Naples Attorney Todd Allen Gets The Daily Show Treatment!

         

John Oliver pays tribute to newbie Naples attorney Todd Allen and his epic take-down of Bank of America.

Enjoy!

What Area of the Law Has Kendall Coffey Not Yet Spoken On?

We've previously joked around here about Kendall Coffey's deep and broad knowledge of, well, just about everything.

So I suppose it shouldn't be surprising to learn Kendall is also a foreclosure law expert:

Kendall Coffey of Miami will be the featured speaker at an Annual Convention seminar titled “Foreclosure Jurisprudence in Florida after the Real Estate Collapse.”

The program, presented by The Florida Bar and LexisNexis, is set for June 24 from 2 to 4 p.m., at the Gaylord Palms Resort and Convention Center in Kissimmee.

This area of the law needs all the help it can get, btw, so this is good news.

Next up:  fixing Florida's offer of judgment jurisprudential morass?

Warrantless searches in the age of terrorism?

How to make a good pastrami sandwich?

(Any of the above would be fine.)

Sorry Folks, Court's Closed!

Who cares about stupid foreclosures in Palm Beach County anyways?

(Judge Tobin?)

That bald-headed moose of a Governor shoulda told ya.

David J. Stern Can't Afford to File Proper Motions to Withdraw.

 Something about this story really irks me:

Legal rules don't just allow attorneys to walk away from a case. They are supposed to file motions to withdraw, or the new attorneys are expected to file a notification that they are the new counsel.

"Florida Rules of Civil Procedure require that attorneys file a proper Motion to Withdraw from any case which they no longer plan to represent," said Eunice Sigler, a spokeswoman for the 11th Judicial Circuit Court in Miami-Dade County. "We are currently researching various options, including any remedies available through the Florida Bar."

Palm Beach County Chief Judge Peter Blanc said this week he's also trying to figure out how to proceed.

"Stern has provided notice he will no longer be attorney of record, but the court is unable to recognize it," Blanc said. "I'm told we're getting more stipulations of substitute counsel but not anywhere near the number we should have."

Blanc said he's never seen a move like Stern's before - sending a letter to judges that says "treat the pending cases as you deem appropriate."

Is this believable?

How is it possible you can't pay some paralegals to prepare and file motions?  Even if it took a month to wind down one would think Stern can -- and should -- cover these expenses.

Then the Court probably could rule on them without a hearing and Stern would be done.

Anyone else have any bright ideas?

A Tale of Two AGs -- Pam Bondi vs. Dan Gelber.

Happy Monday, kids!

Did you watch a bunch of show business kids making movies of themselves, you know they don't give a....

Oh well, you know the rest.

(Lost Wages)

Remember the last election?

As they say, these things have consequences.

That's why at the same time Miami Beach mensch Dan Gelber is helping foreclosure lawyer Marc Ben-Ezra "provide support with quality control and to help evaluate policies and procedures," whatever that means, the actual AG, Pam Bondi, is doing something really important -- stopping felons from ever voting again:

Attorney General Pam Bondi says it is too easy for felons to regain their civil rights in Florida and wants new restrictions, including a waiting period of up to five years before they can seek clemency.

“I don’t believe that any felon should have an automatic restoration of rights,” said Bondi, a former Tampa prosecutor elected in November. “I believe you should have to ask, and there should be an appropriate waiting period.” (ed. note -- right after the next election!)


Bondi’s proposal, set to be formally discussed at a March 9 Cabinet meeting, would reverse a major change that took place in April 2007 at the urging of former Gov. Charlie Crist, who said the civil rights restoration process in Florida was too cumbersome and cruel to many ex-offenders.

Crist’s changes streamlined the restoration process to allow tens of thousands of felons to regain their right to vote, sit on a jury and obtain various state licenses without having to undergo a lengthy review and hearing process.

 See what happens when people vote (except released felons)?

While the poor people sleepin'
With the shade on the light
While the poor people sleepin'
All the stars come out at night

Judge Cohen Lando Lowers the Boom on Marc Ben-Ezra.

I don't get why banks think the rules of evidence don't seem to apply to them.

Their argument on missing/misfiled/wrong docs is always basically "but come on, judge."

Would this work for anyone else?

