On Oct. 20, New York state courts cracked down on robo-signing by ordering attorneys for foreclosing banks to swear that they had personally confirmed that the documents they are submitting are true and accurate. So far, attorneys haven't been able to file many of the necessary affirmations.

Now, Judge Arthur M. Schack of Brooklyn has taken things a step further. Since the banks in cases before him have yet to begin complying with the new court rules, he has started throwing out foreclosure cases. But the question isn't whether the banks will now choose to start complying with the rule: The question is: Will they even be able to?

"You Have to Obey Court Orders"

The first case Judge Schack tossed was Citibank, N.A. v. Murillo, which he dismissed with prejudice on Jan. 7, as the blog StopForeclosureFraud reported. The attorneys for Citibank (C) in that case were from the Steven Baum law firm, a foreclosure mill that has been sanctioned for its involvement in frivolous cases. If the Baum firm couldn't file a timely affirmation in the Murillo case, how many of its other cases will it be able to file affirmations in?

Schack tells me he's thrown out a dozen or so more since Murillo, and he says until the banks and their attorneys start obeying his order to comply with the new affirmation rule, he'll keep tossing cases. A court order is a court order, Schack explains. "They can't just ignore it. In Murillo, they asked for more time, but they didn't give me a reason. It doesn't matter who you are, you have to obey court orders."

By dismissing these cases "with prejudice," Schack is forcing the banks to start the whole process over if they wish to foreclose. Given how long foreclosures take to complete, that alone is a significant penalty. Moreover, if the banks do refile any of these cases, they will be reassigned to him. "We don't have judge-shopping in Brooklyn," Schack explains. So the banks will have to get their papers in order before they refile.

A Gordian Knot of Shoddy Documentation

Schack's dismissals, building on the New York affirmation rule, are finally forcing the issue. The question now: Can the banks actually get their papers in order, or are the worst-case scenarios about mortgage documentation true?

One reason that banks might be unable to solve their document problems would be that, Massachusetts-style, they had failed to comply with state law during the securitization process. (In Massachusetts, the problem was doing "assignments in blank.") Another reason would be if the securitizations weren't done in compliance with their own terms, as testimony has suggested.

In either of those scenarios, neither the trusts that issued the allegedly mortgage-backed securities nor the banks that service them would be able to foreclose. If a borrower really is in default, some bank might be able to foreclose -- the bank that had legal title to the note and mortgage before any securitization-related problem occurred. Unfortunately, some of those banks no longer exist, others couldn't afford to suddenly discover they own the loans and still others would have to both produce the mortgage and note belong to them and gather the documentation necessary before they could foreclose. As a CNBC analyst describes, that's not likely to be an easy process.

In the meantime, the title to all those properties -- including those that have already been foreclosed on and resold to innocent third parties -- would be clouded. And that's without considering any MERS issues, or the potentially bailout-necessitating impact of investors being able to successfully force banks to buy back the now-toxic mortgage-backed securities they issued.

Old-Fashioned Mortgages Make Foreclosure Easy

Judge Schack hasn't dismissed every foreclosure pending before him: Just last week, he approved one in which the bank had all its papers in order, including the affirmation. The bank was Bank of America (BAC), which suggests that perhaps the banks can, if they try, do foreclosures correctly.

But before anyone gets too hopeful, Schack explained why that case was so easy: The loan wasn't securitized. Bank of America originated it and serviced it in the old-fashioned model of mortgage lending. So, the ease with which it produced the right documents isn't surprising.

When I first reported on the anticipated consequences of the New York affirmation rule, I spoke with an attorney who did foreclosures on old-fashioned loans, Mark Starkman of Jacobowitz & Gubits. At the time, he said he didn't expect the new affirmation rule to affect his practice, because unlike lawyers dealing with securitized loans, he has and always has had, all the relevant documents in his files.

In short, the root of the foreclosure mess isn't defaulting borrowers -- it's the slipshod way that banks securitized loans. Thanks, banks.

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I personally think that bankruptcy is much better than foreclosure. You seem to bounce back from bankruptcy a lot faster now days. They have secured credit cards and all kinds of ways to rebuild you credit. But foreclosure is more like an event that even with recovered credit, could keep you from buying another home.

November 28 2013 at 2:30 AM Report abuse rate up rate down Reply

OK people, I need your opinion. If I walk down the street and happen to drop a $100 Federal Reserve Note, or a Credit Card with a limit of $10,000 (both backed by the Federal Reserve Bank), can I ask the Fed Res Bank to REPAY me? If not, why would I pay a bank or servicing company for a Note they don't own & which I never agreed/contracted to pay to them? Define Collateral Backing.

January 30 2011 at 7:55 PM Report abuse rate up rate down Reply

When in foreclosure you must ask the court to have the bank produce all the documents. Including the Note. I have not been paying my mortgage in 2 years and I have begged Bank of America to foreclose on me. They won't ... I have showed them that "I get it". I have filed complaints with every Federal Institution and every State Institution. Some I have never heard of before. I have sent Bank of America 2 QWR's and they have refused both of them. I have em by the gonads. I am not letting go either. They must have all documents recorded if your Note has been sold ... They must produce the Original Note at Foreclosure to prove they own the home. Otherwise they can go screw them selves. Most people who have been foreclosed on have been illegally ... They just were ignorant of the procedures and the Banks know this. Don't be too ashamed for not knowing because the Judges didn't know either. However ... OUR FEDERAL GOVERNMENT KNEW. I haven't figured out why they are letting them get away with this.

