Casual Friday (on Tuesday): The Rent Is Too High

Think Michigan’s gubernatorial race has been a bit of a bore? Check out New York, where someone named Jimmy McMillan is running as an independent, calling himself the “The Rent Is Too Damn High” Party. From the debate:

Life’s not fair. New York gets “The Rent Is Too Damn High” and we get Pencilgate, “biznobabble” and “They took er jobs (to China).”

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BofA loosening moratorium, continuing review

Bank of America will lift its self-imposed foreclosure moratorium in those states that require judicial review of foreclosures (Michigan is not one of those states).

The company said it will review its processes in the other 27 states (including Michigan), and has said it expects to have the issue resolved by the end of October.

In their own words, here is a statement by Dan Frahm, Bank of America spokesman:

We have reviewed our process for resubmission of foreclosure affidavits in the 23 judicial states with key stakeholders, including our largest investors. Accordingly, Bank of America today began the process of preparing foreclosure affidavits for submission in 102,000 foreclosure actions in which judgment is pending.

We anticipate that by Monday, Oct. 25, the first foreclosure affidavits will be resubmitted to the courts. Upon judgment, foreclosure dates will be set and Bank of America will resume foreclosure sales in such proceedings in the 23 judicial states.

We will continue to delay foreclosure sales in the remaining 27 states until our review is complete on a state by state basis. We anticipate over the course of this pause, less than 30,000 foreclosure sales will have been delayed. As was the case for our judicial state review, our initial assessment findings show the basis for our foreclosure decisions is accurate.

Our decision to review our process and later, to extend our review to all 50 states, has been an important step to give customers confidence they are being treated fairly.

DOJ, State files anti-trust suit against Blue Cross

WASHINGTON (AP) — The Justice Department alleged Monday in a lawsuit that Michigan Blue Cross Blue Shield is discouraging competition by engaging in practices that raise hospital prices, conduct an assistant attorney general vowed to challenge anywhere else it is found in the United States.

The suit targets "most favored nation" clauses between Michigan Blue Cross Blue Shield and health care providers which, according to the government, essentially guarantee that no competing health care plan can obtain a better rate.

Michigan Blue Cross Blue Shield has most-favored-nation clauses or similar language in contracts with at least 70 of 131 general acute care hospitals in the state, the government alleges.

The lawsuit said that Michigan Blue Cross Blue Shield intended to raise hospital costs for competing health care plans and reduce competition for the sale of health insurance.

"As a result, consumers in Michigan are paying more for their health care services and health insurance," Assistant Attorney General Christine Varney, who runs the Justice Department’s antitrust division, told reporters.

In some instances, the lawsuit states, Blue Cross has raised the prices it pays for hospital services in exchange for obtaining most-favored-nation clauses that raise the minimum prices hospitals can charge to Blue Cross competitors.

The state of Michigan joined the Justice Department in the case filed in federal court in Detroit.

In response, Michigan Blue Cross Blue Shield said the lawsuit is seeking to restrict the nonprofit company’s ability to provide the most deeply discounted rates from Michigan hospitals. The company said that negotiated hospital discounts are a tool that Blue Cross uses to protect the affordability of health insurance for millions of Michigan residents.

"Our hospital discounts are a vital part of our statutory mission to provide Michigan residents with statewide access to health care at a reasonable cost," the company said.

The lawsuit outlines two types of most-favored-nation clauses requiring a hospital to provide services to Blue Cross competitors either at higher prices than Blue Cross pays or at prices no less than Blue Cross pays.

In alleging violations of the Sherman Act and the Michigan Antitrust Reform Act, the government said that under the "MFN-plus" clause, Blue Cross negotiated agreements requiring 22 hospitals to charge some or all other commercial insurers more than the hospital charges Blue Cross. Under the other clause, Blue Cross has agreements requiring more than 40 small, community hospitals to charge other commercial health insurers at least as much as they charge Blue Cross.

Varney declined to say whether the Justice Department has open inquiries in other states of most-favored-nation clauses, which are not illegal unless they stifle competition.

