Perpetrators of the Foreclosure Crisis continue to Roam at Large

July 20th, 2009 | Tags: Foreclosure Crisis

foreclosure crisis

It seems sad that even after two years has lapsed since the debut of the economic mayhem many perpetrators of the foreclosure crisis continue to roam at large without accountability. The lenders who nearly blew up the economy have just moved on from this stage to another platform to grab opportunities. The same can be said about the jumbo institutions that eagerly financed these dangerous loans, arranged for the securitization by bundling the loans into packages and slicing them before selling to global investors. Till now their contention has been accepted that they functioned independently and were not tied to the original lenders. Hence they cannot be held responsible for the dubious loans that were advanced.

But with each passing day the legal fraternity is finding loopholes to break down their defenses. The involved firms hired personnel to oversee the operations. Their investment activities were so closely tied up with the lending that their responsibility cannot be shaken off. The courts are beginning to buy this view.

Professor Kathleen Engel of Cleveland State University (Cleveland-Marshall College of Law) opined, “As we are unpeeling what was happening on Wall Street, we may see that Wall Street didn’t find the safety from litigation risk that it hoped to find in securitization. I think there is potential for liability if borrowers can engage in discovery to see exactly how much the sponsors were shaping the practices of the lenders.”

Recently a suit has been filed in Atlanta Federal District Court by Patricia and Ricardo Jordan. They are battling foreclosure on their 25 year old house contending that they have been victims of predatory lending initiated by NovaStar Mortgage. This lender has been mentioned by HUD for improper activities.
In this case the name of JPMorgan Chase has also been brought up as the first trustee of the securitization that included the loan of the Jordans. In 2006 MorganChase transferred its trustee operations to Bank of New York Mellon – the latter also being one of the defendants in the case. The Jordans are demanding punitive damages from all the three defendants.

Sarah Bolling of Home Defense Program at Atlanta Legal Aid Society is the legal representative of the Jordans. She said, “We contend that the trustee has direct liability on the theory that even though they were not sitting at the loan closing table, they were involved in the securitization and profited from it. The prospectus had been written before the loan was closed. If this loan was not going to be assigned to a trust, it would not have been made.”