Mortgage Litigation on the Rise

I’ve been writing about the mess that is Foreclosuregate on this blog, on Notorious, and on AOL Real Estate. And something I worried about (yet predicted, hoping to be wrong) was that we’d see significant lawsuits against banks, servicers, and MBS sponsors brought by homeowners and investors.

Well, it appears that mortgage litigation rose significantly in Q4 of 2010:

Servicing litigation cases rose by 21 cases in the fourth quarter, from just five in Q3. Mortgage Daily reports that servicing was busier because foreclosure lawsuits in Q4 nearly doubled the amount from Q3 and modification activity climbed 208 percent.

Investor lawsuits also doubled from the third quarter, which the news organization surmises was because of a similar increase in litigation associated with mortgage-backed securities.

Even if we assume that the State Attorney Generals will reach a settlement with servicers, I don’t know that it would bar private litigation by homeowners and investors. There is a tipping point past which the big plaintiff’s law firms who take on mass class action lawsuits (mesothelioma, anybody?) get involved and start running radio and TV ads asking people, “Have you lost your home to foreclosure? You may be entitled to money damages! Call now!”

Of particular concern is the increase in investor lawsuits, as Antony Laura of Patton Boggs explains:

“While the increase in servicing cases is stark, the increase in suits by investors alleging missteps in the origination and securitization process is especially worth noting, as hundreds of millions of dollars are often at stake in those loan portfolio repurchase cases,” Laura explained.

Actually, it’s hundreds of billions at stake, and we enter the realm of systemic risk.

Oy. Otherwise, a cheery top o’ the mornin’ to ye, guvnor!


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Rob Hahn

Rob Hahn

Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

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