Creative Coercion

One of the principal lessons of our tragic century, which has seen so many innocent lives sacrificed in schemes to improve the lot of humanity, is -- beware intellectuals.
---Paul Johnson, Intellectuals

An attorney in the Buffalo, New York City Attorney's office is trying to put half-baked ideas concocted for her doctoral dissertation into practice. In the process, she's making a mockery of the law and of her public office. But, golly, she sure is clever, isn't she?

On Dec. 17 in a windowless Buffalo courtroom, Cindy T. Cooper, a prosecutor for the city, buzzes among a dozen men in suits, cutting deals. "You've got to unboard [the house], go in, and clean it out," she tells one. "If all the repairs are done quickly, I wouldn't ask for any fines." To another, she says, "the gutters weren't done right," and asks to see receipts for the work. It's "Bank Day" in Judge Henry J. Nowak's housing courtroom, more typically a venue where landlords and tenants duke it out over evictions and back rent. Instead, Cooper is asking lawyers for CitiFinancial, JPMorgan Chase, and Countrywide Financial to fix problems like peeling paint, broken masonry, and overgrown or trash-filled yards at houses the city says the banks are responsible for maintaining. It may be surprising to find these financial-services giants hauled before this obscure local tribunal. In fact, Cooper and Nowak are at the forefront of a pioneering effort to deal with a vexing problem: the surging number of vacant and abandoned homes resulting from the mortgage market meltdown. The vacancies occur when lenders bring foreclosure suits against delinquent borrowers. Mere notice that such an action might be filed often sends residents packing. In Buffalo and other Rust Belt cities, the problem has been particularly acute, because in many cases banks are abandoning the houses, too, after determining that their value is so low that it's not worth laying claim to them. When city officials try to hold someone responsible for dilapidated properties, they often find the homeowner and bank pointing fingers at each other. Indeed, the houses fall into a kind of legal limbo that Cleveland housing attorney Kermit J. Lind calls "toxic title". While formal ownership remains with a borrower who has fled, the bank retains its lien on the property. That opens up a dispute over who is responsible for taxes and maintenance. Even when lenders do complete the foreclosure, they may walk away from the property, leaving it to be taken by a city for unpaid taxes, a process that can take years. Orphaned properties quickly fall into disrepair, the deterioration sometimes hastened by vandals who trash the interiors, lighting fires and ripping out wiring and pipes to sell for scrap. Squatters or drug dealers may move in.

[...]

In Buffalo, prosecutor Cooper is bringing lenders before Judge Nowak to hold them accountable. Wielding the threat of liens, which can hold up the lenders' other real estate transactions, she aims to make banks keep foreclosed homes in good condition until a buyer can be found. As an alternative, Cooper or Nowak may try to get lenders to donate properties to community groups or to pay for demolition when houses are beyond repair. "At least in Buffalo," says Cooper, "the days are gone when you can do a foreclosure and walk away without taking care of the property."

Some of that sounds reasonable on the surface. If a lender completes the foreclosure process and takes title to the property, then, as the "owner," it seems to the average reader that the lender ought to be responsible for maintaining the property. However, Ms. Cooper is stretching the definition of "owner" beyond the pale.

The industry denies responsibility for properties to which it has not taken title. "The notion that a mortgage company has an obligation to make repairs on a property that it doesn't even own is very hard to comprehend," says Marco Cercone, a Buffalo attorney who represents a range of lenders before Nowak in the courtroom. Cooper says that banks and other financial firms once extolled houses as the best possible collateral for a loan. Now they're stuck with that collateral, and they don't like it.

[...]

Lenders may rue the day the State University of New York at Buffalo admitted Cooper to pursue a PhD in sociology and a law degree. The subject of her doctoral thesis, submitted in December, 2006: the role of banks in residential abandonment and why they should be accountable for property-code violations. The fourth-generation Californian says she quickly became attached to Buffalo for its history and architecture. Now 33, Cooper and her husband are rehabilitating a house that she bought after getting an IRS tax lien removed from the property. "My passion for this work is because I love this town," she says.

While researching her thesis, Cooper interned for Judge Nowak. Tall, soft-spoken, and unfailingly courteous, the judge, 39, began holding Bank Day earlier this year and schedules it once a month. The civility of the proceedings and the large number of bank lawyers in attendance belie a noteworthy fact: They are there under coercion. A few years ago, Nowak says, "the city became increasingly frustrated with the banks' role" in contributing to Buffalo's abandoned-property problem. (Estimates put the number of abandoned homes in the city at between 5,000 and 10,000.) In 2004, New York State amended the definition of "owner" in its property maintenance code to include not just titleholders but others who had "control" over a premises.

While the statute makes no reference to lenders, Nowak contends that the letters banks send to defaulting homeowners threatening to boot them from their houses show that they have begun to "assert some measure of control." On this premise, Nowak says, Buffalo began contacting banks "en masse" about foreclosed properties, but "a lot of times we'd just be rebuffed and ignored."

