Nevada AG puts Bank of America on notice over foreclosures

CATHLEEN ALLISON / SPECIAL TO THE LAS VEGAS SUN

Nevada Attorney General Catherine Cortez Masto at her Carson City office.

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  • VEGAS INC real estate coverage
  • Call it Nevada’s version of David versus Goliath.

    As foreclosures continue and homeowners cry foul against lenders in their bids to stay in their homes, Nevada’s Attorney General Catherine Cortez Masto is taking on Bank of America in federal court. And the issue is going to heat up as Cortez Masto’s office investigates BofA and other parties in the foreclosure process. She says criminal charges are likely coming to the industry soon, which could provide more ammunition for her foreclosure fraud case.

    Cortez Masto wants to revoke a 2009 settlement with BofA over loan abuses involving its Countrywide Financial Corp., saying the bank has violated its terms. She claims the banking giant has harmed homeowners by failing to modify their mortgages and maliciously deceived some by telling them their loans would be modified, then foreclosing on them. BofA denies the allegations.

    Cortez Masto has long been viewed as a rising star in the party. She was criticized for politicizing her office after her charge that Lt. Gov. Brian Krolicki, a Republican, misallocated office funding for a marketing campaign in order to benefit himself was dismissed in District Court in 2009. Cortez Masto denied the move was politically motivated as alleged by Krolicki supporters.

    Cortez Masto stopped by the VEGAS INC offices to discuss Assembly Bill 284, which she and Assembly Majority Leader Marcus Conklin, D-Las Vegas, pushed in the last session to protect homeowners and businesses from mortgage fraud.

    The law, which takes effect October 1, requires documents used in the foreclosure process to be recorded with counties and specifies who can be a trustee on a deed of trust along with a trustee’s duties in the foreclosure process.

    This is big stuff, but Masto says she’s up to the task. Hey, big bank: Bring it on.

    What was the basis for this legislation?

    The impetus for this legislation and previous legislation we worked on in 2007 and 2009 is based on complaints that came into my office as well as our investigations. In 2007, we had some great legislation that made mortgage fraud a crime, and it was important for my office to be able to go after and hold those people accountable who were violating the law and taking advantage of others. This new legislation makes foreclosure fraud a crime. We needed to protect the integrity of the process. It’s important because the criminal element is always evolving around the laws, and people are looking for loopholes. We have to be vigilant and make sure my office is working with the Legislature to protect the citizenry and business as well. This law is not just beneficial to the homeowners but it’s beneficial to the lenders and banks and good players in the process. That’s why this is so important.

    What is the status of your office’s work?

    We’re in the middle of investigations right now looking at documents on homes that have been foreclosed that have been forged and materially altered. There are players involved in this process who are intentionally violating the law to make a quick buck. That always seems to be the impetus behind this type of crime.

    Who are the people you’re looking at?

    There are a lot of players in this process—from notaries to third parties to those hired by the servicers to prepare the documents and law firms to move through that process. I’ll be honest with you: We’re starting at the bottom right now. You’ll see in the next month or so some actions on the criminal side in holding people accountable who are engaged in this process. At the same time, it’s a piece of what I’m seeing in my office on mortgage fraud. The legislation here is important because it will not only allow us to hold people accountable, but it continues the integrity of the process and its transparency. Not only for the homeowners but the legitimate buyers and the servicers. They want to be good players and weed out those bad players, have them held accountable. That’s what this legislation does.

    Are any lending institutions involved in this?

    All I can tell you right now is that we’re investigating. As our investigation unfolds and we have enough information to bring an action forward, we will. The areas we’ve been focusing on are all of the players involved in this whole mortgage crisis. At the same time, this is cutting edge because we’re one of only a few states that have an ability to enforce actions on a civil and criminal side. I will tell you other AGs only have civil remedies. It’s because of our working relationship and the legislators willing to delve into the specifics of these areas and pass laws that give us the ability to pursue criminal action. There are some activities that are so egregious that criminal action is called for.

    What’s the status of the BofA lawsuit you filed in December 2010 in US District Court?

    We’re moving forward with an appeal to the (9th US Circuit Court of Appeals) on whether our Bank of America litigation should be in state court or federal court. We think it should be in state court because state law has been violated. The defendants moved it to federal court, and the judge in the federal court ruling said it should remain in federal court. We’re appealing that ruling.

    What’s your case pending in the court?

    There are a couple of additional things. The first part of the complaint was allegations that Bank of America violated the settlement agreement in relation to Countrywide. We think the violation was such a material breach, we’re asking the court to terminate our consent judgment.

    What are you alleging in the case?

    The complaints we’re getting tell us it’s happening every day. The goal of the loan modification process was to help people get lower payments and lower interest rates. We’re finding it just the opposite. Individuals getting loan modifications actually have to pay higher payments and higher interest rates. Based on our original allegations, it runs the gamut from foreclosing on people who were told they were in a trial modification and making payments, to losing the documentation and asking them numerous times to resubmit.

