Florida Case dismissed – Faulty Affidavit – FDIC/Indy Mac

Florida Case dismissed – Faulty Affidavit – Indy Mac

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By Jonathan Weil – Oct 13, 2010 9:01 PM ET
Jonathan Weil
What were banking regulators doing while some of the biggest U.S. lenders routinely filed false foreclosure documents in local courthouses around the country? In the case of IndyMac Federal Bank, it turns out the Federal Deposit Insurance Corp. was running the joint.

This may help explain why the mortgage-servicing industry got away with such misbehavior for so long. The government, in one form or another, was doing it, too.

The facts are there for anyone to see in the records of a circuit-court lawsuit against Israel and Neena Machado, a West Palm Beach, Florida, couple who last year beat back IndyMac’s attempts to foreclose on their home mortgage. They even won a judgment ordering IndyMac to pay $38,117 in legal fees.

IndyMac sued the Machados in November 2008, four months after the government closed its predecessor, Pasadena, California-based IndyMac Bank, which had $32 billion in assets when it was seized. The FDIC formed IndyMac Federal in July 2008 as the successor to the failed bank, and continued operating it in conservatorship before selling it in March 2009.

Among the sworn statements IndyMac filed with the court was a December 2008 affidavit by an IndyMac vice president, Erica Johnson-Seck, who said she had personal knowledge of the amount of money the Machados owed on the mortgage. That wasn’t true, she later testified in a deposition. To be fair, there’s every reason to believe the old IndyMac was engaged in this sort of conduct already, before it was shut down.

‘False Affidavit’

“There’s a lie in the affidavit,” the judge in the case, Meenu Sasser, said at a September 2009 court hearing, where she dismissed IndyMac’s complaint. “It’s a false affidavit.”

An FDIC spokesman, Andrew Gray, said the agency is looking into the matter. “While this issue has only recently come to our attention, it is something that the FDIC takes very seriously,” he said. “The FDIC was unaware of any violation of state laws applying to servicing practices while we were in control of IndyMac Federal. FDIC staff is currently investigating this further. We are committed to working with all parties to correct any issues or violations that may be found.”

Another point in dispute was whether IndyMac held the Machados’ mortgage note, as the bank claimed in its complaint. The Machados said it didn’t. The court never resolved the question. Whoever owns it, no one has since filed any new foreclosure action against the Machados, who continue to live in the same home, according to their attorney, Thomas Ice.

Suspending Foreclosures

A similar pattern is playing out around the country. So- called robo-signers penned their names to untold numbers of affidavits and other foreclosure documents that proved to be false, prompting judges in some states to throw out the banks’ claims.

Bank of America Corp. last week said it would stop foreclosure sales nationwide while it reviewed its practices. JPMorgan Chase & Co. says it is examining files in 41 states. Ally Financial Inc.’s GMAC Mortgage last month halted evictions tied to foreclosures in 23 states. Ally is majority-owned by the Treasury Department. The attorneys general for all 50 states have opened a joint investigation.

In her July 2009 deposition, Johnson-Seck said she and seven other people in her department signed about 6,000 foreclosure documents a week, including affidavits. She said she didn’t read all the documents before signing them and spent “not more than 30 seconds” on each one.

The corporations for which she had signing authority included the FDIC as conservator for IndyMac, she said. Johnson- Seck declined to comment. She’s now a vice president in Austin, Texas, for OneWest Bank, which bought IndyMac from the FDIC.

Regulators’ Role

Now let’s look at the bigger picture. Where were the banking regulators while all this mischief was going down? For years the leaders of the Federal Reserve and the Office of the Comptroller of the Currency, among others, have been assuring the public they have onsite examiners and supervisors at all of the country’s largest banks. Before IndyMac was seized, its primary regulator had been the Office of Thrift Supervision.

Yet there’s no sign these agencies did anything to stop any of these institutions from treating the country’s courts so contemptuously. Perhaps the regulators were clueless. Or maybe they knew there was a problem and decided to let the banks run wild in the interest of keeping their foreclosure mills humming.

Whatever the case, they let the banking industry deal another huge, self-inflicted blow to its reputation. That’s the sort of damage regulators are charged with preventing, as part of their mission to preserve public confidence in the financial system. And to think Congress just gave the banking regulators, including the FDIC, even more authority under the Dodd-Frank Act. The more they fail, the more power they get.

