Rewarding Bad Faith in Foreclosures?

    Crises in Mortgage Insurance and in Title Insurance are addressed in recent posts on Insurance Claims and Issues Web Log.  See in particular Categories for those issues as well as the Category of Foreclosure.

    At a November 16, 2010 Hearing broadcast on C-Span, Senator Christopher Dodd suggested that Foreclosures needed to proceed and that offering Plaintiff Lenders in certain cases a "safe harbor" to proceed regardless of any proof, other than that the house was empty, for example, may be a good idea.  Just the thing to prevent another fiscal crisis brought on by investments in housing gone sour.

   Sheila Bair, Chair of the Federal Deposit Insurance Corporation, suggested much the same thing a few days earlier.  Ms. Bair initially made a suggestion that it may be good public fiscal policy to offer some Foreclosure Plaintiffs a "safe harbor," presumably meaning to allow those Foreclosure Lawsuits to proceed without the impediment of defenses, in cases where houses are empty.  See Jim Puzzanghera, "Signs of Foreclosure Paperwork Problems Were Missed, FDIC Chief Says" (Los Angeles Times Online, Tuesday, October 26, 2010).

   Put aside for the moment all questions of why it makes good public policy to rush foreclosures through to immediate eviction.  (After all, what do you and I get out of it?)  Assume that it is good public policy to allow Foreclosure Plaintiffs to receive the remedy of evicting people from their homes in a certain class of cases, and that that certain class of cases includes when the houses are empty.

   That policy does not have any effect, however, on Fraud and False Swearing which may appear to be attractive to Foreclosure Plaintiffs to achieve their remedy.  In order to prevent the use of Fraud and False Swearing in reaching that remedy, any policy of offering a "safe harbor" must it seems clear also include an offer of what might be called "sure reckoning" straight to a prison term if convicted of Fraud and False Swearing.  Or call it "secure certainty," such that Plaintiffs convicted of Fraud and False Swearing can be made certain that they will be in security, perhaps maximum security.

   Civil penalties should be included.  Federal officials are not known these days for seeking prison terms even for the worst of Wall Street.  If a Court finds that an Affidavit or other testimony is presented in the Lender Plaintiff's Foreclosure Case, the offending witness should be held in contempt -- which may include pokey time or monetary fines, or both.  Add another consequence, too, to the mix for any Lender Plaintiff found to have perpetrated the Fraud and False Swearing upon the Court in such Foreclosure Cases:  Upon a finding that the Lender Plaintiff is responsible for the Fraud and False Swearing, impose a sanction upon it that only it can repay:  Have such a Lender Plaintiff pay to the Homeowner the entire amount due on the Mortgage being foreclosed in the case.  If the Homeowner cannot be found, have that amount paid into the registry of the Court  --  even as Judgment is entered in the "safe harbor" of that Foreclosure Lawsuit.

   Perhaps these policies would help ease the Insurance Crisis in Mortgage Insurance and in Title Insurance that Foreclosure Fraud and False Swearing uncertainties have wrought upon a previously unsuspecting market.

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[supra TK Society]

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