The Paperwork Problem

The banks and services have filed 10's of thousands of affidavits regarding loan documentation, etc and apparently with some fraudulent documentation. What the CNBCs and CNNs have mis-characterized as paper work problems are completely wrong. There is also an incorrect belief by analysts and delinquent mortgage holders will lead to free houses. In a few cases maybe but in general these home owners are severely delinquent and the house will be foreclosed unless it cures - who has standing in the foreclosure is not clear currently. This is a problem where the holders of the mortgage backed security may be able to unwind the contracts and "put back" the securities and the IRS may be looking for some money from improperly conveyed REMICs that normally allow for tax pass through when legal and proper.

Regarding the "paperwork" problem, this is a comment from a reader named "Ella" on the Naked Capitalism blog regarding affidavits.

Affidavits, perjury and fraud on the court.
An affidavit is a legal document which can substitute for live witness testimony in court. All testimony in court is governed by the rules of evidence or by statute. All testimony requires that the witness swears to tell the truth, is competent and has personal knowledge of the facts they are testifying about. An affidavit is no different, in most if not all jurisdiction, the affiant swears to tell the truth by being placed under oath by the notary, the affiant states in the affidavit that they were sworn, are competent and that they have personal knowledge of the facts in the affidavit. The notary attests to the oath of the affiant and that the affiant is who they claim to be.

If a witness lies in court or in an affidavit then they could be charged with perjury. Perjury is lying to the court.

The affidavit issue is being portrayed in the MSM at a paper work problem. Lying to the court is not a paper work problem. Attorneys are prohibited from making a material misrepresentation to the court of fact or law. Further, attorneys in most jurisdictions have an affirmative duty to report known perjury by their clients to the court.

The problem with the affidavits is perjury on behalf of the affiants and possibly the notaries depending on the notaries’ knowledge that the affiants had not reviewed the files, the promissory notes, the mortgages, or the records of default.

Further, you can reasonably argue that the entities pursuing foreclosure (banks or servicers) have perpetrated a fraud on the court by submitting perjured affidavits. If the attorneys representing the entities have knowledge of the fraud or are preparing questionable documents then they may also be involved and subject to penalties.

At the heart of any trial or hearing is the determination of the truth of the matter. It is the very purpose of the rules of evidence and what law and fact is presented to the court. If the affiants lied, as it appears, then the truth of whether they owned the note and held the mortgage and the borrower was in default is at issue. Courts, Attorneys General, and bar associations need to serious consider actions that will assure compliance with the rule of law.

This country cannot stand as a democracy if there is one set of law for the banks, corps, elites and another set of law for the rest of us. Perjury and fraud on the court is very serious matter. It is not a mere paper work problem.

What are the impacts going to be?

• Banks are going to have a lot to write down


• Bank earnings and stock prices will take a big hit


• State budgets will be impacted due to the likely pause in foreclosures (no taxes paid by delinquents)


• Short term home inventories may look better as distressed properties don't come to market


• Longer term there is going to be a surge in inventories and an offsetting drop in prices when the foreclosures do clear - the housing downturn is not going to be over for a few more years.


• Current foreclosure sales are going to fall through reducing near term home sales


• Some lawyers are going to make out from all this very well on both sides of the problem