When Is Enough Fraud Enough?

September 3, 2008

http://blogs.newsobserver.com/editor/perp-walkThe whole country is finally up in arms about the mortgage industry and its rampant fraud, even though the story has been percolating for at least the past three years. The Consumer Warning Network receives daily emails from victims who tell the most heartbreaking stories of how a greedy broker stole them blind, how they have struggled to obtain relief from the lender holding their mortgage, and how the lender couldn’t care less. Hey, you signed the note, didn’t you? It’s no skin off our back if the slick talking broker lied to you. Tell it to the Marines.

Can these lenders just hide behind their mountain of documents and lawyers? When one broker rips off one elderly couple, why is that the company’s fault? Well, how about two brokers and ten victims? How about thirty brokers and a thousand victims? A thousand brokers and ten thousand victims? When does it become apparent that it isn’t just a few rogue brokers we’re talking about, but rather a whole platoon of brokers marching to a corporate tune?

When you’re looking for a serial burglar, you look for a pattern of conduct. Sometimes that’s all you’ve got to go on. It’s the same thing with fraud.

Some mortgage companies, like Ameriquest, had their own in-house “brokers” who engaged in deceit to sell mortgages to thousands of victims. In these cases, Ameriquest is responsible for the conduct of its brokers since they were employees and the employer is generally responsible for the conduct of its employees. Sure, the company can claim that the employee was “acting outside the scope of his employment,” but when he was trained to lie and cheat, and when it is a matter of Ameriquest corporate culture to do so, that defense won’t get Ameriquest very far.

When companies such as EMC or Countrywide, however,  use “independent brokers” it’s a different story. EMC is not automatically responsible for the conduct of independent brokers. EMC (or Countrywide) is just an innocent holder of a note who had no knowledge that the note was obtained by deceitful means, right? But what if the victim of the fraud can show that EMC’s portfolio of notes is full of similar patterns of conduct by the brokers? For how long can EMC or Countrywide maintain their innocence under such circumstances?

The law generally allows a person to prove that someone or some company had knowledge of a fraud if it can point to evidence of similar crimes, wrongs or acts, all of which benefited the company in the same way. That’s when it can become relevant that the same company had hundreds of brokers scamming thousands of victims with the same schemes and misrepresentations. That’s when enough broker fraud is enough to prove company fraud.

But litigation is not the ultimate answer to the mortgage crisis. Multibillion dollar companies hire silk stocking law firms to fight victims for years, and rarely pay back more than a fraction of what they stole. Law enforcement is the only way to stop these rampant crimes. A few “perp walks” by a few CEO’s, hiding their heads under their pinstripe suits as they walk into court, will do more to stem this conduct than a hundred lawsuits.

Write your state Attorney General and demand action. That’s what we pay them for.