Justice James Pagones of Dutchess County, New York, advocates for homeowners in foreclosure settlement conferences

Nicholas M. Moccia, Esq.

Law Office of Robert E. Brown, P.C.

Justice James D. Pagones of the Supreme Court of the State of New York, County of Dutchess, has rendered an interesting set of decisions in the foreclosure practice area—see JPMorgan Chase, N.A, v. Sosa, 2011 NY Slip Op 50537[U] (Sup. Ct. Dutchess County April 8, 2011)(hereinafter “JPMorgan v. Sosa”); see also US Bank Natl. Assn. v. Padilla, 2011 (Sup. Ct. Dutchess County April 8, 2011)(hereinafter “US Bank v. Padilla”).  These decisions are of especial interest to homeowners facing the prospect of foreclosure, since they highlight some of the pitfalls homeowners may face during the foreclosure process. 

The good news for New York homeowners in foreclosure, is that the residential foreclosure process takes many months to bring to completion.  In some cases, it may take several years, if properly contested.  One of the procedural mechanisms which slows down the process for homeowners is the mandatory settlement conference pursuant to section 3408 of the Civil Practice Law and Rules (“CPLR §3408”) and section 1304 of the Real Property Actions and Proceedings Law (“RPAPL §1304”).  The legislative intent underlying these statutes is to foster early settlement of foreclosure actions as a means of preserving home ownership and to mitigate the subprime credit crises, through the auspices of the courts.  See end note 1.  To this end, every bank is required to participate in the mandatory settlement conference before it is permitted to move for a judgment of foreclosure and auction off a home.  Specifically, every bank is required, “in good faith”, to attempt to settle the foreclosure action by giving homeowners an opportunity to do one of three things:  1.  apply for a loan modification; 2.  enter into a short sale; or 3. settle by way of a “deed in lieu of foreclosure”, which ideally amounts to walking away from the home without any further liability to the bank.

It is in the context of the mandatory settlement conferences, Justice Pagones highlights some of the pitfalls homeowners regularly face when the banks and their attorneys apparently act in bad faith contrary to the requirements of CRPL §3408(f) and RPAPL §1304.  In JPMorgan v. Sosa, Justice Pagones sets forth an all-too-common scenario wherein a homeowner participates in a settlement conference but fails to contest the foreclosure action while attempting to workout a settlement.  Justice Sosa continues as follows:

Defendant Sosa contends she did not appear and answer the plaintiff’s complaint because she had been offered participation in the HAMP program and had been assured by the plaintiff that her participation would bring her mortgage back into compliance and would result in the termination of the foreclosure action…The documents submitted by both of the parties demonstrate that defendant Sosa made a down payment to the plaintiff in April 2009…Although defendant Sosa made each of the required trial period payments, she ultimately received a letter from the Plaintiff dated December 21, 2009, that she did not qualify for any loan modification programs due to her insufficient income. 

During the eight month period when the Defendant Sosa was attempting to work out a loan modification, the bank was continuing to proceed with the foreclosure.  It is noteworthy that Defendant Sosa made the mistake of failing to contest to the foreclosure action from the very beginning by neglecting to file an answer with counterclaims.  As a result, a judgment was rendered against Defendant Sosa even as she was attempting negotiate a settlement. 

Once it was clear that bank was not going to offer Defendant Sosa a loan modification, and after many months of making “trial payments”, Defendant Sosa found herself at the threshold of the foreclosure auction block.  Luckily for Defendant Sosa, Justice Pagones “in the furtherance of justice” granted Defendant Sosa’s application to vacate the judgment of foreclosure and allowed her to submit a late answer with counterclaims.  Justice Pagones was by no means obliged to vacate the judgment, but it is clear that the he exercised his equitable discretion due to the questionable of the bank during the foreclosure settlement conference.  Indeed, it is commonplace for a bank to string borrowers along for many months accepting payments during a “trial period” for a loan modification, only to renege on offering a final loan modification agreement and to proceed with the foreclosure. Had Defendant Sosa served an answer on the bank from the beginning and challenged the bank with a set of colorable counterclaims, the bank would undoubtedly have taken her application for a loan modification more seriously.  Since, however, the bank was able to get an uncontested judgment, the bank had, practically speaking, no real incentive to work with Sosa toward an reasonable settlement.

In US Bank v. Padilla, Justice Pagones again found that the bank’s “unnecessary, dilatory tactics and contradictory information [had] the inexorable effect, whether or not intentional, of plunging the homeowner deeper and deeper in arrears, raising the very real probability that she will never be able to extricate herself from this debt and work out an affordable loan modification.”  Specifically, Justice Pagones noted that the bank, even as the Defendant Padilla made her “trial period” loan modification payments, made all sorts of excuses as to why Defendant Padilla could not be offered a final loan modification.  First, the bank misplaced Defendant Padilla documents, which were submitted as a part of her application.  Defendant Padilla resent the documents.  Then the bank tells her there was a “mix-up” with her records, and that a second mortgage on her home made her monthly expenses too high to offer her a loan modification under the HAMP program.  Upon her next appearance in court, she is advised that she may be eligible for the HAMP program after all, and should resubmit all her financial documentation to be considered.  Then when Defendant Padilla resubmitted her financial documentation and confirmed that no additional documentation was needed, she was soon thereafter advised that she was rejected for a loan modification because she did not provide the bank all the information needed within the required time frame.

In response to the bank’s gamesmanship—or ineptitude, as the case may be—Justice Pagones threatened to sanction the bank with $100,000.00 in exemplary damages and to bar the bank from collecting any interest on the remainder of the principal balance for the life of the loan.  Indeed, such sanctions are not unheard of.  Justice Pagones cited Justice Jeffrey Arlen Spinner of Suffolk County, who has been known to mete out harsh penalties where a bank’s conduct had been “inequitable, unconscionable, vexatious and opprobrious” in the context of the foreclosure settlement conference.  See Emigrant Mtge. Co., Inc. v. Corcione, 28 Misc 3d 161 (Sup. Ct. Suffolk County April 16, 2010).

Justice Pagones should be credited for his advocacy of homeowners; however, it should be noted that not all judges are equally solicitous of the legal rights of homeowners or the particular equities of their situation.  For this reason, it is generally recommended that individuals facing foreclosure seek counsel as early as possible in the foreclosure process—ideally, as soon as a defendant is served with a summons and complaint.

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1.  See Sponsor’s Mem., Bill Jacket, L.208, ch. 472.

Steven J. Baum P.C. makes an appearance in the NY Times

Nicholas M. Moccia, Esq.

Law Offices of Robert E. Brown, P.C.

   

Gretchen Morgenson of the New York Times reports that the New York State Attorney General has subpoenaed Steven J. Baum, P.C. due to alleged questionable foreclosure practices.  Steven J. Baum, P.C., has handled an estimated 40 percent of all foreclosures in the State of New York.  Many of the the irregularities--including alleged instances of robo signing and document notarization issues--have already been highlighted in previous blog posts of mine.  You're welcome, Gretchen!  Link to NY Times Article:

New York Subpoenas 2 Foreclosure-Related Firms

“Surrogate signers” signed countless foreclosure documents - with someone else’ name

Nicholas M. Moccia, Esq.
Law Offices Robert E. Brown, Esq.