Miami-Dade Circuit Judge Maxine Cohen Lando expressed her displeasure Friday in a case that involved a property in Homestead with a $265,134 foreclosure judgment issued in July.

Lando said the so-called original note and original mortgage were filed months after the bank said those documents were lost.

"That in itself is a fraud upon the court," Lando wrote in an order to show cause as to why she should not hold Ben-Ezra & Katz attorneys in contempt.

But, she added, the action "pales in comparison" to the fact that the mortgage and note are to a different property in Lehigh Acres, and that the documents are improperly signed and notarized. Lando said her verbal contempt finding on Friday would be followed by a written order.

Although Marc Ben-Ezra, 44, was not the direct attorney handling the case, the homeowner's attorney Maria Mussari said the judge ordered the owner or head of the firm to appear. Ben-Ezra has no disciplinary history with the Florida Bar.

It's way past time there is some accountability not just in foreclosure work but with all sworn evidence submitted  -- if it doesn't fit, don't submit.

Marc's firm says it was trying to fix the problem:

In a statement late Thursday, the law firm acknowledged it had found "technical paperwork issues," but added that "there is no issue of whether the information in the affected files is correct. No homeowner has been hurt because of this."

The firm said it was correcting the issues. "Fannie Mae did not give us the chance to execute that plan," the statement said.

Is this blaming the client?

Postcard From the Extremely Obvious Files

“When the consequence of a lawyer plying his trade is the loss of someone’s home, and it turns out there are documents being given to the courts that have no basis in reality, the profession gets a very big black eye.”

Today's installment is brought to you by Professor Gillers, in a NYT front-pager about how judges are now requiring foreclosure attorneys to actually vouch(!) for the filings they make.

4th DCA Upholds Class Action Suit Against NBA Commish David Stern!

Well that's what it looked like when I opened up my Herald this morning, which had a file photo of NBA Commissioner David J. Stern accompanying this story about Plantation Foreclosure King David J. Stern:

A state appeals court in West Palm Beach has ruled a class-action lawsuit claiming Plantation attorney David J. Stern charged excessive fees to homeowners fighting their foreclosures can move forward, three years after it was first filed.

The 4th District Court of Appeal's opinion upheld an earlier decision by Palm Beach Circuit Judge Thomas Barkdull. Barkdull had granted class-action certification to a suit brought by Boynton Beach electrician Loren Banner against his lender, Wells Fargo Bank, Stern and Stern's firm, which handled Wells Fargo's foreclosure work.

Who says the Herald doesn't break news?

(That Stern is one busy cat.)

Foreclosure Follies -- Lawyer Whack a Mole?

Hi kids!

Welcome back to lawyer purgatory, that period between Christmas and New Year's where everyone pretends to be working but nothing gets scheduled and no one really does anything again until next year anyways.

Ever wonder what happened to youngin' lawyers doing foreclosure work at David Stern's shop?

The pups just moved along to another foreclosure joint:

'A game of Whac-A-Mole'

The Atlanta-based McCalla Raymer law firm, which handles foreclosures for mortgage giant Fannie Mae in Georgia, hopes to do the same in Florida. In November, as the firm began setting up shop in Orlando with 10 former Stern attorneys, disgruntled homeowners in Georgia filed a federal class-action lawsuit against the firm, claiming it used forged documents to take their homes, often while they were in the midst of modifying their loans. This month four other Georgia homeowners - who are representing themselves - have filed similar lawsuits against McCalla Raymer.

The firm initially registered to do business in Florida as McCalla Raymer Florida LLC but dissolved that firm a month later and is now registered to do business in Florida as Stone, McGehee & Silver. The firm, which hired former Fannie Mae associate general counsel and foreclosure expert Susan Reid last month, has plans to expand throughout Florida, advertising for attorneys in Tampa, Fort Lauderdale, Miami and Orlando. While at Fannie Mae, Reid worked with foreclosure attorneys in its retained attorney network, including those from Stern's office.

The Fort Lauderdale-based Law Offices of Marshall C. Watson has picked up five former Stern attorneys, while Shapiro & Fishman, with offices in Tampa and Boca Raton, has hired one. Both firms, as well as Stern's company and the Tampa-based Florida Default Law Group, are under state investigation.

