TUESDAY, OCTOBER 5, 2010


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Judges revisiting foreclosure cases may help owners but clog market


That possibility already is driv-


BANK ERRORS SPARK SUITS Armies of attorneys


seize cases nationwide


BY ARIANA EUNJUNG CHA AND BRADY DENNIS


On Florida’s west coast, where


the housing bust has flooded courts with foreclosure filings, the chief judge of the 6th Judicial Circuit has little sympathy for lenders who have routinely sub- mitted flawed and possibly fraudulent foreclosure cases. J. Thomas McGrady, whose


jurisdiction includes two hard- hit counties with more than 1 million people in the Tampa area, said Monday that foreclo- sures based on improper paper- work should be tossed out. Judges “are going to have to


vacate that judgment and start over again,” he said. Across the country, judges fac-


ing pressure from homeowners and their attorneys are begin- ning to reexamine old cases and dismiss pending ones. The trend could lead to overturned evic- tions, and it could stall foreclo- sure cases for years and scare away buyers ofmillions of seized properties clogging the real es- tatemarket. “We’ve never been inundated


to this extentwith this number of cases alleging fraudulent paper- work,” said Peter D. Blanc, chief judge of the 15th Judicial Circuit Court, in West Palm Beach. “We’re in newterritory, andwe’re struggling to determinewhat the proper solution is.” Judges nationwide have broad


latitude in deciding whether to accept new paperwork and whether to charge the lenders with fraud for submitting prob- lematic documents in the first place. Even before three of the na-


tion’s largest lenders — Bank of America, J.P. Morgan Chase and Ally Financial—announcedmor- atoriums on foreclosures in the 23 states that require a court order to evict a borrower from a home, some judges were begin- ning to push back against banks with sloppy or fraudulent filings. The lenders have acknowl-


edged that a handful of employ- ees signing off on hundreds of thousands of files may not have


WALLY PATANOW/TAMPA TRIBUNE


Chief Judge J. ThomasMcGrady of Florida’s 6th Judicial Circuit said judges must vacate their rulings in the case of improper paperwork.


“We’ve never been inundated to this extent . . . and we’re struggling to determine what the proper solution is.” —Peter D. Blanc, chief judge of Florida’s 15th Judicial Circuit


read them, but they have insisted that the problem amounts to a technical issue that can be fixed easily by replacing old docu- ments with new ones. They say that the facts proving that bor- rowers missed their payments are sound and that the procedur- al errors might delay foreclo- sures but won’t change the out- come. As the situation in Florida


shows, it’s unlikely to wind up so simple. Armies of consumer attorneys


and homeowners are seizing on the paperwork issues to try to protect individual homes from foreclosure and bring into ques- tion the legitimacy of the mil- lions of foreclosures undertaken since the housing crisis began in 2007. The recent moratoriums have


made life easier for people such as Michael Gaier, a Philadelphia lawyer who has taken on 130 clients hoping to fight their fore- closures. Before, he said, judges churn-


ing through foreclosure cases tended “to roll their eyes, be- cause they’ve heard every story in the book,” he said. But now, “I don’t have to convince them on


my own. I don’thave to start from scratch,” he said, because the moratoriums show that the banks “know that something is wrong.” Gaier and other lawyers say


they have been floodedwith calls from new clients who had lost hope of keeping their homes but nowsee anopportunity to stay. In addition, homeowners who had been complaining of flawed or forged paperwork for years feel they are finally getting traction. “My reaction is, it’s about time.


In the past, people thought we were crazy; the judges laughed at us. Now everyone knows there is a serious problem,” said Denise McMillan, 51, who was evicted from her four-bedroom home in Pikesville, Md., in July and has been coordinating online with others fighting foreclosure. The collective decisions of


judges across the country could turn a foreclosure slowdown into a far larger mess if they deter- mine that homes were wrongly seized and resold by lenders. Foreclosed homes accounted for nearly one-fourth of all residen- tial sales in the second quarter, according to a report by Real- tyTrac released last week.


Why it doesn’t feel like a recovery ByNeil Irwin


The nation’s economic woes boil down to this. Compared with a healthy economy, about 7 million working-age people and 5 percent of the nation’s industrial capacity are sitting idle, not producing what they could. The economy is growing again, but at a rate — less than 2 percent in recent months — that’s too slow to keep up with a population that keeps increasing and workers who keep getting more efficient.


