This post is by Andy Winchell, restructuring, insolvency and bankruptcy attorney for commercial and consumer clients at the Law Offices of Andy Winchell.
The rock classic “American Pie” was inspired by the tragic death of three rock-n-roll greats, Buddy Holly, Ritchie Valens, and Big Bopper Richardson, in a plane crash on February 3, 1959. Don McLean famously coined the term “The Day the Music Died” to describe the event.
I was thinking about the phrase recently because there are dates and memories that get stuck in history. We remember where we were when heard that something happened. And to me a couple completely unrelated events are stuck together.
On September 17, 2010, I was not at Max Gardner’s Securitization and Servicing seminar at the Don Gibson Theater in Shelby, North Carolina. I would have liked to have been there, but various life things conspired to get in the way. Had I been there, I would have learned that day, rather than a few days later, about when stuff finally started hitting the fan for predatory mortgage servicing.
On September 17, 2010, an internal memo disclosed that GMAC had ceased foreclosure activity in twenty-three states. Those of us who have been monitoring various email listservs had been expecting this type of event for some time. Why? Because we had seen so many fraudulent documents and read too many depositions of the robo-signers. This type of thing had to happen eventually.
GMAC is part of a large family of financial institutions that includes various “servicers.” Servicers don’t actually own any mortgage notes but often act as if they do. Their main function is to collect payments from borrowers and enforce loan documents. Servicers try to be hyper-efficient in their approach to costs and one of their tricks is having people whose job it is to sign documents. Rather than hire higher-level, higher-paid loan officers to review and sign documents, the process is automated and a relatively small number of people get inflated titles just to sign documents. In my world, we call these folks “robo-signers.”
Unfortunately for the mortgage industry, one of GMAC’s robo-signers spoke the truth in a deposition. He admitted that he had signed tens of thousands of sworn affidavits under penalty of perjury without verifying the information. Want to read about it? Just Google “Jeffrey Stephan” and see what comes up. You might need a few hours.
Regular readers might remember the Alphabet Problem and the delicate comment that “banks have been known to create documents after the fact to give the impression that they documented the transaction properly.” I don’t want to say that every bank, servicer, creditor or other entity seeking to enforce loan documents has been creating false documents. But a lot of them have.
So on September 17, 2010, the world started getting clear and official word that what we had suspected was happening really was happening. This might have been the tipping point. No one can trust the documents that the mortgage industry supplies. Too many of them are incorrect — or worse — fake.
So why did I think about The Day the Music Died? Well, the first I started really learning about fraudulent documents was at Bankruptcy Boot Camp. Max Gardner has been championing this cause for a while. He believes that this GMAC stuff is just the tip of the iceberg and that issues in predatory mortgage servicing will become more apparent over the next several years. And I agree with him. I have seen too much sloppy documentation and too many bogus documents for this not to be a systemic problem. In fact, Chase soon followed GMAC and acknowledged that it had an affidavit problem as well.
But when I was at Boot Camp, we had one night “off base.” Max took us for pizza and a concert in…wait for it…the Don Gibson Theater in Shelby, North Carolina. The concert was Bobby Vee, whom people of a certain age might recall getting his start on the Day the Music Died by playing the concert in Moorhead, Minnesota in place of the headliners. Being of a different generation, I knew about the Day the Music Died from “American Pie,” but had never heard of Bobby Vee. Because the first I heard of Bobby Vee was the same weekend I started learning about fraudulent mortgage documents, in my head fraudulent mortgage documents and the Day the Music Died are connected. Very odd, but true.
Where will September 17, 2010 rank in dates that we will remember? I’m certainly not going to suggest that it will be like September 11, 2001 or November 22, 1963. But perhaps it will be like February 3, 1959. That was a day that was unremarkable but for a certain event occurring that ultimately affected a lot of people.