Unsealed court-settlement documents reveal banks stole $trillions' worth of houses


Back in 2012, the major US banks settled a federal mortgage-fraud lawsuit for $95,000,000. The suit was filed by Lynn Szymoniak, a white-collar fraud specialist, whose own house had been fraudulently foreclosed-upon. When the feds settled with the banks, the evidence detailing the scope of their fraud was sealed, but as of last week, those docs are unsealed, and Szymoniak is shouting them from the hills. The banks precipitated the subprime crash by "securitizing" mortgages -- turning mortgages into bonds that could be sold to people looking for investment income -- and the securitization process involved transferring title for homes several times over. This title-transfer has a formal legal procedure, and in the absence of that procedure, no sale had taken place. See where this is going?

The banks screwed up the title transfers. A lot. They sold bonds backed by houses they didn't own. When it came time to foreclose on those homes, they realized that they didn't actually own them, and so they committed felony after felony, forging the necessary documentation. They stole houses, by the neighborhood-load, and got away with it. The $1B settlement sounded like a big deal, back when the evidence was sealed. Now that Szymoniak's gotten it into the public eye, it's clear that $1B was a tiny slap on the wrist: the banks stole trillions of dollars' worth of houses from you and people like you, paid less than one percent in fines, and got to keep the homes.

Now that it’s unsealed, Szymoniak, as the named plaintiff, can go forward and prove the case. Along with her legal team (which includes the law firm of Grant & Eisenhoffer, which has recovered more money under the False Claims Act than any firm in the country), Szymoniak can pursue discovery and go to trial against the rest of the named defendants, including HSBC, the Bank of New York Mellon, Deutsche Bank and US Bank.

The expenses of the case, previously borne by the government, now are borne by Szymoniak and her team, but the percentages of recovery funds are also higher. “I’m really glad I was part of collecting this money for the government, and I’m looking forward to going through discovery and collecting the rest of it,” Szymoniak told Salon.

It’s good that the case remains active, because the $95 million settlement was a pittance compared to the enormity of the crime. By the end of 2009, private mortgage-backed securities trusts held one-third of all residential mortgages in the U.S. That means that tens of millions of home mortgages worth trillions of dollars have no legitimate underlying owner that can establish the right to foreclose. This hasn’t stopped banks from foreclosing anyway with false documents, and they are often successful, a testament to the breakdown of law in the judicial system. But to this day, the resulting chaos in disentangling ownership harms homeowners trying to sell these properties, as well as those trying to purchase them. And it renders some properties impossible to sell.

To this day, banks foreclose on borrowers using fraudulent mortgage assignments, a legacy of failing to prosecute this conduct and instead letting banks pay a fine to settle it. This disappoints Szymoniak, who told Salon the owner of these loans is now essentially “whoever lies the most convincingly and whoever gets the benefit of doubt from the judge.” Szymoniak used her share of the settlement to start the Housing Justice Foundation, a non-profit that attempts to raise awareness of the continuing corruption of the nation’s courts and land title system.

Your mortgage documents are fake! [David Dayen/Salon]

(Image: Foreclosure, a Creative Commons Attribution (2.0) image from andrewbain's photostream)

Notable Replies

  1. "Banking establishments are more dangerous than standing armies."

    -T. Jefferson, notorious America-hating commie.

  2. Prosecute, Obama! You're from the party that cares about people, right?

    Buahahahahaha.... I crack myself up.

  3. Wouldn't it make more sense to prosecute the banks?

    I am seriously disappointed that the Obama administration seems so unwilling to hold major institutions accountable.

  4. Read the coma. "Prosecute, Obama!" not "Prosecute Obama!"

  5. The trouble is, once mortgages start to get packaged and resold, it is necessary that the accounting be done properly, lest you end up in some Kafkaesque situation where the borrower doesn't even know who they owe money to, and the chain of assorted entities who allegedly hold the debt never bothered with the paperwork and are now just making it up as they go along.

    In an ideal world, it would be handy if there were some 'revert' mechanism to bring the situation back to where it was when the mortgages were originally agreed upon; but there is no such mechanism. Instead, we have a situation where, after years of egregiously negligent bookkeeping, banks are simply forging the necessary IOUs and seizing things on that basis.

    Even if the person in question does owe somebody, that doesn't obviate the responsibility of the person they owe to make a minimal effort to keep track of the debt(especially since the process was so opaque that the debtor had no possible way of keeping track of the debt themselves, so it was either the creditor or nobody).

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