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Lordrobot (89.77)

Obama's big blunder

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October 09, 2010 – Comments (5) | RELATED TICKERS: BAC , C , GS

One simple axiom of recovery is that you can never have a recovery without the banks leading the way. In the USA we are now about to face the biggest legal blowup of banks in history. I hope the government after the Obama grandstanding on this notary public and electronic signature bill, is ready to absorb the costs of overrun courts, stacks of equitable redemption claims, a potential collapse of housing prices and a complete incapacity for a bank to deleverage by selling off inventory and writing off losses. 


H.R.3808 was bipartisan; it was an excellent one page bill that made perfect sense. A notary public's lawful signature authentication in State A would be accepted in State B as well as the federal Court for evidence of signature authentication.. [see below the text of the bill]

Obama is grandstanding acting like he stood up for a vast number of persons wrongly foreclosed. 95% of these foreclosed homes had been vacated and abandoned.  

The legal question will be whether an out of state notary seal of signature authentication is a procedural error that will invalidate a foreclosure proceeding.

The court may decide that it doesn't violate the foreclosure proceeding or that it does. If it does, their is likely no remedy at law since damages would be very speculative indeed. So the remedy would be one in equity if at all.

Here the court has great latitude as to remedies and they could vary from a nominal award of say $1 to rescission of the foreclosure [unlikely], to Equitable Redemption which is the right to reclaim the property. However... most mortgages give the holder the authority to demand full payment for the value of the home based on Due on Sale or Demand clauses.

I would assume this would be the way it would go since the foreclosure proceeding in this case would reverse the foreclosure and bring the property back into default. In my mind it would make no sense for a court to allow equitable redemption if the foreclosure was given rescission and thus did not exist. Again it depends on what Plaintiff asks for as a remedy. They may plead that the authentication of a signature by an out of state notary was fraud which could open the door to equitable redemption as a remedy but to do that, Plaintiff would have to prove fraud, intent to defraud, not mere negligence or convenience. That would be a very tall order. 

So my gut tells me that these suits will likely fail and that the remedy will be one the plaintiff won't want which is the rescission of the foreclosure back to the the moment of default and the immediate payment of the Due on Sale Clause or foreclosure proceedings. Banks will bid these properties up at Foreclosure and will then be able to demand deficiency judgments from the foreclosed owners. Likely the banks will pick up the property at auction and give the title to the new owners to avoid any title challenges.

The bottom line here is that without proving fraud which is a tall order, the damages if any will be nominal. And an appeals court could always find that an out of state notary that complied with the state law of origin would be given full faith and credit to all other states and the Federal Courts. They could couch this under the statutes that enforce child support claims and divorce decrees saying that the use of instate notary signature authorization is commonplace and acceptable under the Full Faith and Credit clause of the Constitution as a purely ministerial function. 

By vetoing this bill Obama pretends to be standing up for some foreclosed home owner that claims to have been defrauded by a notary public signature authentication. The notary can always testify in court as to the signature authentication to eliminate the fraud allegation. 

What Obama does with this is tie up the courts with frivolous claims of procedural malfeasance, slow the process of foreclosure, and prevent banks from selling off these foreclosed assets and deleveraging debt.

Obama did this for presumed political gain. But to anyone who actually reads the bill and who is familiar with the process of foreclosure or any property transaction that takes place across state lines, this bill is the best bill passed by this congress in two years. There are no hidden taxes, no new government agencies and the bill is not 4000 pages long but less than one page. 

It streamlines and validates a practice that already exists or out of state enforcement of divorce decrees and matters of child support. It simply validates a lawful notary seal and electronic signature in one state and makes it valid in another state as well as the federal courts. 

Obama's blunder is an assumption that he is somehow championing the cause against foreclosures when in fact, he is opening the door for countless frivolous suits which rest on a legal theory that is unsupportable by law.

A president that vetoes a bipartisan bill for the purpose of grandstanding as the champion against foreclosures on behalf of the deadbeat, may find this strategy backfires when the public actually reads the bill and becomes educated in the operation of foreclosure. It also portends that Obama's ego is going to have a very tough time with a tea party congress. 

 

 

H.R.3808 which Obama put to a pocket vetoing is less than one page long and does very simple things. 

An Act 
To require any Federal or State court to recognize any notarization made by a notary public licensed by a State other than the State where the court is located when such notarization occurs in or affects interstate commerce. 