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A lamentable state of affairs

When it comes to the workings and personnel of the third branch of government, the Michigan Supreme Court in particular, people who should have at least a rudimentary grasp of the subject don’t. And folks who attempt to keep up are frequently confused.

Three vignettes for your consideration:

Jack Lessenberry, a commentator for Michigan Public Radio, recounted this story last Friday:

Rick Snyder, the Republican nominee for governor, was asked on television if he knew who the chief justice [of the Michigan Supreme Court] was. He said he didn’t know how to pronounce their name.

Their name happens to be, by the way, Marilyn Kelly.

Absolutely unpronounceable.

***
Friday evening, I was at a neighborhood party. I was introduced to a Lansing City Council member. We exchanged pleasantries and discussed a recent brownfield development potboiler that’s received some play in the local media.

I was asked what I do. I explained in general and commented about the upcoming Michigan Supreme Court election and the irony of a constitutionally mandated nonpartisan judicial ballot and the highly charged political atmosphere that goes along with it.

My comment drew this response: “Election? Aren’t they [the MSC justices] appointed for life?” I explained that federal judges are appointed for life and that in Michigan, many judges start their judicial careers via gubernatorial appointment but then face election if they want to keep their seat on the bench.

“Oh, of course. Of course,” was the muted reply.

Of course.

***
Saturday afternoon, I and a family member took a break from household chores to catch some collegiate football on the tube. (How ’bout those 7-0 Spartans?)

During a break in the action, on came an ad touting Robert Young and Mary Beth Kelly for the Michigan Supreme Court. It featured sound bites from ordinary-looking folks explaining why the two will be getting their votes.

When it was over, I said, “We’ll be seeing a lot of that for the next two weeks.”

“Wait a minute. What’s she doing running with him?”

“What do you mean?” I replied.

“Well, Kelly’s a Democrat and Young’s a Republican. What’s going on here?”

Marilyn Kelly is a Democrat, and she’s already on the court. She’s the chief justice. She’s not up for election this time around. Mary Beth Kelly is a Wayne County judge. The Republicans nominated her.”

“Well, that’s pretty confusing.”

Just as intended.

***
Some years back when Michael Cavanagh was the MSC’s chief justice, he was fielding reporters’ questions following a budget presentation to the Legislature. Asked to justify his funding request, he replied with just the slightest tone of exasperation, “Look, we’re not talking about garbage collection. We’re talking about the third branch of government.”

It’s tough to fault someone for not knowing the names of the guys who pick up the trash, or exactly how the refuse truck works or where the landfill is located.

It’s less easy to forgive those in the political arena for not having at least a high school civics class understanding about the judiciary and who populates it at the highest level.

And pity the poor voter. Except for the most motivated, the average voter makes choices on the judicial ballot, if at all, armed with a fund of information gleaned from the media.

And, for the most part, what’s available are ads, commentary and editorials chock-full of banalities, sound bites and half-truths.

It’s tough to know whether to laugh or cry.

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Mortgage processes scrutinized, outcome uncertain

The investigation into the possible fraud by lender employees continues, but the question of whether it was outright fraud or simply shoddy paperwork has yet to be answered definitively.

Here is the latest update by reporter Ben Mook of The Daily Record in Maryland. The Daily Record is a sister paper to Michigan Lawyers Weekly, both part of The Dolan Company. 

