Will foreclosure-gate set the eMortgage back another decade or more?
When I was writing a lot about the coming of eMortgage, back five years ago or more, I had to end many of my stories with, “but some still worry that the legitimacy of the eNote has yet to be tested in court.” It seems possible that we won't have to wait much longer for that technicality to work itself out.
An eMortgage is an electronic mortgage where the loan documentation is created, executed, transferred and stored electronically.
The relatively few “odd-fish” eNotes don't seem to be swimming with the rest of the school that has wandered deep into default territory and that is now trying to avoid the big bank sharks as they swoop in for easy foreclosures. In a weird twist, some of these defaulted loan borrowers have sharks of their own that are going after the mortgage industry. The water is quickly filling up with blood.
Some of these anti-foreclosure attorneys work for rich folks who have saved up a year's worth of unpaid mortgage payments and have retained counsel to delay the foreclosure on a mansion or second home as long as possible.
Others have been caught in the marketing web cast by clever attorneys who urge homeowners who can't pay their fee to take out a second mortgage to pay their legal costs. Any bets on how soon those attorneys will move to foreclose if they get the first lien tossed out by the courts? Think months instead of years.
The scariest of these anti-foreclosure lawyers are the ones that don't have any clients, but stage depositions and then leak them to Internet sites in an attempt to get interest from enough borrowers to qualify for class-action litigation. Facing the threat of a class-action lawsuit, just about any bank will back down and write the attorney a check. It's the way we do things in America, it seems.
While working on this very column, I received a text message from AT&T, my cell phone carrier. After telling me that the text I was reading was free, I was informed that I might be the beneficiary of a new settlement reached in an effort to avoid a class-action lawsuit. It turns out that AT&T was charging taxes on some of its services back as far as 2005. Someone who probably carries a briefcase and has esquire at the end of his name decided that wasn't good.
After clicking through to the website, I was further informed that “the two sides disagree about whether AT&T Mobility's charging of interest taxes was proper, and if it was improper, how much the plaintiffs would have been entitled to. The parties have agreed to resolve these cases by settlement.”
Let's make sure we got this story right. Some attorney decided that AT&T was making a procedural mistake that was costing people a few additional bucks (maybe less) on their phone bill and while neither party is sure there was anything improper about this, the attorneys would like us to fill out our paperwork so they can cash their multimillion-dollar check while we enjoy an extra burger, courtesy of our cell phone carrier.
Great! I might get a few bucks back for those interest taxes I might have been charged for my iPhone. I could get maybe 20 bucks out of this and so could a few million other folks that use the same carrier. The lawyers, on the other hand, those defenders of justice who were clever enough to go through their cell phone bill and raise a question about the business practices of one of the nation's largest companies – they'll get a little piece of everyone's settlement. Maybe a buck or two (or $7 if they get their standard one-third after administrative expenses), which puts their take in the millions of dollars. Way to go defenders of justice.
We used to have another name for this. The procedure was slightly different. Generally, two fairly large guys dressed in suits would enter a pub somewhere like the south side of Boston and ask for the manager. They would explain that while it didn't appear that there was any wrongdoing going on inside the place, some rowdy patrons could get out of hand and break the place up. Maybe burn it down, even. Better if the management just paid for some insurance to make sure that didn't happen, right?
I guess the difference today is that the law firms that win have to write out little checks to anyone who notices they won a settlement and takes the time to fill out the paperwork. I don't see any other differences in cases where there is no actual wrongdoing on the part of the business owner.
I find it quite strange, but perhaps that's the just the way capitalist democracies develop over time. So far, the companies these attorneys have threatened have stood their ground and refused to admit any wrongdoing. Maybe that will be enough to keep them out of court, but if even one eNote falls into this quagmire, it could set that movement back by a decade or more.
The attorneys are already using the mainstream press (a bunch of well-meaning folk who don't appear to have time to both meet their deadlines and understand what they are writing about) to draw attention to and create confusion around electronic processes in our industry.
Because eMortgage lending has been such an important goal for the industry for so many years, I have reached out to a number of experts there to see how they think foreclosure-gate will impact their work. I'll let you know what I find out in an upcoming Beyond Binary column in the print edition of HousingWire.
Rick Grant is veteran journalist covering mortgage technology and the financial industry.
Follow him on Twitter: @NYRickGrant