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Marshall Watson Foreclosure Mill Shut Down After Guilty Plea And Consent to Judgment, Changes Name to Choice Legal Group

Thursday, 10 January 2013 13:38
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Marshall Watson Foreclosure Mill Shut Down After Guilty Plea And Consent to Judgment, Changes Name to Choice Legal Group

Cross posted from the Law Offices of Evan M. Rosen

The foreclosure mill, Law Firm of Marshall Watson, has been shut down after the owner, Marshall Watson, pled guilty to unlawful and unethical practices at his firm. It appears that the firm hopes to have a smooth transition to a new law office, Choice Legal Group, headed by Marshall Watson’s brother, John Watson. (Read more…) In 2010, John Watson, apparently playing both sides of the crisis, in more than one instance represented a property owner against the very same financial institution that he also rep resented, in at least some capacity, in other foreclosure cases.

In March 2011, Marshall Watson paid two million dollars to settle a Florida Attorney General investigation into questionable foreclosure practices and suspicious document execution policies. However, that settlement didn’t clean up Watson’s practices enough to fend off a new set of accusations by the Florida Bar. The Bar has just released a 12-page guilty plea for consent judgment with Marshall Watson. This is the Florida Bar’s third regulatory action against foreclosure mill owners.

At the time of the settlement with the Florida AG, Marshall C. Watson, president and chief executive of firm, said in a statement that he was “pleased” with the settlement. “With our firm’s tight controls now in place we are setting a high bar for the mortgage law provider industry, and our clients recognize and value the positive steps we are taking.” One of those “positive steps”, a brilliant PR move, was to hire the Broward County Chief Judge Victor Tobin, who resigned from the bench on June 30, 2011 and started his employment at Marshall Watson’s foreclosure factory one day later. Questions remain over when Tobin negotiated his employment terms and if the questionable career change violated the edict that sitting judges must avoid the appearance of impropriety. Tobin who, once held the highest Broward County judgeship, set court policies for all cases including foreclosures as well as adjudicating foreclosure cases himself when the court was short staffed. Now, less than two years later, despite Watson’s “tight controls” and the hiring of Tobin, the Florida Bar has extracted a guilty plea from Watson for failing to develop foreclosure policies in line with the rules of professional ethics for Florida attorneys and also for routinely filing documents in Florida courts that were illegally executed and/or notarized. Kim Miller who broke this story in the Palm Beach Post wrote, “Charges against Watson in the Bar’s 12-page ‘conditional guilty plea for consent judgment’ include that an attorney contracted by the firm was paid $1 each for signing approximately 150,000 fee affidavits.” According to the Consent Judgement and guilty plea, an undetermined number of affidavits in order to secure fees were signed outside the presence of a notary public and then later notarized, a clear violation of the law, and in numerous instances, an attorney was given only the signature page of an affidavit to sign. Affidavits require the signer to swear under oath that they have personal knowledge of what the facts stated therein. However, that’s not possible if the signer doesn’t even see what the text of what he or she is signing!

Besides the Office of the Florida Attorney General and the Florida Bar, a Florida lawmaker has voiced serious concerns about Marshall Watson’s foreclosure mill. In October 2011, Senator Darren Soto, former Florida state representative (D-49) and newly elected to the Florida state senate (D-14), called for a formal investigation, possibly criminal related, Marshall Watson’s possible violations of the settlement agreement with the Florida Attorney General.

There was at least one additional investigation into Marshall Watson’s practices. Former Monroe County state attorney Dennis Ward opened an investigation into Marshall Watson’s mill, focusing on a Watson attorney, Patricia Arango, whose apparent signature appears on thousands of legal documents, some clearly improper, filed in official records across the state. At the time the investigation was covered in the media, Ward stated, his “ultimate concern is protecting the integrity of the legal system and land title records.”

The Bar has been slow to act against rampant crimes related to the prosecution of foreclosure cases but there are two previous Florida Bar regulatory actions against a disgraced former foreclosure mill owner, David J Stern, whose now defunct firm went down in flames in 2011 after widespread media stories exposed illegal and unethical practices at his mill. Nevertheless, Stern remains a lawyer in good standing with the Florida Bar despite numerous citizen complaints filed over the past decade in addition to the Bar’s own 2002 and 2011 complaints. The Bar also issued a detailed ethics opinion on January 11, 2011 explaining a process to be implemented by foreclosure mill attorneys who have knowledge of illegal and unethical practices in specific foreclosure cases by their bank clients.

