City of Springfield Banned all Foreclosures! How Will The Supreme Court Rule On That?

 

BOSTON – A group of Western Massachusetts banks argued before the state’s highest court on Thursday that the city of Springfield’s anti-foreclosure ordinances should be overturned.

The banks say the local ordinances contradict state laws, and a bond levied on lenders constitutes an illegal tax. “It’s not that banks are opposed to mortgage laws and reform, but to how it’s being done,” said Craig Kaylor, general counsel for Hampden Bank, one of the banks that brought the lawsuit. “These are for the state to decide, not city by city.”

But the city disagrees and says the laws are necessary to avoid blight and protect neighborhoods that have high rates of foreclosure.

“This is the city’s response to the foreclosure crisis,” said Springfield Assistant City Solicitor Thomas Moore, who argued the case before the Supreme Judicial Court. “It’s a response from the city council and mayor based on what they see every day in the city. They’ve taken the strongest stance to protect homeowners and the city itself.”

The city of Springfield passed two anti-foreclosure ordinances in 2011 as the city was being hit hard by the mortgage foreclosure crisis. One ordinance requires a bank that forecloses on a home to pay for a $10,000 bond, which can be used by the city to maintain the foreclosed properties, if the bank fails to do so.

The other ordinance requires the establishment of a mandatory mediation program to help homeowners facing foreclosure. The bank would be responsible for paying most of the cost of the mediation.

Springfield is among the top cities in the state in the number of distressed properties it has. The city says high rates of foreclosures lead to health and education problems for children in families that lose their homes, and high rates of blighted or vacant properties lead to crime and violence in those neighborhoods.

Six western Massachusetts banks, with Easthampton Savings Bank as the lead plaintiff, challenged the ordinances. A U.S. District court judge upheld the ordinances. However, on appeal, the U.S. Court of Appeals issued a stay preventing Springfield from enforcing them. The federal court then asked the Supreme Judicial Court, the state’s highest court, to answer two questions related to state law before the federal court makes its ruling. The case is Easthampton Savings Bank and others vs. City of Springfield.

The SJC must decide whether the local foreclosure ordinances are preempted by existing state foreclosure laws. The court must also decide whether the $10,000 bond is a legal fee or an illegal tax. Cities and towns cannot create taxes without legislative approval.

The banks also argue that the ordinances violate the contract clause of the U.S. Constitution by impairing the contract between the homeowner and the mortgage-holder, a question that remains before the federal court.

During Thursday’s arguments, Tani Sapirstein, an attorney representing the banks, argued that the bond is a tax because banks do not get any particular benefit from paying it – which is the criteria for calling something a fee. The way the bond works is when a foreclosed property is sold, if the city did not have to use the bond money to maintain it, $9,500 would be returned to the bank and $500 is kept by the city as an administrative fee, used to maintain blighted properties and implement the foreclosure laws.

Chief Justice Ralph Gants questioned Sapirstein on whether the bank does not actually receive benefits. “You have an interest in preserving the value of your property,” Gants said. “If there are foreclosed properties going to hell all around your property, it diminishes the value of your property and diminishes the value of what you receive on the foreclosure. Why is this concern about avoiding blight not something that would benefit the bank as well as the city?”

Sapirstein replied that eliminating blight would benefit the bank “as well as the city and other property owners in the neighborhood.” “How is that a particularized benefit?” she said.

Moore argued that the bond is a fee, which the city needs to hire code inspectors and create a database of who controls foreclosed properties.

But Justice Geraldine Hines said if she pays for a copy of her birth certificate, she gets a document in return for the fee. “Here I don’t see that,” she said. “The property owners, the mortgagees, don’t have something tangible.”

Moore said the banks get a “well-regulated industry” and preservation of their property values. In addition, when a bank registers ownership in the database, the city knows who is responsible and problems can be resolved more easily.

Sapirstein also argued that local law cannot require more than state law in an area that is regulated by the state or the result would be “a patchwork of ordinances.”

Gants indicated that the court may move to narrow the ordinances – for example, applying them only to a bank that has taken possession of a house, not a bank that is in the process of foreclosure when the homeowner is still living there. Gants said the ordinance as written could fine a bank for not maintaining a property where the homeowner still lives. As a homeowner, Gants said, “I’d say I’m still living here. This is my home. How can they be punished for not invading what’s still my home just because they happen to be foreclosing on it?” Gants said.

Moore acknowledged that the ordinance may be overbroad and said the city does not anticipate pursuing a violation in a case like that. Moore said the lenders’ lawsuit is premature because there is no information yet about how the city will enforce the laws. “We have the lenders essentially saying the sky will be falling, we are worried about x, y, z happening. None of that has happened and none of that may happen,” Moore said.

Moore said the city is still writing the regulations for the ordinances and if they are upheld, “The city is ready to go forward with implementation within a period of weeks.”

