The solution to the ongoing fraudclosure fiasco is so simply and yet so brilliant (in a way that benefits the banks naturally) is so brilliant, that it has to date evaded most... but not all. The solution: just shred it all. That is what insolvent mortgage lenders Mortgage Lenders Network USA and American Home Mortgage are pushing hard to get permission from their respectively bankruptcy judges in their chapter 7 liquidation cases. Says Reuters: "Federal bankruptcy judges in Delaware are due to hold separate hearings Monday on requests by two defunct subprime mortgage lenders to destroy thousands of boxes of original loan documents. The requests, by trustees liquidating Mortgage Lenders Network USA and American Home Mortgage, come despite intense concerns that paperwork critical to foreclosures and securitized investments may be lost." With servicer banks increasingly unable and unwilling to provide the original lender docs (since they don't have access to them) to parties curious in seeing if there is a legal case to continue paying their mortgage, what better solution than to have the banks retort that the original document was sadly destroyed in a court-appointed shredding. In that way all the fraud canaries are killed with one stone, and the party responsible is none other than some bankruptcy judge who had given the go ahead for the wholesale destruction. And since we are not talking peanuts, in the case of MLN it comes to 18,000 boxes of records, while in the AHOM case it is just over 4,000 boxes, we wonder just how many other originators have gotten a comparable idea from the banks, and are currently busy shredding every last detail of an original mortgage note. Good luck trying to convince anyone that the bank is not in possession of a mortgage that was "purposefully" destroyed as part of a company's liquidation proceedings. Soon to follow: the burning of all books and the banning of all websites that dare to claim this is nothing but pure, grade-A criminal destruction of evidence.
More from Reuters on this stunning development:
In the Mortgage Lenders case, the U.S. Attorney in Delaware has formally objected to the requested destruction because loss of the records "threatens to impair federal law enforcement efforts."
The former subprime lender shut down in February 2007. In a January 6, 2010, motion, Neil Luria, the liquidating trustee, asked Bankruptcy Judge Peter J. Walsh for permission to destroy nearly 18,000 boxes of records now warehoused by document storage company Iron Mountain Inc.
In the American Home Mortgage case, the liquidating trustee, Steven Sass, has asked Bankruptcy Judge Christopher Sontchi to approve destruction of 4,100 boxes of loan documents stored in a dank parking garage beneath the company's former headquarters in Melville, Long Island.
AHM had been one of the biggest originators of subprime loans until it abruptly collapsed and closed in August 2007. The boxes are the last still held by AHM. Sass stated that the local fire marshal wants the documents removed as a fire hazard, and he said the cost of moving them would be prohibitive.
The reason cited for this scandalous request: warehousing costs:
Luria stated that destruction is necessary to eliminate $16,000 per
month in storage costs as he disposes of the last assets of the bankrupt
This is akin to the Fed terminated the reporting of the M3 due to the exorbitant costs associated with keeping track of a few data series...
And, not surprisingly, we find that some have already been going through with document shreeding for a long time already:
In accordance with a 2009 court order, the bankrupt company earlier had destroyed the contents of thousands of other boxes after banks and other loan servicers had been given a chance to request and pick up particular files.
Gee, we wonder why the banks opted out of picking up files confirming they are not the proper servicer on thousands of mortgages.
And in conclusion:
In court documents, Sass stated that most of the records AHM still has in storage relate to mortgages issued more than eight years ago. He also said that employees had searched the files and pulled out all vital original records, such as promissory notes, and had handed them over to the appropriate mortgage servicers, and that most of the documents had been electronically imaged and retained in a database.
But people involved in winding down AHM's affairs say that neither the contents of the boxes or the database have been audited, and that it's possible the boxes still contain crucial documents such a promissory notes. Investors must have the original promissory notes, not copies, to be able to foreclose.
The take home message: should the bankruptcy court side with the liquidation trustees, Neil Luria and Steven Sass, who without a doubt have had extended discussions with the current batch of TBTFs which will be hung out to dry if the fraudclosure issue is further prosecuted, then it is safe to say that any claim that America has a fair and impartial judicial system can follow the last hopes of Emanuel's mayoral campaign dream right out of the window.