Shapiro, Fishman, Gauche was exposed for submitting documents to Florida courts that bore the signature of an attorney who had left the firm months prior. The attorney herself was outraged when she discovered that her signature was being used on Shapiro, Fishman, Gache’s legal filings. Previously, in 2010, a judge wrote in an order dismissing a foreclosure case, “The Court finds by clear and convincing evidence that WAMU, Chase, and Shapiro & Fishman committed fraud on this Court.”

Ben Ezra Katz was another, now defunct, foreclosure mill that self-imploded after it’s owner, Marc Ben Ezra admitted to “execution issues” in foreclosure proceedings. Marc Ben-Ezra remains a lawyer in good standing with the Florida Bar. Interestingly, Florida Default Law Group, now Ron Wolfe and Associates, and Smith Hiatt Diaz, now SHD Legal, have both changed their foreclosure mill firm names recently.

After the foreclosure fraud story broke in the national media, the Office of the Inspector General for the FHFA, the regulator for Freddie and Fannie, audited Freddie and Fannie’s oversight of their foreclosure attorney network. On September 30, 2011, the Inspector General issued a report concluding that Fannie Mae and its regulators—including FHFA—had been alerted repeatedly as early as 2003 to serious problems with the legal firms in the retained attorney network (RAN), but failed to take corrective action. The Inspector General also reported that “FHFA did not begin to act on foreclosure abuse issues involving Fannie Mae’s RAN until mid-2010,” despite “multiple indicators of foreclosure abuse risk prior to 2010 that could have led FHFA to identify and act earlier on the issue.”

Rep. Elijah E Cummings, Ranking Member of the House Committee on Oversight and Government Reform, issued a statement in response to the report, “as I review the policies announced today, I will look to see that they will truly ensure that the firms selected by servicers to handle foreclosure cases are staffed, compensated, and supervised in a way that will prevent future abuses.”

Yet, after all the buzz of this big news, the Law Office of Marshall Watson seems to be shutting down in name only because it has all the appearances of easing right into its new name, Choice Legal Group, with the same staff, attorneys, foreclosure cases, and clients. Slick move…

www.4closureFraud.org

Marshall C Watson Guilty Plea

Zombie Dance Party: Same Girls, New Music

Wednesday, 19 December 2012 04:58
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“As long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

Chuck Prince

(Read more…)

CEO, Citigroup

Bloomberg News reports that Bank of America Corp. (BAC), the best performer in the Dow Jones Industrial Average for 2012, has more than doubled since the start of the year “as the company rebuilds capital and investor confidence.”

My friend Meredith Whitney just upgraded BAC to a “Buy,” a call that is a little late given the stock’s performance to date. But at just 0.5x book value, to be fair to Meredith, you could argue that the bank is still undervalued. And many people do in fact believe this. If we accept the basic bull market thesis for BAC being touted by Whitney and others, what is a reasonable valuation for BAC?

Let’s set some assumptions.

First, if you believe the bull market thesis for BAC, you must assume that the bank is going to prevail in the massive litigation it faces with respect to legacy mortgage securities. This is a considerable assumption, but Whitney and the rest of the Sell Side analyst community seem to already have taken this leap of faith. For the sake of their clients, let’s hope they are right.

BTW, watch some of the more critical bank analysts ask BAC and other TBTF banks about the adequacy of reserves for civil litigation and put back claims by Uncle Sam in the Q4 earnings calls this January.

Second and more important even than the litigation is the question of business model. Earlier this week, BAC CEO Brian Moynihan said that he was satisfied with a high single digit market share in the US mortgage sector. Wells Fargo (WFC) is close to 40%. BAC at < 10% market share nationally is perhaps a more profound assumption than the question of the BAC mortgage litigation. BAC was once the dominant player in mortgage lending, both directly and through third part originations (TPO). To have this bank’s huge balance sheet at such a low level of deployment is bad for the real estate market and for future earnings.

Thanks to Senator Elizabeth Warren (D-MA) and the ill-considered Dodd Frank legislation, the TPO market has virtually disappeared. The lending capacity once represented by Countrywide, WaMu and Lehman Brothers is gone. BAC is still purchasing some production from outside providers, but the volumes are miniscule compared with the pre-2007 period. Thus the question comes: When Street analysts are showing a positive revenue growth rate for BAC and its peers, from where precisely is this revenue going to come?

Because of Dodd-Frank, Basel III and the Robo-signing settlement, the largest US banks are being forced out of the mortgage market. Earlier this week, I talked about this dynamic on CNBC’s “Fast Money.” Suffice to say that analysts who assume that BAC will double in 2013 may not understand the new drivers – or lack thereof — of revenue and earnings in all of the TBTF banks.

