Rethinking squatters' mentality
By Danny Westneat
Seattle Times staff columnist
Maybe the squatters were right.
That was the bizarre thought I had as banks sank into another mortgage morass last week, with some shutting down foreclosure activity and all 50 states launching investigations into the home-lending industry.
Remember the squatters? They took over an opulent Kirkland mansion last summer and lived it up for two weeks before the main instigator, a woman named Jill Lane, was hauled off in handcuffs for trespassing.
Her tale seemed too sensational to take seriously. She insisted she wasn't in it for money, but to make a political point: That the banks, in their frenzy to profit off the long-popped real-estate bubble, had lost track of who owns what.
"Banks do whatever they want, and nobody holds them accountable," she said at the time.
Lane had no more right to that mansion than she has to your house or mine. But her point was: OK, who does? If a bank forecloses on your mortgage, shouldn't the bank be able to prove it really owns the note and has a right to demand payment?
This question seemed like a sideshow. But it's become a major hangover from the real-estate party.
Some mortgages were so sliced, diced and repackaged as investment vehicles on Wall Street that the seemingly critical question of who owns the loans wasn't properly recorded.
Now we've learned that banks were processing loan documents as if they were fast-food orders. Some banks have since gone back and falsified documents in order to evict delinquent borrowers.
"The excesses of the bubble years have created a legal morass, in which property rights are ill-defined because nobody has proper documentation."
That quote easily could have come from a manifesto of sorts written last April by the Kirkland squatter, for a now-kaput local company called NW Note Elimination. It featured tips on how to challenge your mortgage.
But it was actually written last week, by Princeton economist and New York Times columnist Paul Krugman, to describe what is happening in this country.
"Many of the foreclosures now taking place are, in fact, illegal," Krugman wrote.
I called around to a couple of local foreclosure experts, to see whether anyone here is challenging the banks, a la the squatters, to "show me the note."
Scott Weitz, a Kirkland foreclosure attorney, said foreclosures in this state aren't usually handled in the courts. So to challenge the banks you'd have to sue them. That's so expensive that not many have tried.
Nova Shank, a Seattle real-estate agent who specializes in foreclosures, said he knows of one case in Issaquah in which the defaulting owners challenged errors in some of the bank's documents in a bankruptcy proceeding. The result was the bank allowed the home to be sold for more of a loss than it had wanted.
But people in foreclosure often are desperate, financially and emotionally. They're in no condition to mount sophisticated legal challenges, Shank said.
Weitz recently wrote a post on his law firm's Web site about all this, titled "Bank fraud abundant in mortgage documents." He predicted the problem is so huge that the system, both financial and political, will do what it does best when cornered: Look the other way.
"My guess is that we allow the foreclosures to continue, and cover up the 'fraud' or 'malpractice,' because fixing the problem would cause most of the banks to go under," he said.
That's almost exactly what the squatters suggested to me, during an interview shortly after Kirkland police retook control of that mansion last summer. Fraudulent mortgages and illegal foreclosures are a coming epidemic, they said. Only a silent one. Because the banks, too big to fail, have also become, in league with the government, too lordly to question.
I know, I know. Those squatters are nuts. Right?
Danny Westneat's column appears Wednesday and Sunday. Reach him at 206-464-2086 or email@example.com.
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