New Foreclosure Fraud Scam

Foreclosure Fraud Scam PSA


Don't fall prey to scam artists to promise to "save" your home from foreclosure. The answer they promise will be worse than the disease. If you are having a problem, call your lender or talk to a bankruptcy attorney.

Hat tip: Tanta at Calculated Risk

Mortgage Servicers Gouge Debtors

A report in today's New York Times, Dubious Fees Hit Borrowers in Foreclosures, shows how mortgage servicers can profit from the foreclosure process to the detriment of not only the borrower, but the economy as a whole.

Because there is little oversight of foreclosure practices and the fees that are charged, bankruptcy specialists fear that some consumers may be losing their homes unnecessarily or that mortgage servicers, who collect loan payments, are profiting from foreclosures.

Bankruptcy specialists say lenders and loan servicers often do not comply with even the most basic legal requirements, like correctly computing the amount a borrower owes on a foreclosed loan or providing proof of holding the mortgage note in question.

Here are some of the examples from the story:

In one example, [Katherine M. Porter, associate professor of law at the University of Iowa] found that a lender had filed a claim stating that the borrower owed more than $1 million. But after the loan history was scrutinized, the balance turned out to be $60,000. And a judge in Louisiana is considering an award for sanctions against Wells Fargo in a case in which the bank assessed improper fees and charges that added more than $24,000 to a borrower’s loan.

...

On Oct. 9, the Chapter 13 trustee in Pittsburgh asked the court to sanction Countrywide, the nation’s largest loan servicer, saying that the company had lost or destroyed more than $500,000 in checks paid by homeowners in foreclosure from December 2005 to April 2007.

The trustee, Ronda J. Winnecour, said in court filings that she was concerned that even as Countrywide misplaced or destroyed the checks, it levied charges on the borrowers, including late fees and legal costs.

...

Loan servicing is extremely lucrative. Servicers, which collect payments from borrowers and pass them on to investors who own the loans, generally receive a percentage of income from a loan, often 0.25 percent on a prime mortgage and 0.50 percent on a subprime loan. Servicers typically generate profit margins of about 20 percent.

Now that big lenders are originating fewer mortgages, servicing revenues make up a greater percentage of earnings. Because servicers typically keep late fees and certain other charges assessed on delinquent or defaulted loans, “a borrower’s default can present a servicer with an opportunity for additional profit,” Ms. Porter said.

The amounts can be significant. Late fees accounted for 11.5 percent of servicing revenues in 2006 at Ocwen Financial, a big servicing company. At Countrywide, $285 million came from late fees last year, up 20 percent from 2005. Late fees accounted for 7.5 percent of Countrywide’s servicing revenue last year.

But these are not the only charges borrowers face. Others include $145 in something called “demand fees,” $137 in overnight delivery fees, fax fees of $50 and payoff statement charges of $60. Property inspection fees can be levied every month or so, and fees can be imposed every two months to cover assessments of a home’s worth.

...

Jeffrey M. Norton, a lawyer who represents the Trevinos, said that although MERS pays a flat rate of $400 or $500 to its lawyers during a foreclosure, the legal fees that it demands from borrowers are three or four times that.

...

Based on the study, mortgage creditors in the 1,733 cases put in claims for almost $6 million more than the loan debts listed by borrowers in the bankruptcy filings. The discrepancies are too big, Ms. Porter said, to be simple record-keeping errors.

Michael L. Jones, a homeowner going through a Chapter 13 bankruptcy in Louisiana, experienced such a discrepancy with Wells Fargo Home Mortgage. After being told that he owed $231,463.97 on his mortgage, he disputed the amount and ultimately sued Wells Fargo.

In April, Elizabeth W. Magner, a federal bankruptcy judge in Louisiana, ruled that Wells Fargo overcharged Mr. Jones by $24,450.65, or 12 percent more than what the court said he actually owed. The court attributed some of that to arithmetic errors but found that Wells Fargo had improperly added charges, including $6,741.67 in commissions to the sheriff’s office that were not owed, almost $13,000 in additional interest and fees for 16 unnecessary inspections of the borrowers’ property in the 29 months the case was pending.

“Incredibly, Wells Fargo also argues that it was debtor’s burden to verify that its accounting was correct,” the judge wrote, “even though Wells Fargo failed to disclose the details of that accounting until it was sued.”

And to think that this is probably just the tip of the iceberg. Examples like these show why regulation of the mortgage industry is sorely needed.

Tanta, at Calculated Risk, has her own take on the article -- including her questioning of some of the assertions made in the article.

We're All Subprime Now

Today, blogger Tanta, who writes for Calculated Risk, today wrote about predatory practices in the mortgage industry in HMDA Data on High Priced Loans. A clip:

This whole dynamic may be hard for the WSJ and its fellows in the Big Paid Media, so let me explain this very clearly. In 1975, some folks accused lenders of redlining, which means not granting credit at all to some people. The lenders said they weren't doing that. Congress passed HMDA, and then there was actual data about geographic lending patterns to analyze instead of anecdotes. Once we got some HMDA data under our belts, the Community Reinvestment Act came into being (in 1977) precisely because it was clear that redlining had been going on. CRA in essence forces lenders to show that they are willing to make loans in neighborhoods in which they are willing to take deposits (i.e., those deposits need to be "reinvested" in the neighborhood they came from in the form of loans, not just mortgage loans, to that neighborhood. You can't extract deposits from poor people and use them exclusively to fund loans to rich people.) CRA does not mandate price levels, or even address the question of price levels.

You may be surprised to hear this, but over time accusations of discriminatory lending practices did not go away. In a number of cases, "mystery shopper" tests were performed, in which a white applicant and a black applicant each applied for credit at the same instutition with identical credentials (employment, income, credit history, loan terms), and the results showed that black applicants were more likely to be turned down. This cast some doubt on the lenders' claims that loan rates in minority neighborhoods were a function of the lower credit quality of those borrowers. That became a hypothesis in need of some testing, you see, not an accepted explanation.

