måndag 21 februari 2011

foreclosure law

We were early to warn readers that Iowa Attorney General Tom Miller, who is heading the 50 state probe into mortgage abuses, was unlikely to take as tough a stand with banks as his early sabre-rattling suggested.

Now other close observers of the 50 state AG probe, like Marcy Wheeler of FireDogLake, have pointed out that expectations for this group were probably too high, given that some of the AGs had been opposed to the effort before, and they’d hobble the effort from the inside. But even though true, that observation still gives Miller more of an out than he deserves.

The fact is that Miller had decided, before any investigation was undertaken, that his group was not going to take any action that might allow investors to recover for losses. Why? Some of the parties in a position to recover would not be Americans. This came by e-mail before the December meeting at which Miller promised to “put people in jail” as well as obtain deep principal mods and compensation for defrauded homeowners:

The homeowners off to meet Tom Miller is a setup for a photo-op to imply buy-in. I was w/ a European documentary maker this weekend who spoke to Miller a few days ago and said Miller relayed the fraud isn’t so bad, everything will be worked out .. the standard line; he’s already made up his mind. He doesn’t want those European governments demanding their money back. The meeting is a photo-op setup because the too-big-to-fail crowd is scared of put-back liability and shorts; they’re working hard to make it appear they’re doing something to quiet everybody down.

So get this: so keen is a state attorney general to protect the wallets of big banks that he’s decided there wasn’t much fraud before doing any serious forensics. And his reason was to deny payouts to investors because they are foreign (China, are you taking notes?). But to prevent that outcome, he also has to throw US investors and wronged homeowners under the bus.

Welcome to equal protection under the law, circa 2011. No wonder gun sales are skyrocketing.

Thus Miller’s retreat is entirely predictable, and we can plot its trajectory. Following his “get tough with crime” mid-December declaration, Miller took criminal investigations off the table on January 4. From Bloomberg:

The five largest loan servicers, including Bank of America Corp. and JPMorgan Chase & Co., may be the first to settle with the 50 state attorneys general probing foreclosure practices, Iowa Attorney General Tom Miller said…..The group isn’t pursuing a criminal investigation, Miller said. “Our focus is to reform the servicing process and that’s inherently civil, not criminal,” he said.

One of our readers, who is a seasoned litigator, disagreed vehemently with Miller’s “this can only be a civil investigation” and provided examples of criminal prosecutions for analogous misconduct.

The latest step backwards by Miller is a softening in his stance and a refusal to reaffirm his earlier commitments. From Iowa CCI’s press release about its meeting yesterday with Miller:

Following their December 14th meeting with Iowa Attorney General Tom Miller, who is leading the 50-state investigation of the “foreclosure-gate” scandal, 200 members of Iowa CCI met with him again on Tuesday to continue the push for a settlement that will help millions of Americans stay in their homes. Iowa CCI is part of a coalition of community groups across the country fighting to end the foreclosure crisis.

“Tuesday’s meeting felt a lot different than the meeting in December,” said Iowa CCI Director Hugh Espey, “In our first meeting with Attorney General Miller we felt like we had a champion that was ready to go toe to toe with the big banks. We left this meeting wondering if the big banks had knocked the wind out of our state’s top law enforcer.”

“In many cases a loan modification is in everybody’s best interest – the homeowner, the investor, servicer and the national economy,” Miller had said in a statement following the December meeting. “… I know it’s worth our best efforts to save as many homes as we can.”

In Tuesday’s meeting The Attorney General was less forthcoming about the intended outcome of the settlement. He did not repeat previous commitments to aim for a settlement that would keep people in their homes, nor to press criminal charges against bank officials where evidence of fraud and criminal wrongdoing is found. The Financial Crisis Commission has recently referred several cases to the states for further criminal investigation.

As more aggressive AGs, like the ones in Arizona and Nevada, file suits against banks, perhaps their complacent peers like Miller will be embarrassed into acting. But until then, this “see no evil, hear no evil, speak no evil” by top enforcement officials appears likely to remain the norm.

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