As prosecutors and class-action attorneys grapple with the extent to which “robo-signed” affidavits were filed in foreclosure cases across the country, the nation’s judiciary will have to decide whether to handle them merely as instances of shoddy paperwork – or as frauds perpetrated on the court.
 Courts, state financial regulators and attorneys general in every state and the District of Columbia are looking into whether employees at banks and foreclosure processing firms signed court documents that had unverified or false information in an attempt to speed up the process. But, it is uncertain what the impact and response from the country’s judiciary will be.
 “If you’re in the process of litigating a case right now, it certainly could be a big deal,” Greg Hurly, an analyst with the National Center for State Courts, in Williamsburg, Va., said. “But, it’s hard to say what the course of action will be. It’s not something the courts saw coming down the pike.”
 All of the nation’s state attorneys general and 40 states’ banking regulators banded together last week to open an investigation into how widespread the robo-signing issue is. The banks being looked at have said the information in the affidavits is accurate and that it is a procedural mistake as opposed to fraud.
 “I think it is somewhere between a glitch and fraud,” said Kendall Coffey, a former U.S. Attorney for the Southern District of Florida who is now in private practice in Miami. “It is more than a paperwork glitch, but the standard for what a court would consider to be fraud is high. Without a factual discrepancy, many courts probably wouldn’t see it as a fraud on the court.”
 But Ohio Attorney General Richard Cordray is convinced at least one lender has acted fraudulently. He filed a lawsuit against GMAC Mortgage this month seeking $25,000 for each inaccurate file, claiming the bank was committing fraud under the state’s Consumer Sales Practices Act.
 “In this country, the courts have derived very specific rules for dealing with the process of removing someone from their home,” Cordray said. “Frankly, these financial institutions don’t seem to think they have to play by the same rules. I think it’s fraud, and it’s indefensible.”
 Bank of America said this month it was halting foreclosures and foreclosure sales nationwide. And last week, JPMorganChase and GMAC, which had already halted foreclosures in 23 states, agreed to expand their review of documents to all 50 states. But the banks are still only halting foreclosures in the original 23 states. Wells Fargo & Co. and PNC have said they would not halt foreclosures but would review documents.
 Bank of America, JPMorganChase and GMAC are the three institutions being targeted initially by the attorneys general investigation.
 In Maryland, the state judiciary’s Standing Committee on Rules of Practice and Procedure is set to adopt a proposed rule letting judges reject an affidavit if he or she has reason to suspect it was not personally signed by the attorney. Judges will also be able to ask the attorney to explain why the foreclosure proceeding should not be dismissed. The rule, which could be adopted Tuesday by the Court of Appeals, would also call for disciplinary action for an attorney who willfully lets someone else sign their name to an affidavit.
 “The judges are alarmed at this development, which is an assault on the integrity of the judicial process,” retired Judge Alan M. Wilner, who chairs the committee, wrote in an introduction to the proposal.
 Whether courts find evidence of fraud, many agree that the instances of robo-signing have dealt a blow to the integrity of the judiciary system. Patrick B. Bauer, a professor at the University of Iowa College of Law, said the wide scale filing of false affidavits is sure to have major repercussions.
 “If people don’t tell the truth, especially in these court filings, it can really undermine the integrity of the whole system,” Bauer said. “It is a question of accuracy, or correctness, in a matter as consequential as someone possibly losing their home.”
 In states like Ohio, Pennsylvania and Florida, where courts hear foreclosure cases, the person signs an affidavit swearing under oath that all of the contents had been reviewed and are accurate. With the robo-signing scandal, the accusations are that the affidavits were signed with little attention, if any, paid to the contents, or were signed by others.
 “Effectively the affidavit, in judicial review states, is the equivalent of eyewitness testimony and, with robo-signing; it’s tantamount to having an imposter witness,” Coffey said. “It is very much an integrity issue and integrity is indispensable to the process.”

MERS suits may fortell more mortgage problems

Here is another story on the fallout of the mortgage  fraud/moratorium issue, and could have huge implications throughout the industry, questioning a core practice that affect millions of loans.

This update comes courtesy of reporter Scott Lauck of Missouri Lawyers Weekly which, like Michigan Lawyers Weekly, is a Dolan Company newspaper.

The idea that “robo-signers” may have dashed off thousands of foreclosures without verifying them is unsettling enough.

But underlying many of those claims is a deeper legal question, one that challenges the validity of a key tool of the modern mortgage industry. In courts across the country, lawyers who challenge foreclosures have attacked the role of Mortgage Electronic Registration Systems Inc., or MERS.

MERS was created in the 1990s to make it easier for lenders to sell mortgages to other lenders or investors. Under the privately owned system, lenders list MERS on the loan documentation in place of the actual owner. That allows the loan to be sold over and over without having to record the new assignment at the local county courthouse. MERS says it is involved in about 64 million home loans.