SEC. 2. RECOGNITION OF NOTARIZATIONS IN FEDERAL COURTS. 
Each Federal court shall recognize any lawful notarization made by a notary public licensed or commissioned under the laws of a State other than the State where the Federal court is located if-- 
(1) such notarization occurs in or affects interstate commerce; and 
(2)(A) a seal of office, as symbol of the notary public’s authority, is used in the notarization; or 
(B) in the case of an electronic record, the seal information is securely attached to, or logically associated with, the electronic record so as to render the record tamper-resistant. 
SEC. 3. RECOGNITION OF NOTARIZATIONS IN STATE COURTS. 
Each court that operates under the jurisdiction of a State shall recognize any lawful notarization made by a notary public licensed or commissioned under the laws of a State other than the State where the court is located if-- 
(1) such notarization occurs in or affects interstate commerce; and 
(2)(A) a seal of office, as symbol of the notary public’s authority, is used in the notarization; or 
(B) in the case of an electronic record, the seal information is securely attached to, or logically associated with, the electronic record so as to render the record tamper-resistant. 
SEC. 4. DEFINITIONS. 
In this Act: 
(1) ELECTRONIC RECORD- The term ‘electronic record’ has the meaning given that term in section 106 of the Electronic Signatures in Global and National Commerce Act (15 U.S.C. 7006). 
(2) LOGICALLY ASSOCIATED WITH- Seal information is ‘logically associated with’ an electronic record if the seal information is securely bound to the electronic record in such a manner as to make it impracticable to falsify or alter, without detection, either the record or the seal information. 

5 Comments – Post Your Own

#1) On October 09, 2010 at 8:18 AM, rofgile (98.98) wrote:

Lordrobot:

 How can a bank foreclose on a house when they don't hold the deed, the paperwork, and haven't read their own foreclosure papers before signing to foreclose? 

 This is absurdity on a major scale, at a level only the big banks can pull off.  I say let them suffer and deal with their screw ups and shady corner cutting themselves.

 This is foreclosure-gate. 

 -Rof 

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#2) On October 09, 2010 at 8:59 AM, davejh23 (< 20) wrote:

"How can a bank foreclose on a house when they don't hold the deed, the paperwork, and haven't read their own foreclosure papers before signing to foreclose?"

Rof - I agree.  However, this isn't about helping delinquent borrowers.  The bigger issue is between the banks and bondholders that are the rightful title holders, and their relation to the homeowner.  No delinquent borrower is going to get a free house because a bank didn't follow procedure...they have no right to sue, though the bondholders might... 

 

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#3) On October 09, 2010 at 2:56 PM, Lordrobot (89.77) wrote:

To Rof and Dave let me add that the mortgage holders and bond assignees are bona fide purchasers so their claims are protected in all states but two that have race notice statutes. Otherwise they are fully protected by the courts. 

Secondly, a claim of a procedural technically over a notary signature authorization is likely to be overruled by a court and it certainly is not fraud. 

It seems the public has an odd fraction of howlers that attack companies with outlandish claims of impropriety. As examples look at Toyota being attacked by the gov and tort lawyers over the accelerator issue.  I predicted that Toyota would dispose of these claims in court and they have. Even one where the black box confirmed the driver was pushing the gas instead of the brake, Toyota offered a settlement. The rest of the claims fell by the ax of the court. 

Then we had BP and the claims of criminality. All of this was grandstanding by Eric Holder, a guy who is not much of an attorney. BP could have taken the hard line like Exxon and made every plaintiff prove damage instead they pumped in 20 billion to handle the claims. Yet the howl from the nitwits was loud and vigorous but now gone.

Here we have a situation in mortgages where some minor procedural matters were possibly overlooked. This is at best negligence but not fraud.

Many people have a misconception about how contracts are dealt with in a court room and it is very business like. Notary signature authorization are generally regarded a mere ministerial necessities and they are not going to hold up a foreclosure on that basis.

Further, the courts themselves analyze the foreclosure documents and process these with proper mention of equitable redemption. The foreclosed owner isn't a victim of theft. And the courts are never interested in whether the business deal was "favorable" to the plaintiff or not. Bad business deals are made every day in America. Courts of law are disinterested in value.

Dave you are correct in your phrasing that bondholder MAY have privity as vested third party beneficiaries. But remember that in an assignment or a delegation of duty, the assignee may reject any assignment or delegation that increases their risk or alters their duties. If the bond holders are deemed incidental third party beneficiaries, then they would not have the right to sue.

But the real question here is the chain of title following foreclosure. At foreclosure some personage has bought the property at auction and paid value to the Sheriff. A new deed is then issued, cleaned of the inferior claims. That deed may be assigned freely.

Obama was no hero here. It is clearly politically motivated behavior to make it look like he is behind the deadbeat and against corporate america and banks. But he has this odd presumption that business is evil and as a result, he has set himself up for some big problems going forward the least of which is how he will deal with a Republican congress. This bill was bipartisan and Obama decided to take the political low road.

 

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#4) On October 15, 2010 at 2:41 PM, rockynicky (< 20) wrote:

I agree with Lordrobot 100%. Great post.

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#5) On October 15, 2010 at 2:47 PM, vriguy (80.10) wrote:

Why didn't Congress override Obama's veto?

I have no sympathy for deadbeats, but we were hearing of folks who'd paid their mortgages off getting foreclosed because no one involved (including the court!) verifying that documents were in order.  For Congress to suddenly ram a bill through at the behest of the banks was suspicious - I instinctively suspected that it was the banks' attempt to have their lapdogs in Congress bail them out again (at my expense as a taxpayer), and I applauded Obama for not signing.  Let the situation become less murky, and the next Congress can re-pass the bill if it is really needed.  No one is going to let the debtors off the hook, but I do not want to again reward the bankers for messing up.

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