Other lawyers who have left Stern's company are now earning a living at several Fannie Mae-designated foreclosure firms, such as Ben-Ezra & Katz in Fort Lauderdale and Kahane & Associates in Plantation.

"We did a thorough vetting of the Stern attorneys," said Marty Stone, a managing partner with McCalla Raymer. "I don't want to say we weren't concerned at all, but I do think there is a danger of painting with too broad of a brush."

Still, the distribution of former Stern attorneys to other firms feels like an injustice to some home­owners in foreclosure.

In sworn statements taken by the state attorney general's office, two former Stern employees - a paralegal and a legal assistant - attest to wrongdoing at the firm that included hiding problem files from federal auditors, forging signatures and making up documents as staff struggled to keep up with a mounting volume of foreclosures.

"It's like a game of Whac-A-Mole - these unethical, dangerous attorneys just pop up somewhere else," said Lisa Epstein, a home­owner advocate in Palm Beach County who runs the website Foreclosure Hamlet. "The Florida Bar has proven that they have no intention of disciplining these unprofessional attorneys."

 Hmm.  But for the necessity of having a live lawyer body at court hearings and mandatory mediation, I wonder whether this work wouldn't all be outsourced to India?

And young lawyers do need to pay for that education, but at a certain point I'd rather be flipping burgers in Boca than doing this kind of soul-sucking drudgery unrewarding grunt work.

$400 an Hour for Foreclosure Defense? (and Glenn Garvin).

Remember when Glenn Garvin laughably contended that the only people in foreclosure trouble were those who deserved it?

This was his particularly ill-informed contention:

For all their frothing fulmination, neither the lawyers nor politicians nor journalists have been able to come up with any credible stories of people losing their homes despite faithfully paying their mortgages. They couldn't even find stories about people losing their homes despite being just a couple of payments behind.

That's because there aren't any.

So it's not particularly surprising that Glenn Garvin's own newspaper once again proves him dead wrong, in this harrowing tale of a foreclosure nightmare gone from bad to worse.

But I found this part pretty outrageous:

Hall paid her first lawyer, Alan Soven, more than $10,000 to fight the foreclosure. At one point Judge Friedman rebuked the Miami lawyer for subpar legal work, and the Florida Bar ordered him to refund $2,000 in legal fees to Hall in a mediation settlement. With a $400 hourly rate, he charged Hall nearly $3,000 for the 7.2 hours he spent trying to get legal approval to quit the case, court records show.

Soven declined to comment on the case.

Hall's next lawyer, Johnny Kincaide of The Kincaide Law Group in Weston, routinely skipped crucial court hearings and failed to file a response to a court ruling, causing the judge to penalize Hall with an order of default. Kincaide's firm is being investigated by Attorney General Bill McCollum after several homeowners said he promised to help them get a mortgage modification and then disappeared after taking their initial deposits. He did not return calls seeking comment.

I don't know whether the allegations of legal malpractice or incompetence are true, but there's really no good reason to charge $400 an hour to handle the defense of any foreclosure action, let alone to charge the client to withdraw from the case.

Good thing there are "no credible stories" of people getting screwed over in the foreclosure morass for Glenn to write about.

Peter Tictkin Discovers Meaning of Irony.

Peter Ticktin, who recently came under fire for placing mortgages on his clients' homes as payment for saving those very homes from foreclosure, is himself facing foreclosure of his own home:

Deutsche Bank National began foreclosure proceedings on Ticktin's Boca Raton home in 2007 after the lawyer and his wife fell behind on their loan. The couple haven't made a mortgage payment since December 2006 and continues to live in the home 3,920-square-foot house in Paradise Palms.

Ticktin has fought Deutsche Bank using the same strategy that he's been able to use for his clients: uncovering sloppy paperwork and poorly prepared mortgage files. In the Ticktins' case, Deutsche Bank didn't have their mortgage note, a problem that has surfaced in tens of thousands of foreclosure defense cases nationwide.Deutsche Bank dropped its foreclosure action in February after the Ticktins' attorneys claimed they didn't have enough information to respond because there was no note. The bank refiled the foreclosure last month.

