves!  Yeh, ‘self assessment.’ And after our period of mandatory introspection, we’re supposed to report any deficiencies we see in our practices.  Ooooh! Scary stuff!  This reminds me of my sophomore high school lit class, when the teacher let us grade our own papers!  So, in short Guile, we don’t need to go down the path of self-righteousness.  We have might on our side, and from where I come from, ‘Might Makes Right.’

Liz Pendens:  “B.L. what snake pit did you pull this guy out of?  I can’t believe I’m hearing this. As your representative from the title industry, I think we’ve walked the extra mile with you guys.  We were on board when MERS was created.  We even paid to become owners.  And we went around singing the praises of MERS, even though we knew it was never accepted by any state as a suitable substitute for public record recording.  Here’s what we published in 1999.  It makes me gag when I read it today:

‘Are You Lost Without Assignments?

The answer is, “no.” Instead, you should celebrate your good fortune! No more wild goose chases tracking down a missing assignment.’

But wait – it gets even better:

‘Anyone can dial up the toll-free number and put in the MIN. There is no fee to use the System. Instantaneously, the database is searched and the current servicer’s name and telephone number are provided. Don’t worry if for whatever reason the MIN is omitted, or you can’t read it. You can also access the same information by using the borrower’s name, property address, or Social Security number. This information can also be faxed to you by inputting your fax number when the system prompts you for it.

Once you access this information, the servicer is contacted for payoff information or for other information regarding the loan. No more wondering if the assignment recorded in the land records is the most current one, and then finding to your chagrin that it is not, forcing you to go on the all too familiar paper chase.’

If you look closely at what we said in our promotionals, you’ll see we address everything except what happens if the property gets foreclosed.  Brilliant!  Why our industry ever agreed to go along with this sham is beyond me.  Of all the industries at the MERS table, we were the ones who should have appreciated the dangers of doing off-record assignments.  Especially in states like Oregon, where their non-judicial foreclosure law requires that all assignments be recorded as a part of the foreclosure process.”

B.L. Zebub: “Liz, first, the snake pit comment was uncalled for.  Hell, he probably regards that as a compliment!  Every big organization needs an enforcer.  He’s just our version of Whitey Bulger.  Second, the reason you went along with us on the MERS idea was because you needed us as much as we needed you.  Without us, you’d have to depend on business from little homeowners.  We agreed that we’d order lender’s title insurance through you and then you’d make the homeowner pay for it.  So don’t get too sanctimonious.  We’re in this together, and you better remember that.”

Dee Faulting:  “Liz, let me put a finer point on this.  Not only does your industry get paid for two policies at the start of every residential transaction – one for the purchaser and another for their lender – but you get paid for the same title search all over again if the homeowner goes into default and we have to buy a foreclosure report from you.  So, Liz, don’t wonder too hard why the title industry went along with the Big Banks in creating MERS – it was in your best interest to cooperate with your biggest customer.  And according to your own promotional material in 1999, you made it sound as if you were doing the lending industry a big favor, so the Big Banks would never again be forced to ‘go on the all too familiar paper chase.’ Well, guess what, Liz?  It appears that this little ‘paper chase’ is now what’s keeping the Oregon judges from granting our foreclosures and evictions. You were right about one thing Liz, of all the MERS owners, your industry should have figured this out in the first place.  Are you listing to me Liz?  Liz…? Liz…? Ahhhh, she hung up again, just like last time!”

Damien Faust: “Well, everyone, I’ve gotta report more bad news.  It seems some Circuit Court Judge in Columbia County, Oregon, just ruled on a case entitled, ‘U.S. Bank vs. Flynn.’  She recently wrote a Memorandum Opinion refusing to evict a lady from her home following a bank foreclosure.  You can’t believe the headlines this got in the press.  It was first picked up in the statewide paper, the Oregonian, then several smaller papers, and went viral on the blogosphere. Then, the Oregonian followed itself three days later with a lengthier and more detailed explanation of the MERS issues and what led up to the foreclosure mess in Oregon.  If people didn’t understand it six months ago, they’re sure starting to now.”

B.L.:  “So what does that mean to us?  We got the foreclosure didn’t we? Who cares about some little homeowner eviction in a backwater county court?  Where is Columbia County anyway?”