    Any examples?

    I had a poor woman, a senior citizen, who was trying to get a modification, and she had to verify at least ten times to many different people in Bank of America that her husband had passed away two or three years prior. They were asking for documentation that was not necessarily required. We’re seeing a lot of that. We’re seeing that people were denied modifications when in fact the claims they were making for denial were not true and accurate. There’s a combination of things.

    Why is this happening?

    When we interviewed current and former employees as part of our investigation, we were told they were never properly trained on the modification process and programs that were out there. That often times, the whole process was chaotic. There was insufficient staffing. They were told to be on the phone with borrowers for a limited period of time—seven to ten minutes—and if they were on the phone any longer they would be penalized. The defense will be whatever Bank of America comes up with why they didn’t violate the settlement. It is a clear indication based on what we’ve seen that it has.

    If a specific house is worth, say, 25 percent of the total mortgaged, and lenders know this won’t qualify for a modification, why are they leading people to apply?

    That’s part of the concern in referring to the loan-to-value ratio. When the federal HAMP (Homes Affordable Modification Program) first came out, homeowners had to satisfy loan-to-value ratio criteria. In Nevada, our loan-to-value ratio was 150 percent or more, so most people couldn’t qualify on that basis alone. But it goes back to servicers. They needed to tell that to homeowners in a timely manner. That’s why we’re investigating Bank of America. We want answers to those questions. Why weren’t homeowners told in a timely manner and did you just not have good employees, or was it intentional? That’s part of the discovery we’re engaging in now. Obviously, something happened. Something fell through the cracks and people weren’t getting answers in a timely manner.

    Would what you allege BofA did fall under the new law?

    This new law prevents BofA from engaging in that type of activity or anybody from engaging in that activity, which we call “robo-signing.” The banks or any agency that wants to take action and foreclose has to follow the law that takes effect October 1. Before that, if there are violations, we could go after them for certain activities. This gives us additional tools on the foreclosure side. It creates a foreclosure fraud process.

    Is any bank besides BofA being targeted?

    I can only tell you we’re in the middle of investigations right now. If we have information to move forward against other servicers, we’ll make that public at the appropriate time. We did enter into a settlement with Wells Fargo on the servicing standards. But the majority of complaints that come into my office are from Bank of America.

    Is the industry learning anything from this?

    From what I have seen of the complaints coming in the office, there doesn’t seem to be as many complaints against the other servicers as there have been against Bank of America and Wells Fargo.

    Do you view yourself as a legitimate crusader going against big business?

    I’m motivated every day. As the attorney general, I took the oath of office and by the statutes, I had the ability to protect the public and protect the state. I take that very seriously. It’s a public trust and from my perspective, every AG I talk to and work with, we enforce the laws and at the same time protect our citizenry, and when they’re victimized, we’re going to hold individuals accountable.

    How have you had to deal with banks on a personal level as a homeowner?

    I haven’t asked to modify my loan so I haven’t gone through that process. Are we underwater with our home? Absolutely. It’s frustrating and part of what we’re seeing happening in our economy.

    BofA plans to lay off 30,000 employees. Will that make it harder for homeowners to deal with them?

    It depends on where their layoffs are and if they’re laying off people in the servicing units. I would imagine it would make it worse.

    How does this all relate to Nevada, where lenders don’t have to go to court to foreclose on a home?

    When you foreclose in Nevada, you choose a nonjudicial route. You can choose judicial but most choose nonjudicial. You just have to file a notice of default and follow that procedural process. The documentation prepared by the bank, the holder and trustee—what we’re seeing is a lot of information in that documentation is forged. For example, there’s a notary required to sign off as to the legitimacy of the signatures. We have some indications the notaries are signing massive amounts of blank documents and attaching them to notices of default. We have concerns about middlemen, whether notaries or people preparing the documents, who are grabbing signatures from other documents and adding them to new documents. The resulting documents look legitimate. We have concerns that some attorneys focus on just foreclosures and have incentive to move the documents without knowing whether they’re legitimate because they get a fee and are penalized if they don’t move them quickly.

    So problems can happen with both processes?

    It goes back to the integrity of the documents: Whether you’re in a nonjudicial foreclosure or judicial foreclosure, it’s hard to determine whether signatures have been forged. Even if you were in a judicial foreclosure state and the judge sees these documents, unless he has some indication that a forgery is going on, you wouldn’t know the documents have been created and altered. That’s the challenge. The massive number of foreclosures means notaries are making money, third parties are making money and attorneys are making money. Nobody is questioning the legitimacy of the documents and who actually owns the deeds of trust. That’s why recording is so important in Nevada. These documents have to be recorded.

    Why are foreclosures down in Nevada?

