Bank Lawyer's Blog

A Bad Idea That Refuses To Die

Even though municipalities like San Bernardino have come to their senses and dropped a make-your-investment-banker-rich-quick scheme to seize underwater mortgages from mortgage lenders and wrote down the principal balances, the scheme refuses to completely die. I guess we'll have to use holy water, garlic, mirrors, fire, crucifixes and wooden stakes to stamp it out. In the interim, SIFMA continues to publicly pummel it.

In a recent post on its Pennsylvania + Wall blog, SIFMA's Timothy Cameron reiterates why those municipalities still considering this likely unconstitutional scheme to abandon it.

The proposals being touted target a very narrow slice of homeowners – those that are in private-label MBS and who are current on their existing mortgages, have good credit, and ideally don’t have existing home equity loans or other liens on the property. Those who are behind on their mortgage payments or have poor credit (which is the vast majority of homeowners needing help) will get no relief.

Within the small pool of qualifying homeowners, the proposal, on its face, will substantially undervalue their homes. In one example, the mortgage that investors would get paid $160,000 for is refinanced shortly thereafter for $190,000, with much of the additional $30,000 going to the plan’s backers after costs and a kickback to the municipality are accounted for. This is not fair compensation, since the amount paid is well below the face value of the taken note, and significant profits accrue to private parties.

In addition to the legal issues, the use of eminent domain will also be immensely destructive to U.S. mortgage markets in general and to specific communities using eminent domain, in particular. If the sanctity of the contractual relationship between a borrower and a creditor is undermined by the use of eminent domain, both lenders and investors will be reluctant to provide funding in the future. The result will be a significant contraction of credit availability, particularly in communities that have exercised eminent domain to seize loans. It will be much harder to get a loan: any loans that are granted will likely require much larger down payments, stronger credit scores and higher interest rates to compensate for this new and unprecedented risk. This contraction of credit availability would likely serve to halt any recovery in the municipality’s housing market, and could further depress housing values in the cities using eminent domain.

The last reason may be the most telling. Good luck with the future availability of affordable residential mortgage credit in your soon-to-be dustbowl of a community if you enact this scheme. The investment fund gets wealthy, of course, which is the impetus for this half-baked plan. All to help, but not so much, a narrow slice of the community.

Bad ideas never die. They never seem to fade away, either, unfortunately.

Second-Guessing the Second Guessers

Every once in awhile, the blustering blunderbuss known as Senator Liz ("She-Reams-For-Sport") Warren fires a scattershot salvo that strikes a worthy target. You know, like when Dick Cheney shot a lawyer in the face.

The other day, Princess Rides-Bankers-Like-A-Burro was grilling some representatives of the big-time independent foreclosure review firms at a hearing that only Democrats attended (so you know it wasn't going to be pro-banker) and, as related by Larry Doyle, she struck oil.

Senator Warren: I just want to take a look at the Independent Foreclosure Review Payment Agreement details. I think you’ve probably all seen this one page agreement that lists all of the things that the banks did wrong and then boxes for how many people fall into each category and how much money they’re going to be paid. Is that right? You’ve all seen this? [Panel indicates they have seen it.]

And this was put out – who put this out? I think this is put out by the OCC and Federal Reserve. Is that right? As part of the settlement details. So I just want to ask you about this.

It has some pretty amazing categories here. The first category is about service members who were protected by Federal law whose homes were unlawfully foreclosed. It’s got people who were current on their payments whose homes were foreclosed. It’s got people who were performing all of the requirements under a modification who lost their homes to foreclosure.

And it tells how many people fall into each category and how much money the people in that category will receive. And, it ultimately resolves what will happen to 3,949,896 families.

So the question I have is having resolved this nearly 4 million families, who put the people, the families, into each of these boxes. Is that what your firms did. Mr. Ryan?

Owen Ryan, Partner, Deloitte & Touche LLP: No, Senator, we did not.

Senator Warren: So who put them in.

Ryan: I’m not sure how that schedule is prepared. I saw it for the first time yesterday.

Senator Warren: Mr. Flanagan?

James Flanagan, Leader, U.S. Financial Services Practice, Pricewaterhouse Coopers LLP: Same response. We were not involved in the accumulation of that information.

Senator Warren: Mr. Alt?