Damien Faust: “B.L., connect the dots!  First we get hammered by Judges Alley and Panner for bringing non-judicial foreclosures without recording the necessary assignments.  Ergo, our foreclosures are invalid.  So, even though Oregon law gives us a right under ORS 86.755 to evict the borrower after the foreclosure sale, this bleeding heart Columbia County Judge says that if the foreclosure was bad, the eviction can be no better. Don’t you see what this means?!  Wait – don’t answer!  I’ll paint you a picture:  Assume that the bank files a nonjudicial foreclosure and, as usual, fails to properly record the intervening assignments. The foreclosure trustee signs and records the Trustee’s Deed, transferring title to the Bank Bank.  The borrower refuses to move out.  Then the bank files for eviction.  The borrower asserts that the foreclosure was bad, say, like in the Columbia County case, by pointing to the fact that the loan was owned by Freddie Mac at the time of foreclosure – not the foreclosing bank.  But since there’s no assignment from Freddie before the foreclosure, the eviction on which it is based is also invalid.  Since we can’t evict, we can’t gain possession of the property.  We can’t resell it.  When the Oregonian contacted the banks to find out their position, they were so befuddled, it was reported that “A spokesman for Wells Fargo Home Loans said it was reviewing the judge’s decision to better understand it.”  ’Better understand’ what?! That’s like a boxer who just got KO’d saying he needed to ‘better understand’ why he hit the canvas.  And then, in an apparent effort to distance itself from the humiliation, leaving Wells Fargo to take the PR hit, U. S. Bank told the Oregonian that it ‘played no role in the title documentation process.’ Wait!  U.S. Bank brought this eviction into the courtroom.  They put their name on it.  If there was any doubt about who owned the loan that was foreclosed, it must have known by then.  The eviction was contested and set down for trial.  They had to know what they were walking into. The bottom line here is that borrowers in default will now have two choices instead of one: They can attack the foreclosure itself, or the eviction following the foreclosure.  The first option can be expensive and somewhat risky.  A bond might even be required by the court.  But contesting an eviction is relatively easy, and the bank carries the burden of proof.  And if the bank loses, like in Columbia County, it will have to go back and re-file the foreclosure – after getting their paperwork in order, which is unlikely.  And anyone who’s ever gone into eviction court knows that if in doubt, the judges always tilt in favor of the little guy – especially when it’s a David and Goliath match-up.

K.Y. Slick: “How can this happen?  These Big Banks have all the money in the world to throw at these cases.  This was a puny little eviction!  How hard is that to win?  I’m assuming the banks threw their best and brightest attorneys at this?”

Damien Faust: “That’s the mystery, K.Y.  The attorney apparently handling this for U.S Bank hadn’t been licensed in Oregon for a full year.  It was a big firm, but it doesn’t look like they put any gravitas behind their case.  There are only two reason I can think of to account for this: Either they knew they’d get their head handed to them on a platter, and none of the senior guys wanted to have their name on the loss; or they didn’t take the case seriously – thought it was a slam dunk – and figured it would be an opportunity for a newbie to get some courtroom experience.  They were mistaken on both counts. It appears to me the Big Banks have become deer in headlights.  They don’t know the right thing to do, so they do nothing.”

Les Guile: “B.L., I have to say that sitting in on these strategy sessions has been enlightening.  I am awestruck at the intellectual bandwidth of everyone here.  But, since I’m the only one with no real “institutional history,” perhaps I can see some things the rest of you don’t.  B.L., is it OK to continue?”

B.L. Zebub:  “OK, so long as you don’t call my friend, K.Y. here, a ‘pit viper.’”

Les Guile: “Thank you, sir.  Well, first, this small little eviction case was important.  The fact that it was picked up by the press and the blogosphere shows just how important. The failure to realize it in advance and deal with it accordingly, was a huge mistake.  From where I sit, the lending and servicing industries seem to treat every default in the same way.  First, they ignore the homeowner’s personal pleas for help. Then when the homeowner does get someone’s attention, there is no effort by the banks to come up with a solution that fits the problem.  It’s like a doctor giving everyone aspirin, regardless of their malady.  That’s why so many of your boilerplate modifications ultimately fail.  Secondly, the lost paperwork charade is wearing thin.  It’s frustrating and demeaning to borrowers.  Then, you file a foreclosure against the homeowner while they think they’re getting into a modification program.  By the time the homeowner retain an attorney, they’re in a fighting mood.  Then the banks jerk the homeowners’ attorneys around, treating them with mock politeness, promising everything, but delivering nothing.  So by now, after infuriating the homeowners and insulting the intelligence of their attorneys, there is no possibility of a compromise settlement.  Look, this Columbia County case is a perfect example.  Any bank attorney with an IQ of Vinny Gambini should know that the courtroom is the last resort – not the first.  Second, anything can happen there – and often does.  Third, courts and juries favor the little guy.  Fourth, on the heels of the McCoy and Hooker opinions – from reputable local federal judges – it was just a matter of time before a state court judge would say that if the bank’s foreclosure is bad, there is no basis for a later eviction.  Ironically, the banks had to know going into this Columbia County eviction that the underlying foreclosure was bad.  Need I go on?”

K.Y. Slick: “Yes, Guile, please do.  I’m waiting for the ‘Perry Mason Moment’ here.”

Les Guile: “Alright, K.Y. riddle me this: Why didn’t someone go to this homeowner before the foreclosure was even completed?  Tell her they wanted to help make arrangements to pay her some money so she could relocate with her little quail egg incubation business – yes, quail eggs!  Give her a few bucks, get her to execute a deed-in-lieu-of-foreclosure to the bank, and leave her with her dignity intact.  She would never have fought back.  Both the bank and the borrower would have won.  But when you foreclosed her, and then tried to evict her, she had nothing to lose.  The bank had everything to lose.  Even if they won the eviction, they’d lose, when the newspapers got word of it.  Once the bank gets a deed from the homeowner rather than the foreclosing trustee, there is no issue of a flawed title.  The bank gets the property back, sells it into the marketplace, has the title insurance company to insure title, and there is never a question of unrecorded assignments, since there was never a completed non-judicial foreclosure.  Why U.S. Bank and Wells Fargo never figured this out ahead of time is a mystery to me.  It’s almost as if they enjoy getting publicly pilloried.  So, K.Y., what’s wrong with that approach?  As my mother used to say, “You catch more flies with honey than you do with vinegar.”

[To be continued….]