This is the output gap, the divide between the amount the United States can produce and what it is actually producing. The gap, currently $900 billion, explains why we feel so miserable more than a year into what is technically classified as an economic recovery.


POTENTIAL OUTPUT CHART KEY


Annual rate of production of goods and services at full capacity, the level of output at which almost everyone who wants a job can find one, machines are being put to productive use and office buildings are full.


OUTPUT GAP


Difference between actual and potential output ACTUAL OUTPUT


Annual rate of the country’s production of goods and services


GDP $14


trillion Output gaps since 2000


Sometimes the economy is turbo-charged and Americans are cranking out more than can be sustained over the long run.


During a recession, actual output falls below potential.


But usually, the potential and actual output track pretty closely with each other.


$14.1 trillion POTENTIAL OUTPUT


Q2 2010 SCENARIO 2


If the economy were to grow at 3 percent, the gap would close in 2020.


$13.2 trillion ACTUAL OUTPUT


Q2 2010 Te most recent recession $12


Te yawning gap between the two lines that began in 2008 and persists to this day reflects the depth of the nation’s economic crisis.


Te actual output line started rising again during the summer of 2009, which is what economists mean when they say that the recession ended then.


$10 ’00 ’01 ’02 ’03 ’04 ’05


SOURCE: Washington Post analysis of Bureau of Economic Analysis and Congressional Budget Office data NOTE: GDP is indexed for inflation in 2005 dollars.


’06 ’07’08


ACTUAL ’09


SCENARIO 3


If the economy were to grow at 2 percent (it was 1.7 percent in the second quarter), the gap wouldn’t close, because potential output is constantly rising along with the growing population and rising worker productivity.


ing away potential buyers of bank-owned properties who don’t want to get caught in legal battles between banks and bor- rowers. At least one company that provides title insurance, Old Republic Title, has refused to work on homes foreclosed by Ally’s GMACmortgage unit. Travis John, a broker in central


Florida who specializes in dis- tressed sales, said buyers in re- cent weeks have seen the head- lines about problems in the fore- closure process and have shied away. “If buyers continue to have


this fear — if we have even 30 percent less sales — that would be traumatic,” he said. “We’re already in a traumaticmarket.” Across Florida, which has the


most foreclosure filings of any state, mortgage companies are already submitting formal re- quests to judges for the with- drawal of documents that they say were “not properly verified.” Such actions show that the


flawed paperwork is “a serious problem,” said veteran circuit court judge Lynn Tepper, who has presided over foreclosure cases in Pasco County, north of Tampa. “They’ve conceded that the


affidavit is flawed,” Tepper said. That means the judgment based on the affidavit must have been problematic as well — and that the decisions should be reversed. Tepper sent a chill through law


firms working for lenders this spring when she threw out a request for a foreclosure and ruled that U.S. Bank perpetrated fraud by submitting backdated documents that purported to show the lender owning the loan at the time of the foreclosure. The homeowner, Ernest E.


Harpster, got his home back despite the fact that he owed $190,000 on the loan.Tepper also ruled that U.S. Bank could not refile the case. These days, Tepper is plodding


slowly through the pending cas- es, looking closely at signatures and notarizations, making sure the names and numbers look accurate and legitimate. “You have to be careful,” she


said. “It used to be such a pro forma thing; it was a no-brainer. That’s surely not the case now.” chaa@washpost.com dennisb@washpost.com


Staff writer Jia Lynn Yang and researchers Julie Tate, Magda Jean- Louis and Alice Crites contributed to this report.


U TRADE


GAO: Iran still buying gas despite sanctions TheGovernment Accountabili-


ty Office said five companies from China, the United Arab Emirates and Singaporemay still be selling gasoline to Iran despiteU.S. sanc- tions signed into lawJuly 1. The GAO said the companies


include subsidiaries of Sinopec and PetroChina, which are listed on theNewYork Stock Exchange. Another is a Beijing-based state- owned oil firm called Zhuhai Zhenrong, which has an office in Tehran and is one of four compa- nies allowed to import oil to China. The United States has been


seeking to use sanctions to pres- sure Iran to halt its nuclear pro- gram. Although Iran has ample crude oil, it has a shortage of refining capacity and last year imported about 130,000 barrels a day of gasoline and other prod- ucts, according to the GAO re- port.


