Earlier this year, five of the country’s biggest banks agreed to cough up $25 billion because they’d routinely fleeced their own customers and wreaked tremendous economic havoc along the way. The nationwide foreclosure settlement was an extraordinary moment for JP Morgan, Bank of America, Citigroup, Wells Fargo, and GMAC because it brought the banks as close as they’ve ever come to taking ownership of the foreclosure fraud they’ve sewn throughout the housing market. But the foreclosure settlement’s second act, now playing out in a Boston courthouse, shows that the landmark settlement hasn’t actually changed the way the banks think about other people’s homes.
The banks might be $25 billion lighter, but in Boston, they’re still trying to shrug off the duty to follow foreclosure law.
The nationwide foreclosure settlement in February landed a heavy blow against the five banks. They walked in hoping to use the settlement as a tool for immunizing themselves against reprisals related to botched foreclosures, but instead of waiving away responsibility for the foreclosure crisis, the settlement forced the five banks to finally commit to ending it.
The settlement was less about rectifying old foreclosures than it was about preventing new ones. The $2,000 checks that the banks will be mailing to foreclosed homeowners will barely cover the cost of moving out of homes that were taken away from them; the settlement’s real meat is in several billions of dollars in loan modifications for homeowners trying to stay in their homes. The penalty for committing rampant foreclosure fraud was a promise to do the right thing going forward.
The scene now playing out in Suffolk Superior Court should dispel any notions that the $25 billion settlement altered the way the banks approach foreclosures.
The banks are fighting hard to roll back a string of Supreme Judicial Court foreclosure decisions that demand that banks follow the law when seizing Massachusetts residents’ homes. In court filings, the banks have claimed that since they had handled foreclosures the way they always had, and because the mortgages they foreclosed on were in default, playing fast and loose with state foreclosure laws didn’t amount to unfair or deceptive conduct. In staking out this ground, the banks are displaying the same attitude Wall Street has adopted since mortgages began exploding five years ago: They’re treating foreclosure laws as trifles that can be papered over after the fact, instead of codes that have to be followed and respected.
The Suffolk Superior case is what’s left of a lawsuit the state brought against the five banks in December. The suit helped push the banks into signing on to the nationwide foreclosure settlement; that settlement put to rest many of the state’s claims, but left some Massachusetts-specific complaints unanswered. Those complaints stem from a pair of SJC cases from last year that rocked the state’s real estate market. In one, the SJC overturned a pair of foreclosures because the banks didn’t hold the mortgages to the homes they seized until after taking them; the second said banks can’t resell illegally foreclosed homes, as you can’t sell something you never actually owned.
The SJC held that, since the state doesn’t require judges to sign off on foreclosures, and allows banks to police themselves while foreclosing, the burden is on banks to follow the law. This was enough to cloud the title to thousands of foreclosed properties in Massachusetts, and throw a panic into big banks across the country.
Banks have recorded 54,564 Massachusetts foreclosures over the past five years by seizing homes first, and lining up the rights to those properties second. Because they rushed through foreclosures, banks have had to turn to defending the indefensible in court. Since the housing crash began, banks in Massachusetts have claimed the right to foreclose on homes they’re not entitled to seize. They’ve tried to excuse the act of selling properties they never legally owned. They’ve even fought the right of a foreclosed homeowner to challenge eviction on the grounds of an illegal foreclosure.
The banks have lost on all these points. But they keep marching into court, insisting that their own mortgage liens are sacred, while acting like any protections the law affords homeowners are meaningless. It’s the same script they’ve been reading from since the housing bubble blew up, and this year’s $25 billion hit hasn’t been enough to swear them off of it.
Paul McMorrow is an associate editor at CommonWealth Magazine. His column appears regularly in the Globe.