Below is a great article by Christine Stapleton about the very issue I touched upon in my previous blog post.  We're on to you, Elpiniki!

“Surrogate signers” signed countless foreclosure documents - with someone else’ name

by Christine Stapleton

At Lender Processing Services workers who signed tens of thousands of sworn foreclosure affidavits with someone else’ name were called “surrogate signers”, according to Cheryl Denise Thomas, a former LPS worker who admitted to notarizing as many as 1,000 sworn affidavits daily - often without witnessing the signature.

Thomas said despite “raised eyebrows”  her supervisors never used the word “forge” and repeatedly told workers the practice of signing someone else’ name on a sworn affidavit was legal. Thomas detailed the company’s foreclosure document processing practices during a deposition in an Orange county foreclosure case on March 23.

“They didn’t say forge the name. They just said this is legal,” Thomas said. “This person is going to be this person’s surrogate signer because this person has a lot to do.”

LPS, a Jacksonville company, charges a fee to locate and assemble the documents necessary to file a foreclosure. The Florida Attorney General has received complaints about the firm and its documents preparation practices. According to the AG’s web site, LPS and a defunct subsidiary, Docx, produced documents “that to even the untrained eye, appear to be forged and/or fabricated as the signatures of the same individual vary wildly from document to document. These documents are then used to gain standing for the plaintiff in a foreclosure suit.”

When Thomas questioned her supervisors about not witnessing signatures before she notarized documents she said was told, “We’re legal. You can do it. That’s fine. Just notarize it.” Thomas said she has been questioned by FBI investigators about the document processing practices at LPS. She also said her daughter, Tywanna Thomas - whose name appears on thousands of sworn affidavits - also worked at LPS along with Thomas’ nephew.

Thomas said her supervisor was Renee Gaglione, whose name popped up in a Palm Beach county foreclosure case on Tuesday. Gaglione is also believed to have been the supervisor of Linda Green. Variations of Green’s signature appear on thousands of foreclosure documents, including the foreclosure of Lynn Szymoniak, a Palm Beach Gardens lawyer who specializes in white collar crime.

Szymoniak discovered the practice of robo-signing: employees at banks and mortgage servicing companies who sign sworn affidavits without any knowledge of the case. Linda Green is believed to be among the most prolific robo-signatures.

On Tuesday Szymoniak came to court and again, seeking permission to depose Gaglione because, as Syzmoniak’s attorney, Mark Cullen said, “we don’t even know if Linda Green is real.” Gaglione’s attorney, who asked for a protective order barring Szymoniak from deposing Gaglione, called Szymoniak’s attempt to depose Gaglione “just plain harassing.”

Has Erica Johnson-Seck met her match in the person of Elpiniki Bechakas in the robo signer hall of shame?

Nicholas M. Moccia, Esq.
Law Offices of Robert E. Brown, P.C.

During the course of drafting a reply affirmation in support of a motion to dismiss a foreclosure action, I encountered an unusual assignment of mortgage emanating from the Law Office of Steven J. Baum, P.C.  An assignment of mortgage is a crucial document for foreclosing banks and their attorneys because this document is usually the only way a bank can prove it owns a particular mortgage and, therefore, prove it has the legal right to foreclose—i.e. that the bank has standing.  An assignment memorializes an arms-length transfer of a mortgage from one bank to another.   A sizeable portion of mortgage assignments produced by Baum’s office are executed by a certain Elpiniki Bechakas, Esq., who is an attorney from Baum’s office.  In my motion papers, I regularly question Ms. Bechakas’ legal capacity to execute mortgage assignments because, as an attorney, she should not be representing multiple parties in an arms length transaction.  It’s like having the same attorney simultaneously representing the buyer and seller of a house while having permission to sign all legal documents on behalf of both the buyer and seller.  There is an obvious conflict of interest.  The response from Baum’s office is that she has authority to sign from the various financial institutions.  Some judges agree with Baum’s position, some agree with mine—it depends on the ideology of the judge and what else is going on with the case.

However, this time something was truly amiss with the latest Bechakas assignment that came my way.  Here, the signature seemed a little too bubbly, and not the angular scrawl that I have grown to know and love.  And then it occurred to me, could it be that Ms. Bechakas is a robo signer? or better yet, could it be she now has a team of ghost signers who robo sign on her behalf? For your reading pleasure--and for those pro se defendants who have taken to plagiarizing my blog posts--I have pasted below a new, that is to say, untested point heading wherein I question the authenticity of an assignment of mortgage executed by Ms. Bechakas.  Also, included is a link to the dubiously executed mortgage assignment, and other samples of Ms. Bechakas' signature should you be inclined to make the comparison yourself.

THE ASSIGNMENT OF MORTGAGE PROVIDED BY PLAINTIFF’S COUNSEL APPEARS TO BE FORGED OR IS THE PRODUCT OF A “ROBO SIGNER” AND IS THEREFORE DEFECTIVE ON ITS FACE

14.         Plaintiff, in support of its position that it does have standing to foreclose, provides an Assignment of Mortgage executed on May 11, 2010, and annexed as Exhibit C to the Plaintiff’s Aff. in Opp.

15.         The Assignment of Mortgage was purportedly executed by Elpiniki Bechakas, Esq., an attorney associated with Plaintiff’s counsel, Steven J. Baum, P.C.  Remarkably, the Assignment of Mortgage does not in any way reveal Ms. Bechakas’ association with Plaintiff’s counsel.

16.         Most curiously, the signature of Elpiniki Bechakas—a signature with which I have become well familiar—is notably different than the signature of Elpiniki Bechakas on other assignments of mortgage that I have encountered.  See seven assignments of mortgage pertaining to other matters handled by this firm executed by Elpiniki Bechakas annexed hereto as Exhibit “B”.

17.         A comparison of the signatures of Ms. Bechakas on the annexed assignments of mortgage reveal a pronounced difference in the shaping and curvature of the letters as compared to the signature found on the Assignment of Mortgage proffered by Plaintiff in its Aff. in Opp. at Ex. C.

18.         The difference in form of the signatures apparently suggests that the Assignment of Mortgage supplied by Plaintiff’s counsel was forged or the product of a “robo signer”.  Accordingly, the Assignment of Mortgage is suspect and should be disregarded by the Court for determining the Plaintiff’s standing to bring this action, unless and until Plaintiff’s counsel can prove its authenticity. 