Similar foreclosure ordinances were established in Lynn and Worcester, and local banks challenged those as well. That lawsuit is pending in U.S. District Court in Worcester. The case involving Lynn and Worcester could be affected by the SJC’s ruling in the Springfield case.

Several activists supporting homeowners came in from Lynn and Springfield to hear the arguments. Candejah Pink, a Springfield homeowner and community organizer battled foreclosure for four years before reaching an agreement to keep her home. She helped write the Springfield ordinances. Pink said the bond is there to ensure that homes are maintained, which keeps crime and violence down. The mediation program, she said, is important to help homeowners come to an agreement with lenders. “We’re not asking to live in our homes for free. We’re asking for some mediation,” she said.

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TARP Funds for Housing Relief 90 Percent Unspent, Auditor Says – Bloomberg

 

Distressed homeowners have received only 10 percent of nearly $46 billion in federal aid since the money was allocated in 2009 under the Troubled Asset Relief Program, a U.S. auditor’s report said today.

Spending on one of President Obama’s main efforts to avert foreclosures, the Home Affordable Modification Program, totaled $3 billion — about 10 percent of the $22.7 billion originally obligated at the end of June, the Special Inspector General for the TARP program said in a quarterly report to Congress. HAMP pays lenders to restructure loans so borrowers can afford them.

The report criticized the Treasury Department’s reaction to an audit of a $7.6 billion aid program for families in states with the largest home-price declines. Of that amount, only $351 million had been spent to assist 43,580 homeowners by the end of June, the report said.

“Taxpayers that fund this program have an absolute right to know what the government’s expectations and goals are for using $7.6 billion in TARP funds,” the report said. “By refusing to set any goals for the programs, Treasury is subject to criticism that it is attempting to avoid accountability.”

One program, which allocates $2.7 billion in TARP funds to encourage lenders to write down or eliminate second liens when refinancing properties insured by the Federal Housing Administration, has not resulted in any removals of second liens, the report said.

The Treasury Department has allocated $8.1 billion for a program to allow borrowers who owe more than their homes are worth to refinance into loans insured by the FHA. Of that, $6.6 million has gone for administrative expenses, and 1,437 borrowers have benefited, the report said.

To contact the reporter on this story: Clea Benson in Washington at:

 cbenson20@bloomberg.net

To contact the editor responsible for this story:Maura Reynolds at

mreynolds34@bloomberg.net

TARP Funds for Housing Relief 90 Percent Unspent, Auditor Says – Bloomberg

Federal Judge Magner: Wells Fargo’s Behavior “Highly Reprehensible” – Mandelman Matters

 

Federal Judge Magner: Wells Fargo’s Behavior “Highly Reprehensible”

Does anyone know what’s happened at Wells Fargo Bank?  If so, please let the rest of us know, because in a line up of TBTF bank CEOs, to stand out as being particularly awful is no easy task… and yet Wells Fargo’s CEO, John Stumpf has risen to the challenge and then some.

At the beginning of April of this year, Judge Elizabeth Magner, a federal bankruptcy judge in the Eastern District of Louisiana, characterized Wells Fargo’s behavior as being “highly reprehensible.”  Think about that for a moment.  That means that the judge decided that to describe Wells Fargo as merely “reprehensible,” wasn’t enough.

Wow, that is something.  Can you imagine someone saying that about you… a federal judge, no less?  I’m thinking that if a federal judge ever has the occasion to describe my behavior as being worse than “reprehensible,” I’m going to jail for a long time.

Of course, no danger of anything like that happening here… bankers don’t go to jail in this country, every one knows that.  But, in this instance, after more than five years in litigation with a single homeowner, Judge Magner ordered Wells Fargo to pay the New Orleans man $3.1 million in punitive damages.

Now, if that sounds like a paltry sum for the likes of Wells Fargo, that’s only because it is.  And that it represents one of the largest fines ever levied related to mortgage servicing misconduct hardly makes it feel any better.

It’s kind of like being forced to eat dog turd ice cream, but finding out that it’s okay if you pour motor oil on top.  Does that improve your circumstances?  I guess so, but…

Judge Magner, in her opinion, wrote…

“Wells Fargo has taken advantage of borrowers who rely on it to accurately apply payments and calculate the amounts owed, but perhaps more disturbing is Wells Fargo’s refusal to voluntarily correct its errors. It prefers to rely on the ignorance of borrowers or their inability to fund a challenge to its demands, rather than voluntarily relinquish gains obtained through improper accounting methods.”

So, what was Wells Fargo doing exactly?  Well, they were systematically over-charging the people least able to do anything about it… those filing bankruptcy.  In this case, Wells Fargo improperly charged the borrower $24,000 in fees, but it wasn’t done by hand, it was the bank’s automated systems doing precisely what they were programmed to do.  Like, anything but an isolated incident.

After the borrower fell into default on his mortgage, Wells Fargo’s automated system began applying his mortgage payments to interest and fees that had accrued instead of to principal, as required by his servicing contract, which in turn led to him being charged with a virtual waterfall of additional fees and interest.  And even after the borrower filed bankruptcy, Wells Fargo continued to misapply his payments, according to Judge Magner’s written opinion.

