Tell It To Al

Bank of America is sure in a pinch. It’s bondholders want it to take back some shoddy mortgage loans. It’s borrowers want it to be more responsive to their loan modifications requests.

And now, in federal court in Denver, it’s being hit with a lawsuit from a guy named Keith Schwartz who owes $1.25 million on his home in Silverthorne, Colo. In state court, Schwartz won a preliminary injunction preventing Bank of America from foreclosing on him. But the case is pending.

He claims Bank of America doesn’t hold the note on his property and doesn’t have the right to foreclose on him. He also claims Bank of America won’t divulge the names of the investors who do have the right to foreclose, interfering with his ability to negotiate a loan modification.

And now, on top of all that, he’s accusing Bank of America of committing fraud in court. He says Bank of America used a “known robo-signer” in an affidavit filed in court. Bank of America denies the allegations.

Here’s my column on Schwartz vs. the Bank of America robo-signer:

Rage Against The Robo-Signer

By AL LEWIS
A DOW JONES NEWSWIRES COLUMN

Time for a new sci-fi thriller called “2010: A Foreclosure Odyssey.”

One decade into the 21st century, humans are losing their capacity to discern between a “signer” and a “robo-signer.”

Robo-signers have infiltrated our court systems as giant banks scurried to file foreclosures. These mindless, ink-slinging automatons sign and attest to the veracity of thousands of court documents without even looking at them.

Attorneys general from 50 states say the practice is illegal and makes a mockery of property rights and our court systems. Congress and federal agencies are investigating the invasion of the robo-signers as well. And many banks using robo-signers have suspended foreclosures.

On Oct. 8, Bank of America Corp. (BAC) issued a press release saying it had halted all foreclosures until it can verify papers it has submitted to courts.

On that same day, it also used a “known robo-signer” in its quest to foreclose on a home in Silverthorne, Colo., a federal lawsuit in Denver alleges.

A “Request for Sanctions” filed in the case leverages recent robo-signer headlines and accuses Bank of America of perpetrating fraud on the court. Bank of America fired back in court filings on Monday:

The request “fails to draw any rational factual nexus between the press releases, newspaper articles, orders, and affidavits in other cases, and the very serious assertion…that an officer of this Court would submit a false affidavit.”

Also on Monday, Bank of America declared it found no significant problems in its foreclosure procedures and reopened more than 100,000 foreclosures.

So now a federal judge must decide whether Bank of America used a “signer” or a “robo-signer.”

The case began with Keith Schwartz, a Colorado entrepreneur, who owes about $1.25 million on his mountainside property.

Earlier this year, Schwartz won an injunction in state court that prevented Bank of America from foreclosing, pending a trial on a lawsuit he filed against the bank.

On Oct. 8, Bank of America filed a motion asking a federal judge to overturn the state injunction.

“The Motion is supported by an Affidavit of Nichole M. Orr,” Schwartz complained to the court.

“Incredibly, Bank of America is bold enough to use an affidavit by Orr notwithstanding that the Supreme Court of the State of New York…recently entered summary judgment against an affiliate of Bank of America on the basis that an affidavit signed by Orr demonstrated that she did not have “personal knowledge” of the transaction…

“In other words,” said Schwartz, “Bank of America submitted an affidavit…signed by a known robo-signer.”

Bank of America denies that Orr is a robo-signer. It also said it has found no foreclosures cases that should not have been pursued. It will resume foreclosures in November.

Schwartz and his attorney declined to comment. Their allegation is a bold volley in a long and complicated case.

Schwartz accuses the “robo-signer” of making several misrepresentations, including the payoff amount of the loan, the amount needed to cure the foreclosure, and the claim that Orr is even a Bank of America officer.

“Based on Bank of America’s clear knowledge that affidavits are being signed by Orr and her counterparts without them having personal knowledge of the facts…and its use of such an affidavit in this case…Bank of America is intentionally trying to perpetrate fraud on the Court,” Schwartz’s motion claims.

Bank of America denies Schwartz’s claims.

According to Schwartz’s original complaint, he asked Bank of America for a loan modification but was denied. The bank told Schwartz it couldn’t modify the loan because other investors owned the note, his complaint says.

Schwartz is demanding the identities of these investors, hoping to negotiate directly with them.

Bank of America argues that Schwartz’s complaint is “predicated on the erroneous theory that, because the debt obligations of the borrowers may have been securitized, the lender has no right to be paid the debt it is owed. Such…’mortgage protestor” claims, have been summarily rejected by the courts.”

Schwartz” complaint, however, wasn’t summarily rejected. Bank of America didn’t like that outcome in state court, so it took the matter to federal court. And now it is facing robo-signer allegations.

“The Court should sanction Bank of America, Orr, and Bank of America’s counsel,” Schwartz’s motion reads.

He wants Bank of America’s affidavit and motion stricken. He wants the names of the investors that hold the note on his home. He wants his legal costs reimbursed. He wants “such other relief as is just and proper to preserve the dignity of the Court.”

“Bank of America has repeatedly shown a lack of respect for the integrity of the legal system,” Schwartz alleged. “The only way to redress this behavior is for the Court to impose strong sanctions that will deter Bank of America from engaging in these activities in the future.”

But we are already in the future if the robo-signers are here.

–(Al’s Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. The column is published each Tuesday and Thursday at 9 a.m. ET. He can be reached at 212-416-2617 or by email at al.lewis@dowjones.com, or on his blog at tellittoal.com.)

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