19.         To be sure, the multitude of mortgage assignments executed by Ms. Bechakas for scores of different financial institutions bears all the tell-tale signs of the notorious robo signers, who have gotten so much attention of late.[1]

20.         In Onewest Bank, F.S.B. v. Drayton, 2010 N.Y. Slip Op 20429, 29 Misc.3d 857 (Sup. Ct. Kings County, October 21, 2010), a Kings County judge wrote with reference to Erica Johnson-Seck, a notorious robo signer alluded to in footnote 1 infra, as follows:

A "robo-signer" is a person who quickly signs hundreds or thousands of foreclosure documents in a month, despite swearing that he or she has personally reviewed the mortgage documents but has not done so. Ms. Johnson-Seck, in a July 9, 2010 deposition taken in a Palm Beach County, Florida foreclosure case, admitted that she: is a "robo-signer" who executes about 750 mortgage documents a week, without a notary public present; does not spend more than 30 seconds signing each document; does not read the documents before signing them; and did not provide me with affidavits about her employment in two prior cases. (See Stephanie Armour, Mistakes Widespread on Foreclosures, Lawyers Say, USA Today, Sept. 27, 2010; Ariana Eunjung Cha, OneWest Bank Employee: 'Not More Than 30 Seconds' to Sign Each Foreclosure Document, Washington Post, Sept. 30, 2010.)

21.         There is every reason to believe that Ms. Bechakas has likewise engaged in such practices.

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[1] See “Robo Signer Update List for Feb. 28, 2011”, wherein Ms. Bechakas is conspicuously included in the list along with other known robo signers, such as the now legendary Erica Johnson-Seck: http://dell.beforeitsnews.com/story/447/809/Robo_Signer_Update_List_For_Feb.28,_2011.html

Spurious Elpiniki Bechakas Assignment

Elpiniki Bechakas signature sampler

Governor Cuomo! Are you taking our Judicial Hearing Officers away?

Nicholas M. Moccia, Esq.

Law Offices of Robert E. Brown, P.C.

Full disclosure:  I am a fiscal conservative and strongly supportive of our Governor’s strict budgetary measures.  “We need to make sacrifices.”  Indeed, I cheerfully applaud the sacrificial slaughter of our ponderous state bureaucracy; however, I strongly question the wisdom of discontinuing the Judicial Hearing Officer (“JHO”) program.  The JHOs are a group of retired judges who help the New York State Court system manage its heavy case load.  JHOs play an extremely important role in the foreclosure context as they facilitate the progress of cases in the foreclosure conference parts wherein homeowners are given an opportunity to settle with their banks via loan modifications.  JHOs also preside over traverse hearings and play an important role in the disposition of matrimonial matters.

I work closely with JHOs almost daily in each of the five boroughs of the  City of New York.  I find the JHOs to be essential to the efficient working of our court system.  To cut the JHO program would be catastrophic, and would probably make the system much more costly both to the State and to the people whom it serves.  Kings County in particular would fall apart without its JHOs.  Especial kudos to the Hon. Michael V. Ajello (JHO) of Richmond County and the Hon. Lewis Douglass (JHO), both of whom I find to be particularly helpful.

For more on the JHO issue, see article below.

Group of Hardworking Retired NY Judges Face Layoffs

Justice Anthony I. Giacobbe of the Supreme Court, Richmond County, opines that standing is a waivable defense

Nicholas M. Moccia, Esq.

Law Offices of Robert E. Brown, P.C.

In a remarkable decision, Justice Giacobbe of the Supreme Court, Richmond County, held that standing was a waivable defense in the mortgage foreclosure context.  See Flagstar Bank, FSB, v. Louis P. Bonaccolta et al., 2011 N.Y. Slip Op 30645(U)(Sup. Ct. Richmond County March 10, 2011).

The following factual circumstances underlie this matter:   Flagstar Bank ("Plaintiff Bank") commences a foreclosure action against Louis P. Bonaccolta ("Defendant Borrower").  Plaintiff Bank obtains a judgment of foreclosure and sale, and schedules an foreclosure auction.  Defendant Borrower brings an Order to Show Cause to stay the foreclosure sale and requests that the Court give him more time to negotiate a short sale with the Plaintiff Bank.  Defendant Borrower argues that the foreclosure auction should be stayed by attacking the regularity of the notice of foreclosure sale of the premises, arguing that he received said notice by regular mail a mere two days before the foreclosure auction.  Defendant Borrower contends that such short notice was improper and unfair, placing the defendant "at such a disadvantage to protect his interest in 385 Ramona Avenue."  Nevertheless, the Defendant Borrower acknowledges receipt of the notice of foreclosure sale.  The Court also notes that the Defendant Borrower's attempt to sell the property via a short sale or to renegotiate the terms of the loan were fruitless.  Lastly, but most significantly, the Defendant Borrower argues in his Reply that the Plaintiff bank lacked standing to bring the foreclosure.

With regard to the Defendant Borrower's standing argument, Justice Giacobbe opines as follows:

Turning to the defendant's argument that "it may be that Flagstar Bank, FSB is not the proper mortgagor [sic]" such that plaintiff may lack sufficient standing to sue, such argument is improperly raised for the first time in his Reply, and therefore, will not be considered.  See, generally, Burlington Insurance Co. v. Guma Construction Corp., 66 A.D.3d 622 (2d Dep't 2009); Pinkston v. Weiss, 238 A.D.2d 393 (2d Dep't 1997).  Moreover, were the Court to consider it, such argument would be unavailing, particularly in light of the fact that defendant is not contesting service and that the affidavits of service appear regular on their face, because where, as here, a defendant has failed to raise the affirmative defense of a plaintiff's lack of standing in an answer or pre-answer motion to dismiss, the objection is deemed waived.  HSBC Bank, USA v. Dammond, 59 A.D.3d 679 (2d Dep't 2009); Wells Fargo Bank Minnesota, NA v. Mastropaolo, 42 A.D.3d 239 (2d Dep't 2007).

Justice Giacobbe's position is remarkable insofar as there is some disagreement among Staten Island judges regarding the waivability of the standing defense.  Justice Maltese quite explicitly holds that standing is never waivable and the defense can be raised at any time. See e.g. Deutsche Bank National Trust Company v Abbate, 25 Misc 3d 1216(A) 2009 NYSlipOp 52154(U) (Sup. Ct. Richmond County October 6, 2009). Justice McMahon, however, is in agreement with Justice Giacobbe and regularly holds that standing is a waivable defense. In my experience, Justice Fusco, Justice Aliotta and Justice Minardo, have not ruled one way or another on the standing issue; rather, they appear to avoid the issue in the foreclosure context and seem to make a point of rendering their decisions on some other basis.

For my part, I respectfully disagree with Justice Giacobbe and Justice McMahon on the standing issue, and agree with the Justice Maltese that standing cannot be waived.  I cite Aurora Loan Services, LLC, v. Thomas, 70 A.D.3d 986, 897 N.Y.S.2d 140 (2d Dep't 2010), wherein the Second Department held that a defendant borrower in a foreclosure action did not waive the defense of lack of standing--notwithstanding the Mastropaolo decision, notably cited as authority by J. Giacobbe--and further held that the defendant borrower should be granted leave to amend his pleadings to include lack of standing as an affirmative defense.  Indeed, the Second Department explicitly distinguished its position from that of Mastropaolo.  With regard to amending pleadings, leave to amend is to be freely given absent prejudice or surprise on the other party.  Essentially, the Second Department is saying that standing cannot be waived, since motion to amend pleadings are almost always granted.

