Weekly Twitter Digest (Link Roundup) for 2011-08-06

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

36 comments:

  1. 1
    Jeff Murdock says:

    “America needs jobs, and housing creates them.”

    Translation: We pushed hard for globalization, and as a consequence almost all of our manufacturing jobs moved overseas. The only thing left to manufacture in the US is something that cannot be shipped — a house.

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  2. 2

    I’m not sure of the merits of McKenna’s claims against Recon, but part of this is the legislature’s fault. They’ve been messing around with the duties of deed of trust trustees for a few years now, without doing the obvious: Prohibiting situations where the deed of trust trustee is also the bank’s attorney on any matter, or related to the bank or the bank’s attorney.

    This might actually be a good situation for what they tried with appraisers–a random assignment from a panel. If you want to non-judicially foreclose, you have to have the trustee reassigned to a random trustee appointed by some third party entity. That way the trustee could actually be somewhat neutral.

    I would agree with McKenna that they cannot avoid Washington law because they are a national bank. If they want to take advantage of the non-judicial foreclosure statutes, they have to follow those statutes.

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  3. 3
    Macro Investor says:

    By Kary L. Krismer @ 1:

    I would agree with McKenna that they cannot avoid Washington law because they are a national bank. If they want to take advantage of the non-judicial foreclosure statutes, they have to follow those statutes.

    For now. Watch for legislation at the national level. Wall Street isn’t one of the top paying lobbyists for nothing. Expect more attempts to circumvent state law and replace it with MERS-like entities.

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  4. 4

    RE: Macro Investor @ 2 – I think that would be a tough one, because what we’re dealing with is state procedures. Years ago the VA thought they were exempt from the anti-deficiency rules of the statutes, because they were federal, but the Ninth Circuit shot them down on that. The court ruled that if they elected to follow the state non-judicial procedure, they had to live with the results.

    To circumvent the state law I think the feds might need to create an entire foreclosure process at the federal level. I don’t think they could just alter the existing state procedure.

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  5. 5
    Hugh Dominic says:

    Lawrence Yun claims that eliminating the mortgage tax deduction would reduce home values by 15%.

    In other words, the deduction is artificially inflating home prices by 15%. The government is keeping them out of reach of younger, lower class people for the benefit of existing owners. How is that good policy?

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  6. 6

    RE: Hugh Dominic @ 4 – Even if you assume there were some public policy (which I think you could go either way), it’s gone well beyond good policy. They didn’t used to allow a deduction on debt in excess of basis (unless purchase money where the basis was lower). Then they did that in, instead applying a limitation of debt in excess of value, which would be difficult to determine in an audit type situation. They effectively were encouraging people to encumber their homes with consumer debt. Completely a nutcase public policy.

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  7. 7
    ray pepper says:

    Boom Boom Boom!!

    Massive FED INTERVENTION on the way baby!

    Mortgage Principle CramDown and Wide Spread Deed -in-Lieu programs with Financial Bonuses to sellers will be sold to America to SAVE US ALL!……………..Walk Away and get 5k to boot!!

    BAC,JPM, and WFC lets roll er out and get this train moving like your baby local brothers are doing!!!!

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  8. 8
    Pegasus says:

    RE: Kary L. Krismer @ 2 – I think McKenna is just positioning for the 50 state attorney general settlement with the banksters. When they split up the pot you had better have an axe in the game. If I remember correctly on the tobacco settlement where the state did almost nothing in litigation they did not get as much as they could have. Besides..McKenna’ running for an election. You don’t think that has anything to do with it do ya?

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  9. 9

    RE: Pegasus @ 8 – I think his allegations are different enough that I doubt it has anything to do with a 50 state anything, but I would suspect the election has something to do with it. We discussed previously his letter to the trustees, which went beyond what state law requires. Clearly a bit of political positioning going on.

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  10. 10

    By ray pepper @ 7:

    Mortgage Principle CramDown

    Here’s an article you might find of interest, of what Ocwen is offering.

    http://seattletimes.nwsource.com/html/realestate/2015801910_harney07.html

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  11. 11
    Pegasus says:

    By Kary L. Krismer @ 9:

    RE: Pegasus @ 8 – I think his allegations are different enough that I doubt it has anything to do with a 50 state anything, but I would suspect the election has something to do with it. We discussed previously his letter to the trustees, which went beyond what state law requires. Clearly a bit of political positioning going on.