January 13 2011 at 10:13 PM Report abuse rate up rate down Reply
1 reply to Wayne's comment

David J. Stern's office committed Fraud upon the court by putting a bar coded copy of a Note and mortgage on the record in my Ch 13 case that did NOT MATCH my Court Certified copies of what's actually recorded on the Land Records..What happened? the court said BAC has no secured lien, now the Trustee, is claiming to be a "debt collector". Talk about lawyers = corruption! Needless to say, should BAC attempt to proceed with any cause of action trying to foreclose now, Fed Law permits 3 times DAMAGES to Victims of Systemic Fraud.

January 30 2011 at 7:59 PM Report abuse rate up rate down Reply

I am in foreclosure, the first red flag that tipped me off that something was wrong was when my insurance agent called me and asked why a declarations page needed to be sent to Edward Jones. the second was when I was in a concillatory meeting I asked about deed in lieu, the attorney for Wells Fargo who bought my mortgage note, said they didn't do deed in lieu casue of title issues. 3rd I talked to a man I know who has a very profitable title and abstract company who told me that title companies will not give insurance anymore for foreclosure as the title is clouded.

January 13 2011 at 2:41 PM Report abuse rate up rate down Reply

Cancel all the foreclosures, reset all mortgage rates to a reasonable, fixed amount, and let people keep their homes. This will get the economy and the real estate market moving again. If the homeowners go into arrears after this resetting, THEN and only then can the big bad banks foreclose, and in a legally acceptable way.

January 13 2011 at 10:55 AM Report abuse +1 rate up rate down Reply
1 reply to Kathleen's comment

or, since the mortgage company never really "loaned" you any MONEY, just gave you a line of credit backed by your title in the first place, then continued to fraudulently claim you owe them monthly payments with interest AND they already got paid by the Feds for a "bailout" AND they've resold the Note to one party for cash up front, and the Mortgage as a security to wall street for another payment of cash up front, and sold the Servicing rights to your "note" to another 3rd party for cash up front...WHY ARE YOU PAYING A MORTGAGE AGAIN? what was the question?

January 30 2011 at 8:02 PM Report abuse rate up rate down Reply

Massachusetts should have thrown out Frank.

January 13 2011 at 8:31 AM Report abuse rate up rate down Reply

yes in the old days banks helped people now they just want to see how much they can screw ya ,,most banks i know make enough free money from loans or check charges that they didnt even have to do anything for to make up for alot but my house wasnt even valued at 250k it was 65k now if they were gona remove the house from my property,means they spent 3k and sold for 12 then why not just leave it there not spend the 3 k to move let me buy it at the same price they sold for but because the greedy rich bastards have been allowed to continue to screw people loan more on a house then its worth all you big bank people out there i hope you lose your jobs and house cars and your lifes meaning after working so hard to get ahead only to have this lil guy screaming at me to get out his house .i had enough of banks people should keep money at home not in these crooked azz banks

January 13 2011 at 7:21 AM Report abuse rate up rate down Reply

well its about time the banks are the crookedest people around they screw the poor and feed the rich ,i was foreclosed on and in the same year i made 16 payments in full 4 more then i was to make ,,so i skipped 1 payment and had some guy from a bank in tulsa call me threatened my wife lil did he know his name and # showed up on my phone so we had it out now in my eyes i sent 16 payments of 665 by december so i dindt send 1 for that month the bank told me thanks for the extra payments but everything we get over in the same month was just the banks even though i sent in at different times with my monthly payment reciept,,,then i was harrassed by several people at this bank i owed 225k on this 60k house they sold it for 12k banks are over lendind on crap thats not worth it and then wanting us to pay for it hell whats funnier is i tried to borrow 25k to buy a house brand new they said not worth it but then loaned me 250k on a house trailer the banks need to go screw themselves there was no help for us but hell a few months later there were help for thousands that got caught up in this scam not us

January 13 2011 at 7:02 AM Report abuse rate up rate down Reply
G. H. K.

It's a bit misleading to state that "In short, the root of the foreclosure mess isn't defaulting borrowers -- it's the slipshod way that banks securitized loans. Thanks, banks." Does the term "foreclosure mess" refer to 1)the numerous defaulting sub-prime borrowers which were largely responsible for the subsequent financial crisis or to 2) to the recent complications which have arisen with respect to the foreclosure process itself?

Clerly, sub-prime borrowers defaulted because they were not qualified buyers, they could not afford a house and should not have been granted a mortgage in the first place. They didn't default because of questionable record keeping. Sub-prime borrowers with bad credit and little or no income defaulted for those reasons.

Do you really believe that sub-prime borrowers thought "well, I've got plenty of cash but I think I'll stop paying my mortgage because the bank may perhaps have difficulty producing documents when the bank attempts to foreclose on my house? The real "foreclosure mess" resulted from the federal government's policy of requiring banks to lend to those who couldn't afford to buy a house.


Gerry K.

January 13 2011 at 6:55 AM Report abuse +1 rate up rate down Reply

What a shock, banks & lawyers are lazy & dishonest. I never thought it would happen. I'd like to see these scumbag lawyers & banks, live in their luxury cars & tell me how luxorious they are. I hope they all end up in the street, they have destroyed so many lives and have never been punished. Wouldn't it be nice to see all of them destroyed just as they have destroyed others. This is just the tip of the iceburg, imagine if all the other states started following the laws that were made to protect people. Then what will these low lifes do?? I know they will have to follow the law, what a novel idea.

January 13 2011 at 5:39 AM Report abuse +3 rate up rate down Reply