Konrad Alt, Managing Director, Promontory Financial Group: Senator, I’ve seen the schedule but I’m not familiar with the basis for its preparation.

Senator Warren: So let me understand this. You ran the independent reviews, right. That’s what you got paid to do. And yet, I presume, the only one left is the banks must have put them in these boxes and you made no independent review of their going into these boxes. You were not asked to do that? Mr. Alt.

Alt: No Senator, we were not asked to do that.

Senator Warren: Mr. Flanagan. 

Flanagan: No we were not.

Senator Warren: Mr. Ryan.

Ryan: We were not Senator.

Senator Warren: So that leaves us with the banks that broke the law were then the banks that decided how many people lost their homes because of their lawbreaking. And, as a result, how many people would collect money in each of these categories. Is that right Mr. Alt?

Alt: Senator, I’m not familiar with the basis for the scheduling. 

Senator Warren: So far as you know, there’s no independent review of the banks’ analysis…you looked at 100,000 cases and the banks have now put 4 million people into categories and resolved finally how much they will get from this review by the OCC and the Federal Reserve.

Sweet!

As Mr. Doyle put it, "Bang up job on behalf of the American taxpayer from these individuals and their firms charged with an independent review of this settlement process. NOT!!"

But here's a word in defense of the consulting firms: when Mr. Alt said that it wasn't in the scope of their duties, he was not kidding. As one of my readers, a bank lawyer, advised me, the entire review process was FUBAR from the get-go.

I saw it up close and it was an absolute Rube Goldberg process with the scope, criteria and objectives changing constantly. Regulatory example 1001 of do as I say, not as I do.

It's always easy to use 20/20 hindsight to bash people, of course. However, since the regulators love to do it to bankers, I guess turnabout is fair play.

Impeding Foreclosure Hurts Homeowners As Well As Lenders

According to a story at Housingwire, a recent study by research firm Corelogic concludes that those states with more cumbersome and lengthy foreclosure processes impose "hidden costs" on homebuyers.

"Extended disposition timelines impose operational costs on servicers, carrying costs on investors in the mortgages, and in some cases, significant legal risk and compliance costs," said Mark Fleming, chief economist for CoreLogic.

"The likely result is more expensive mortgages and possibly increased rationing of credit based on the additional costs of disposition, which may vary dramatically by local foreclosure process requirements," he added.

In the short run, however, all the homes tied up in foreclosure restricts supply and, for the immediate future, stablizes or actually increases home prices. In some states and regions (California, the South and the Southwest), a steep drop in REO, due to investor demand, has also helped housing prices.

Unfortunately, over the long run, in addition to the possible increase in borrowing costs in long-foreclosure states, the results are not favorable. An earlier Housingwire piece that addressed a study by LPS, claimed that judicial foreclosure states were lagging in recovery versus non-judicial foreclosure states. These studies support Housingwire's publisher Paul Jackson's long-asserted contention that housing markets would have recovered more quickly than they have if foreclosure was allowed to run its course and inventory was cleared more quickly. In other words, the desire to "do good" over the short term may be prolonging the pain and adding new pain to the residential housing market.

"Ability-to-Repay" Rule About to Crimp Entrepreneurs?

Rhonda Abrams, who writes about entrepreneurship, claims in a recent USA Today opinion piece that the CFPB's "Ability-to-Repay" rule will have what most social engineering legislation has: unintended consequences. For small businesses and entrepreneurs, one of those consequences will be that "getting a mortgage will become a whole lot harder soon."

And I'm betting it's going to be a heck of a lot harder for people who are self-employed or own a small business to qualify — assuming the business is run as a sole proprietorship, limited liability company or S corporation and income passes through to a personal tax return.

Why? The very sensible provisions were designed for people who receive paychecks rather than run businesses. Small-business owners and the self-employed are likely to have greater challenges with some of the provisions:

Among the problems for entrepreneurs, Rhonda points out the following:

• Verifying income for an sole proprietor or pass through entity depends on income shown on tax returns, rather than net worth (used as an alternative to tax return income in the "bad old" days of low-doc, no-doc loans). In addition, small business owners may show lower net income because they take aggressive positions on tax deductions and/or plow gross income back into the business. Fewer entrepreneurs may be able to provide the verification needed to satisfy the rule.
• Debt-to-income ratios may be tougher to meet because business debt shows up as personal debt, and, in the case of business lines of credit, the entire line shows up as debt even if no draw are made.
• Personal services businesses are often poor in hard assets but rich is goodwill developed by a highly skilled entrepreneur. In addition, entrepreneurs often live in high-home priced areas, and use their home as their office, which increases mortgage debt.