    Sure sounds like the “50 state anything” has quite a bit to do with it:

    “The complaint against ReconTrust stems from a larger investigation into foreclosure mishandlings that McKenna and other state attorneys general began last year.
    Washington is a so-called nonjudicial foreclosure state, in which courts don’t review foreclosures. Instead banks hire trustees, who are supposed to act as neutral third parties, to handle home seizures.

    In addition to failing to keep am office in Washington, McKenna also accused ReconTrust of:

    Failing to identify the actual owner of a promissory note being foreclosed.

    Giving confusing information on how borrowers defaulted and how to fix a default.

    Holding foreclosues in private, like an Bellevue office park, instead of in a legally required public place.

    Allowing documents to be improperly signed and notarized.

    Failing to act in good faith toward a borrower.”

    Read more: http://www.seattlepi.com/local/article/State-accuses-Bank-of-America-unit-of-thousands-1743800.php#ixzz1UH8u7GgN

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  12. 12

    By Pegasus @ 11:

    Sure sounds like the “50 state anything” has quite a bit to do with it:

    In addition to failing to keep am office in Washington, McKenna also accused ReconTrust of:

    [1] Failing to identify the actual owner of a promissory note being foreclosed.
    . . .
    [2] Holding foreclosues in private, like an Bellevue office park, instead of in a legally required public place.
    . . .
    [3] Allowing documents to be improperly signed and notarized.
    . . .

    Read more: http://www.seattlepi.com/local/article/State-accuses-Bank-of-America-unit-of-thousands-1743800.php#ixzz1UH8u7GgN

    The first and third item is what I think we talked about before. Here’s what Washington law requires of trustees with regard to ownership of the note:

    (7)(a) That, for residential real property, before the notice of trustee’s sale is recorded, transmitted, or served, the trustee shall have proof that the beneficiary is the owner of any promissory note or other obligation secured by the deed of trust. A declaration by the beneficiary made under the penalty of perjury stating that the beneficiary is the actual holder of the promissory note or other obligation secured by the deed of trust shall be sufficient proof as required under this subsection.

    RCW 61.24.030. To the extent McKenna is asking for them to do anything more than look at a declaration, he needs to go to the legislature for a change. There is no requirement that the trustee conduct any review at all as to how the document is signed and notarized. Now if the claim is that Recon is improperly notarizing their notices of sale, that would be a different matter, but that doesn’t seem to be the claim made.

    As to the second point, this is what the statute requires:

    (5) The place of sale shall be at any designated public place within the county where the property is located and if the property is in more than one county, the sale may be in any of the counties where the property is located. The sale shall be on Friday, or if Friday is a legal holiday on the following Monday, and during the hours set by statute for the conduct of sales of real estate at execution;

    By my reading that could be any public place. So it could be on the street outside an office park but not in an individual office. This type of thing has been a problem, however. I’ve heard stories of trustee’s orally announcing a continuance, and having the continued sale be on the other side of the courthouse to deter certain bidders. I think they may have fixed that this last legislative session.

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  13. 13

    RE: Pegasus @ 11 – As to the good faith requirement, that is clearly required by the statute, RCW 61.24.010:

    (3) The trustee or successor trustee shall have no fiduciary duty or fiduciary obligation to the grantor or other persons having an interest in the property subject to the deed of trust.

    (4) The trustee or successor trustee has a duty of good faith to the borrower, beneficiary, and grantor.

    Note, however, that despite the fact that the legislature in recent years has been going on a tear to make everyone a fiduciary to everyone else (e.g. the distressed property law which made the buyer a fiduciary of the seller), here they recently removed any fiduciary duties. So you have someone who is actually acting as a trustee, but they are not a fiduciary. Total nonsense.

    And again, I think there should be an absolute prohibition on deeds of trust trustees being the attorney of the beneficiary, but in fact that is common.

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  14. 14
    Pegasus says:

    RE: Kary L. Krismer @ 13 – Hehe! I wonder what large trustee firm lobbied for that change from fiduciary to good faith up here in the northwest….. ;>)

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  15. 15
    Pegasus says:

    RE: Kary L. Krismer @ 12 – Good. You remembered about standing which you missed when I first brought the issue up last year. Also sounds like McKenna is saying the proof they are providing the trustee is false. He seems to be protecting the trustee. ” A declaration by the beneficiary made under the penalty of perjury stating that the beneficiary is the actual holder of the promissory note or other obligation secured by the deed of trust shall be sufficient proof as required under this subsection.” After thousands of phony documents and false claims I don’t think the trustee is acting in “good faith” when they look the other way especially with all of the noise being made about these issues the past few years. If a drug dealer uses your garage day after day even after being exposed I don’t think you can maintain your innocence when you don’t put a stop to it or call the cops.

