Tuesday, November 19, 2013

Dallas DA's mortgage litigation crumbles under its own weight

A huge proportion of those prosecuted in the criminal justice system are poor folks represented by underpaid, appointed counsel. That may explain why, when it comes to white-collar crime, Texas prosecutors generally find themselves out-gunned, lacking the expertise or political will to aggressively pursue cases. And when they try, it frequently doesn't end well. The Dallas News has a story about a white-collar criminal prosecution that backfired after Dallas DA Craig Watkins out-sourced the case to politically connected attorneys. The article by Kevin Krause in today's paper opened:
A settlement in a complicated lawsuit in which Dallas County District Attorney Craig Watkins retained high-powered outside lawyers in an attempt to recover tens of millions of taxpayer dollars has died because those lawyers and the county couldn’t agree on legal fees.

After county commissioners kept delaying a vote on the proposed settlement, mostly because of the fee dispute, U.S. District Judge Reed O’Connor threw out the bulk of the lawsuit earlier this month.
Now the attorneys — most of whom are allies of Watkins or the Democratic Party — and the county both are empty-handed. The only satisfied party is the suit’s defendant, Mortgage Electronic Registration System.

“We are very pleased with this development,” said Janis Smith, Merscorp’s vice president for corporate communications. “The scope of this case has been substantially narrowed.”
Merscorp is the parent company of MERS. ...
The suit alleges that MERS — which was founded by Fannie Mae, Freddie Mac and several large U.S. banks in 1995 — was a conduit for buying and selling mortgages by lenders. The suit said MERS avoided paying recording fees to the county when mortgages changed hands, as required by law.

The county was seeking to recoup years of lost revenue from those recording fees. Other counties across the nation also filed similar suits against the company. MERS has won many of those cases.
To be fair, if the feds had aggressively pursued white-collar offenses after the derivatives mortgage-related financial fiasco nearly brought down the US economy several years ago, local prosecutors wouldn't be stuck trying to go after these complicated cases piecemeal. But the episode suffers from bad optics - particularly the selection of politically connected attorneys to spearhead the case - and demonstrates why white-collar offenses tend to go un-prosecuted and un-punished while poor folks fill up the jails and prisons for much smaller-scale matters.

Similar litigation has been greenlighted in Nueces County. Too bad Dallas couldn't get its act together.

CORRECTION: An attorney friend emailed to say, "It isn't really 'derivatives' litigation.  That word indicates a securities law case.  MERS is about the mortgage industry creating a straw man non profit of sorts to 'hold' mortgages while the notes are traded behind the scenes.  The consumer/debtor has no idea -- and no way of confirming -- who really owns the debt they owe.  And counties get screwed out of filing fees.  Although the liens and notes are changing hands, the county records are not updated." She's entirely correct, I misstated that, should have known better, and regret the error.


Gadfly said...

Jim Schutze has had a lot about this at the Dallas Observer. It's been in depth, but he's done a bit of ax-grinding at Watkins at times. It is too bad. That said, the outsourcing is understandable in a place as big as Dallas County, I think; Watkins just should have made more ethical choices on his attorneys.

Anonymous said...

So it's more like a collateralized debt obligation?

Gritsforbreakfast said...

That's right, 8:24, as far as I understand it. Basically they bundled mortgages and sold them back and forth to investors without recording the changes with the counties so that debtors no longer could tell who they owed money to and counties weren't able to charge recording fees.

Glenn Jacob said...

The main role of a Corporate Litigation Liverpool
is to ensure the legality of commercial transactions, advising corporations on their legal rights and duties.