Cooper, as an intern, suggested a tactic that the judge adopted. When banks ignored summonses for code violations, Nowak began entering default judgments against them and imposing the maximum fine, which can reach $10,000 to $15,000. For a big bank, that's not much. The real pain comes because the fines give the city a lien that impedes the banks' ability to buy or sell other properties in the area. In addition, when lenders come to his court to get residents evicted from a particular property, Nowak refuses to grant the request until the bank addresses violations outstanding on other properties. Judge Pianka employs similar tactics in Cleveland. On Dec. 10, for example, he assessed a $50,000 fine against an absentee defendant, Mortgage Lenders Network USA, for 21 code violations at a home.

The article doesn't do justice to the mind-bending mental gymnastics of Ms. Cooper and her cohorts. In February, the City of Buffalo filed a complaint against a plethora of lenders in New York State Supreme Court, alleging that they were "owners" of various properties due to the fact that they had obtained judgments of foreclosure on (but had not applied for or obtained title to) those properties, and that the lenders were not only liable for common law nuisance and city code violations for the specific properties on which they had foreclosed, but jointly and severally liable for creating a public nuisance. Even bank-haters might think that the last claim might be a stretch too far, even for the Gumby-like Ms. Cooper and her pals. If that's what you thought, you'd be wrong. A source close to the litigation, who requested anonymity, told me that at a meeting with lawyers for the lenders, a "giddy" female attorney for the City of Buffalo (I'm not certain whether or not it was Ms. Cooper) offered to let each lender off the hook for a mere $30,000 to $40,000 each. I assume her giddiness was caused by her being drunk with power.

The lenders are having none of it. A number of them have banded together, brought in some big guns who aren't worried about their future relationship with people like Ms. Cooper and her ilk, and are preparing to unload on this over-reaching abuser of the legal process. According to the Joint Memorandum in Support of a Motion to Dismiss the Complaint, it's not merely that the City of Buffalo doesn't have law in support of its contention that the lenders are liable, it's that binding precedent is clearly against the city on all counts. Under New York law, a lender is not a "mortgage in possession," and does not have "control," by virtue of the fact that it obtains a judgment of foreclosure. Moreover, the "joint and several liability" allegation would be laughable if it hadn't been made with a straight face. Each lender is liable for every other other lender's actions and/or omissions. Uh-huh.

What this appears to be is an attempt by a government bully to strong-arm lenders into coughing up cash without a firm legal basis for doing so, merely by creating causes of action that have little or no merit, dragging the lenders into court, forcing them to hire defense counsel (shudder), and assuming that they'll settle as a result of a cost/benefit analysis. To some of the more sensitive noses, these tactics might contain the whiff of extortion (for example, as defined by 18 U.S.C. Sec. 1951(b)(2): "the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right."). For government punks with the power of the public purse and no real accountability (no voter sheds tears for big, bad banks), it's called "Going All Spitzer On You." That's a time-honored tactic not only on The Sopranos, but in New York government circles, as well.

The foreclosure crisis in Rust Belt cities like Buffalo and Cleveland is unfortunate. It's bad for any community to have an increasing number of run-down and/or abandoned homes in communities that were into a terminal downhill slide well before anyone heard of subprime loans. Lenders share in some portion of the "blame" for the situation, the extent of that blame being arguable and depending upon where your self-interest is situated. However, the use of hallucinogenic drugs and a trip through the looking glass in order to make an owner out of a lien holder, simply by adopting the Humpty Dumpty line of "when I use a word, it means what I say it means," is perhaps not the best way to "make things right."  The use of such tactics evidences a disdain for the law, not a respect for it, no matter how much "public good" you think you're achieving. To paraphrase Thomas More in Robert Bolt's play "A Man For All Seasons," once you've flattened all the laws in pursuit of the devil, to what will you turn for protection when the devil turns round on you? From a practical standpoint, unless the bullying works and the lenders cave without a fight, then unless you're in the jurisdiction of the US Ninth Circuit Court of Appeals, you'll eventually hit an appeals court without a political ax to grind, which will then spank your little bottom for being a bad, bad girl (and it won't be the kind of spanking that "bad girls" sometimes enjoy).

This is an area where the legislature might want to intervene and pass some more incredibly useful legislation like the recent expansive subprime lending law signed into law by New York's Governor Patterson, which has already prodded Fannie Mae and Freddie Mac to announce that they'll cease purchasing any such loans made in New York. You know, more useful legislation like that. At any rate, the political arena seems a more appropriate one than the courtroom.

A more viable solution might be to have cities like Buffalo and Cleveland admit that they're irreparably broken, shut down, and encourage their inhabitants to move to Texas. All except the Ms. Cooper and her crusading buddies. They can resettle in South Ossetia. They won't like it much in Texas, although they might find safe haven in certain sections of Austin.

I'm not aware of what sanctions might be available to the lenders in this case. A private party would have to carefully consider a frivolous and groundless counterclaim before filing a complaint that held such little merit. Apparently, that prospect didn't deter legal counsel for the City of Buffalo. Then again, the fun's just beginning, so we'll see where this all shakes out.

Next up: Cindy Cooper creates, and the City of Buffalo files, a complaint in The International Court of Justice, that accuses all major US banks of ethnic cleansing.