Sens. Joseph I. Lieberman (I- ALSOINBUSINESS


l Skype names new chief: Skype is replacing chief executive Josh Silverman with Cisco Systems ex- ecutive Tony Bates, a change that may indicate the Internet calling service is closer to announcing


specific plans for an initial public offering.Bates, 43, will startat the end of October; until then, Skype executive Adrian Dillon will serve as interim chief executive. —From news services


Faster Forward ROB PEGORARO Excerpt from voices.washingtonpost.com/fasterforward


What toexpect fromGoogleTV GoogleTV—theWeb giant’s softwarepackage for finding and


watchingTVprogramming over the Internet andthroughtraditional subscriptionservices—looks less vaporousnow. Just intime for introductions ofGoogleTV-enabledhardware fromSony andLogitech, Google announcedfurtherdetails about theplatformit launchedin May. Ablogpost andaccompanying video advertisemany of theusual


online video andaudio services:movies andTVshows fromNetflix or Amazon’s video-on-demandservice, shorter clips fromGoogle’s own YouTube,Web radio fromPandora,photo browsing fromYahoo’sFlickr, andso on. ButGoogleTValsowill include a set ofWeb applications, some


video-enhanced, fromtheNBA,CNBCandTwitter, among others.A “Fling” featurewill let youtoss theWebpage or video you’re viewing on a smartphone (presumbably one runningGoogle’sAndroidoperating system) toGoogleTV.Andearlynext year,GoogleTVwill be able to run appsdownloadedfromGoogle’sAndroidMarket. Butnote some video sitesnot listed:Hulu(coming toRoku’sWeb-


media receivers andTiVodigital video recorders, to be followedby someHDTVs andBlu-rayplayers),MajorLeagueBaseball’sMLB.tv (already onRokuandinBoxee’s software) andESPN3.com(unavailable onanyWeb-media box). And, of course,GoogleTVwon’t be able toplaymovies orTVshows


streamedordownloadedfromApple’s iTunes Store.For those, you’ll stillneedtohookupa computer to theTVor get just-updatedAppleTV. FutureGoogleTVsoftwareupdates couldfill insome of those gaps


andaddothernewfeatures.One interestingpossibilitywouldbe simple video calling.


A9


10-YEAR TREASURY UP $2.80 PER $1,000, 2.48% YIELD


CURRENCIES $1 = 83.41 YEN; EURO = $1.369


DIGEST


Conn.), Susan Collins (R-Maine) and Jon Kyl (R-Ariz.), who re- quested theGAOreport, calledon the Obama administration to complete its own investigation and punish any company violat- ing the U.S. sanctions, which ap- ply to firms doing business in the United States. The GAO said that, relying on


open sources such as trade publi- cations and company statements, it had collected the names of 16 companies that had sold gasoline to Iran between Jan. 1, 2009, and June 30, 2010. Half of those companies told


the GAO they had halted sales; trade publications reported that three others, which did not re- spond to GAO inquiries, had also stopped. There were no indica- tions that the other five, which would not reply to GAO requests for comment, had stopped. —Steven Mufson


Closing the gap


Just because actual output is rising doesn’t mean it’s back to where it needs to be — there is still a $900 billion output gap. So how long will it take to eliminate the output gap and put those 7 million Americans back to work? It all depends on the pace of growth.


GDP needs to rise faster than potential output, and right now it isn’t. Here’s how long it would take the economy to return to full potential under three scenarios:


SCENARIO 1


If the economy were to grow at a 6 percent annual rate, the gap would close in 2012.


$18 trillion


What the scenarios would mean for unemployment


Even when the economy is functioning at its potential, about 5 percent of the labor force is unemployed (joblessness can’t go much lower than that, because there are always people between jobs). Here’s what would happen to the unemployment rate in the years ahead under the three growth scenarios:


’10


PROJECTED ’11


10% 9.7% Unemployment-rate projections


5% SCENARIO1SCENARIO 2 0% ’10 ’15 ’20


SCENARIO 3


’12


’13


’14


’15


’16


’17’18


’19


’20 GRAPHIC BY ALICIA PARLAPIANO/THE WASHINGTON POST


+6%


+3%


+2%


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