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  16. 16

    RE: Pegasus @ 15RE: Pegasus @ 14 – I think most the trustee entities were in favor of that change. Ignoring the elephant of lobbying, I don’t know why the legislature would fall for it, although I do recall the prior language being a bit awkward.

    As to the language quoted in the statute about what’s required of a trustee, I think that language has been there long before the robosigning issue arose.

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  17. 17
    Pegasus says:

    RE: Kary L. Krismer @ 16 – They changed the law in 2008. By then the trustees had to see the mounting tsunami coming their way. Bad docs have been around for many years. The usage of bad docs and then the robosigners accelerated in usage as the foreclosures increased. I am not sure the declaration statement is an old law part as it would not make much sense if the trustee is a fiduciary to only use a declaration as proof of facts. Stranger things have happened though. Prior to the new law the Washington Supreme Court held that:

    a trustee of a deed of trust is a fiduciary for both the mortgagee and mortgagor
    and must act impartially between them. The trustee is bound by his office to
    present the sale under every possible advantage to the debtor as well as to the
    creditor. He is bound to use not only good faith but also every requisite degree
    of diligence in conducting the sale and to attend equally to the interest of the
    debtor and creditor alike.

    Accepting a declaration from crooks as to their claims doesn’t sound like any due diligence. Now of course it is all perfectly legal.

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  18. 18

    Regarding McKenna suing Recon Trust over illegal foreclosures:
    I’ve never thought of Mckenna as a great advocate for consumers. Ambitious? Certainly. Political hack? Pretty likely. I think if he were not a candidate for Governor, he wouldn’t be taking this position. But mark my words, as the campaign for Governor proceeds, McKenna will be advertising that he’s taken on the big banks and is afraid of nobody. He has to appeal to Democrats and Independents to get elected, and he already alienated a lot of liberals by suing the Feds over health care. Now he’s pretending he’s a man of the people.

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  19. 19
    Jonnny333 says:

    Ooooh. $2000 fines. I’m sure those big banks are shaking. It probably costs them more than $2000 just to process the legal paperwork.

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  20. 20
    One Eyed Man says:

    RE: Pegasus @ 17

    “Accepting a declaration from crooks as to their claims doesn’t sound like any due diligence.”

    That’s true. It’s not “due dilligence.” It’s a legislatively prescribed safe harbor for the trustee to avoid making the non-judicial foreclosure process more expensive.

    The whole point of having a non-judicial foreclosure process involving deeds of trust is to make the foreclosure process simple, quick and less expensive. Its the cliche market libertarian idea that less regulation is better because it costs less. In the end that supposedly means that borrowing will cost less.

    If you’re going to have a non-judicial foreclosure alternative, it doesn’t make a whole lot of sense to put the trustee in a position where the trustee has to conduct a potentially costly investigation and make difficult judgment calls on complex legal issues or risk liability to one of the parties. The legislature (probably wisely) avoided that by giving the trustee a safe harbor to avoid the expense and liablility. If the lender swears under penalty of perjury in a declaration that they are the “note holder”, the trustee has presumably acted in good faith (assuming of course that the trustee doesn’t have knowledge that that particular declaration is in fact a lie).

    From a market libertarian’s point of view, why impose regulation on the foreclosure process that wastes everyone’s time and money by requiring that the trustee always investigate and rule on issues of “standing” or risk liability, even though the borrower might not contest the issue.

    If the borrow thinks the lender doesn’t have standing, the borrower has a remedy. That remedy is to bring a law suit to restrain the foreclosure and raising the issue of standing. Part of the cost of a “more efficient” lending system is that the responsibility for starting the judicial proceeding is placed upon the borrower, not the lender. If the body politic thinks that the borrower’s remedy is too risky for borrowers to rely on, then they might as well eliminate the deed of trust process and make all real estate secured lending by mortgages that require a more costly and time consuming judicial foreclosure.

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  21. 21
    Pegasus says:

    RE: One Eyed Man @ 20 – Please explain how accepting bogus declarations from known crooks is acting in “good faith”. How many perjured declarations do trustees get to accept before someone says stop? One? Two? One thousand? How do they notify the borrower who the actual owner is if they truly don’t know? How long to they get to look the other way when the perjury is continuous and obvious?

    “From a market libertarian’s point of view, why impose regulation on the foreclosure process that wastes everyone’s time and money by requiring that the trustee always investigate and rule on issues of “standing” or risk liability, even though the borrower might not contest the issue.”