But lawyers claim the system that made it easier to sell loans has also made it difficult to figure out who actually owns those loans when it comes time to foreclose. In some cases, plaintiffs are alleging that MERS’s structure itself has stripped the loan owners of any legal authority to reclaim the property. As one class action lawsuit filed last month in Kentucky puts it: “They created a truly effective smokescreen which has left the public and most of the judiciary operating ‘in the dark’ through the present time.”

But courts have varied wildly in their opinions of MERS. Some courts, particularly at the state level, have called the entire MERS enterprise into question. But several federal courts have been more favorable, ruling that MERS shares many of the actual owner’s rights — including, in some instances, the right to foreclose.

Missouri is a microcosm of that split. A state appellate court decision issued last year has provided ammunition to foreclosure defense lawyers across the country. But in July, a federal judge in St. Louis all but overturned the state court’s holdings. And last month, a federal bankruptcy judge issued an opinion hailed by MERS supporters as vindicating their position.

“That’s going to be cited every time we’re involved in a case, you can bet on that,” said Patrick Randolph, a law professor at the University of Missouri-Kansas City and a MERS defender. “We’re hoping that will start to set the record straight.”

Many hats

MERS’s purpose is fairly straightforward. Companies in the mortgage banking industry created it as a way to electronically track loans separate from the paper-based recording systems used in county courthouses. Each loan is assigned a unique number that stays with it for the life of the loan, no matter how many times it changes hands.

One of the system’s central features is to name MERS on the mortgage or deed of trust, the instruments that allow the holder of the loan’s note to seek foreclosure if the loan isn’t repaid. By listing the mortgagee as MERS, the deed of trust can be assigned to any other MERS member without the need to separately record each transaction.

“MERS helps the mortgage finance process work better,” MERS Chief Executive Officer R.K. Arnold wrote in a recent statement on the company’s website. “The MERS process of tracking mortgages and holding title provides clarity, transparency and efficiency to the housing finance system.”

MERS also appoints employees of their member companies as officers of MERS. Those employees then bring foreclosures in MERS’s name, although the person signing the document actually works for the underlying lender.

Those practices have created some confusion. In one sense, MERS is merely an agent of whatever entity actually owns the loan. But because it is also listed as the mortgagee, MERS also appears to be the actual owner of the loan, even though it collects no payments.

“They seem to be claiming to be both an agent and a principle with respect to the same property right,” said Christopher Peterson, a law professor at the University of Utah and a prominent critic of MERS. “That is incoherent.”

A ‘straw man’

Courts have struggled to define exactly what MERS is, and advocates on both sides can point to opinions in their favor. The Supreme Courts in Kansas and Arkansas both ruled against MERS in 2009. As the Kansas high court put it, MERS is a “straw man” that didn’t need to be notified when a property in which it claimed to have an interest went into foreclosure.

“MERS’s contention that it was deprived of due process in violation of constitutional protections runs aground in the shallows of its property interest,” Judge Eric S. Rosen wrote.

In Missouri, the Court of Appeals Eastern District reached a similar conclusion in a procedurally different case. In Bellistri v. Ocwen Loan Servicing, a man who bought a Jefferson County house at a tax sale faced a challenge from the servicer for Deutsche Bank, which had bought the loan on the house. Neither Deutsche Bank nor Ocwen were listed on the deed of trust, but MERS was. Ocwen said that because Robert Bellistri failed to send notice to MERS (which would have passed the notice onto Ocwen), the sale shouldn’t have been allowed.

In a March 2009 opinion, Judge Nannette Baker ruled that Ocwen had no “legally cognizable interest” in the property because there was nothing in the record indicating that MERS had transferred the promissory note from the original lender to Ocwen.

Foreclosure defense attorneys seized on language in the opinion that implied that MERS created a “split” between the note and the deed of trust, essentially making it “impossible for the holder of the note to foreclose.”

Ocwen appealed to the Missouri Supreme Court, saying the Eastern District’s ruling “raises major questions about the ability of a loan servicer to do its job.” But while the Supreme Court was considering whether to accept the case, MERS — which had not been a named party in the case and claimed it learned of the case through an article on the Internet — filed a separate federal lawsuit, arguing it had been unconstitutionally deprived of a property interest.