That said, I think it may be reasonable for BAC and even much maligned Citigroup (C) to double in the next twelve months, but not because of revenue or earnings growth. If BAC hits street estimates for revenue in 2013 (+3-4%), is this a sufficient driver to justify a double in the stock? No, but a doubling of the dividend is a good enough reason for cash starved investors. In a very real sense, the biggest driver for stocks like BAC or C is not internal revenue growth but the zero rate policy of the FOMC.

During 2012, the preferred stocks of names like BAC and C have appreciated more than 15 points in price. Yields for preferred issuers like the TBTF banks and General Electric (GE) have fallen by almost two points. Is this because the revenue growth or earnings of these names have been growing? No, these metrics are flat to down. The appreciation of these securities has been driven by the FOMC and the Fed’s ridiculous zero rate policy. ZIRP does not create jobs nor is it helping bank revenue.

“Reduced expenses for loan losses and rising noninterest income helped lift insured institutions’ earnings to $37.6 billion in third quarter 2012,” notes the FDIC in the most recent Quarterly Banking Profile. ”Two out of every three insured institutions (67.8 percent) reported year-over-year NIM declines, as average asset yields declined faster than average funding costs.” The fact that the TBTF banks are relying on fee income and line items like investment banking to hit revenue and earnings targets is very telling.

So when you see Sell Side analysts like Meredith Whitney being so constructive on the TBTF banks, even with the poor operating performance, investors need to ask themselves a question. Is the prospective appreciation of BAC and C the result of strong business fundamentals? Or is the prospective appreciation of these stocks more a case of traumatized investors fleeing to the fantail of the Titanic to avoid the icy cold financial repression of zero interest rates? Keep in mind that most of the improvement in earnings which seems to impress Whitney and other analysts has come as a result of expense reductions, mostly credit costs. Efficiency ratios for the large banks are over 60%, of note.

Even if you believe that BAC is going to escape the most horrific outcome in the mortgage litigation, the valuation target that is reasonable for this bank, C and the other TBTF institutions such as JPMorgan Chase (JPM) and WFC, is probably between 1 and 1.25x book value. So yes, given that valuation framework, you can justify a doubling of BAC from current levels to say $20-25 per share. But keep in mind that this stock was trading at $40 back in 2008 and over $50 in 2006 prior to the acquisition of Countrywide. Are we likely to see BAC go to over 2x book value again? Well, maybe, but not because of strong earnings or revenue growth rates.

Should names like BAC or C manage to get above 1.25x book, it will be because of the Fed and ZIRP. And as and when Fed interest rate policy changes, look out below. As I noted on CNBC, without the benefit of a strong mortgage origination and securitization business, the TBTF banks are going to become far less volatile and far more boring. Even the marginally higher capital levels of today, pre-Basel III, will imply lower asset and equity returns. And this is not a bad thing.

Yet investors are really not prepared mentally or emotionally for a market where the large banks are not delivering double digit revenue and earnings growth, whether organically or via M&A. Most institutional investors, keep in mind, have no idea how the TBTF banks actually make money. So when well-meaning Sell Side analysts predict wondrous stock price appreciation for the Zombie Dance Queens, the proverbial sheep on the Buy Side sing with joy — and rush into the interest rate trap so lovingly constructed by Chairman Bernanke and the Fed. Keep in mind that the corollary of ZIRP is massive interest rate and market risk on the books of all banks. Think trillions of dollars in option adjusted duration risk.

Without the benefit of gain on sale from mortgage origination and securitization, it is difficult to construct a long term bull scenario for any US bank, large or small. As and when the Fed normalizes interest rates, the business models of the TBTF banks are going to be far less exciting. Mark-to-market losses on securities will wipe out stated earnings. New and innovative ways of presenting “pro forma” earnings will appear on the scene. The TBTF bank CEOs will rightly blame Washington.

In this future banking market, names like C which currently trade on a 2 beta will have higher dividends, but relatively flat earnings and revenues. Cost cutting, not growth, will fund these payouts to investors. Occasionally you will see big numbers from these names when the investment bankers have an especially good quarter. But overall the TBTF banks are evolving into low growth utilities with nice dividends. This is precisely the way banks used to be before President Bill Clinton’s “Great Leap Forward” in terms of housing and home ownership. And, again, this is not a bad thing.

But investors in the TBTF banks need to understand that the business model for this industry has changed. The business model for banks is going to continue to evolve away from the high-beta, high volatility model of the 2000s to something that looks more like banking in the 1950s. The action in terms of significant volume growth is in the non-bank sector. Get used to it.

www.rcwhalen.com