So the 1989 revision to HMDA forced collection of demographic data, for the precise purpose of testing the assumption that poor and minority people are just always bad credit risks. This resulted, as you might expect, in conjunction with CRA and other fair lending laws, in much higher rates of home mortgage lending in those areas that were once redlined.

But were these poor and minority people happy, at last? Why no, they weren't. Turns out, anecdotal evidence began to emerge that while these good people were finally getting loans, they were getting them at much higher interest rates than higher-income folks and whites generally got, and that this could not be accounted for by the difference in creditworthiness of the borrowers or the quality of the collateral (the latter proxied by census tract).

...

The bottom line is, as [Calculated Risk] notes, that "high-risk" lending was everywhere in the boom years. Of course there is a desire to collapse it all into the easy category of "subprime." And there has for a long time been a lot of political pressure to keep the association of "subprime" and "urban minorities" in place, because it has functioned as a good excuse for the subprime lenders (they "help" the poor and minorities, remember?). My view is that a whole lot of parties are very interested in maintaining rather than seriously analyzing a lot of faulty assumptions about risk, rates, and borrower credit characteristics. If this ain't "just a subprime problem," then an entire debt-based economy in which even the middle and upper middle class cannot afford homes given [real estate] inflation and wage stagnation is suddenly in question. The last thing certain vested interests want to hear is that, basically, "we are all subprime now."

My favorite comments:

At least then, when they say the problem is contained to subprime, they'd be correct.
daveNYC | 10.11.07 - 10:47 am |


What about the revelations coming forward that a lot of these sub-prime loans were to people who would/could /should have qualified for prime loans. My gut feeling is that the lending industry realized that there was more money to be had in the sub-prime market and rationalized the use of the product by telling borrowers your can always refinance. So while I can see the possibility that we are all becoming sub-prime candidates because of high LTV due to lack of down payments or low rates to buy the MacMansion, I cant help but feel it was the lenders looking to sack the borrower for higher fees and on top of that being bale to book unrealized profits from the fully adjusted loans. Now there is a racket!!
formerly known as... | 10.11.07 - 11:41 am | #


Down where the rubber met the road, '04-06 subprime was a broker-dominated and refinance-oriented business. Those brokers tend to chase after big fish. Which would you rather do? ONE loan for a cardiologist with a bunch of lates thanks to the ex-wife or TEN deals involving city bus drivers with gambling problems, immigrant cleaning ladies with thin credit files, single moms with three jobs, dancers with cash wages and voracious drug habits? - oh, wait, that's alt-a - anyhow, you get the gist. It's not that subprime was ever AIMED at low-income - quite the contrary - it's just that median income of those with impaired credit happens to lower.
Shnaps Parlor

The last paragraph raises an interesting point. We have been told that FICO scores are not related to race, sex or economic status. However, it is also true that women, minorities and lower-income individuals not only have less economic power as a group, but also are at a greater risk that the above examples and medical problems/debt are more likely to adversely affect their ability to pay their bills. Hence, lower credit scores.

The end result is that it contributes to the disparity between the wealthiest (who have the highest credit scores, due to the ability to weather unexpected expenses, and therefore who borrow at lower interest rates), and the poor (whose credit scores crash after one adverse event and have to borrow at higher interest rates). (BTW: I have been meaning to write about how banks charge fees on small balances that can quickly sap wealth from poor patrons.)

The answer is to provide social insurance on some costs (medical debt and education) and living wages that allow for even the poorest to save for the future. There are some costs which cannot be defrayed: rent, electricity and natural gas, food, transportation and personal hygiene. Even the lowest wage should be enough to cover these costs and provide enough to save for the future.

Congress Seeks To Limit White Collar Prosecutions

From the story U.S. Prosecutors Say New Limits May Help Future Enrons Go Free:

Oct. 1 (Bloomberg) -- U.S. businesses, with the help of civil libertarians, are on the verge of outmaneuvering federal prosecutors and persuading Congress to limit the government's power to pursue corporate fraud.

Lawmakers are considering a measure that would, among other things, bar the government from demanding that companies reveal confidential talks with their lawyers in order to win leniency in plea deals. It would also prohibit federal agencies, including the Securities and Exchange Commission, from demanding that companies fire or cut off legal support for employees under investigation.

Such tools were crucial in helping prosecutors pry loose valuable information in hard-to-prove cases against WorldCom Inc. and Enron Corp. Curtailing them may mean fewer such investigations in the future, putting investors more at risk.

``Pre-Enron, U.S. attorneys never brought these cases, and after this bill is passed, they will quit bringing them again,'' says Lynn Turner, a former SEC accounting chief. ``This is a very clear message from Congress: Don't touch white-collar criminals.''

The Justice Department's guidelines for corporate cases were crafted as it and the SEC sought to cope with the explosion of financial scandals early this decade by offering companies leniency in exchange for cooperation.

That typically means a company reports potential illegality, conducts its own internal probe and waives the attorney-client privilege. Prosecutors say they need such confidential information to ensure against cover-ups and, if necessary, help them freeze assets that might otherwise be hidden or squandered.

No Secret

``It's no secret that cooperation from defendants of all types is a very effective tool we need to use in getting the bad guys,'' says Karin Immergut, U.S. attorney in Oregon and head of a Justice Department white-collar crime committee.

Immergut says the waiving of attorney-client privilege played a vital role in the prosecution of former Chief Executive Officer Bernard Ebbers for the $11 billion WorldCom fraud --he's now serving a 25-year prison term -- and helped the government locate and seize $80 million in cash from financier Martin Armstrong, who pleaded guilty in an investor fraud.

Company documents aided accounting probes at Enron and Adelphia Communications Corp., and helped convict 11 former executives in connection with a $67 million fraud at online real-estate seller Homestore Inc., the Justice Department says.

