Peculiarly (and I’ll have to admit I’m among the guilty), a state-wide halt of foreclosures by a Bank of America unit in Nevada earlier in the week attracted remarkably little notice. The number of foreclosures in involved is meaningful, over 8000. The reason may seem somewhat technical, and presumably would not apply to other BofA units, namely, that the entity, ReconTrust Co, is operating without a proper business license. But then it gets interesting.
First, we get Bank of America’s position, per the Las Vegas Review Journal(hat tip ForeclosureFraud):
In a statement, Bank of America said: “ReconTrust previously faced a nearly identical order in Utah, and it recently prevailed in challenging that order in federal court. Until the current situation is resolved, ReconTrust intends to comply with the order.”
However, the judge believes ReconTrust’s problems may go much deeper than licensing:
In the order, however, the judge said there is a “substantial likelihood that (North) will establish that ReconTrust does not have any contractual privities with respect to the contract between (North) and the other defendants regarding the promissory note and deed of trust.”
The Washington Post (hat tip Lisa Epstein) has taken note of the case, and cites sections of Bank of America’s court filing seeking to reverse the foreclosure freeze, which will otherwise remain in effect until at least February 28, the date of the next court hearing. Perhaps I am reading too much into the language of the pleading, but the tone strikes me as a tad desperate:
In a court filing Wednesday obtained by the Las Vegas Sun, Bank of America says that Bank of America and ReconTrust are in compliance with Nevada foreclosure laws and that the borrower’s case will ultimately fail.
The bank also argues that the harm the injunction “caused to the public interest is overwhelming,” and quotes U.S. Treasury Secretary Timothy Geithner to support its case.
“Treasury Secretary Tim Geithner opined that ceasing the foreclosure process is `very damaging’ and harms the public as communities are forced to live longer with empty homes, there is increased downward pressure on home prices and increasing blight,” the bank said. “The order also harms those subject to the foreclosure process because those individuals, especially those in mediation trying to stay in their homes, are now forced into a state of limbo for an unspecified duration.”
I have a sneaking suspicion that the views of Timothy Geithner don’t carry much weight in the Nevada judicial system.
Why the anxious tone? A couple of factors may be at work. First, recall how hard the banks fought the idea of a broad-based foreclosure freeze when the robo-signing scandal first came to light. And there are reasons why a blanket freeze is problematic, particularly if it extends to non-securitized loans (there are borrowers who want to get out from under a house they recognize they can no longer afford; a freeze can leave them on the hook). But at the same time, the banks have generally overstated the downside because the implications for them are unfavorable. And perhaps most important, an action like a wide-ranging halt is a reminder that banks are, or at least can be, subject to judicial orders, something they appear to have forgotten in recent years.
The second issue, is that Mr. Market has woken up to the fact that the Charlotte bank is particularly exposed to litigation risk. We were very critical of BofA’s purchase of Countrywide. As we said in January 2008:
Even with the reduction in the effective cost of buying Countrywide, Bank of America will come to regret this deal. Countrywide is an organization that has made an art form of just barely staying on the right side of the law, and even then screws up. There is certain to be more dirt, and therefore legal liabilty, that hasn’t yet risen to the surface. Furthermore, it is well nigh impossible to impose procedures and standards on rogue cultures. Look what happened to Bank of America when it purchased US Trust, a company that had a great franchise but one in which the account managers had more autonomy (and incurred more customer-related expenses) than Bank of America’s officers did. BofA succeeded in driving away the many of the best account officers, who took customers with them.
Now the cultural challenges of integrating a Countrywide are very different than dealing with a US Trust, but consider: US Trust was a highly valuable franchise in an area the North Carolina bank said was a priority, and they screwed it up just about every way they could. And US Trust was a much smaller organization too, so the acquisition should have been easier to manage.
BofA stock was off sharply early this week over worries about litigation risk, and those concerns were further stoked by an American Banker report that banks are slowing foreclosures in non-judicial states.
In other words, Bank of America would like to keep bad news about foreclosures to a bare minimum, but those pesky judges appear not to have gotten the memo.
8 comments
Comments are closed.
“Treasury Secretary Tim Geithner opined that ceasing the foreclosure process is `very damaging’ and harms the public as communities are forced to live longer with empty homes, there is increased downward pressure on home prices and increasing blight,” the bank said.
