"Fraudclosure" takes on new dimensions

Two Assistant Attorneys General for the state of Florida have been forced to resign after conducting more than a year-long investigation into fraud associated with bank foreclosures on mortgaged homes. No explanation has been given for the termination of lawyers Theresa Edwards and June Clarkson, and the two say they were told to quit or be fired. The two had spent more than a year investigating foreclosure fraud by banks and loan servicers on behalf of the Florida Attorney General's office, but during that time Republican Rick Scott was elected governor and he replaced the Attorney General who had commissioned the investigations.

The re-selling of mortgages that nearly triggered a collapse of the entire world financial system in 2008 also suffered from a fundamental weakness based on the way real estate records are kept. The Mortgage Electronic Registration System, or MERS, was created by the banking industry to streamline the transfer of mortages as debt instruments. As part of this process, MERS is listed as the owner of mortgages, no matter who actually buys or sells the asset. This creates a problem, however, when mortgages are bundled and sold in parts: when the owner of those assets tries to foreclose on the property they might not have an adequate paper trail to show that they're entitled to foreclose.

In the face of this obstacle, a wide variety of banks and other businesses have attempted to intimidate homeowners into surrendering their property and, in some case, have actually falsified documents. The practice has been so widespread that it lead to the creation of the term "fraudclosure." It was these practices that Edwards and Clarkson had been investigating for over a year when they were told by their supervisor that they should leave voluntarily or be fired, and their investigations lead them to focus on so-called "foreclosure mills," law firms that forced through foreclosures in record time and banks that took ownership of properties without proper documention.

In the absence of support from governments and courts, some families have been forced to stand up against fraudclosure on their own. Shortly before being forced out, Edwards and Clarkson were recognized by a supervisor as being "instrumental in triggering a nationwide review of such practices." Now their termination is likely to have a chilling effect on other investigations and may lead to more fraudulent foreclosures.