"It's embarrassing that I'm in foreclosure. But I now understand my clients better than some lawyers who never had a problem in their lives," said Ticktin, whose firm is handles 3,000 foreclosure defense cases at two Florida offices, one in Deerfield Beach and one in Tampa.

He said he's confident his attorney Jamie Sasson, who works for his firm, can defend against the action. "[Deutsche Bank] doesn't have the paperwork," Ticktin said. He says he also was talked into a badly structured loan when, desperate for money, he refinanced.

 I wonder whether Ticktin's attorney Jamie Sasson -- if successful -- plans to place a mortgage on his boss' property.

Awkward!

Peter Ticktin Says Client Mortgages OK!

You know that foreclosure defense attorney who is taking out mortgages on his clients' homes?

Turns out he was twice sanctioned by the Bar and they're taking a look at this issue as we speak:

Peter Ticktin, whose license has been suspended by the Bar twice since 2009, told the Times that the second mortgage would take effect only if he succeeded in having the foreclosure dismissed and the homeowner’s loan reduced. He also said his firm never would foreclose on his own clients should they stop paying on their second mortgages.

Elizabeth Tarbert, the Bar’s ethics chief, declined to say whether the unusual payment arrangement detailed in the article violates bar rules governing conflicts of interest. Bar spokeswoman Francine Walker said only that the disciplinary body’s investigation centers on Ticktin’s quotes in the Times article.

Ticktin said he was not aware of the most recent Bar investigation but defended the practice, saying his research indicated regulations allow attorneys to secure fees using mortgages. The Bar already had examined his retainer agreement in Tampa’s judicial district, where he also has an office, and found nothing inappropriate, he said in a telephone interview.

 “We believe it is ethical, appropriate and the only way some people will get representation,” he said.

Belief is a funny thing.

For example, I believe in unicorns, Bigfoot, and that Charlie Sheen just had an adverse reaction to over-the-counter flu medication.

Indeed, wasn't it Oscar Wilde who said "I can believe anything provided it is incredible"?

"There Go the Lawyers Again."

I've never heard of lawyers taking out mortgages on clients in order to get paid, but then I just recently got accustomed to not wearing a suit on Fridays:

“We thought, ‘Why don’t we use a bit of ingenuity to find an affordable way to represent them?’ ” said Peter Ticktin of the Ticktin Law Group in Deerfield Beach, Fla. “It’s a new model, a new paradigm.”

Foreclosure defense is a new legal specialty whose strategies and techniques are still being worked out. Mr. Ticktin, who has some 3,000 foreclosure clients, says his plan to collect fees by taking another mortgage on his clients’ properties has already been copied by other firms.

The Ticktin mortgages resemble the loans that the clients originally got from Countrywide, GMAC and other lenders. Each will be a contractual obligation with the law firm, labeled as a mortgage and structured like one, too, with the client paying a certain sum every month and using the house as collateral.

Unconventional payment structures are becoming popular in the foreclosure hotbed of Florida. Whether they yet have caught on elsewhere is unclear. Certainly, Mr. Ticktin is far from the only lawyer being forced to innovate.

“We can put in $100,000 of our time but over the length of a case be paid only $6,000 in monthly fees,” said Thomas E. Ice of Ice Legal in Royal Palm Beach.

Mr. Ice, Mr. Ticktin and many other Florida foreclosure lawyers typically receive a few hundred dollars a month from each client. To supplement that, they seek legal fees from the banks they successfully challenge as well as contingency fees.

Contingency fees are standard in cases in which the client has little money but there is the possibility of a large payout. A slip and fall on a store’s wet floor or a medical malpractice claim are classic contingency cases. If the plaintiff wins, insurance companies ultimately foot the bill.

In foreclosure cases, however, the client pays the contingency fee. While such an approach is sometimes used in commercial litigation, this is a first for consumer cases, said Lester Brickman, a professor at Cardozo Law School in New York.

“For a lawyer to supplement or replace the banks as a long-term mortgage creditor of homeowners leaves me a little queasy,” said Mr. Brickman, an expert on contingency fees. “It’s an invitation for the public to say, ‘There go the lawyers again.’ ” 

  Of course lawyers should get paid for their work, and these are cash-strapped clients who badly need legal assistance.

But I wonder if there are conflicts created by such arrangement.  Does anyone know if  the Bar has approved of this?