Shady Tactics

Meanwhile, it’s an open question why the mortgage servicers and their lawyers resorted to tactics such as filing bogus court affidavits. Was it just about cutting corners? Or was it because they often don’t know who owns the mortgages on which they’re foreclosing, and decided to cheat?

Americans expect banks to do shady things to promote their own self-interest. It’s what banks do. That’s why we have regulators — to keep the banks from putting the country at risk of, say, a nationwide foreclosure fiasco.

The regulators keep blowing it. At IndyMac, though, the FDIC wasn’t just overseeing the bank. It was operating the bank. The industry’s minders have hit a new low.

(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Jonathan Weil in New York at jweil6@bloomberg.net

To contact the editor responsible for this column: James Greiff at jgreiff@bloomberg.net

8 Responses

  1. MERS = FDIC
    By M. Soliman

    As for the FDIC – We knew the FDIC has been running this for some time. MERS is , in my opinion the FDIC.
    I spoke again with their Washington bureau last month and it was a interesting one hour conversation.

    The call revealed more than I could ever have expected in terms of where folks need to focus their claims. The FDIC confirmed the best they could without incriminating themselves to a number of important issues.

    The loans for most of these failed banks are held in receivership. So as I also said earlier, there is no pretender lender. It’s the receiver or FDIC acting as receiver behind MERS

    The serving agents are a long standing fundamental issue the FDIC would not acknowledge or deny. It violates the accounting rules for controlling aspects and we are using this for our client to advance their cases.

    We are terrifying in a case where the judge has dismissed our filing after over six months and upon the opposition moving for “more definitive statement from the Plaintiff” However, the judge gave us thirty days to amend and told us in very few words, this time name the FDIC.

    They also neither denied nor admitted to a flat out subrogation effort under their member bank transfer of asset consolidation program. Here we tell clients the most important thing to know which is the missing condition precedent in every sale brought by the parties in foreclosure.

    Finally, I was referred to their contract services division for more information regarding my hunch about the likelihood these “debt collector’ law firms are immune from prosecution. It turns out they are under hire for legal service by the FDIC.

    More to come. . .

    Remember, think, and just think about what is happening. Think through whom it is you’re going after for relief.

    Counsel, do your homework!

    I believe the judges know and stubborn attorneys and pejorative sentiment towards failed lenders is a mute point and are making many of these filings and plaintiffs look foolish in court.

    Maher Soliman
    Tel. 213-880-6288

  2. N.Y. Supreme Court Blocks Foreclosure Due To Predatory Lending Violations


    In a recent potentially precedent-setting decision, New York Supreme Court Justice, Joseph Maltese, denied a bank’s motion to foreclose on a sub-prime mortgage due to several predatory lending violations.

    In the LaSalle Bank N.A. v. Shearon Case (No.100255/2007, 2008 WL 268449), the lender LaSalle Bank, moved for summary judgment in its
    foreclosure action against David and Karen Shearon.

    Not only did Justice Maltese dismiss the foreclosure action by the lender, but also granted the homeowners summary judgment on their counter claim that the lender violated New York predatory lending law.

    The Judge ordered a hearing to assess damages against the bank. The borrower may be entitled to receive damages including all of the interest
    paid, the closing costs charged for the loan and a refund of any amounts paid. Because the bank engaged in predatory lending practices, the
    mortgage and loan may be voided, thus stripping the lender of any right to collect, receive or retain any principal or interest. This also gives the
    borrower the ability to recover any payments made under the agreement.

    Details of the Purchase

    In January 2006, Karen and David Shearon bought their first home in Staten Island New York for $335,000. The sales contract however, listed a purchase price of $355,100.00, which included a $20,100 “seller’s concession” used to pay
    closing costs associated with obtaining the loan. The sale was ultimately financed with two loans. One loan for $284,000 with a fixed-to-adjustable rate
    feature, and a second for $71,000 at a fixed rate in excess of 10%. Total points and fees financed on the loan were approximately 5.4% of the total amount

    Although the Shearon’s combined annual income was only $30,000, their mortgage broker assured them that they would qualify for traditional loan products with fixed interest rates and that he was “shopping around for the best rates.” Despite their strong credit scores, and the assurances of their broker, the Shearon’s were given a high-cost loan typically assigned to sub-prime borrowers.