    That sounds like standard excuse to allow fraudulent foreclosures in the name of expediency, costs and too bad about the deadbeat borrower if in the final analysis if the rules and laws are not followed. The borrower deserves to be taken advantage of, right? You seem to be living in another time before the massive fraudclosures ramped up and are now exposed. Everyone on this planet except you and a few others seem to understand what has happened.

    Once again you defend the kleptocracy.

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  22. 22

    By Ira Sacharoff @ 18:

    Regarding McKenna suing Recon Trust over illegal foreclosures:
    I’ve never thought of Mckenna as a great advocate for consumers. Ambitious? Certainly. Political hack? Pretty likely. I think if he were not a candidate for Governor, he wouldn’t be taking this position. But mark my words, as the campaign for Governor proceeds, McKenna will be advertising that he’s taken on the big banks and is afraid of nobody. He has to appeal to Democrats and Independents to get elected, and he already alienated a lot of liberals by suing the Feds over health care. Now he’s pretending he’s a man of the people.

    Because he is attacking a law that forces people to pay money for a product they may not want, he is seen by many as a man of the people. Liberals won’t like him for that, and conservatives will, because it’s a state rights type of fight also.

    It’s really hard to see that lawsuit as not a fight for the consumer. Clearly attacking a law that helps large insurance companies, large drug companies and medical providers make a ton more money than they are today isn’t something that helps big business.

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  23. 23

    RE: Pegasus @ 21 – You really need to step back and try to explain how the consumer is harmed. Let’s say delinquent borrower is foreclosed by a trustee acting on behalf of BoA when really it should have been Wells Fargo. How are they harmed? In the unlikely event that happens, BoA and Wells Fargo will work it out between themselves, because it would undoubtedly pertain to a prior transaction between them–one that in Washington state does not need to be recorded to be effective as against the homeowner.

    So, where’s the harm to the consumer?

    Again I will point out that in a judicial state that would be completely different, because BoA would have a final judgment against the homeowner and Wells Fargo would still be entitled to obtain a judgment. Clearly there would be harm in such states.

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  24. 24
    Macro Investor says:

    RE: Kary L. Krismer @ 10

    Good article, Krismer. So far principal reductions only apply to borrowers who are current, but barely able to make their payments. Once word of this gets out, lots of angry, jealous borrowers will walk away. So I see this as the start of another wave of foreclosures.

    It will take many years to get through all this. But this is the first light at the end of the tunnel.

    At some point we have to slog through a period where interest rates rise. Only after that will housing be a safe investment again. It will take many years.

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  25. 25

    RE: Macro Investor @ 24 – Keep in mind that was only Ocwen, an insolvent bank. I’m not sure how took them over, but it wouldn’t surprise me that someone like the FDIC is behind this one.

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  26. 26
    Pegasus says:

    RE: Kary L. Krismer @ 23 – Ah yes the other blog kleptocracy defender. Who cares about rules and laws when they are violated by banksters, right? The end justifies the means, right? The rule of law only applies to the masses not the elites.

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  27. 27

    RE: Pegasus @ 26 – Does that mean you can’t see how they are harmed? And if there is no harm, why do you think the legislature should change the law?

    (BTW, this is only on the correct entity issue. I’ve stated previously I think the trustee should be a fiduciary and not allowed to be an attorney for the beneficiary. Those things can harm debtors.)

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  28. 28
    Pegasus says:

    By Jonnny333 @ 19:

    Ooooh. $2000 fines. I’m sure those big banks are shaking. It probably costs them more than $2000 just to process the legal paperwork.

    The lawsuit claims that they have done thousands of illegal foreclosures. Lets say it is 2000. Multiplied by $2000 per foreclosure it amounts to $4,000,000 dollars. Whoopie! The lawsuit is a joke especially when the parent company(Bank of Italy) has done hundreds of billions of damages and is writing settlement checks for billions of dollars almost daily.

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  29. 29
    Pegasus says:

    By Kary L. Krismer @ 27:

    RE: Pegasus @ 26 – Does that mean you can’t see how they are harmed? And if there is no harm, why do you think the legislature should change the law?

    (BTW, this is only on the correct entity issue. I’ve stated previously I think the trustee should be a fiduciary and not allowed to be an attorney for the beneficiary. Those things can harm debtors.)

    I guess you saying to throw out the rule of law? The Nazi’s did the same thing…..how did that work out?