    I don’t know. The numbers don’t tell me anything. It could be the banks are just not foreclosing.

    Do you have advice for the thousands of people facing foreclosure in Nevada?

    They should follow the process we have in place. If they’re trying to save their homes and they think a servicer is lying to them or treating them inappropriately, I want them to file a complaint with my office. But for homeowners to save their homes, they can follow the statutory requirements and go to foreclosure mediation. They have legal options. Hire an attorney.

    Do any other industries have you concerned?

    Everything we do in my office is complaint generated. One area of concern is consumer fraud. Grant scams arise because of the federal dollars out there to provide grants to individuals. We’re always concerned about corporate fraud. The secretary of state with the IRS and my office are looking at that area as well, regarding straw corporations (suspected of tax evasion, money laundering, securities violations and marketing for fraudulent purposes).

    Is fraud a bigger problem than when times were good?

    I’ve seen more consumer fraud happening with the downturn in the economy. People need to be alert. It comes at all levels, whether it’s in the mail, over the phone or on the Internet. Never give out your personal information. No legitimate company is going to ask for that. If you get a check in the mail that says you won this amount of money and to get this check you have to give us this information about your bank account, it’s probably a fraud. You just don’t get money for free. That’s your next red flag. It runs the gamut from charitable organizations to firemen’s funds or police associations. A lot of them are scammers. If Nevada residents get those calls or mailings, they can call my office. They can ask organizations to send information to check legitimacy. Most of the time, they will hang up the phone.

    What’s the most challenging about your job?

    There’s not one thing that’s the most challenging. Everything is challenging, and that’s why I love the job. There are so many areas that the AG focuses on that most people don’t realize. We’re just talking about consumer protection. That’s a small component of what I do in my office. To really understand the office itself and the depth and breadth of what we do in Nevada is a longer conversation. We look at natural resource issues and wild horse issues, as well as represent the executive branch of government and constitutional officers. We’re working on domestic violence and child predator laws and protecting our kids and working with senior citizens, Medicaid fraud and insurance fraud, workers liability fraud.

    What’s your relationship with Gov. Brian Sandoval? You had a public disagreement with him when it came to the budget.

    The governor is one of my clients, so we have a very good working relationship. There are times we’re going to disagree and that’s a normal part of the job. That’s why I’m an independently elected constitutional officer. I’m not, per se, just the governor’s legal counsel. I represent the public and public trust in general and the state of Nevada. I also respect the working relationship I have with the governor as a client.

    What do you see in your future?

    I enjoy what I’m doing. I’ve just been re-elected. I only have eight years at this job, and I’ll make the most of it.

    What about running for governor?

    I can never say never, but that doesn’t necessarily mean I won’t be out in private practice or I won’t be running for some other office or retire all together. I don’t know. I don’t close the door to all the options I hope are available for me.

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    CORRECTION: This story originally reported that Cortez Masto was the lone Democrat to hold statewide office after being elected to a second term in 2010. | (September 20, 2011)

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    1. We are lucky to have Catherine Cortez-Masto in this office. Good to see that at least one elected official has the guts to take on the monied interests like BofA and NVEnergy in order to protect Nevada consumers.

    2. "The documentation prepared by the bank, the holder and trustee--what we're seeing is a lot of information in that documentation is forged."

      Can anyone else say "the crux of the biscuit"?

      Finally our AG mentions the Holder, although only in passing. Almost every Note in Nevada contains the standard phrase "Lender or anyone who takes this Note by transfer and who is entitled to receive payments under this Note is called the "Note Holder." This clause plainly states the importance of the Note Holder, yet it's nearly always lost in the avalanche of paper every homeowner gets. Especially in all the new demands from non-holder entities demanding to be paid.

      Sadly, the limited loan mod issue seems to be all Masto is focused on in this suit against BofA. Loan mods blindly assume the modifying lender owns the Note, which this article hints can be far from true. Far too often a little digging shows it doesn't, but it would rather spend way into the 5-figures on attorneys to play a cruel shell game on answering the simple questions -- "Where's my Note? Who's the Holder?"

      Meantime BofA's parasites, like ReconTrust and BAC Home Loans, and its many other competitors -- Chase, Wells Fargo, DeutscheBank, USBank, ad infinitum -- continue to rape and pillage Nevada homeowners without any official challenges. And those who do choose to challenge the foreclosers in court are faced with a byzantine, formalistic process that feels more like empty ritual than getting these foreclosers to simply show their bona fides.

      "Good to see that at least one elected official has the guts to take on the monied interests like BofA..."

      SDG -- I agree, but Masto is far from going far enough.

      "If you're going to take my house away from me, you better own the note." -- Joe Lents (who hasn't made a payment on his $1.5 million mortgage since 2002) in Bloomberg's 2/22/08 "Banks Lose to Deadbeat Homeowners as Loans Sold in Bonds Vanish"