The Supreme Court ultimately declined to hear Ocwen’s appeal, but the federal suit — Mortgage Electronic Registration Systems v. Bellistri — got results. In July, U.S. District Judge Charles Shaw said the “result in the tax sale proceeding threatens the plaintiffs’ overall business model — at least in Missouri.”

Shaw threw out Bellistri’s deed, saying MERS “unambiguously” had a right to be notified of the tax sale. The judge also ruled that MERS’s due process rights were violated, because the tax sale divested it of a “protected property interest” — its right to foreclose.

Shaw isn’t the only Missouri federal judge to side with MERS. A trustee, relying on the state court’s Bellistri decision, had argued that because the loan servicer didn’t have both the note and the deed of trust in its possession at the time the borrower declared bankruptcy, the deed of trust was unenforceable.

On Sept. 20, Judge Arthur Federman, of the Bankruptcy Court for the Western District of Missouri, shot down that interpretation.

“Assuming that the note-holder is a member of MERS, thereby creating an agency relationship, the fact that MERS is identified as the beneficiary under a deed of trust for the benefit of the note-holder does not create a split between the note and deed of trust,” Federman wrote.

A ‘profound connection’

So what does the esoteric nature of MERS have to do with the current allegations of sloppy foreclosures and fraudulent practices? Nothing, said Randolph, the UMKC law professor. He is also of counsel with Husch Blackwell, which has represented the mortgage industry in several MERS-related cases, although Randolph was not personally involved in any of the litigation.

“Nobody condones or approves what happened in these robo-signing situations,” he said. “I will say this: The likelihood is very strong that what they robo-signed was correct information, and that ultimately the foreclosures will go ahead.”

But critics of the system aren’t so sure. Andrea Bopp Stark, of the Molleur Law Office in Biddeford, Maine, is prosecuting a class action on behalf of people who say they lost their homes to fraudulent procedures. She said she may add claims that address MERS’s role.

“They’re all interrelated,” she said. “It was just a matter of mass production of foreclosure paperwork.”

Peterson, the Utah law professor, said there is a “profound connection” between the current allegations of document fraud and the legal challenges to MERS. He said companies relied on MERS to act as a “proxy mortgagee” and therefore didn’t bother to keep a lot of their paperwork. But courts in some states have become increasingly reluctant to allow foreclosures in MERS’s name. And in May, mortgage giant Fannie Mae forbade foreclosures in MERS’s name for any of its properties nationwide.

“MERS created the illusion of the ability to foreclose when it wasn’t really there, giving a false sense of security to [loan owners] that were careless in maintaining their documents,” he said.

Peterson predicts more litigation will emerge. Although he admits that the paper-based system prescribed by law is clunky, he said counties could argue that lenders’ use of MERS deprived local governments of the fees that would have been paid on all those unrecorded transactions.

“If you start adding up how many recording fees they didn’t pay on assignments, all of a sudden we’re talking about a good chunk of change that county governments could have used to pay their teachers and police officers and firefighters,” he said. “I think that would be a little bit of poetic justice.”

Into the ‘black box’

MERS denies that its system caused the current paperwork problems or that its practices led to the underlying housing marking collapse. Spokewoman Karmela Lejarde wrote in a statement that “without MERS the current mortgage crisis would be even worse.”

“MERS is the only publicly available comprehensive source for note ownership,” she wrote in a statement on the company’s website.

“While this information is tracked through the MERS System, the paperwork still exists to prove actual legal transfers still occurred. No mortgage ownership documents have disappeared because loans were registered on the MERS System.” Lejarde also said MERS fully complies with recording statutes.

MERS points out that loans’ ownership information can be tracked through its website, http://www.mersinc.org.

But Phillip Gebhardt, of Gebhardt Real Estate and Legal Services in Desoto, said his experience is that MERS is a “black box.” Gebhardt, who represented Robert Bellistri at the state and federal level, said he sometimes spends hours “finding intelligent life at a lender” — that is, calling 1-800-customer service numbers searching for someone with authority to negotiate.