The bottom line is that standing, according to the Second Department, isn't automatically waived even if the defense  happens to not be raised in an answer or pre-answer motion to dismiss.  The Court of Appeals held that “[s]tanding to sue is critical to the proper functioning of the judicial system. It is a threshold issue. If standing is denied, the pathway to the courthouse is blocked.”  See Saratoga County Chamber of Commerce, Inc. v Pataki, 100 N.Y.2d, 801, 812 (2003), cert denied 540 U.S. 1017, 124 S. Ct. 570, 157 L. Ed. 2d 430 (2003).

The ugly truth about Obama's HAMP loan modification program revealed in New Jersey class action complaint

Nicholas M. Moccia, Esq.

Law Offices of Robert E. Brown, P.C.

I had the opportunity to review a class action complaint recently filed in the U.S. District Court of New Jersey, wherein it is alleged that Citimortgage flagrantly disregards its obligations to offer loan modifications to New Jersey homeowners under Obama's Home Affordable Modifcation Program ("HAMP") notwithstanding the fact that Citimortgage received some $45 billion in TARP money on the condition that it participate in HAMP program.  See Juan Silva and Elizabeth Silva v. Citmortgage, Inc., 11-CV-01432 (D.C.N.J.).  The full text of the complaint may be accessed here:

  Silva v. Citimortgage complaint, 11-CV-01432


In light of the fact that I spend a good portion of my week working with banks to get my clients loan modifications under HAMP, I believe that I can say with some authority that the HAMP program is nothing less than an embarrassing failure for the Obama administration.  The allegations made in the Silva complaint are sadly all-too-familiar in my dealings, not only with Citimortgage, but with other lenders.

The plaintiff borrowers allege that Citimortgage intentionally set up its loan modification program to fail, and that Citimortgage instituted its HAMP program in order to feign compliance with TARP's conditions, although it never had any intention to allow widespread loan modifications for homeowners.  The complaint, in my opinion, correctly identifies a number of  financial factors that make it more profitable for a financial institution like Citimortgage to avoid modification and to continue to keep a mortgage in a state of default or distress and push loans to foreclosure.  The specifics factors may be found in ¶9 of the Silva complaint.  As a result, Citimortgage is incentivized to (1) maintain borrowers in default and delay decisions on modifications so that they can generate income through the imposition of late fees and inspection fees; (2) capitalize arrears to increase principal balances; and (3) create additional float income by putting borrowers in foreclosure.

In particular, the following allegation in ¶51 of the Silva complaint strongly resonated with me and was very reminiscent of a specific recent experience I myself had in my dealings with Citimortgage:

Throughout the HAMP application process, Citi also repeatedly and inappropriately demands that borrowers update their application materials, while warning homeowners that their modification is at risk and threatening to deny the modification if they fail to comply with requests.  Typically, Citi requests the same document(s) over and over. In other instance, it requests documentation that is irrational or impossible to obtain--such as W-2 forms for elderly individuals surviving on social security, or self-employment profit and loss statements for wage-earning employees. 

Citimortgage is not unique in its engagement in this paper shuffling charade.  This is standard operating procedure in the foreclosure conference parts throughout the City of New York--and, apparently, New Jersey as well.

In short, the Silva complaint alleges that Citimortgage has failed to comply with HAMP in a variety of ways and has essentially undermined the purpose of the program--namely, to help homeowners in foreclosure or facing the prospect of foreclosure make their loan payments more affordable during the current economic downturn.  For the past three years, the United States has been in a foreclosure crisis.  In late 2009, one in eight U.S. mortgages was in foreclosure or default, and 2.8 million homeowners received foreclosure notices in 2009.  New Jersey is among the top ten highest states for foreclosure filings.

Class Action Notice:

PHILADELPHIA, PA, March 16, 2011 (PRNEWSWIRE) -- The law firm of Berger & Montague, P.C. has filed a class action complaint in the United States District Court for the District of New Jersey on behalf of all New Jersey homeowners whose mortgage loans have been serviced by CitiMortgage, Inc., and who, since April 13, 2009, (1) have entered into a Trial Period Plan (“TPP”) contract with CitiMortgage and made all payments required by their TPP contract, but (2) have been denied a permanent loan modification agreement that complied with the U.S. Department of the Treasury’s Home Affordable Modification Program (“HAMP”) rules.

If you believe that you have been improperly denied a permanent loan modification by CitiMortgage, Inc., after April 13, 2009, please contact plaintiff’s counsel, Eric Lechtzin of Berger & Montague , P.C. at 888-891-2289 or 215-875-3000, or by e-mail at elechtzin@bm.net. A copy of the Complaint can be viewed on Berger & Montague, P.C.’s website at www.bergermontague.com or may be requested from the Court. The docket number is 11-cv-1432.

The Complaint alleges that CitiMortgage accepted billions in government bailout money under the Troubled Asset Relief Program (“TARP”) earmarked to help struggling homeowners avoid foreclosure. CitiMortgage, like other TARP-funded financial institutions, is contractually obligated to modify mortgage loans it services for homeowners who qualify under HAMP, a federal program designed to abate the foreclosure crisis by providing mortgage loan modifications to eligible homeowners.

According to the lawsuit, CitiMortgage systematically slows or thwarts homeowners’ requests to modify mortgages, depriving borrowers of federal bailout funds that could save them from foreclosure. The bank ends up reaping the financial benefits provided by TARP-funds and also collects higher fees and interest rates associated with stressed home loans.

For more information about this case, please contact:

Sherrie R. Savett, Esq.
Russell D. Paul, Esq.
Eric Lechtzin, Esq.
Kimberly A. Walker
BERGER & MONTAGUE, P.C.
1622 Locust Street
Philadelphia, PA 19103
Telephone: 1-888-891-2289 or 215-875-3000

Berger & Montague, founded in 1970, is a pioneer in class action litigation. The firm’s approximately 70 attorneys concentrate their practice in complex litigation, including consumer protection, securities fraud, whistleblower and false claims actions, antitrust.

Straniere trounces the credit card companies again in American Express Bank, FSB v. Dalbis

Nicholas M. Moccia, Esq.
Law Offices of Robert E. Brown, P.C.



Judge Straniere, a long time advocate of Staten Island consumers, renders a colorful and comprehensive decision whereby he dismisses a consumer credit case purportedly based on Utah law.  For those attorneys in the practice area or for those self-represented individuals interested in some insight on how to respond to a credit card summons in New York, here is the link to  Straniere's decision in full:

American Express Bank, FSB v Dalbis, 2011 NY Slip Op 50366(U)(Civ. Ct. Richmond County March 14, 2011)

I have included Judge Straniere's concluding remarks as a teaser:
 

Conclusion:

One of these days in your travels a guy is going to come to you and show you a nice brand-new deck of cards on which the seal is not yet broken, and this guy is going to offer to bet you that he can make the Jack of Spades jump out of the deck and squirt cider in your ear. But son, do not bet this man, for as sure as you stand there you are going to wind up with an earful of cider.^[FN11]

Credit card issuers and third party debt buyers have over the last few years been "squirting cider" in the ears of the court system...Plaintiffs should spend more time putting all fifty-two cards in the deck rather than just a Jack of Spades that can squirt cider in the court's ear.