    The borrower’s attorney said his clients tried to back out of the loan prior to closing but were told they’d lose their $5,000 deposit and could be sued if they
    didn’t go through with the agreement. They had also already given up their apartment lease. “I feel that I was bullied into accepting the way it was,” said
    David Shearon. They ended up closing the loan with WMC Corporation.

    Less than two years after closing their loan, when the Shearon’s failed to make their monthly mortgage payments, LaSalle Bank as loan trustee and successor to the original lender began foreclosure action. In defense of the foreclosure action,

    Shearon argued that he was the victim of predatory lending practices.

    Borrower Claimed Predatory Violations

    David Shearon alleged that the original lender had engaged in six predatory lending practices through the loan closing process on his Staten Island home.

    1. Excessive financing was approved (106% of the purchase price) to allow closing costs to be financed.

    2. Inadequate due diligence regarding Shearon’s ability to repay the loan.

    3. The lender intentionally placed Shearon in a sub-prime loan to the benefit of the lender with excessively high interest rates.

    4. Failure to provide federally mandated disclosures.

    5. Forgeries of numerous loan-related documents.

    6. The lender repeatedly employed coercive tactics.

    Court Acknowledged Predatory Violations

    The New York Supreme Court found that the bank had committed at least three predatory lending violations of the New York Banking Law.

    1. Points and fees financed on the Shearon loan equalled nearly 5.4% of the total loan. The court held that the original lender, by financing fees and points in excess of the 3% allowed had violated the statute.

    2. The court found that the original lender did not even attempt to demonstrate that they had performed their due diligence in determining the borrower’s ability to repay the loan. Not providing this due diligence is a violation of New York banking law governing high cost loans.

    3. The court held that the original lender also failed to comply with the so-called “Counseling Statue” of the banking law by not providing a “Consumer Caution and Home Ownership Counseling Notice”with a list of credit counselors.

    Why This Decision is Important

    This court case has been followed closely and will have a significant impact on the future of predatory lending for a number of important reasons.

    Establishes a Defense for Borrowers Undergoing Foreclosure

    This is the first time in New York that a judge has invoked those predatory lending violations against a lender, and it could signal a shifting tide in how
    foreclosures are handled. James Tierney director of the National Attorneys General program at Columbia Law School said, “Trial judges across the country
    are beginning to question banks seeking to foreclose on homeowners in similar situations.”

    This decision will encourage other borrowers and their counsel to wave the red predatory lending flag in response to foreclosure proceedings. One copycat suit,

    Alliance vs. Dobkin (No. 10625/2006, 2008 WL 1758864), has already received national attention and although this case was unsuccessful because the judge ruled that predatory lending practices were not employed, you can be sure that many more will follow. Expect for many undergoing foreclosure to use this same tactic.

    The WarningMessage Has Been Sent

    Although damages have not yet been assessed, many are shocked by the extent of the damages that may be awarded to the borrower. Damages may include
    returning all mortgage payments and expenses to the borrower, awarding attorney’s fees and voiding the bank’s mortgage and loans. The scope of
    the possible relief in this decision makes it very clear that judges are taking predatory lending very seriously.

    Margaret Becker, director of the Homeowner Defense Project at Staten Island Legal Services said, “It is very encouraging that judges are clearly taking theissue of predatory lending in the subprime market seriously and are willing to enforce laws to protect people from these kinds of pernicious practices.”

    Can anyone in New York find and post this Case Court Order for me here . I can use it to defend my home . Thanks a million. I am sure there are many other people can use this case as a case law too.

  3. I have personal experience and letters from the FDIC and the dept of thrift supervision to back this up. Not an isolated case ofcourse

  4. We won the battle-Now, we need to win the war.

    It’s time that these banksters GO TO JAIL !!!!!


  5. Unfortunately there is no case cite, which makes it difficult to track down as it is a state case in Florida. Neil, if you can generally post the docket number it would be helpful in these references.



    In the aftermath of the burst housing bubble, in the rush to foreclose upon million s of U.S. homeowners, big U.S. lenders resorted to apparently fraudulent strategies as part of an assembly-line repossession grab. Money Morning’s Shah Gilani, a retired hedge-fund manager, warns investors about the possible fallout facing the U.S. financial system and provides detailed advice on the steps to take.]

    BY SHAH GILANI, Contributing Editor, Money Morning


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