Abrams advises those entrepreneurs who've been thinking about taking advantage of low interest rates to buy or refinance, to do so this year. She also advises entrepreneurs to think twice about taking advantage of legitimate deductions that lower tax return reported income to the point where qualifying for a home mortgage loan may be jeopardized.

The abuses of the past engender remedies that cause disadvantages for some future borrowers, at a time when the country's problem is no longer that too many loans are being made but too few.

The Not-So-Secret Facts of Life

The LA Times obtained a bunch of documents from the FDIC pursuant to a FOIA request and uncovered some startling news: the FDIC is settling lawsuits against those it alleges caused banks to fail. Worse than that, the FDIC is agreeing not to issue press releases regarding many of the settlements. This earth-shattering news is labeled a "major policy shift" from the way the FDIC handled failed bank litigation that arose out of the last big bank meltdown, "when the FDIC trumpeted punitive actions against banks as a deterrent to others."

Before I address that last point, let's listen to some more suspicious minds support the Times theme that all of this "secret settlement" skulduggery smacks of some kind of plot to let evil-doers escape the lynch mobs that surely would have strung them up if only the FDIC had set public outrage en fuego by  trumpeting these settlements from the top of the Rocky Mountains.

Critics fault the government for going easy on banks in the aftermath of the financial crisis. At a Feb. 14 hearing, Sen. Elizabeth Warren (D-Mass.), founder of the Consumer Financial Protection Bureau, criticized FDIC Chairman Martin J. Gruenberg along with other bank regulators for their reluctance to make examples of Wall Street firms by taking them to trial.

Quoting "The Founder" is a go-to proposition for the Times, and one that lacks the punch that soundbites from other less usual suspects bring to the table. In addition, the Times' accusations range far beyond Wall Street banks. It's mostly (if not entirely) the little guys that are being pursued. God forbid they should get a break today from anyone other than MacDonalds.

Attorneys who have represented bank officials and the FDIC said regulators are now far likelier to settle cases before filing lawsuits than after the last spate of failures, when more than 2,300 institutions collapsed in the 1980s and early 1990s, bankrupting a fund that insured savings and loan deposits. That crisis grew out of Reagan-era deregulation, which allowed thrifts already hurting from 1970s inflation to make riskier investments, including commercial real estate deals that soured en masse during the second half of the 1980s.

Critics describe the FDIC's current practice of low-profile deal-making as a major departure from the S&L crisis.

"In the old days, the regulators made it a point to embarrass everyone, to call attention to their role in bank failures," said former bank examiner Richard Newsom, who specialized in insider-abuse cases for the FDIC in the aftermath of the S&L debacle. The goal was simple: "to make other bankers scared."

Newsom said he couldn't understand the shift, unless the agency doesn't "want people to know how little they are settling for."

The FDIC should disclose as much as it can, said Lauren Saunders, managing attorney at the National Consumer Law Center in Washington. "Transparency is always better, and serves as a deterrent to future misconduct."

Yes, let's deter the future conduct of owning, managing, and directing a community bank that concentrates on loan products that the regulators find are being originated and managed within the parameters of safety and soundness guidelines until, within a few months, the world falls apart in the greatest economic collapse since the Great Depression. Thereafter, although we feel compelled to go after many failed bank officials, directors, and third parties because we've got an obligation to recover whatever losses to the fund we are able whenever we can do so without being laughed out of court, we understand, in our heart-of-hearts, notwithstanding the posturing we might do for political or litigation purposes, that these times are different than late 1980s.

This is what neither the Times nor its talking heads understand (or, if they do understand, will admit): the facts are different this time. In the 1980s, there were a number of outright crooks involved in the banking and, especially, the thrift business in certain parts of the country, some wearing stetsons and cowboy boots, others clad in three-piece Armani suits. There were fraudulent appraisals, my-dead-cow-for-your-dead-horse swaps, 100 percent loan-to-value ADC loans on raw dirt, rapid multiple flips that would have taxed Shawn Johnson, and similar shenanigans. The damages were also limited to certain regions of the country where real estate bubbles were exploited (or partially created) by financial institutions who engaged in outright speculation until those bubbles burst. Also, many of the worst players were (relatively) smaller players.