Courts Overstepped in Requiring NY Attorneys to Sign Affirmations in Foreclosures

By Andrew Keshner | New York Law Journal

A state judge on Long Island has ruled that court administrators overstepped their rule-making powers when they required lenders' attorneys to attest to the accuracy of the documents they file in residential foreclosure actions.

Supreme Court Justice Thomas F. Whelan in Suffolk County concluded in LaSalle Bank v. Pace, 15822-2008, that no statute or legislative action gave Chief Judge Jonathan Lippman the power to require the attorney affirmations.

The judge granted summary judgment to LaSalle Bank in the action, approving an order of reference on the foreclosure of a Hampton Bays house. Among other defenses, the homeowners claimed the bank failed to supply the required affirmation.

According to court papers, the bank's attorneys later submitted the affirmation as part of papers in support of summary judgment. At any rate, Justice Whelan observed that the affirmation could be supplied at a later stage of the proceedings.

However, he went further, saying that he was "not convinced that the subject order constitutes a permissible exercise of the rule making authority vested in the chief administrator of the courts."

The judge noted that the Legislature had delegated to the courts the power to regulate the practice and procedure of settlement conferences it had mandated, but he said the administrators' rule-making authority did not give them "carte blanche" to "enlarge or abridge rights conferred by statute."

"This court can find no legislative delegation to the chief administrator by statute or otherwise which empowers the chief administrator to impose the substantive requirements that touch upon the nature and sufficiency of proof which the plaintiff must supply to the court in mortgage foreclosure actions," Justice Whelan wrote.

The affirmation requirement had "significantly" impaired lenders' "statutory remedy for foreclosure and sale," he said, pointing to a "vast reduction" in case filings and a "resounding halt" in the prosecution of foreclosure actions. And he said the requirement had had a "chilling" effect on the court's ability to exercise its own authority.

Christopher H. Thompson of Staten Island, the attorney for homeowners James F. and Linda Pace, said he planned to appeal.

"I am disappointed with the decision and although I respect Judge Whelan, I believe he misunderstands the law," he said. "I believe the court seized the opportunity to challenge the enforceability of the chief administrative judge's rules and directives."

James G. Ryan and Justin F. Capuano of Cullen & Dykman in Garden City represented LaSalle Bank. Mr. Ryan declined to comment.

David Bookstaver, a spokesman for the Office of Court Administration, said the affirmation requirement is still in force.

"We are aware of the decision," he said. "However, we are not a party to the case and we'll be watching to see if there's an appeal filed."

Judge Lippman announced the affirmation requirement last fall, as national concern grew over inaccurate court documents in residential foreclosures. Since then, the number of foreclosure filings has plummeted, with observers attributing that decline, at least in part, to the affirmation requirement.

Other judges are still enforcing the affirmation requirement.

Supreme Court Justice Peter H. Mayer in Suffolk Countyrecently denied a foreclosure action and ordered a sanction hearing. The decision was due, in part, because he faulted a submitted attorney affirmation that replaced the affirmation's official language of "diligent" inquiry with "reasonable" inquiry.

"[T]his Court requires counsel to submit an attorney affirmation in the specific form and with the specific language originally mandated by [Chief Administrative Judge Ann Pfau's] order of October 20, 2010," the judge said in Bayview Loan Servicing v. Bozymowski, 00296-2010.

A call for comment to Rosicki, Rosicki & Associates of Plainview, the firm representing the lender, was not returned.

Judge Thomas Whelan of Suffolk County, New York, defies directive of Chief Judge regarding foreclosures

Nicholas M. Moccia, Esq.
Law Offices of Robert E. Brown, P.C.

In LaSalle Bank, N.A. v. Pace, 2011 N.Y. Slip Op 21070, Judge Thomas of Whelan, of the Supreme Court of the State of New York, County of Suffolk, allows a foreclosure action to proceed notwithstanding the fact that the foreclosing bank failed to comply with the October 20, 2010, Administrative Order [#548-10] issued by Chief Administrative Judge Ann Pfau.  The Administrative Order, which has gotten much attention by foreclosure practitioners, requires counsel for the foreclosing banks to verify the accuracy of documents filed in support of residential foreclosure actions.

Judge Whelan opines that the Administrative Order is not binding on him based on New York State constitutional grounds.  His Honor writes,

The Administrative Order at issue and the recent amendment of 22 NYCRR 202.12-a, by the addition of subparagraph (f), which purports to establish the continuing authority of the Chief Administrative Judge to require the affirmations and affidavits that are the subject of the October 20, 2010 Administrative Order, are not administrative in nature, as they are not aimed at supervising the administration and operation of the Unified Court System or at the efficient and orderly transaction of business in the trial courts (see Judiciary Law § 211; 212[1]; 22 NYCRR 80.1[b]). They are, instead, "legislative" in nature, as their provisions purport to regulate practice and procedure in the courts (see NY Const. Art. VI, § 30; Judiciary Law § 212[2][d]). The legislative nature of the Administrative Order and the amendment of 22 NYCRR 202.12-a(f) are apparent even upon a most cursory review of their terms, as they impose additional, substantive requirements upon a plaintiff seeking the remedy of foreclosure that is not contemplated by the statutes which now regulate foreclosure actions (see RPAPL Article 13, CPLR 3408 and the Laws of 2009 Ch. 507 §§ 1,3,5,6,9,10,10-a)(Emphasis supplied).

Accordingly, Judge Whelan holds:

[T]his court finds that Administrative Order numbered 548-10 and the newly added subparagraph (f) to court rule 202.12-a, exceed the rule making authority of the Chief Administrative Judge, in her capacity as chief administrator of the courts.  (Emphasis supplied).

Thankfully, Judge Whelan's decision is not binding authority on other judges.  In my opinion--and I don't foresee myself practicing in Suffolk any time soon, so I can be blunt--this is a poor decision and appears to be nothing more that an elaborate rationalization for a deep-seated ideological bias favoring banks.  His decision does a disservice to homeowners, and wholly ignores the rampant documentary irregularities that occur in so many foreclosures. Instead, Judge Whelan concerns himself with the "chilling effect upon [his] court's adjudicatory authority and powers to determine issues raised in pending mortgage foreclosure actions duly assigned to it."

I'd like to hear from the Little Judge from Brooklyn on this one.

Judge Schack threatens Baum with sanctions for apparently attempting to collect a debt...from him!

Nicholas M. Moccia, Esq.
Law Offices of Robert E. Brown, P.C.