...

Mobilizing

In the absence of an all-out defense by the department, prosecutors on the front lines are mobilizing to fight the legislation. ``This bill would certainly make it harder for prosecutors to protect victims and the investing public,'' says Immergut. Pointing out that drug defendants are routinely asked to waive their rights if they want leniency, she asks why executives deserve special treatment.

``I frankly find it kind of baffling that people are proposing legislation that protects corporations and corporate officers like CEOs more than other individuals,'' she says.

I think this just shows you who our elected officials really work for. Do you ever get the feeling that it is their own self-interest they are voting on?

Prisoner's Debt

You all have heard of Debtor's Prison, but how many of you were aware of the fact that many convicts come out of prison with more financial debt than they can repay (and rarely is it dischargeable in bankruptcy).

The New York Times today brings light to this rarely discussed topic in an editorial today.

The scope of the ex-offender debt problem is outlined in a new study commissioned by the Justice Department’s Bureau of Justice Assistance and produced by the Council of State Governments’ Justice Center. The study, “Repaying Debts,” describes cases of newly released inmates who have been greeted with as much as $25,000 in debt the moment they step outside the prison gate. That’s a lot to owe for most people, but it can be insurmountable for ex-offenders who often have no assets and whose poor educations and criminal records prevent them from landing well-paying jobs.

...

A former inmate living at or even below the poverty level can be dunned by four or five departments at once — and can be required to surrender 100 percent of his or her earnings. People caught in this impossible predicament are less likely to seek regular employment, making them even more susceptible to criminal relapse.

Here are the proposed solutions as reported by the Times:

The Justice Center report recommends several important reforms. First, the states should make one agency responsible for collecting all debts from ex-offenders. That agency can then set payment priorities. The report also recommends that payments to the state for fines and fees be capped at 20 percent of income, except when the former inmate has sufficient assets to pay more. And in cases where the custodial parent agrees, the report urges states to consider modifying child support orders while the noncustodial parent is in prison. Once that parent is released, child support should be paid first.

The states should also develop incentives, including certificates of good conduct and waivers of fines, for ex-offenders who make good-faith efforts to make their payments. Where appropriate, they should be permitted to work off some of the debt through community service. Beyond that, elected officials who worry about recidivism need to understand that bleeding ex-offenders financially is a sure recipe for landing them back in jail.

Here is what bothers me about this aspect of the penal system: the people who need to pay hefty fines -- those that commit white collar crimes, for instance (for example: insider stock trading), rarely have to pay fines and restitution equal to the amount they stole, swindled or conned from their victims and many times they are quite capable of paying it (even though it may mean that trusts that they created to be exempt from creditors have to be "pierced").

This is another reform that needs to be addressed, in my opinion.

John Dean: The Impact of Authoritarian Conservatism

John Dean has written the third part in his three part series on Authoritarian Conservatism. Here is a snippet:

Nixon created the "imperial presidency." After the public rejected that concentration of power, in the aftermath of Watergate, Reagan restored the imperial presidency in another guise. Now, Bush and Cheney have created the post-imperial presidency. Using the threat of terrorism as their justification, Bush and Cheney have embraced the so-called "unitary executive theory" - which, in truth, is merely another term for an authoritarian presidency.

I have been saying the same thing for a quite a while.

The Sordid O.J. Simpson Saga

I don't normally like to make comments about celebrity tabloid news, but one news item I heard on the radio this morning caught my attention. The interview that Thomas Riccio gave to the LA Times doesn't help O.J. Simpson's case:

He told the Los Angeles Times he arranged the meeting after receiving a phone call about a month ago from a person who claimed to have personal items -- including footballs, awards and photos -- that had belonged to Simpson and wanted to sell them.

"Simpson was supposed to show up, identify the items and tell the men to either give the stuff back or he would call the police," Riccio told the newspaper. (emphasis mine)

Let me see if I get this straight: Simpson allegedly was going to threaten someone with criminal prosecution if they "didn't give him his stuff back."

Someone needs to explain to O.J. Simpson the legal definition of extortion:

Extortion

The obtaining of property from another induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right.

And this:

Elements of Offense

Virtually all extortion statutes require that a threat must be made to the person or property of the victim. Threats to harm the victim's friends or relatives may also be included. It is not necessary for a threat to involve physical injury. It may be sufficient to threaten to accuse another person of a crime or to expose a secret that would result in public embarrassment or ridicule. The threat does not have to relate to an unlawful act.

So, if Thomas Riccio was telling the truth to the LA Times about what Simpson's intent was prior to the actual incident, Simpson might have gotten into legal trouble anyway.

This is an example of why you don't engage in vigilante justice.

Having said that, I think I know the real reason why Simpson didn't just call the police: had he done so, news undoubtedly would have gotten out as to the whereabouts of his personal assets -- which then would have alerted the Goldmans and would probably would have been seized to pay the civil judgment against Mr. Simpson.

This is pure speculation on my part, but it makes sense to me. In his attempt to keep assets from the Goldmans, he apparently had to do business with some shady people. I don't doubt that some of them took advantage of his precarious situation; but it was somewhat a dilemma of his own making.

Now the Goldmans know where the assets are and will undoubtedly start legal action to recover these assets and Mr. Simpson is finding himself in a lot of legal hot water to boot.

Countrywide

Hat tip to Calculated Risk

Read this story from the Chicago Tribune and see if you don't agree that that there is some serious need of judicial and congressional intervention to prevent these types of abuses. Here is part of it:

PITTSBURGH - For Donna and Steve Love, the plan seemed perfect.

Priced out of the Boston-area housing market, where 2-bedroom homes can cost about $500,000, the working-class couple thought it was time to head to a more affordable market.

They chose Pittsburgh. They liked the city, thought they could get jobs there and were sure they could afford a home without having to win the lottery.