In the latest debacle, the causes of losses are more complicated and the resulting economic consequences much more devastating and widespread. Many of the hundreds of banks that failed collapsed because they were steamrolled by the swiftness of the onset, and the depth, of the economic collapse triggered, in large part, by subprime residential mortgage loans, the complex web of securities they spawned, and the resulting residential real estate inflation. Commercial real estate wasn't the primary cause of the collapse this time, it was a casualty of the collapse. You can argue until you're blue in the face about the nuances of fiduciary duties and CRE concentrations, but in all but the low hanging fruit cases, the FDIC doesn't have smoking guns laying in plain sight to use to extract huge settlements or litigation awards out of either defendants or, more importantly, their insurance companies, who are fighting back.

As to the lack of a "deterrent" to future potential wrongdoers that allegedly results from not making settlements public, I wouldn't be concerned that "silent settlements" are encouraging prospective bank officers and directors to do anything. Those who haven't said "screw it" and opted to sip mai-tais in Cabo until they need their livers "Rolfed," or are seriously considering an alternative exit strategy, aren't chomping at the bit to jump feet-first back into subprime anything or to make CRE or any other product or service their concentration-of-choice, and their primary regulatory supervisors wouldn't let them go there even if they yearned to do so. "Other bankers" are plenty scared Mr. Newsome, without the need to read about FDIC settlements. At least, that's the story with the vast number of smaller banks in this country.

I suppose there might be some deterrent effect if the FDIC announced settlements against the officers and directors of the large Wall Street banks that helped create the mess we're in and which then failed, so that future Wall Street bankers would...oops...none of them failed. That's right: they were bailed out. My bad!

Buried in the story is the rationale for keeping mum (until FOIA forces disclosure) about settlements.

Defendants benefit by settling because they can avoid admitting guilt and limit the damages they might face in court. The FDIC benefits by collecting money without the hassle and expense of litigation. The no-press-release arrangements help close those deals.

Those are valid reasons, and they make sense for both parties.

Let's hope the Times drills a little deeper next time and strikes oil instead of gas.

Unaccountably Unaccountable

Famed criminal defense attorney F. Lee Bailey once a stated that if he were charged with a crime and was, in fact, innocent of that crime, he would prefer to be tried by a military court of justice. He thought that military officers were disciplined to apply the law and the applicable rules fairly. I have no idea whether Bailey's view is supportable or not. However, I do know that if I'm guilty as charged, my best chance of beating the rap is to be tried by a jury of my "peers."

They were charged with "defiant trespass."

But after a Common Pleas Court jury on Tuesday acquitted the 12 Occupy Philadelphia protesters arrested in a 2011 bank sit-in, the trial judge shook their hands and called them the "most affable group of defendants I've ever come across."

"I think what this really shows is that when the people of Philadelphia make a decision, they want someone accountable," said Aaron Troisi, a 26-year-old working toward a master's degree in education at Temple University. "Accountability and justice is not what they experienced with banks like Wells Fargo."

Troisi's view of accountability would be labeled "ironic" if he was just a tad more self-aware. Instead, I'd label it "clueless."

The defendants were found guilty by a judge in municipal court, but were given the right to have the case retried by a jury in Common Pleas Court. As so many defendants facing substantial evidence of their guilt have previously discovered (including The Juice and Robert ("Don't Do The Crime If You Can't Do The Time") Blake), when a group of your average citizens decides to apply the law to the facts, whatever feels right is likely to rule the day.

The original charges of trespass were brought by the Philadelphia District Attorney's Office after the defendants trespassed on private property (the inside of a bank branch office) as part of the nationwide Occupy This-and-That-and-Also-That-Thing-Over-There movement. It seemed like a slam dunk case, especially when the municipal court judge agreed. But after 13 hours of hard deliberation, the jury decided that it was an episode of "Boston Legal," where jury nullification is just part of the way a jury ought to roll. The linked article doesn't say, but I'm wondering whether, at any point in the defendants' counsel's summation, a rotund attorney stood up from the defense table, eyed the jury, uttered two words ("Denny Crane"), and then sat down. If so, the verdict makes sense.