This is a classic Judge Schack moment in Wells Fargo Bank, N.A. v Zelouf, 2011 N.Y. Slip Op 50212[U].  To fully appreciate this, you have to deal with Baum's office on a regular basis.  Nearly every interaction or communication with his office is prefaced by the following mantra ad nauseam:

[t]he law firm of Steven J. Baum, P.C. and the attorneys whom it employs are debt collectors who are attempting to collect a debt. Any information obtained by them will be used for that purpose.

To be sure, Baum is required to give this warning to all his prospective judgment debtors in order to be in compliance with the Fair Debt Collection Practices Act.  However, in Zelouf, it appears an overzealous paralegal--I'll give the attorneys the benefit of the doubt on this one--had the misfortune to include the now-famous Fair Debt Collections mantra in a correspondence with Judge Schack.  You gotta love this guy's sense of humor.  The good Judge writes:

Further, plaintiff's counsel states in his notice of withdrawal, "[t]he Plaintiff will not be discontinuing the above referenced action." Moreover, in his cover letter to myself, plaintiff's counsel states that "[t]he law firm of Steven J. Baum, P.C. and the attorneys whom it employs are debt collectors who are attempting to collect a debt. Any information obtained by them will be used for that purpose." Since this statement was in a cover letter to me and does not appear to be preprinted on the letterhead of the Baum firm, the Court would like to know what debt it [*2]personally owes to the Baum firm or its clients? This statement borders upon frivolous conduct, in violation of 22 NYCRR § 130-1.1. Was it made to cause annoyance or alarm to the Court? Was it made to waste judicial resources? Rather than answer the above rhetorical questions, counsel for plaintiff is directed never to place such a foolish statement in a cover letter to this Court. If this occurs again, the firm of Steven J. Baum, P.C. is on notice that this Court will have the firm and the attorney who wrote this nonsensical statement appear to explain why the firm and the individual attorney should not be sanctioned for frivolous conduct.

Baum, there is no winning with the Little Judge from Brooklyn!

Joy Leopold does not quite get it right with regard to MERS

Nicholas M. Moccia, Esq.

Law Offices of Robert E. Brown, P.C.

Commentary:   The article below by Joy Leopold reports on a recent decision that came down in the Bankruptcy Court for the Eastern District of New York.  The caption of the case is In re: FERREL L. AGARD, Case No. 810-77338-reg.  This article misses the point in two respects with regard to MERS:   

First, a decision from the Bankruptcy Court, EDNY, is not binding on the Supreme Court of the State of New York.  It's perhaps persuasive authority, but it is not binding.  One gets the impression that Ms. Leopold overestimates the significance of this decision.

Second, Ms. Leopold fails to explain why MERS does not have the right to transfer mortgages or file foreclosures on behalf of lenders or its own behalf.  MERS is a "nominee" of banks and acts as a record keeper and clearing house for mortgages that are originated and sold by financial institutions.  MERS is an agent or middleman of sorts.  The most important fact about MERS is that it does not have an ownership interest in any mortgage and is never the holder of the note.  For this reason, it cannot on its own initiative transfer mortgages between banks, nor can it file foreclosure actions on its own behalf.  The problem with MERS is that it transfers mortgages and sometimes commences foreclosures without being able to demonstrate to the courts or to defaulting borrowers that it has the right to do so.  The mere title "nominee" does not give MERS carte blanche.  It needs to show a power of attorney or a corporate resolution from the financial institution that actually owns the mortgage [i.e. "the holder the note and mortgage"] in order to demonstrate that MERS has the capacity to make assignments or commence foreclosure actions.  MERS time and again has been unable to prove that it has such authority--for that reason its assignments of mortgage are defective; for that reason it does not have standing to commence foreclosure actions.  The bottom line is that courts and homeowners need to know that the correct financial institution is bringing the foreclosure action.  After all, this is not just about balance sheets and payment ledgers--it's about people's home.  

Banks, if you want to take someone's home, do it correctly and be able to show that you're doing it correctly.

 

By: Joy Leopold

February 16, 2011

A New York judge has ruled that Mortgage Electronic Registration Systems, Inc. (MERS) does not have the right to transfer mortgages on behalf of its members, meaning it does not have the right to file foreclosures on behalf of lenders. 

The company has recently been under fire for the practice, but the company defended its actions saying that borrowers are required to sign documents stating that MERS can assume rights and responsibilities on behalf of creditors. 

The company’s Web site says, “MERS was created by the mortgage banking industry to streamline the mortgage process by using electronic commerce to eliminate paper.”

In recent years, though, that role has evolved substantially, with MERS taking foreclosure actions on behalf of lenders and servicers all over the country, even becoming embroiled in the robo-signing scandal.

At present, the company has about half of all the mortgages in the United States in its electronic database.
But last week, Judge Robert Grossman ruled MERS does not have the authority to act on behalf of its members, and the actions of the company are actually illegal, no matter what papers MERS requires members sign.

“The court recognizes that an adverse ruling regarding MERS’s authority to assign mortgages or act on behalf of its members/lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States,” said his statement.

He continued, “However, the court must resolve the instant matter by applying the laws as they exist today. MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage recording process. This court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country, that is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law.”

A New York judge has ruled that Mortgage Electronic Registration Systems, Inc. (MERS) does not have the right to transfer mortgages on behalf of its members, meaning it does not have the right to file foreclosures on behalf of lenders. 

The company has recently been under fire for the practice, but the company defended its actions saying that borrowers are required to sign documents stating that MERS can assume rights and responsibilities on behalf of creditors. 

The company’s Web site says, “MERS was created by the mortgage banking industry to streamline the mortgage process by using electronic commerce to eliminate paper.”

In recent years, though, that role has evolved substantially, with MERS taking foreclosure actions on behalf of lenders and servicers all over the country, even becoming embroiled in the robo-signing scandal. 

At present, the company has about half of all the mortgages in the United States in its electronic database.

But last week, Judge Robert Grossman ruled MERS does not have the authority to act on behalf of its members, and the actions of the company are actually illegal, no matter what papers MERS requires members sign.

“The court recognizes that an adverse ruling regarding MERS’s authority to assign mortgages or act on behalf of its members/lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States,” said his statement.

He continued, “However, the court must resolve the instant matter by applying the laws as they exist today. MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage recording process. This court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country, that is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law.”

HSBC Halts All Foreclosures and Admits to "Robo-signing" in SEC filing

Nicholas M. Moccia, Esq.
Law Offices of Robert E. Brown, P.C.

The following regarding HSBC was reported on 4closurefraud.org:

HSBC Bank USA and HSBC Finance Corp. have stopped all home foreclosures until further notice and may face unspecified regulatory actions or fines, after regulators found “certain deficiencies” in servicing and foreclosure procedures, HSBC said in government filings Monday.

The disclosure by HSBC, buried deep within its annual financial report to the Securities and Exchange Commission, marks the first time HSBC has admitted to a foreclosure moratorium in the wake of a legal and paperwork crisis that swept the industry.

That’s a dramatic reversal from its stance just a few months ago, when it said publicly that it would not suspend home seizures because it didn’t feel its procedures were compromised by so-called “robo-signers” and faulty court affidavits.