After finding their home -- a $59,000, 3-bedroom, brick row house near the city's downtown that they paid for with a subprime loan -- they moved in June of 2006 and tried to settle into their new life.

But within a year, they were facing foreclosure, their relationship was strained to the near-breaking point and their emotions were in tatters as they tried to hold onto their home.

"Sometimes I feel like I have post-traumatic stress disorder," said Donna Love, 46.

Their story has been repeated thousands of times this year alone, as the subprime mortgage market, made up of loans to consumers with a higher default risk, continues its dramatic collapse.

...

The Loves qualified as subprime candidates because of their income level and because Steve Love, 30, had so little prior credit history.

"I believe in paying in cash," said Steve, who worked as a night manager at a CVS pharmacy near Boston, a job he expected to replicate by transferring to a Pittsburgh CVS store.

...

In March 2006, they reached what they thought were final terms for the loan: $5,000 down, a 7.75 percent interest rate, fixed for two years and then adjustable for the remaining 28 years, with a cap of 14.75 percent.

The $429 mortgage payments would be higher than they expected, but still within their budget -- equal to less than one week of Steve's salary with CVS. Plus, it was still cheaper than their $700-a-month rent in a suburb of Boston.

Then, on April 20, two weeks before the May 3 closing date, they said they got mortgage documents in the mail with a letter that said they should sign all the papers and return them as soon as possible.

But they quickly noticed the final contract listed a higher interest rate of 12.125 percent, with a cap of 19.125 percent. That pushed the monthly mortgage payments up more than $200 to $692 a month.

"We both said, 'Oh my God!' and started reading page by page," recalled Steve Love.

They called Countrywide and talked to several representatives who told them "that the fluctuating market went up and investors had asked for a higher percentage rate on the loans, and this was the best they could do," he said.

Other problems surface

"We weren't sure if we would ever find another property we'd agree on. We'd already rented our apartment. We'd resigned our jobs. We were afraid of losing our $1,000 deposit [on the home]. There was just a huge fear factor there," Donna Love said.

The couple decided to go ahead with the loan, figuring they could refinance in six months.

The lenders do this because of these people's commitments, they are without adequate bargaining power. This problem is playing out (pardon the pun) countrywide. We need to get some serious oversight and remedies and quick.

Waste, Fraud and Abuse In Iraq, Oh My!

From Talking Points Memo:

We've all heard the expression "no good deed goes unpunished," but this is ridiculous.

One after another, the men and women who have stepped forward to report corruption in the massive effort to rebuild Iraq have been vilified, fired and demoted. Or worse.

For daring to report illegal arms sales, Navy veteran Donald Vance says he was imprisoned by the American military in a security compound outside Baghdad and subjected to harsh interrogation methods.

There were times, huddled on the floor in solitary confinement with that head-banging music blaring dawn to dusk and interrogators yelling the same questions over and over, that Vance began to wish he had just kept his mouth shut.

He had thought he was doing a good and noble thing when he started telling the FBI about the guns and the land mines and the rocket-launchers — all of them being sold for cash, no receipts necessary, he said. He told a federal agent the buyers were Iraqi insurgents, American soldiers, State Department workers, and Iraqi embassy and ministry employees.

The seller, he claimed, was the Iraqi-owned company he worked for, Shield Group Security Co. "It was a Wal-Mart for guns," he says. "It was all illegal and everyone knew it."

So Vance says he blew the whistle, supplying photos and documents and other intelligence to an FBI agent in his hometown of Chicago because he didn't know whom to trust in Iraq.

For his trouble, he says, he got 97 days in Camp Cropper, an American military prison outside Baghdad that once held Saddam Hussein, and he was classified a security detainee.

Why has waste, fraud, abuse, and corruption flourished over the last several years in Iraq? This might have something to do with it.

Of particular interest, the AP noted that whistleblowers are offered an avenue under the federal False Claims Act to file what's called a "qui tam" lawsuit, which allows private citizens to sue on the government's behalf. (The policy was developed under Lincoln to help root out corrupt contractors selling defective products to the Union Army.)

The Justice Department has the option of signing onto these lawsuits, 12 of which have been filed dealing with alleged Iraq reconstruction abuse since 2004. To date, how many qui tam suits have the Bush administration endorsed? Zero.

A little more on qui tam:

The full phrase qui tam pro domino rege quam pro se ipso in hoc parte sequitur, means “he who sues for the king sues for himself."

More information can be found on qui tam lawsuits at Answers.com. Of particular note, there's this:

The False Claims Act provides incentive to relators by granting them between 15% and 30% of any award or settlement amount. In addition, the statute provides an award of the relator's attorney's fees, making qui tam actions a popular topic for the plaintiff's bar. Indeed, a private [natural] person may not be able to commence a qui tam action "pro se" -- that is, without representation by a lawyer -- since the private person is actually representing/filing the suit on behalf of the government and that may only be done by a lawyer.

Once a relator brings suit on behalf of the government, a U.S. Attorney for the district in which the suit was filed has the option to take over the case. If he or she does so, the government will usually notify the company or person being sued that a claim has been filed. Qui tam actions are filed under seal, which has to be partially lifted by the court to allow this type of disclosure. The seal prohibits the defendant from disclosing even the mere existence of the case to anyone, including its shareholders (a fact which may cause conflicts with the defendant's obligation under Securities & Exchange Commission or stock exchange regulations that require it to disclose lawsuits that could materially affect stock prices). The government may then, without disclosing the identity of the plaintiff or any of the facts, begin taking discovery from the defendant.

If the government does not decide to participate in a qui tam action, the relator may proceed on his or her own, though such cases classically have a much lower success rate. Conventional wisdom states that this is due in part to the fact that the government will get involved in what it believes are winning cases, but will avoid losing cases.

Or, I suppose, if you don't want even greater corruption exposed.