Glenn Garvin Doesn't Read His Own Newspaper!

It's very hard to keep with with our local curmudgeonly TV critic cum 60s "silent majority" libertarian philosopher at large.


First he was handling the entire Herald newsroom.

Then he was apparently editing the New York Times.

Now it appears he stopped reading his own paper:

For all their frothing fulmination, neither the lawyers nor politicians nor journalists have been able to come up with any credible stories of people losing their homes despite faithfully paying their mortgages. They couldn't even find stories about people losing their homes despite being just a couple of payments behind.

That's because there aren't any.

Except the one that occupies the entire front page of today's newspaper!

Other than the fact that Glenn is completely wrong, he's totally right.

David J. Stern: Living the American Dream!

Remember the old joke about the Army -- visit exotic places, meet interesting people, and kill them?

I'm reminded of that by this in depth profile of foreclosure mill maven David J. Stern, who is ably cast by Jeff Tew as the embodiment of the American dream:

“He started from scratch and has built a wonderful legal practice and has made a lot of money,” Tew said. “That’s the American dream isn’t it?”

Hail yes!

Henry Ford dreamed of every American owning an affordable means of transport.

Thomas Edison dreamed of a America lit up from sea to shining sea in glorious technicolor.

And David apparently dreamed of a massive foreclosure factory whose primary purpose is to deprive others of their American Dream:

Hilton Wiener, a Florida attorney who has defended homeowners in foreclosure cases against Stern’s firm, described Stern’s operations as “more similar to a factory than a law firm.” The business, he said, depends on homeowners’ not contesting foreclosures so that cases can move quickly through the courts to judgment, Wiener said, basing his view on former Stern paralegals whom he has hired.

“This is like a production line,” he said. “The bank needs them to get certain results. It just becomes a foreclosure processing mill.”

And really, kids, isn't that what America is all about?

Highlights from the National Conference of Bankruptcy Judges Day 2

I started my day with a jog through New Orleans at sunrise. The Bernstein Law Firm from Pittsburgh sponsored the run. I managed to complete the run, although I was not moving very fast. My time may have had something to do with last night’s entertainment. Still, it was invigorating to see the sun come up over the Mississippi River and to hear St. Louis Cathedral chime 7am.

Meltdown Mania

Today’s topic du jour was the financial meltdown and bailout. Unlike yesterday, the three presentations on this topic complemented each other rather than plowing the same ground.

SIGTARP

However, to properly address the topic, it is necessary t o start with yesterday’s lunch speaker. On Thursday, IWIRC sponsored Neil M. Barofsky, who is the Special Inspector General for the Troubled Asset Relief Program. His department is a combination of TARP cop (he has a badge but not a gun) and oversight panel.

Barofsky spoke about two different topics: how well TARP has accomplished its goals and efforts to keep TARP honest. I did not take good notes, so any inaccuracies are due to my memory and not to the speaker.

According to SIGTARP Barofsky, TARP was sold to the public on the basis that it would accomplish three goals: 1) avoid a financial meltdown; 2) protect jobs; and 3) keep people in their homes. In his opinion, TARP accomplished the first goal, but failed at the second and third. This has contributed to public perceptions that TARP was nothing more than a bailout of Wall Street rather than Main Street.

He also talked about his department’s efforts to keep TARP honest. He explained the concept that fraudsters go through three stages: they incur a loss; they use creative accounting to cover the hole; and 3) they look for a “whale” to plug the hole. In the case of the TARP program, this meant that financial institutions who had undisclosed losses would apply for government money to try to solve their problems while lying about their actual finances. He gave several examples of prosecutions for submitting false applications to TARP. He estimated that SIGTARP had saved the government $500 million in funds not paid out and had recovered over $100 million from bad guys.

The Banks Are Not Fixed

Friday opened with “Bailout and the Fallout,” featuring moderator William Derrough and panelists Damon A. Silvers, Deputy Chair of the Congressional Oversight Panel, and Matthew Feldman, who helped Treasury with the auto bankruptcies.

The panel spent quite a bit of their time talking about the events leading up to TARP. The story beings in early 2007 with the collapse of the subprime mortgage market. Two Bear Stearns hedge funds were seized by Merrill Lynch in June 2007. The year 2007 ended with Lehman Brothers reporting a profit.