“Robo-signing” refers to bank or law firm employees signing off on foreclosures without actually being familiar with the cases or reading paperwork.

In the SEC document, known as a 10-K, HSBC said it has “suspended foreclosures until such time as we have substantially addressed the noted deficiencies in our processes.” That suspension took effect in December, said spokesman Neil Brazil.

The company said it is also “reviewing foreclosures where judgment has not yet been entered and will correct deficient documentation and refile affidavits where necessary.”

Link to original:   4closurefraud.org

John Brancato of the Law Offices of Robert E. Brown, P.C. featured in the Staten Island Advance

Nicholas M. Moccia, Esq.
Law Offices of Robert E. Brown, P.C.

On February 20, 2011, the Staten Island Advance featured an article giving advice to homeowners who face the prospect of foreclosure.  The advice is simple:  If you find yourself in foreclosure, act quickly to seek help.   At the beginning of a foreclosure, there are procedural mechanisms that slow down the process for the benefit of homeowners to find an appropriate exit strategy.  In general, there are three exit strategies: 1.  settling via a loan modification by reinstating the loan at a lower monthly payment; 2.  selling your home outright or selling your home with the cooperation of the bank through a short sale; 3.  voluntarily giving up your home to the bank via a deed-in-lieu of foreclosure while minimizing any further liability you may otherwise have toward the bank.  Each of these exit strategies is preferable to losing your house at auction, and so it is to a homeowner's advantage to explore these exit strategies while they are still available.

John Brancato, who is the loss mitigator for the Law Offices of Robert E. Brown, P.C., observes, ""You have many more options in the beginning of the process than you do when you come to my firm two days before the [foreclosure] auction."

Bottom line for homeowners:   Do not put your head in the sand if you suspect you are in foreclosure.  Take action to mitigate your prospective loss, and seek expert advice.

See link below to Staten Island Advance article by Frank Donnelly featuring John Brancato.  The article contains one error--John Brancato is the loss mitigator for the Law Offices of Robert E. Brown, P.C., not Ronald E. Brown.  

If foreclosure is looming, act quickly

NYLJ Article on Steven J. Baum, P.C.

Nicholas M. Moccia, Esq.
Law Offices of Robert E. Brown, P.C.

See noteworthy article on the Law Office of Steven J. Baum, P.C.   I believe it's a fair article, and allows Mr. Baum to speak in his own defense.   Admittedly, it is all-too-easy to criticize a law firm in the current economic climate that specializes in taking peoples' homes assembly-line style.  I will say that Baum's attorneys, whom I deal with almost every day, are in general professional and courteous, and do make a considerable effort to work out loan modifications in order to keep people in their homes.  That being said, a firm which files as many as 25,000 foreclosures a year, even with the best of intentions, is bound to make errors.  It is therefore crucial that homeowners who face foreclosure seek counsel to ensure that their rights are protected and they are given every opportunity to keep their homes off the auction block.

I would like to credit Rachel L. Arfa, Esq., for bringing this article to my attention.

NYLJ Firm Dominates Foreclosures but Faces Growing (00094141)

Dems: Obama Broke Pledge to Force Banks to Help Homeowners

by Paul Kiel and Olga Pierce ProPublica, Feb. 4, 2011

 

Before he took office, President Obama repeatedly promised voters and Democrats in Congress that he’d fight for changes to bankruptcy laws to help homeowners—a tough approach that would force banks to modify mortgages.
 

“I will change our bankruptcy laws to make it easier for families to stay in their homes,” Obama told supporters at a Colorado rally on September 16, 2008, the same day as the bailout of AIG.
 

Bankruptcy judges have long been barred from lowering mortgage payments on primary residences, though they could do it with nearly all other types of debt, even mortgages on vacation homes. Obama promised to change that, describing it as exactly “the kind of out-of-touch Washington loophole that makes no sense.”

But when it came time to fight for the measure, he didn’t show up. Some Democrats now say his administration actually undermined it behind the scenes.
 

“Their behavior did not well serve the country,” said Rep. Zoe Lofgren (D-CA), who led House negotiations to enact the change, known as “cramdown.” It was “extremely disappointing.”
 

Instead, the administration has relied on a voluntary program with few sticks, that simply offers banks incentives to modify mortgages. Known as Home Affordable Modification Program, or HAMP, the program was modeled after an industry plan. The administration also wrote it carefully to exclude millions of homeowners seen as undeserving.
 

The administration launched the program with a promise that it would help 3 million to 4 million homeowners avoid foreclosure, but it’s likely to fall far short of that goal. The Congressional Oversight Panel now estimates [1] fewer than 800,000 homeowners will ultimately get lasting mortgage modifications.
 

The number of modifications has remained dramatically low compared to the number of homeowners falling behind. (Source: LPS Applied Analytics and HOPE Now)
 

Over the past year, ProPublica has been exploring why the program has helped so few homeowners. Last week, we reported how the Treasury Department has allowed banks to break the program’s rules with few ramifications [2]. The series is based on newly released data, lobbying disclosures, and dozens of interviews with insiders, members of Congress and others.
 

As the foreclosure crisis grew through 2008, the large banks that handle most mortgages were slow to offer modifications to struggling homeowners. Homeowners were left to navigate an onerous process that usually did not actually lower their mortgage payment. More than half of modifications kept the homeowner’s payment the same or actually increased it.
 

Many in Congress and elsewhere thought that mortgage servicers, the largest of which are the four largest banks, would make modifications only if they were pressured to do so.
 

Servicers work as intermediaries, handling homeowners’ mortgage payments on behalf of investors who own the loans. Since servicers don’t own the vast majority of the loans they service, they don’t take the loss if a home goes to foreclosure, making them reluctant to make the investments necessary to fulfill their obligations to help homeowners.
 

To force those servicers to modify mortgages, advocates pushed for a change to bankruptcy law giving judges the power not just to change interest rates but to reduce the overall amount owed on the loan, something servicers are loath to do [3].
 

Congressional Democrats had long been pushing a bill to enact cramdown and were encouraged by the fact that Obama had supported it, both in the Senate and on the campaign trail.
 

They thought cramdowns would serve as a stick, pushing banks to make modifications on their own.

“That was always the thought,” said Rep. Brad Miller (D-NC), “that judicial modifications would make voluntary modifications work. There would be the consequence that if the lenders didn’t [modify the loan], it might be done to them.”
 

When Obama unveiled his proposal to stem foreclosures a month after taking office, cramdown was a part of the package [4]. But proponents say he’d already damaged cramdown’s chances of becoming law.
 

In the fall of 2008, Democrats saw a good opportunity to pass cramdown. The $700 billion TARP legislation was being considered, and lawmakers thought that with banks getting bailed out, the bill would be an ideal vehicle for also helping homeowners. But Obama, weeks away from his coming election, opposed that approach and instead pushed for a delay. He promised congressional Democrats that down the line he would “push hard to get cramdown into the law,” recalled Rep. Miller.
 

Four months later, the stimulus bill presented another potential vehicle for cramdown. But lawmakers say the White House again asked them to hold off, promising to push it later.
 