The trial judge not only shook the defendants' hands, she told them to soldier on in "La Cause."

Afterward, Judge Nina N. Wright Padilla took the unusual step of coming down from the bench and asking all 12 to approach so she could shake their hands.

"I hope you continue your work in a law-abiding way," said Padilla.

In Philadelphia, "law-abiding" apparently does not apply to abiding by trespass laws, at least where the property owner is a large bank.

In an upside down world, the defendants displayed a firm grasp of logic.

"If this jury has found us innocent, then it must mean that Wells Fargo is guilty," said 71-year-old Willard R. Johnson, one of the 12 on trial.

I need to see the diagram of the syllogism that led Willard from Point A to Point B. On second thought, forget it.

According to the article, the jury bought defense counsels' arguments that the First Amendment protected the defendants and that even if the actions did violate the law, "the protest served a greater good for society that trumped the trespass charge."

"The greater good" trumps the rule of law. In Robert Bolt's play "A Man For All Seasons," Thomas Moore replies to his future son-in-law, Roper, a Christian zealot who claims that he'd cut down every law in England to get at the Devil.

Oh? And when the last law was down, and the Devil turned 'round on you, where would you hide, Roper, the laws all being flat? This country's planted thick with laws from coast to coast– man's laws, not God's– and if you cut them down—and you're just the man to do it—do you really think you could stand upright in the winds that would blow then? Yes, I'd give the Devil benefit of law, for my own safety's sake.

Beware of modern day zealots, who claim to "speak truth to power," and who would cut down any law that stands between them and "the common good."

The Rocky Mountain Lowdown: Loan Collateral Up In Smoke

I asked Steve Mulligan, a partner in the Denver office of the law firm that suffers my presence in their Texas office, to write a guest post for the blog on an issue of concern to lenders in Colorado (and, perhaps, other states) where, after the most recent state and national elections, lighting up a fat boy in public, or growing smokable hemp in  your basement, no longer puts you on the wrong side of local law enforcement. As Steve points out, that's not the end of the story for lenders whose collateral may be a place where some mellow cats are toking up a Rocky Mountain high.

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Bankers & Lenders, Your Real Property Collateral May Be At Risk if Your Borrower Violates Federal Drug Laws

By Steven T. Mulligan, Bieging Shapiro & Barber LLP

Bankers and lenders, if your borrower grows marijuana or rents to people who grow marijuana, your real property collateral may be at risk of forfeiture under federal law despite the fact that such activity might be legal under Colorado state law.

Judge Howard A. Tallman, chief judge of the U.S. Bankruptcy Court in Colorado, had recent occasion to considersuch a situation.  In In re Rent-Rite Super Kegs West Ltd., the Chapter 11 debtor owned a warehouse in Denver and some of its tenants were in the business of growing marijuana.  While this may be a legal activity under Colorado law, it is not under the federal Controlled Substance Act (the “CSA”) unless one receives a certificate of registration from the Drug Enforcement Agency (“DEA”). 

Judge Tallman looked to § 856 of the CSA, known as the “crack house statute,” which provides that it is a federal crime to use real property or allow real property to be used for unlawfully manufacturing, storing, distributing, or using a controlled substance.  Marijuana is a Schedule I controlled substance under the CSA. 

The Judge then looked to the criminal penalties for violating the CSA which includes a potential prison term of not more than twenty years.  As a result, the federal forfeiture statute comes into play.  That statute provides that real property used in connection with activities that violate the CSA and are punishable by more than one year’s imprisonment is subject to forfeiture.

Consequently, Judge Tallman found that the debtor’s illegal activity put the lender’s collateral at risk because of the federal forfeiture statute.  Moreover, since the automatic stay provisions of the Bankruptcy Code do not prevent the U.S. from seizing property under the forfeiture statute, the risk continued every day that the debtor remained in bankruptcy.  The matter was before the court on the secured creditor’s motion to dismiss the debtor’s bankruptcy case. 

In re Rent-Rite highlights the need for lenders to gather important information when underwriting and administering a commercial real estate loan.  Such information should include current rent rolls, copies of any leases, and research on any tenant; it may be that the name is a good indication as to what the tenant’s business is.  If possible, you may want to visit the property to see if any potentially illegal activity is taking place.  An affirmative covenant from the borrower that no activity in violation of state or federal law may also be beneficial.