And why wouldn’t they?  I know, it sounds weird to say it, but I think I would have been disappointed had Wells stopped there.

There’s even a terme de l’art for this scenario used by consumer lawyers… they call it a “rolling default.”  I suppose the name refers to the idea that once the scheme gets rolling, it’s all downhill from there.  I think it should be called a “boiling default,” because once it’s boiling, you’re goose is most assuredly cooked.

Or, wait a minute… hang on… how about we call it: “Getting Stumpfed.”

(Come on, admit it… I’m good.)

Judge Magner went on to describe Wells Fargo’s litigation tactics as involving the filing of dozens of briefs, motions and other filings clearly designed to slow down legal proceedings to such a point that anyone thinking of mounting a legal challenge against a bank quickly finds it essentially impossible.

And since it’s only through costly litigation that the insidious crimes of Wells Fargo become apparent, all the bank has to do is prevent those with limited resources from doing what they can’t do with limited resources.  Now there’s a winning business model for you.  Like making billions by stopping blind people from seeing.

What sort of a company engineers this sort of strategic core competency anyway?  Remember Ford’s infamous Pinto strategy… rather than fix the problem, just settle them as they exploded?  Well, this Wells Fargo stuff makes that look as benevolent as Girl Scouts selling cookies after church.

Wells Fargo actually engineered a strategy and built a system to rampantly abuse the individuals in our society least able to defend their interests.  This is a bank that deserves to have a statue erected in its likeliness and even its own Lazarus-styled sonnet.  I’m just thinking out loud here, but how about…

“The Statue of Larceny”

And inside the base, engraved on a bronze plaque, could be these words…

Give us your jobless, injured, bankrupt filers, whose lawyers won’t work free. 

The wretched refuse against whom in court we’ll always score. 

Send them one by one, homes all sold by substitute trustee,

We’ll rape them, rob them, force them out Wells Fargo’s golden door.

Not bad, right?  No?  Sheesh… tough crowd.

Judge Magner, in an interview with Ben Hallman of Huffington Post, said that she personally analyzed the loan files of twenty borrowers in her court and found supposed “errors” in every single instance.  So, at least we know the systems are working properly, and somehow I find that oddly reassuring.

I don’t know why but there’s something even more terrifying about the idea that we might be getting ripped off by banks in an entirely random way.  Like one day you get hit for a hundred… and the next day not only is your entire IRA gone, but two weeks later you learn that the bank bounced one of your checks to the IRS for the penalty on the early withdrawal.

I know, right?  Now, that would be rude.

I guess I only have a couple of questions I’d like to ask, and the most obvious is: Why would anyone whose read about this decision continue to bank at Wells Fargo?

I mean, if they do this sort of thing systematically… AND THEY UNQUESTIONABLY DO, how do you know where the other spots are that are picking your pocket for twenty here and twenty there.  Because you’re not going to tell me you think this case has uncovered the only place at Wells Fargo where this sort of thing goes on, are you?  Come on… what are you, six?

And, my second question is: What do our elected representatives do these days… I mean specifically?  State or federal, I don’t care which… you pick.  Because it kind of seems like we’ve quietly been transformed into a lawless society in many ways, don’t you think?

Like in this bankruptcy case… the judge has uncovered the systematic stealing from the defenseless, but it’s not like it’s a major news story, or anything.  To the contrary, it’s nowhere.  Doesn’t anyone but me find that amazing?  How do they do that?  Where have all the journalists gone?

I can tell you that I receive more complaints about Wells Fargo refusing to approve loan modifications than any three other mortgage servicers combined.  But then, Wells did modify one of the homeowners I wrote about a few months back.  I don’t know why, maybe it was an accident.

Here’s one more thing Judge Marner said about Wells Fargo in her written opinion…

“These are loans of working-class people who bought homes they could afford and whose loans were not administered correctly from an accounting perspective,” Judge Magner said. “I think that these types of problems occur in almost every [defaulted] loan in the country.”

Good Lord.

So, Mr. John Stumpf… Wells Fargo’s CEO… you just go ahead committing those criminal acts with impunity.  Don’t change now… go down with your ship.  Besides, I’m sure there are deceptions your people haven’t thought of yet.

Do you have a program that targets autistic children yet? Or what about something abusive for unmarried pregnant chicks that never finished high school? Or, what about the elderly, are you doing enough to take advantage of the elderly?

I’m sure you’ll think of something, which is why I’ve told my wife and daughter to stay out of banks for the foreseeable future.  We only make deposits at the ATM at night, which may sound crazy, but I’m betting will one day soon prove considerably safer than being inside during the day.

Lo siento.  Que se mejore pronto.

Mandelman out.

Federal Judge Magner: Wells Fargo’s Behavior “Highly Reprehensible” – Mandelman Matters