Restoring Justice in the Foreclosure Process

By Mike Mish Shedlock Inquiring minds should be quite interested in GMAC Foreclosure Case May Set Anti-Bank Precedent:

When James Renfro had to stop making payments on his two-story fixer-upper in Parma, Ohio, a suburb of Cleveland, he triggered events that were supposed to result in the forced sale of his home.

That Nov. 15 auction has been canceled because of defects in documents submitted by his loan servicer, Ally Financial Inc.'s GMAC Mortgage unit. Two affidavits about Renfro's home were signed by Jeffrey Stephan, a GMAC employee who said in sworn depositions in Florida and Maine that he hadn't read thousands of affidavits he'd signed.

(To read Jim Koford's piece on how to reduce your market risk, click here.)

Renfro's case has created a showdown between GMAC and Ohio's Attorney General Richard Cordray. Cordray has asked Cuyahoga County Court of Common Pleas Judge Nancy Russo not to let GMAC simply submit new documents to cure defects without consequences. He's taken the same stand against Wells Fargo & Co. (WFC), which has said it found defects in 55,000 foreclosures.

“This is just the first,” said Cordray, who filed an amicus, or friend-of-the-court, brief in the Renfro case. He argued that Russo should punish GMAC, the fourth-largest U.S. mortgage lender, for its conduct.

(To view Rich Danker's article on how inflation targeting won't fix the Fed, click here.)

"Restoring Equity" vs. Penalization I'm not a lawyer. Indeed I would have a hard time being either a defense lawyer or a prosecutor. The former have a duty to get their client off even if they know full well their client is guilty. The latter pursues cases known to be weak, perhaps even trumped up for political reasons. I wouldn't want to be in either situation. I couldn't send an innocent man to jail, nor could I defend a client who privately admitted to a crime yet insisted on a plea of "not guilty." My sense of fairness wouldn't allow it. In this case, a lawyer wants to punish GMAC. I happen to agree with that. Fraud must be punished. Nothing would please me more than to see a bunch of crooks go to jail. However, we must also deal with the issue of "restoring equity."

(To see Howard Simon's position on why the US is the Yen's safety valve, click here.)

Definition of "Equity" By "restoring equity," I don't mean equity in the sense of "the monetary value of a property or business beyond any amounts owed on it in mortgages, claims, liens, etc." I mean equity as in "an equitable right or claim." In regards to the second definition, there's no dispute that people have stopped paying on their mortgages for months or years. The equitable thing is for those homeowners to lose their homes. The idea that homeowners deserve "equity" (principal) writedowns over robo-signing is potty. Notice I said "deserve." I have no idea what a court of law might allow. A court of law isn't interested in "equity" (fairness), it's only interested in the rule (interpretation) of the law.

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