In March 2008, JP Morgan Chase Bank acquired Bear Stearns for $2 a share with a federal guaranty attached. According to Silvers, this violated the rule that we don’t bail out stock brokerages. However, the government did not know what the consequences of not bailing out Bear Stearns would be. While much has been made of the pressure placed on JP Morgan Chase Bank to make the acquisition, even greater pressure was placed on the Board of Bear Stearns. They were told that they could accept $2 a share or they could explain their failure to do so to FBI agents and SEC personnel in the next room.

In September 2008, the government seized Fannie Mae and Freddie Mac. Their problem was that they had strict lending standards. However, they were competing with lenders who had no standards (i.e., no doc loans). To solve this problem, they began buying the junk that others were producing.

Over the period September 12-13, 2008, the Bush administration decided not to bail out Lehman Brothers. A decision was made to let a brokerage fail based on the belief that the damage to the economy could be contained. According to one of the panelists, it was an experiment to see what would happen if a major brokerage went over the cliff.

On September 14, 2008, Lehman Brothers filed for bankruptcy and Merrill Lynch sold itself to Bank of America.

On September 15, 2008, Timothy Geithner summoned JPMorgan and Goldman Sachs to a meeting. He informed them that they would bail out AIG with an $80 billion loan. He gave them a term sheet and left. At 2am the next morning, an attorney for the two called the Fed and said they would not do the deal. Undeterred, the Fed scratched out the names of JP Morgan and Goldman Sachs and wrote in the Federal Reserve Bank of New York. The Fed went so far as to employ the attorney who had drafted the term sheet on behalf of the private parties.

The conclusion was that in September 2008, the government, Republicans and Democrats alike, made a decision to take an activist role in avoiding a financial meltdown. That policy continued with the Obama administration.

In March 2009, the Obama administration made the decision to save Chrysler and GM. The government made a decision that a private equity firm would not have made for the reason that eliminating millions of jobs during a financial crisis was too great of a risk to take.

The take away was that TARP succeeded in calming the financial panic but failed to “fix” the banks.

The following is pretty close to a direct quote from Damon Silvers, which drew a sustained ovation. He was comparing the decision to “fix” the failing automakers with the financial sector:

The banks are not fixed. The corrupt nature of the way they are poisoning our
financial sector has not been fixed. We will eventually have to step in and fix
them.

Regulation Is Not Our Friend

Friday’s lunch speaker was Fox Business Channel correspondent Charles Gasparino. His thesis was that the problem was not too little regulation, but too little trust in the market. The problem, in his view, was that the government intervenes to protect the market from the consequences of its bad decisions. Compounding the problem is that government regulators fail to recognize what is in front of them.

He said that regulation provides a sense of comfort that some all-knowing body is watching out for us. However, he said that regulation itself could have caused the financial crisis and that the recent Dodd-Frank financial reform legislation could lead to another financial crisis.

One problem he said was that regulators are always looking at the wrong stuff. The government investigated Bernard Madoff six times, but failed to verify any of his trades. Had they looked, they would have seen that they were non-existent and caught the fraud.

Gasparino also blamed a partnership between business and the government. He said that Wall Street was spared the pain of its mistakes time and time again. The Fed turned on the spigot in 1987, 1994 and 1998 to protect Wall Street. Lehmann Brothers was bailed out in 1994 and 1998. It survived until it took on so much risk that it nearly took down the financial system in 2008. Dick Fold, Chairman of Lehman Brothers believed that his firm would be bailed out up until the signed the bankruptcy petition. What if they hadn’t bailed them out, he asked. Would that have saved us from 2008? He also gave the example of Bear Stearns. In 1998, it was the company with the best risk controls. By 2008, it was the first to fail. His point was that the lesson Bear Stearns learned from the bailout of 1998 was that traders could receive the upside of risk taking while the government would protect them from the downside.

Gaparino claims that we put too much faith in regulation and not enough in the markets. Playing to the audience, he said that without all the bailouts, there would be more work for bankruptcy lawyers.

He also took aim at the Dodd-Frank financial reform bill. He argued that it enacts Too Big to Fail into law by allowing the government to take over (i.e. bailout) huge entities. He said that the bill’s problem was that it added more regulation when the system needed to be rebuilt from ground zero.