Additionally, consider requiring the borrower to provide periodic updates and immediate notification if it enters into any new leases or changes its own business to include growing marijuana.  Finally, think about reviewing your default provisions; if the borrower engages in activities that are in violation of the CSA or allows such activities to occur, you may be able to declare a default under the loan documents.

Memories, Like The Corners Of My Mind

Yesterday's post prompted a couple of quick responses from regular readers. One asked me if I had noticed who applauded Senator Chingachgook's question about taking big banks to trial. I had not noticed. My correspondent alleged that they were wearing NACA logos on their shirts. That explained much.

NACA is one of the non-profit organizations that was a prime player in the DAP debacle, which cost HUD a bundle of loot due to the fact that the percentage of borrowers under that program who defaulted on their loans far exceeded the percentage of borrowers who did not participate in the program. NACA also tried to convince various legislatures to enact foreclosure moratoriums, alleging that they were aghast that mortgage servicers were handling foreclosures in-house (The horror! The horror!). Finally, NACA was also one of the pre-Occupy-This-Or-That activist organizations that staged mock foreclosures at the homes of bank executives, prompting me to suggest that the way to combat those non-legal foreclosures might be with extra-legal firepower. As usual, cooler heads prevailed.

Of course the applause came from NACAites. Liz is their kind of pol.

Another reader reminded me that Senator Magua's habit of dramatic overstatement and misdirection was highlighted by me before the CFPB was even a gleam in the eye of either Dodd or Frank. That post featured the fevered dream of then-blogger Lie-awatha that national banks who were loan servicers were trying to preempt all state foreclosure laws. I think she might have thought that what national banks wanted more than life itself was to be able to move a battalion of dozers through poor neighborhoods with impunity, crushing homes like piles of matchsticks, just because they're all evil and that's what evildoers do. I'd forgotten about that post, but my elephant-minded reader had filed it away in his mental chest of fond memories.

I'm pleased that some readers pay more attention to what I write than I do. It saves time and effort to be resupplied in a timely fashion by others when the snark train needs another shovel-full of coal to keep steam in the boiler.

Full speed ahead.

HUD Gives A Big Thumbs Up To Disparate Impact

“Disparate impact” as the basis for finding fair lending discrimination got a boost last week from HUD (paid subscription required), which issued an 83-page rule in support of that theory. As regular readers know, we at BLB have a long-standing antipathy to claims that spring fully-formed from the brains of those who live to ensure that every American has a right to obtain any loan that he or she applies for, especially if they won’t have one chance in a million of ever repaying it. After all, banks are public utilities, right?

The usual suspects came out in droves to bloviate about this latest exercise in pushing a political-social agenda through federal government action. On one side, you had the consumer advocates, who thought this rule might have originally been a part of the Arc of the Covenant.

"We're happy that the rule's out, and believe it's consistent with 40 years of policy," says Dory Rand, president of the Woodstock Institute, a nonprofit advocacy group.

Dory then reentered the Woodstock Institute and toked up a fat boy with Wavy Gravy.

From the dark side of The Force came the yowlings of the hounds of hell, otherwise known as bank lawyers.

"It's as extreme as it could be in adopting the disparate impact approach," says Paul Hancock, a partner at K&L Gates.

[…]

"There's concern that each element of the three-part test has some language that could make it easier to proceed with a disparate impact case, and harder to defend," says Joseph Barloon, a partner at Skadden Arps.

Messrs. Hancock and Barloon then paused to beat a homeless man senseless before stealing a third grader’s milk money and pushing an elderly dowager in front of an onrushing trolley.

None of this should come as a shock from an administration that also includes an ironically named “Justice Department” that has gone to great lengths to use disparate impact to squeeze lenders into coughing up mucho dinero. It is also no surprise that this rule was expectorated shortly after the second inauguration of the future “Lone Bust On Mount Rushmore.” Launching this thing off the pad in September 2012 might have posed some political risk. Now, the administration isn’t worried about re-election, only in firing the opening salvo in what will be four more years of beating banks into line to serve a progressive social agenda on “fair” lending. “Game On!”