Oklahoma Supreme Court Strikes Down Retroactive Mandatory Arbitration Clause

In BILBREY v. CINGULAR WIRELESS, L.L.C., 2007 OK 54:

The issue before this Court is whether a named plaintiff in a class action lawsuit must be dismissed when that plaintiff subsequently signs a consumer form-contract containing a mandatory arbitration clause that includes a class action waiver. We find the clause unenforceable.

...

¶14 Consumers signing such adhesion contracts are susceptible to unpleasant surprises prepared for the protection of the corporation, not the consumer. The law has begun to take a more active role in the protection of the consumer against abuses. That consumers have not read or do not understand the implications of contract provisions has been implicitly recognized in our insurance case law by the use of the phrase "hidden in policy provisions." Max True Plastering Co., 1996 OK 28, ¶ 2, 912 P.2d at 863. As a result, new rules in such adhesion contracts have been applied to protect the "reasonable expectations" of the parties. Max True Plastering Co., 1996 OK 28, ¶ 6, 912 P.2d at 864.

¶15 The question we must answer is whether the clause in the May 23, 2001, contract that asserts the parties "agree" to arbitrate any disputes arising from any prior agreement including those from predecessors in interest, is enforceable. The question is not whether the arbitration clause in the May 23, 2001, contract is valid as it relates to that specific contract, but whether it controls the previous Southwestern Bell Mobile Systems contract, which is the contract at the center of this class action.

...

¶20 Cingular cites Barnes v. Helfenbein, 1976 OK 33, 548 P.2d 1014, which provides the test for unconscionability.

"The basic test of unconscionability of a contract is whether under the circumstances existing at the time of making of the contract, and in light of the general commercial background and commercial need of a particular case, clauses are so one-sided as to oppress or unfairly surprise one of the parties. Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties, together with contractual terms which are unreasonably favorable to the other party."

Barnes, 1976 OK 33, at ¶ 23, 548 P.2d at 1020.

...

¶22 Despite Cingular's argument, it defies reason to conclude that Bilbrey intended to halt a class action suit filed February 15, 2001, in exchange for a free cell phone on May 23, 2001. He even continued to pursue the case for another ten months at which time Cingular finally discovered the arbitration clause. Clearly, Bilbrey did not know the implications of the May 23, 2001, contract, and Cingular's agents, the attorneys in this lawsuit, did not realize he had signed it. It is equally clear that both Bilbrey and Cingular's agents were surprised by Bilbrey's signing a contract that could potentially result in the dismissal of a class action lawsuit that was currently being actively prosecuted by Bilbrey and vigorously defended by Cingular.

¶23 Such an effect is one-sided and unreasonably favorable to Cingular. The cases cited by Cingular that give effect to retrospective clauses in arbitration agreements are not on point.7 We accordingly find the retroactive clause in the arbitration agreement unconscionable as it relates to a presently active lawsuit that would be dismissed if this clause were given effect.

Hat Tip: Elaine Dowling at Consumer Law Updates

Elizabeth Warren: Worlds That Never Collide

Elizabeth Warren has written about her experiences testifying to Congress on the debt crises taking place all over the country by middle class Americans:

One sub-theme united the two hearings. Defenders of the status quo claimed that there is plenty of protection under the current law and that any efforts to change the law would impair the free market, making things worse for everyone. No need to change the law to deal with subprime mortgages, national healthcare or bankruptcy. Defenders of families said the experience on the ground is very different, and that hard-working people are getting pummeled.

The stories about what is happening to middle class families were agonizingly similar. At the FDIC, witnesses who work to help families in mortgage foreclosure told about mortgage brokers who falsified documentation, lied and cheated customers, and about mortgage companies that were hell-bent on collecting, even if it meant losses in foreclosure. At the House Judiciary Committee, Mrs. Donna Smith gave compelling testimony about how hard she and her husband struggled to pay their medical bills, and how health care providers told them that if they couldn't pay, not to come back. Her story was backed up by Dr. Himmelstein of the Harvard Medical School and Dr. Mark Rukivina of The Access Project, both of whom cited study after study showing how people are struggling to pay medical bills and that people die when they cannot pay for health care.

...

In "Thank You For Smoking," the hero-lobbyist offers the pithy advice that all that's needed to neutralize a grim reality is to tell an alternate story, claim the data are "controversial," and the resulting gridlock will prevent meaningful change.

This first-hand account of the discussion taking place in Congress shows how the debt divide is creating two different realities for corporate elite and the investor class and everyone else. Can America be saved before it's too late?

***Update***

An thought provoking comment was left by "Destor23" who writes for the blog Those Things We Say:

Why would a mortgage company seek foreclosure even when everyone in the lending industry knows that foreclosure leads to losses to the lender, often steeper losses than would result by renegotiating with the borrower?

The answer is: securitization. Lenders move their loans off of their balance sheets by selling them on the public market, usually as part of loan portfolios called CDOs (collateralized debt obligations).

The people who buy the CDOs are looking for a relatively stable, predictable return. If they buy a CDO that promises to pay 8% a year for 10 years, that's what they want.

This really hinders the lender. A lender might be able to talk to a borrower in trouble and say something like "If we reduce your interest from 14% to 8%, you'd be able to keep the house and we'd still make money." But, once that loan has been sold as part of a CDO, they can't. The investor who bought the CDO would rightly counter, "I bought this for an 8% return. If you negotiate the underlying deals down, I don't get what I paid for."

The rise of this secondary market for loan obligations, which serves the lenders by taking risk off of their balance sheets, has also kept lenders from being able to reasonably deal with their borrowers. Once they sell the loan, there's another interest involved, one who hs no reason to help the borrower out.

