Nevada Files First Foreclosure Process Felony Indictments

November 19th, 2011
in econ_news

white-collar-crime1 Econintersect:  Nevada has taken the lead in treating robo-signing as a felony.  This week Nevada's attorney General Catherine Cortez Masto filed charges against two Lender Processing Services employees accused of filing tens of thousands of false documents.  The two named in a 606 count Clark County grand jury indictment are Gary Trafford and Gerri Sheppard, both from California.  They supervised teams of people who turned out tens of thousands of default notices to start foreclosure proceedings that bore the forged signatures of the two supervisors.  An American Banker article says that Nevada’s chief deputy attorney general John Kelleher has indicated additional indictments are likely.

Follow up:

From American Banker:

In a statement on Thursday morning, Lender Processing Services conceded that some of its past document signing practices "were flawed," but said that it believed the resulting filings were legitimate and that no wrongful foreclosures had occurred.

Neither the company nor its top executives have been named in the indictment, but the state has indicated that the robo-signing practice was not isolated to the case that has been filed.  Again from American Banker:

"Robo-signing is obviously going on en masse in Nevada," Kelleher said. "Most of the major banks seem to be clients" of the defendants' company.

The AG's office has not made allegations against banks themselves, he said. "We simply don't know if the major banks were aware of what these individuals were doing," according to Kelleher.

If banks sanctioned the alleged robo-signers' activities, Kelleher said, they could be the subject of future actions. "Our charge is to prosecute criminal activity by whomever may be committing it," he said. "There's no provision under the law for an industry to collectively decide to circumvent Nevada statutes."

Lending Processing Services has proclaimed surprise at the indictments.  Included in the company’s public response Thursday was a statement that the company had been told that the Attorney General’s office did not have the company as “a target of this enquiry.”

Matthew Stoller, the former Senior Policy Advisor to former Rep. Alan Grayson (D, FL) and a fellow at the Roosevelt Institute wrote the following at Naked Capitalism:

The felony indictments from the Nevada AG’s office are the first sign that the law enforcement community can take financial crimes seriously, that blowing up the economy through financial mismanagement can carry costs. There’s a lot of research to be done on the costs of fraud, and the costs of foreclosures. We don’t know that much about these costs, because there haven’t been investigations and there isn’t a lot of good public data. After all, we mostly just take our property rights system for granted, the notion that clouded titles or a broken $10 trillion mortgage market could inhibit growth simply was not imaginable a few years ago. What is clear is that there is a deep public hunger for justice. And I suspect, that if that hunger had been satiated a few years ago and if Holder had begun handing down indictments, mortgage servicer executives would have begun a serious loan workout program.

And our economy would probably be in much better shape. When you throw your capital into the hands of people who have no incentive to use it wisely, the economy suffers. When you enforce the rule of law, sound business models prevail and ordinary citizens have more confidence in the system and spend and invest accordingly. As an economic policy, justice works.

Stoller thinks that the indictment this week is about more than just looking for jail time for the two defendants.  He suggests “this is about starting at the bottom, and flipping people.”  He says it could be an effort to take down “the mortgage servicer mafia,” with a trail eventually leading “back to the origination.”

Sources:  American Banker and Naked Capitalism

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