There’s always the chance that the SCOTUS could throw a strip of road spikes in front of this speeding bus.

The rule also comes at a time when the Supreme Court has been mulling whether to rule on the applicability of disparate impact theory in the fair lending context.

In 2011, the high court agreed to hear a case involving the city of St. Paul, Minn., that might have resolved the issue. But St. Paul officials scuttled their appeal after the Justice Department agreed not to join another lawsuit against the city. Congressional Republicans are now accusing the Justice Department of entering into an inappropriate quid pro quo with the city of St. Paul.

The Justice Department's maneuver irked the lawyers who represent banks in fair-lending suits. "If the government was confident in its position on this issue, why didn't they let the Supreme Court decide the case?" Hancock asks.

Obviously, Paul was asking a rhetorical question, the answer to which is “Because they know they’d lose it.”

While some legal experts opined that the promulgation of HUD’s rule will make it more difficult for the Supreme Court to overturn the “disparate impact” theory because of traditional deference shown to regulatory interpretations by federal courts, others were less pessimistic.

Rich Andreano, a partner at Ballard Spahr, disagrees. He says that in some recent decisions the Supreme Court has given less deference to federal agencies than it did in the past.

"They're going to base it on their own interpretation and won't particularly care what HUD's interpretation is," Andreano says.

I’m with Rich on this one. As long as Justice Scalia doesn’t stoke out or end up shot dead in the street by a jealous husband, and Justice Thomas continues to honor his vow of silence and thereby avoid a rip in the space-time continuum, I think the SCOTUS will ultimately trim the wingtips from this high-flying bird. On the other hand, I wouldn’t take that prognostication to the bank.

Adverse Possessor Dispossessed Adversely

When it comes to foreclosing on homes, Bank of America can't seem to catch a break. If they're not seizing the wrong home (and the owner's parrot), some nut job is seizing the right home from them.

In the last few years, some scofflaws have been using "adverse possession" laws as justification for occupying homes that are in foreclosure, have been foreclosed upon, or none of the above. In Boca Raton, Florida, a Gen Y jug-head who calls himself named "Loki Boy" (why not "Loki Man"?), with alleged ties to a fringe anti-government group, tried a variation on this theme and "adversely occupied" for a few months a $2.5 million mansion that was owned by the bank. Although this brazen attempt to violate trespassing laws made national news, those of us in North Texas have been facing a wave of similar attempts. At least we were until the local law enforcement authorities quickly snuffed it out by arresting the "adverse occupiers" and prosecuting them. That nipped this brewing insurrection in the bud. Then again, it's Texas, so we tend to shoot first, ask questions later.

Loki Boy's escapade also ended badly (for Loki Boy), when Bank of America sought (and obtained) an injunction against the Boy and his "house guests." The local police then raided the place, took back possession (with extreme prejudice) from The Boy (who, wisely, was not at home when the fuzz came calling), and restored Bank of America to full possession (no word on how many house guests the bank plans to invite to share the digs). The bank is also suing the Boy for $15,000 in attorneys' fees, but I'm sure B of A wouldn't be surprised if it has a tough time locating Loki, much less collecting that amount from him.

In terms of creating new legal rights, however, you have to give Loki Boy a pat on the back (and perhaps a Thai stick and a fat boy).

The Sun-Sentinel reported that Barbosa posted a notice in the front window of the house naming him as a "living beneficiary to the Divine Estate being superior of commerce and usury." On Facebook, a man named Andre Barbosa calls the property "Templo de Kamisamar."

Man, I haven't seen the "living beneficiary of the Divine Estate" theory pushed since 1967 in Haight Ashbury. At least I think it was in 1967. It might have been 1977. Maybe it wasn't Haight Ashbury. Maybe it was Woodstock. Blast! Those years are a blur to me now. It's as if they've all gone up in smoke.

As for any other potential adverse possessors thinking about floating in Loki Boy's elevated footsteps, Bank of America says "Don't even think about it!"

In a statement issued after the home was secured, a spokeswoman for Bank of America said it appreciated "the assistance of local authorities and the patience of neighbors as we worked to have the trespassers removed.

"We take trespassing seriously, and in the interest of the community, we will take appropriate legal action to protect this and all properties we service," the statement said.

Go ahead Loki Boy wanna-bees: make B of A's day.