However, he did not criticize the decision to bail out AIG. He said that there was so much systemic risk built in by 2008 that the system could not have survived AIG going under. “When that toilet starts flushing, it takes everyone down.”

He had an interesting take on Glass-Steagall. His market-based solution was to allow combinations of banks and investment banks with the caveat that their deposits would not be insured. That way, they would have to pay more for deposits and the public would have to decide whether the increased return was worth the risk. He returned to his point that subsidizing risk is a bad idea. “They will gamble if you give them the incentive.”

Gasparino also suggested that bond rating agencies were worthless. They provided a false sense of security at the time that they were being pressured to give AAA ratings in order to generate fees. He suggested that investors should have been doing their own due diligence rather than relying on a third party.

He also suggested that political correctness may explain why business journalists didn’t point out the problems at Fannie Mae and Freddie Mac much earlier. He said that they were prodded by President Clinton’s Department of HUD to guarantee riskier loans, which led to a housing bubble. However, because giving working class people access to housing was deemed a worthy cause, the warning was not given.

Foreclosure Crisis

I attended a breakout session on the foreclosure crisis led by Alane Beckett, Judge Susan Barrett, Dillon Jackson and former ABI President Ford Elsaesser. They sounded a similar theme of an industry in shambles. On the one hand, you have Jeffrey Steffen signing 10,000 affidavits a month (one every 78 seconds). On the other hand, you have paperwork that may be hopelessly lost. There used to be mortgage brokers in every strip mall. When the bubble burst, they went away, leaving file cabinets full of original documentation that had never been forwarded on. The original notes may now be in a landfill somewhere.

Lenders are reluctant to sign a lost note affidavit because it requires them to indemnify the title company; it also requires that they had the note in the first place (prompting one of the audience members to quip that was affidavits that got us into the problem in the first place).

The other side of the foreclosure crisis is that it gives homeowners false hope. One family broke back into their home after it was foreclosed and they were evicted in the belief that the foreclosure was bogus. The problems in the mortgage industry do not mean that everyone gets a free home. However, failure to correct the problem will result in thousands of pro se parties filing pleadings they downloaded from the internet and class actions being brought to “spank” lenders, but which primarily benefit the lawyers.

Ford Elsaesser offered a ten point program to fix the problem:

1. The mortgage companies must hire real lawyers.
2. The real lawyers must sign the pleadings themselves.
3. No affidavits unless drafted by an attorney who personally speaks to the witness.
4. Motions to lift stay should have to meet the pleading requirements of Iqbal. This should be enforced by local rules.
5. No robo-signing, including by Judges. In other words, judges should stop signing default orders on defective lift stay motions.
6. MERS should go away.
7. Prior to filing a motion to lift stay, the mortgage company should contact the debtor to try to work out a modification or short sale or deed in lieu. This would allow homeowners to stay in their homes when feasible.
8. If the debtor has vacated the property, the mortgage company should contact the trustee to offer to purchase the property free and clear of liens for a small amount. This would give them good title.
9. There should be a national pre-mediation program on foreclosures.
10. Title companies will need to develop a standard for insuring foreclosed homes.

All of these proposals would increase the costs to mortgage companies. However, his point was that Sears had to pay to comply with the law. “Bringing mortgages into compliance is simply a financial cost.”

Gaming Industry Bankruptcies

My take away from this panel was that secured creditors can’t receive a lien on all the debtor’s assets, giving unsecured creditors more leverage. Lenders can’t foreclose upon and operate gaming machines. They can’t take a lien on gaming licenses or liquor licenses. The money in the teller cages is subject to control of the casino regulators. What do they have a lien on? “A big room with beds upstairs.” The highly regulated nature of the gaming industry means that regulators can insist that trade creditors get paid.

Chapter 9

The take away here is that the unique structure of chapter 9 is a compromise based on federalism. The federal government cannot exercise control over a municipality through the bankruptcy system. As a result, municipal bankruptcy must be authorized by state law. There can be no trustee, no creditors’ plan, no conversion to chapter 7 and no interference with the political or governmental powers of the municipality. Interestingly enough, there is also no requirement that counsel be formally retained or seek approval for their compensation.