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The Rolling Stone magazine has a very informative article by Matt Taibbi on a Florida foreclosure court. The idea is pretty simple. The state of Florida has created courts  meant to speed through the truly massive wave of foreclosures. The problem is that courts are rubber stamping foreclosure cases on fraudulently purchased and underwritten mortgages.

The basic procedure is as follows. A bank decides to foreclose on a property. Sometimes for legitimate reasons, at other times in error. Then they bring the case to court. In a normal repossession of property, the plaintiff has to show that they actually have a claim on the property. Once you show that you have standing and the defendant has defaulted, you can repossess the property. That’s the foundation of the law: show you have a legitimate claim and then show default.

What has now become clear is that banks are unable to legitimately claim that they have standing in a vast majority. In other words, they can’t show that they actually own the loan any more and therefore have no standing in a foreclosure cases. The reason is that banks were in a rush to sell mortgages and bundle them into securities. The paperwork is so shoddy that no one can tell who legitimately owns a loan anymore. This isn’t a case of losing some paperwork. It is a case of not knowing who legitimately owns the loan.

It is now clear that banks are now clearly involved in massive fraud. As Taibbi reports, banks are obviously doctoring paperwork, which is simply forgery and fraud. Even a non-lawyer can tell the paper work is doctored: mortgages sold to banks that don’t exist anymore; loans sold that were already default (which is illegal); purchase and sell dates that make no sense; paper work changing between court hearings; etc. The shameful thing is that the courts simply don’t care. They give banks multiple chances to “correct” paperwork.

At this point, all I can conclude is that courts have become accomplices in fraud. Perhaps the Florida “rocket docket” court is an extreme case, but it seems endemic to the system. Taibbi notes that nearly all third party investigation reveals massive documentation problems. Rather than let private business sort out the mess it has made, courts are allowing banks to manufacture paperwork for loans they may have sold off or that were illegally sold off.

One can rightly complain about greedy borrowers, but there is an even deeper issue here: the rule of law.  Anybody who believes in free markets or good government must agree that the basic principles of law must be applied. You must own the loan and have it properly documented. Courts should come down hard on those who push fraudulent paperwork. Otherwise, the courts become hustlers in robes.