“There are some real-world consequences to this paper mess,” he said. “If you can’t figure out who owns the note on the basis of the paper documents before you, because nothing is recorded, how do you make sense out of the situation?”

Southgate settles two lawsuits against court, judge

The City of Southgate settled a pair of employment lawsuits filed by former 28th District Court employees against the city alleging violations by Judge James Kandrevas.

One of the plaintiffs, former court administrator Lori Shemka, filed a whistleblower action alleging, among other things, comingling of funds and fraudulent representations in applying for federal stimulus money. She also alleged Judge James Kandrevas was using the court and court employees to collect donations for his charity, Achievers Club. [via The News Herald].

The whistleblower lawsuit was filed Aug. 11 in Wayne County Circuit Court by Lori Shemka, a former court administrator. In it, she alleged wrongful discharge, violation of the state Whistleblowers’ Protection Act and First Amendment violations.

Shemka, an attorney, worked at the court for about five months before she was fired.

She was hired Jan. 2 as court administrator, was appointed as a magistrate Feb. 4 and was fired May 15, but paid through June 1.

Shemka alleged in the lawsuit that she was fired for pointing out numerous improper and unethical financial practices at the court.

A separate work program bank account was set up without approval from the city, which is the court’s funding unit, and the account contained about $200,000.

Another allegation was that there was fraudulent representation by the court to the state and federal governments in a drug court grant application seeking funds from the American Recovery and Reinvestment Act of 2009.

According to the story, Shemka’s attorney, Deborah Gordon, said Kandrevas asserted his Fifth Amendment rights 222 times during his deposition.

During Kandrevas’ deposition for the lawsuit, Gordon said she was shocked by Kandrevas’ “less than forthcoming” manner.

She said he invoked the Fifth Amendment provision against self-incrimination many times during the three-day questioning period, or said he didn’t remember when asked a question.

“When he took the Fifth Amendment 222 times, it was just ‘wow,’” Gordon said.
“I was really surprised by how unable he was to remember key facts and tried to distance himself from having knowledge or a role.

“I was shocked by how often he told me he had a bad memory; I get that from a lot of other people, but I don’t expect that from a judge.

In the other case, plaintiff Mary Dupuis-Jarbo claimed breach of contract.

Dupuie-Jarbo said in her lawsuit that she had a verbal agreement with Kandrevas for a promotion that she was denied twice in favor of people Kandrevas knew. She later was laid off.

Dupuie-Jarbo began working in the court’s work program in January 2005 as a part-time supervisor. She also assisted with the drug court program and was cross-trained in other jobs pending a potential full-time position.

Dupuie-Jarbo said she was pursuing a General Educational Development certificate based on a verbal promise from Kandrevas that she would be eligible for full-time work with benefits once she earned the certificate.
In deposition transcripts, Kandrevas denied promising her a promotion.

After Jarbo earned her GED, she was passed over twice in favor of people Kandrevas knew, including a man who was a convicted felon. Kandrevas said Jarbo was let go because of budgetary constraints.

There was also an allegation of a strange incident on Election Day 2008, when Kandrevas defeated Bill Colovos.

According to a police report, Peter Jarbo was approached at the civic center polling station by Patricia Kandrevas, and she asked who he was going to vote for. When he said that it was none of her business, she allegedly hit him on his head with a yardstick.

In the report he filed with the Police Department, Jarbo said he was afraid of filing it because his mother worked for the court and he feared she could lose her job.

Gordon said she believed Kandrevas pressured public officials to drop or delay handling the complaint.

“He decided to file a police report and they interviewed the people that were there with the judge’s wife and never even tried to talk to the judge’s wife,” Gordon said.

She said during the deposition that officers said they never interviewed Patricia Kandrevas. Judge Kandrevas also said they didn’t.

The story said the police could find no evidence of the incident in the surveillance video and two witnesses didn’t corroborate the son’s story.

According to city attorney Edward Zelenak, both women’s claims are “great works of fiction” but the city chose to save money by settling rather than dragging out litigation.

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