The only reason we’d have empty homes when there are people who need homes is proximately because the banks themselves intentionally leave those homes empty (the “toxic titles” phenomenon), and more profoundly because that’s the irrationality and immorality of the whole system. Any legitimate government would organize the reclamation of those lots by people willing to grow food on them.
But it’s definitely not because the foreclosure laws are followed.
there are borrowers who want to get out from under a house they recognize they can no longer afford; a freeze can leave them on the hook
Why? If they were going to submit to foreclosure in the first place, why not just walk away? Or better yet, Stop Payin’ But Keep Stayin’.
Being punctiliously foreclosed upon isn’t going to spare that precious credit score anyway.
Or is that referring to recourse states?
Furthermore, it is well nigh impossible to impose procedures and standards on rogue cultures.
Very true. And it applies just as much to things far bigger than Countrywide.
I posted on this yesterday and had many of the same thoughts you did. I loved how BofA used their investors as a tool yet they didn’t seem to care about their investors when they purchased Countrywide. Now, their investors are suing them..hmmm.
Ken Lewis did not give a damn about anything but empire building. After all he followed Hugh McColl who built North Carolina National Bank into NCNB and then swallowed BofA and kept its name (much as Norwest did to Wells Fargo). Note that the head of the California BofA was out in less than 6 months due to something very similar to what Thain did in the case of Merrill. Why Thain had not read the book on McColl is beyond me. Anyway Lewis wanted to leave a bigger legacy than McColl, so he decided to screw the stockholders by buying both Countrywide and Merrill. Note that the proxy materials did not accuratly portray the state of Merrill at the time of the vote.
““Treasury Secretary Tim Geithner opined that ceasing the foreclosure process is `very damaging’ and harms the public as communities are forced to live longer with empty homes, there is increased downward pressure on home prices and increasing blight,””
A man who couldn’t even get his own taxes filed correctly at one time, is lecturing us on the foreclosure process. Amazing!
The usual suspects have will crawl out of the wood work.Not to worry, this mess is going to get papered over at all costs,no punches pulled,nuked in it’s tracks.You don’t get re-elected messing about with the TBTF’s.Just look how toned down the AG’s investigations have become.
test
As if illegally contining foreclosures is the way to help the housing market…..Geither is not that bright.
I left a comment on tuesday last week referring to the case in Nevada. The least of the charge by the judge is about licensing. This was the sole complaint in UTAH but it is really only an after thought in the Nevada ruling. At least that is how I took it.
The only way out of this is for fraud to be continued and judges to look the other way as politicians gradually run back under their rocks. They don’t dare question the TBTF banks when the adminstration is shelling out growth and recovery propaganda. How clear does it have to be to the Geithner and the adminstration that housing is not coming back whether pause foreclosures with property rights questions?
I have a copy of the ruling linked here for anyone to read. It covers more detail as to the other reasons for the Nevada injunction.
http://www.financialrealityrevisited.blogspot.com.
I live in Las Vegas and don’t see any way house prices will stabilize for several years as thousands of foreclosures hit the market. Many sit empty and get destroyed so they are sold for even less than the bottom. There has already been a 60 % drop in sales prices here. If there are not more of the mortgages restructured any who thinks they are getting a bargain on real estate in Nevada could likely be playing the fool. The population here has dropped dramatically the past 3 years and demand for housing is extremely low regardless of what anyone says.
There also is the issue now of million dollar homes being sold for 250,000 to now that people qualify. But these homes still have Million dollar expenses, HOA fees, landscapes, pools, gardens, gates etc…..even if the house really should have only 700000 prior , the cooling bills alone I suspect, with some worry, could put the newly qualified buyer once again struggling to pay the bills. The cooling bills can run close to 1000 on a 3500- 4500 sq foot house. I am not so sure the prices are even in a realistic when electricity has gone up 4o to 50% in the past 6 years,….and it keeps going up, with another increase in power rate last year. Just a thought ….
Countrywide is a disaster. It takes YEARS for a cw foreclosure to move through the IL docketing system. I imagine probably 70% of all outstanding cw loans will eventually go into foreclosure. Ok that’s conjecture but they made a lot of crap loans, so many terrilbe loans. The worst loans that come across my desk as all cw loans.