The regulations that would be most effective probably aren't ones that touch on the consumer. Instead, we need to regulate the secondary mortgage market. It's the investors who are buying this stuff who are saying that they'd rather take the loss of foreclosure than allow for the terms of the loan to be adjusted. And those investors aren't acting out of malice. They buy debt because they need to buy predictable returns. Many of the investors are institutions like pension funds who know their eventual obligations and need non-volatile returns in order to meet them. Still, they are at odds with borrowers in trouble and their involvement in the transaction hinders the rights and options of both the lenders and the borrowers. If that's not addressed, nothing will change.

***Later update***

Another interesting comment from Robert Feinman:

Last week on "Now" they did a bit on the fight to renew the SCHIP child health program. Sonny Perdue, the governor of Georgia, when confronted with a story about a diabetic young girl who needed daily treatment at a cost of about $900 per month and who was denied entry to the program because it was "full" said it wasn't his problem. They should talk to the local congressman since it was a federal program. He in turn blamed in on the Dems.

This isn't about a firm or a wealthy person making more money. These guys don't stand to profit personally. What is striking is their total lack of human feelings and empathy.

Psychologist Robert Altemeyer has studied people with this type of personality and finds that there is a strong correlation between the belief in a hierarchical social system, the need for a strong leader and conservative social viewpoints.

By blaming behavior on greed we may be missing a more fundamental issue, that those with a sociopathic type of personality tend to rise to the top of the hierarchy. They then impose their inhumane feelings on everyone else. Countering these people means understanding their makeup. I suggest reading his free, online book to get some insight into what we are facing.

The Authoritarians

You can't counter the opposition if you don't understand them.

The Legal and Political Justification for National Healthcare

Article 1, Section 8, Clause 3, of the U.S. Constitution empowers Congress "to regulate Commerce with foreign Nations, and among several States, and with the Indian Tribes."

The purpose of the Commerce Clause was to eliminate the conflict between those states that had a commercial advantage as a result of their access to a major harbor, and the interior states that did not. That economic disparity was the source of many fights between individual states.

Health care currently takes up one-sixth of our economy. We are now seeing some states take action to guarantee their residents access to health care, while poorer states resist it. While health care is not limited to states that have major seaports, it is limited somewhat by wealth. Isn't it ironic that the wealthiest states -- which would have to pay higher taxes to provide health care -- are the bluest ones?

It is my assertion that health care, taking up such a large part of the U.S. economy, is too important to the unity of the country to be left to individual states. We cannot afford to have rich states with residents having guaranteed access to health care and poor ones where its residents do not.
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Article 1, Section 8, Clause 3, of the U.S. Constitution empowers Congress "to regulate Commerce with foreign Nations, and among several States, and with the Indian Tribes." The purpose of the Commerce Clause was to eliminate the conflict between those states that had a commercial advantage as a result of their access to a major harbor, and the interior states that did not. That economic disparity was the source of many fights between individual states. Health care currently takes up one-sixth of our economy. We are now seeing some states take action to guarantee their residents access to health care, while poorer states resist it. While health care is not limited to states that have major seaports, it is limited somewhat by wealth. Isn't it ironic that the wealthiest states -- which would have to pay higher taxes to provide health care -- are the bluest ones? It is my assertion that health care, taking up such a large part of the U.S. economy, is too important to the unity of the country to be left to individual states. We cannot afford to have rich states with residents having guaranteed access to health care and poor ones where its residents do not.

Now I realize that nowhere in the Constitution does it expressly state that every American has the right to access to health care. I am also aware that for the first 200+ years of our Republic that we have not had it. But it is also true that for much of our history, health care did not take up anywhere near one-sixth of our Gross Domestic Product.

I would suggest that access to health care today is just as important to our national unity as access to ports was back in 1789. It is for this reason that we need a national universal health care program now.

December 2, 1993 - Leading conservative operative William Kristol privately circulates a strategy document to Republicans in Congress. Kristol writes that congressional Republicans should work to "kill" -- not amend -- the Clinton plan because it presents a real danger to the Republican future: Its passage will give the Democrats a lock on the crucial middle-class vote and revive the reputation of the party.

Some are arguing that we should accept some piecemeal plan because we don't have the votes to override a Republican Senatorial filibuster. I disagree. I don't think we have the time to wait. Health care takes up too much of the American economy to handle this piecemeal. The whole purpose of the Commerce Clause was to create a nationally integrated economy. It was designed to prevent "rich states" and "poor states."

I don't doubt that Bill Kristol's strategy will be employed by all Republicans. That just means that next year we will have to work harder than ever to gain the 60 votes needed to cut off the debate ("cloture"). In the meantime, we need to speak out and make this a national issue. This needs to our "Contract With America." Any Democrat running for any national office needs to promise that, when elected, they will support the creation of a national universal health care program. Fully 70% of the American public supports the idea. Probably even more will after seeing SiCKO.

Besides, even Bill Kristol says that it will "give the Democrats a lock on the crucial middle-class vote and revive the reputation of the party." If national healthcare scares the Republicans that much, you know it has to be good.

Cross-posted to Daily Kos.

Defending Lawyers ...

In a somewhat surprising turn, CNN Money and Business 2.0 magazine are defending lawyers (no joke). From the article:

(Business 2.0 Magazine) -- Decades after Tylenol bottles were tampered with and Ford Pintos exploded, you'd think that product-safety panics would be nearing extinction.

No such luck. Consider just the past few months: Pet food laced with poison killed more than a dozen dogs and cats. Toothpaste shipped from China to Latin America turned out to be tainted with a potentially fatal thickening agent. And the FDA issued yet another recall for defective defibrillators, bringing the total number of heart devices that need to be replaced to nearly 200,000.

Here's another frighteningly persistent trend: The drumbeat for weakening the ability of people to seek redress in court by curtailing product-liability suits continues unabated.

A recent study by the nonprofit Pacific Research Institute estimated that the cost of tort law in the United States had reached $865 billion, equivalent to an 8 percent tax on consumption or a 13 percent tax on wages. But much of that analysis leans on faulty logic, and while most of my friends in business consider lawyers at best a necessary nuisance, for the most part, they're dead wrong.