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  30. 30

    RE: Pegasus @ 29 – I guess when you get to a Nazi reference, that’s a really strong way of saying that you don’t have a point.

    Personally I’d rather focus on the things that actually harm people, rather than calling banks names over things that are not a cause of harm. But hey, that’s just me.

    I do recognize though that there are others in this world that prefer to make a ton of money by deceiving large numbers of people, such as the guy who was behind the mockumentary Inside Job. Between a deed of trust trustee who does not check the ownership of the deed of trust being foreclosed, and someone who makes a mockumentary that deceives hundreds of thousands of ignorant people, I’d be critical of the maker of the mockumentary. But hey, that’s just me.

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  31. 31
    fubarrio says:

    RE: Kary L. Krismer @ 30 – inside job was a mockumentary? you remind me more of my dad everyday! :-)

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  32. 32

    RE: fubarrio @ 31 – Your dad must be a very smart guy, but in any case it was a mockumentary. It asked a lot of leading questions and didn’t even wait for an answer in some instances. It gave no specific examples of any crimes, although it alleged a lot of unspecified crimes were committed. And it was done by someone who was either completely ignorant, or purposefully setting out to deceive, as evidenced by the portion that referred to market making. Either the maker of the film doesn’t know what that is or they were hoping those watching the mockumentary don’t know. Either way, ignorant or trying to deceive, that doesn’t paint a pretty picture.

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  33. 33
    One Eyed Man says:

    RE: Pegasus @ 21

    I’m not defending anything. I’m just telling you how the system works. If you want to know why the trustee can probaly legally rely on the declaration, its because IMO the rules of statutory interpretation justify that result. But I’m not inclined to write a brief analyzing the rules of statutory interpretation on a blog.

    I’m also not a market libertarian (although I am a general believer in “classical liberalism” which even the Cato Institute’s web site used to define as the basis of libertarianism). I was pointing out in my prior comment that the WA deed of trust statute probably doesn’t require the trustee to investigate perjury by the lender (robo-signing). That saves costs unless the borrower thinks the issue is important enough to spend money investigating. The market libertarians (guys like Scotsman) generally prefer less regulation where the private sector parties have the option pay to sort those things out if they want too. That’s generally what the statute in issue does. It appears to say that if the trustee is given the required declaration, they don’t need to waste everyones time and money investigating the issue. If the borrower wants to spend the money to investigate the issue, they have the right to do so by bringing suit to restrain the foreclosure and raising the issue of standing.

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  34. 34
    Pegasus says:

    RE: One Eyed Man @ 33 – My point was how many times to you get to rely on perjured or fraudulent paperwork when you know or should know it is flawed and use the statute as an excuse to conduct illegal foreclosures? One, two or one thousand? At what point are you not acting in “good faith”? It appears that never is the answer in your book. Our attorney general disagrees with your interpretation.

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  35. 35

    RE: Pegasus @ 34 – What you fail to realize is that the percentage is small and that the statute expressly says they can rely on the declaration.

    Also, keep in mind that most the mistakes are probably just due to the servicer notifying the wrong entity that the deed of trust is in default. Perhaps the servicer wasn’t notified of a transfer, or they simply didn’t enter their record of the transfer correctly. That doesn’t change the fact that the owner of the house was in default and was subject to foreclosure. That simply means that Bank X conducts the foreclosure rather than Bank Y. Accordingly it’s difficult to see that there’s harm. If the mistake was not made, there still would have been a foreclosure.

    Also, keep in mind that if there are actually errors that would be such that the deed of trust should not be foreclosed, the owner of the home is likely to know that. For example, they’re likely to know that they haven’t missed a payment. The issue I’ve brought up repeatedly, about the trustee frequently having an attorney/client relationship with the beneficiary, is something that will make it less likely that the trustee will react appropriately when the homeowner contacts them with information of payments made, and thus makes it more likely that a foreclosure will occur when it should not.

    What I’m trying to get at is you are focusing on something that is unlikely to cause harm to a homeowner in Washington state. And you do that repeatedly, while ignoring possible actual harm. For example, I’m the one who has mentioned some banks foreclosing on people in active duty military service, which causes great harm, while I’m not sure you’ve mentioned that at all, but certainly not with the frequency you’ve brought up robosigners. Just because robosigners are a big deal in other states, it doesn’t mean they are a factor at all here.

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  36. 36

    By Pegasus @ 34:

    Our attorney general disagrees with your interpretation.

    You mention in post 8 that McKenna is running for office, and suggest that is affecting his position. I agreed with that. You can’t have it both ways.

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