Officials Cover Up Housing Bubble’s Scummy Residue: Fraudulent Foreclosure Documents

Great article by David Dayen!

VERY DAY IN AMERICA, mortgage companies attempt to foreclose on homeowners using false documents.

It’s a byproduct of the mortgage securitization craze during the housing bubble, when loans were sliced and diced so haphazardly that the actual ownership was confused.

When the bubble burst, lenders foreclosing on properties needed paperwork to prove their standing, but didn’t have it — leading mortgage industry employees to forge, fabricate and backdate millions of mortgage documents. This foreclosure fraud scandal was exposed in 2010, and acquired a name: “robo-signing.”

But while some of the offenders paid fines over the past few years, nobody cleaned up the documents. This rot still exists inside the property records system all over the country, and those in a position of authority appear determined to pretend it doesn’t exist.

In two separate cases, activists have charged that officials and courts are hiding evidence of mortgage document irregularities that, if verified, could stop thousands of foreclosures in their tracks. Officials have delayed disclosure of this evidence, the activists believe, because it would be too messy, and it’s easier to bottle up the evidence than deal with the repercussions.

“All they’re doing is making a mockery of our judicial system,” said Bill Paatalo, a private investigator and one of the activists.

Like many other anti-foreclosure activists, Paatalo got involved with the issue through a case involving his own property — in Absarokee, Montana. Like many homeowner loans purchased during the housing bubble, Paatalo’s was packaged into a mortgage-backed security.

The process worked like this: The loans were eventually sold into a tax-exempt REMIC (Real Estate Mortgage Investment Conduit) trust; the REMIC trust received monthly mortgage payments from homeowners; and the payments were passed along to investors in the mortgage-backed securities.

The trust where Paatalo’s mortgage ended up is known as “WaMu Mortgage Pass-Through Certificates Services 2007-OA3 Trust.” When he faced foreclosure, the trust, as the nominal owner of the mortgage, was the plaintiff.

In doing research for his own trial, Paatalo discovered that all “foreign business trusts” established outside of Montana have to register with the Secretary of State in order to transact business, under Title 35-5-201 of the Montana code. Trustees must file an application, along with legal affidavits affirming its trust agreement and identifying all trustees, and pay a $70 filing fee.

WaMu Mortgage Pass-Through Certificates Services 2007-OA3 Trust — based in Delaware — didn’t.

That means that the trust could not acquire property in Montana — precisely what it was alleging it did in Paatalo’s foreclosure case. An affidavit from Tana Gormely, a deputy for the Business Services Division in the Montana Secretary of State’s office, confirms that the 2007-OA3 trust “is not registered with our office as required by law.”

Read on.

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