...

Tort-reform advocates love to rail against the skyrocketing costs of litigation and multimillion-dollar damage awards, yet one definitive study from Rand showed no increase in the percentage of tort cases won by plaintiffs and no statistically significant increase in the median award paid by businesses. Comparisons with other countries can also be misleading because they have more stringent regulatory regimes.

True, regulatory agencies cost billions, and so does our legal system. But I would argue it's a pretty good deal -- simply a necessary cost of running an economy in which people rely on the promises and products of strangers.

The alternative is precisely what we see in the case of the pet-food mess: agencies and companies sending people to inspect factories and raw materials more carefully, and increased testing of products coming into the country.

The next time you want to complain about "frivolous" lawsuits, picture doing business in a world where promises can't be relied on and you can only deal with people and organizations you already know well. There are undoubtedly abuses and problems in our current system, but the cost of punishing malfeasance is a necessary and small price to pay for running a modern economy.

***Update***

Check out this link on "Tort Reform" in Oklahoma:

Tort terminators, not ‘reformers’. From a Letter to the Editor of the Edmond Sun:

EDMOND — As professors of torts and civil procedure, we disagree with the views of our colleague, Andrew Spiropoulos. We applaud the governor and the attorney general for the veto of the so-called “tort reform” bill.

We say “so-called” because this bill was neither confined to torts nor did it envision “reform.” It sought the curtailment or outright elimination of remedies for injured and wronged people and businesses. We prefer to call advocates of this bill tort “terminators,” not tort “reformers.”

...

[T]he bill itself — provides no evidence that Oklahoma’s civil justice system is in a state of crisis that would justify the draconian measures proposed. As one example, the bill would have all but eliminated class actions in Oklahoma. Is there a problem with class actions here? Not at all.

In Oklahoma County, about six cases a year — out of thousands — are filed as class actions. Only one class action filed in Oklahoma County in the past five years has awarded fees to plaintiffs’ counsel.

Most of the remaining cases were dismissed.

Our courts are well-equipped to weed out unmeritorious lawsuits with the tools they already have. Yet the “tort terminators” continue to try to “fix” a system that is not broken — slandering the plaintiffs’ bar in the process.

We eschew [Professor] Spiropoulos’ use of the term “bottom feeders” to refer to members of the plaintiffs’ bar. We take pride in plaintiffs’ attorneys’ efforts to provide access to courts and to obtain compensation for ordinary residents for harms caused by negligent doctors, shady businesses and other wrongdoers. Space limitations prevent a detailed response to the bill’s many other questionable provisions.

The bill’s elimination of joint and several liability could leave an innocent injured person without full compensation, while shielding a wrongdoing defendant from paying for an injury he helped to cause.

The bill also would have restricted prejudgment interest, which Spiropoulos claims violates the principle of “innocent until proven guilty.” Besides misapplying a criminal, not civil, law principle, the claim is false. Prejudgment interest is never paid unless and until the defendant is found liable by a judge or a jury.

Spiropolous talks about “doing justice.” We believe justice lies in a legal system that compensates people for the wrongs done to them. Where is the “justice” in a “reform” that leaves those people with nothing?

Professors Patricia Hatamyar and Carla Spivack are on the faculty at Oklahoma City University School of Law.


In fairness, here is a link to the article the two law professors were responding to: Lawyers not ready for reform.

Losing the American Dream

Go and watch the clips from Boston Legal over at Independent Christian Voice and then think about what it means to be an American.

The Libby Commutation: Comparing Apples To Apples

From Andrew Sullivan's blog:

Bush: Worse Than Clinton

05 Jul 2007 05:06 pm

A reader writes:

A question for the people who think Libby should have either been pardoned or think it is ok to have his sentence commuted: was Clinton wrong for not commuting Susan McDougal's sentence? She went to jail to protect the Clintons in a "witch hunt" in which no underlying crime was found. Will these supporters criticize Clinton for not commuting Susan McDougal's sentence?

Comparing Clinton's pardons to the Libby issue is disingenuous. But the McDougal case is a direct comparison. The Republican party should be ashamed of itself that it can't raise itself to a moral standard higher than Clinton.

Equal Justice? What's That?

A quote from today's White House press briefing:

Question: Scott, is Scooter Libby getting more than equal justice under the law? Is he getting special treatment?

MR. STANZEL: Well, I guess I don't know what you mean by "equal justice under the law."

I laughed pretty hard when I heard this, but it's really not that funny.

Keith Olbermann: Resign

You tell 'em, Keith!

A Political Conspiracy

From the Volokh Conspiracy:

As I understand it, Bush political appointee James Comey named Bush political appointee and career prosecutor Patrick Fitzgerald to investigate the Plame leak. Bush political appointee and career prosecutor Fitzgerald filed an indictment and went to trial before Bush political appointee Reggie Walton. A jury convicted Libby, and Bush political appointee Walton sentenced him. At sentencing, Bush political appointee Judge Walton described the evidence against Libby as "overwhelming" and concluded that a 30-month sentence was appropriate. And yet the claim, as I understand it, is that the Libby prosecution was the work of political enemies who were just trying to hurt the Bush Administration.

But, the conservatives say, there was no underlying crime. Besides, President Bush says, the sentence was too harsh.

Let's not kid ourselves: President Bush is going to pardon Scooter Libby on his way out the door. Whatever happened to respect for the Rule of Law?

Religion in Public Schools: Do Students Have A Prayer?

This is a reprint of a paper I wrote either during law school or soon after. I am noticing that there is still a lot of confusion regarding religious expression in public situations. There may have been some changes to the law since then, but I don't think that any changes have been dramatic.