An attempt to include cramdown in a continuing resolution got the same response from the president.

“We would propose that this stuff be included and they kept punting,” said former Rep. Jim Marshall, a moderate Democrat from Georgia who had worked to sway other members of the moderate Blue Dog caucus [5] on the issue.
 

“We got the impression this was an issue [the White House] would not go to the mat for as they did with health care reform,” said Bill Hampel, chief economist for the Credit Union National Association, which opposed cramdown and participated in Senate negotiations on the issue.
 

Privately, administration officials were ambivalent about the idea. At a Democratic caucus meeting weeks before the House voted on a bill that included cramdown, Treasury Secretary Tim Geithner “was really dismissive as to the utility of it,” said Rep. Lofgren.
 

Larry Summers, then the president’s chief economic adviser, also expressed doubts in private meetings, she said. “He was not supportive of this.”
 

The White House and Summers did not respond to requests for comment.
 

Treasury staffers began conversations with congressional aides by saying the administration supported cramdown and would then “follow up with a whole bunch of reasons” why it wasn’t a good idea, said an aide to a senior Democratic senator.
 

Homeowners, Treasury staffers argued, would take advantage of bankruptcy to get help they didn’t need. Treasury also stressed the effects of cramdown on the nation’s biggest banks, which were still fragile. The banks’ books could take a beating if too many consumers lured into bankruptcy by cramdown also had their home equity loans and credit card debt written down.
 

While the Obama administration was silent, the banking industry had long been mobilizing massive opposition to the measure.
 

"Every now and again an issue comes along that we believe would so fundamentally undermine the nature of the financial system that we have to take major efforts to oppose, and this is one of them," Floyd Stoner, the head lobbyist for the American Bankers Association, told an industry magazine.
 

With big banks hugely unpopular, the key opponents of cramdown were the nation’s community bankers, who argued that the law would force them to raise mortgage rates to cover the potential losses. Democratic leaders offered to exempt the politically popular smaller banks from the cramdown law, but no deal was reached.
 

“When you’re dealing with something like the bankruptcy issue, where all lenders stand pretty much in the same shoes, it shouldn’t be a surprise when the smaller and larger banks find common cause,” said Steve Verdier, a lobbyist for the Independent Community Bankers Association.
 

The lobbying by the community banks and credit unions proved fatal to the measure, lawmakers say. “The community banks went bonkers on this issue,” said former Sen. Chris Dodd (D-CT). With their opposition, he said, “you don’t win much.”
 

“It was a pitched battle to get it out of the House,” said Rep. Miller, with “all the effort coming from the Democratic leadership, not the Obama administration.”
 

The measure faced stark conservative opposition. It was opposed by Republicans in Congress and earlier by the Bush administration, who argued that government interference to change mortgage contracts would reduce the security of all kinds of future contracts.
 

“It undermines the foundation of the capitalist economy,” said Phillip Swagel, a Bush Treasury official. “What separates us from [Russian Prime Minister Vladimir] Putin is not retroactively changing contracts.”

After narrowly passing the House, cramdown was defeated when 12 Democrats joined Republicans [6] to vote against it.
 

Many Democrats in Congress said they saw this as the death knell for the modification program, which would now have to rely on the cooperation of banks and other mortgage servicers to help homeowners.

“I never thought that it would work on a voluntary basis,” said Rep. Lofgren.
 

At the time that the new administration was frustrating proponents of cramdown, the administration was putting its energies into creating a voluntary program, turning to a plan already endorsed by the banking industry. Crafted in late 2008, the industry plan gave banks almost complete freedom in deciding which mortgages to modify and how.
 

The proposal was drafted by the Hope Now Alliance, a group billed as a broad coalition of the players affected by the mortgage crisis, including consumer groups, housing counselors, and banks. In fact, the Hope Now Alliance was headquartered in the offices of the Financial Services Roundtable, a powerful banking industry trade group. Hope Now’s lobbying disclosures were filed jointly with the Roundtable, and they show efforts to defeat cramdown and other mortgage bills supported by consumer groups.
 

The Hope Now plan aimed to boost the number of modifications by streamlining the process for calculating the new homeowner payments. In practice, because it was voluntary, it permitted servicers to continue offering few or unaffordable modifications.
 

The plan was replaced by the administration’s program after just a few months, but it proved influential. “The groundwork was already laid,” said Christine Eldarrat, an executive adviser at the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac. “Servicers were onboard, and we knew their feelings about certain guidelines.”
 

As an official Treasury Department account of its housing programs later put it, “The Obama Administration recognized the momentum in the private sector reflected in Hope Now’s efforts and sought to build upon it.” It makes no mention of cramdown as being needed to compel compliance.
 

Ultimately, HAMP kept the streamlined evaluation process of the Hope Now plan but made changes that would, in theory, push servicers to make more affordable modifications. If servicers chose to participate, they would receive incentive payments, up to $4,000, for each modification, and the private investors and lenders who owned the loans would also receive subsidies. In exchange, servicers would agree to follow rules for handling homeowner applications and make deeper cuts in mortgage payments. Servicers who chose not to participate could handle delinquent homeowners however they chose.
 

The program had to be voluntary, Treasury officials say, because the bailout bill did not contain the authority to compel banks to modify loans or follow any rules. A mandatory program requires congressional approval. The prospects for that were, and remain, dim, said Dodd. “Not even close.”
 

“The ideal would have been both [cramdown and HAMP],” said Rep. Barney Frank (D-MA), then the chairman of the House Financial Services Committee. But given the political constraints, HAMP on its own was “better than nothing.”
 

“We designed elegant programs that seemed to get all the incentives right to solve the problem,” said Karen Dynan, a former senior economist at the Federal Reserve. “What we learned is that the world is a really complicated place.”
 

The program was further limited by the administration’s concerns about using taxpayer dollars to help the wrong homeowners. The now-famous “rant” by a CNBC reporter [7], which fueled the creation of the Tea Party movement, was prompted by the idea that homeowners who had borrowed too much money might get help.
 

Candidate Obama had portrayed homeowners in a sympathetic light. But the president struck a cautious note when he unveiled the plan in February 2009 [8]. The program will “not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans,” said Obama. “It will not reward folks who bought homes they knew from the beginning they would never be able to afford.”
 

While the government had been relatively undiscriminating in its bank bailout [9], it would carefully vet homeowners seeking help. HAMP was written to exclude homeowners seen as undeserving, limiting the program’s reach to between 3 million and 4 million homes.
 

In order to prove their income was neither too high nor too low for the program, homeowners were asked to send in more documents than servicers had required previously, further taxing servicers’ limited capacity. As a result, some servicers say eligible homeowners have been kept out. According to one industry estimate [10], as many as 30 percent more homeowners would have received modifications without the additional demands for documentation.

 

A lot of the program is focused on “weeding out bad apples,” said Steven Horne, former Director of Servicing Risk Strategy at Fannie Mae. “Ninety percent is not focused on keeping more borrowers in their homes.”