There has been much confusion in recent years concerning school prayer. Some have argued that the courts have declared schools "religion free zones." Others have maintained that the law of church and state is so muddy that ordinary teachers, principals, administrators or school board members cannot understand them. The former is simply a misinterpretation of the law. The latter, while having some justification, is still incorrect. While it is true that many school officials, because of their busy schedules, do not know the law as well as they should, the law is not as complicated as it might first seem.

State Action and the Establishment Clause

In order to understand the law concerning separation of church and state, it is important to grasp the concept called "state action." State action arises when an agent of the government abridges the rights of an individual. In the present case, since teachers and others in the education establishment are agents of the state, any action they take on behalf of the government can produce state action for the purposes of constitutional limitations.

One constitutional limitation placed on the government is that it may not advance nor inhibit religion. The main test applied to the Establishment Clause is the Lemon v Kurtzman [1] test (hereinafter the Lemon test). The Lemon test is a three-prong test. The three prongs are:

1. The statute (or other government action or policy) must have a secular purpose.

2. Its primary effect or purpose must neither advance nor inhibit religion.

3. The statute (or policy) must not foster an excessive entanglement between church and state.

A few cases have come out since Lemon that suggest the Supreme Court is unhappy with the Lemon test. In Lee v Weisman [2], the Court did not reject the Lemon test, but it at least modified it. In Lee, the school invited a rabbi to give a "nonsectarian" prayer as part of an official graduation ceremony. The Court held that "including clergy who offer prayers as part of an official public school graduation ceremony is forbidden by the Establishment Clause." [3] The Court reasoned that the practice at least suggests at strong endorsement of religion if not an outright compulsion to participate in a religious activity. The Court rejected the argument that the complainant was not compelled to attend. The court pointed out that "in this society, high-school graduation is one of life's most significant occasions, and a student is not free to absent herself from the exercise in any of the real sense of the term 'voluntary.'" [4]

In spite of Lee, the Lemon test is still the dominant test. The question that most often arises among teachers and parents, among others, is what kind of religious expression does the law permit? A pamphlet has been published by a coalition of groups that represent the whole spectrum of this debate. It is called Religion In The Public Schools: A Joint Statement Of Current Law. It was published in April, 1995 and it gives a brief outline of the law as it is applied today.

All of the main cases have dealt with state actors or actions that violate the Establishment Clause. However, the First Amendment does not restrict the actions of purely private actors. If there is no state action, there is no constitutional violation. For instance, a student can pray individually or with their peers as long as it is not disruptive [5]. Students can discuss religious topics or issues as long as the others are willing listeners [6]. As long as a student's religious activity is not carried out in a harassing or disruptive manner, it does not fall within the scope of the Establishment Clause. As a side note, it must be pointed out that religious speech is subject to the same time, place, and manner regulation as any other speech.

A more complicated issue is whether students may initiate a prayer at graduation on their own. Courts have split on this issue (mainly because the other students are a captive audience). (However, school officials may not delegate the duty to a student or student organization because under the principles of Agency, you cannot have someone else do what you are prohibited from doing yourself.)

Another issue that has arisen is whether a "moment of silence" is permissible. One case that mandated a moment of silence "for the purpose of meditation or voluntary prayer" was struck down by the Supreme Court [7]. This was primarily because it failed the first and second prongs of the Lemon test. Its purpose was not secular, and it had the primary effect of advancing religion. However, it might be possible to pass a law that required a moment of silence at the beginning of the school day as long as the Lemon guidelines are met.

Conclusion

The main thing to keep in mind is that agents of the state (in this case school officials) cannot further or hinder religious expression. The restrictions contained in the Establishment Clause do not apply to private parties. Therefore, students who act on their own can legally express their religious convictions as long as it is not disruptive or harassing."

[1] 403 U.S. 602 (1970).
[2] 112 S.Ct. 2649 (1992).
[3] Id.at 2650.
[4] Id.at 2651.
[5] Religion in the Public Schools: A joint statement of current law, 1.
[6] Id.
[7] Wallace v. Jaffree, 472 U.S. 38 (1985).

Whitewash

Seymour Hersh recently wrote an article in The New Yorker wherein he reports on what General Antonio Taguba, who investigated the Abu Ghraib scandal, found during his limited investigation.

But even with the limited investigation, General Taguba doesn't believe the official story that the soldier's were renegades acting outside the military command:

“From what I knew, troops just don’t take it upon themselves to initiate what they did without any form of knowledge of the higher-ups,” Taguba told me. His orders were clear, however: he was to investigate only the military police at Abu Ghraib, and not those above them in the chain of command. “These M.P. troops were not that creative,” he said. “Somebody was giving them guidance, but I was legally prevented from further investigation into higher authority. I was limited to a box.”

And from a report in the Washington Post:

In interviews with New Yorker reporter Seymour M. Hersh, Taguba said that he was ordered to limit his investigation to low-ranking soldiers who were photographed with the detainees and the soldiers' unit, but that it was always his sense that the abuse was ordered at higher levels. Taguba was quoted as saying that he thinks top commanders in Iraq had extensive knowledge of the aggressive interrogation techniques that mirrored those used on high-value detainees at Guantanamo Bay, Cuba, and that the military police "were literally being exploited by the military interrogators."

Taguba also said that Rumsfeld misled Congress when he testified in May 2004 about the abuse investigation, minimizing how much he knew about the incidents. Taguba said that he met with Rumsfeld and top aides the day before the testimony.

"I know that my peers in the Army will be mad at me for speaking out, but the fact is that we violated the laws of land warfare in Abu Ghraib," Taguba said, according to the article. "We violated the tenets of the Geneva Convention. We violated our own principles and we violated the core of our military values. The stress of combat is not an excuse, and I believe, even today, that those civilian and military leaders responsible should be held accountable."

Not allowed to ask questions that will get to the ultimate truth of the matter? Sounds like whitewash to me.

***Update***

Here is a video report: