Double Dipping

Q&A: Roy Oppenheim

Weston attorney says banks are double-dipping at homeowners’ expense Amid continuing scrutiny of American International Group and how the failed insurance giant has used federal rescue funds, which have grown to $182.5 billion since September, Weston real estate attorney Roy Oppenheim is raising other concerns. Oppenheim of Oppenheim Pilelsky has contacted the office of New York Attorney General Andrew Cuomo about what he and his colleagues describe as “double-dipping” by banks seeking to foreclose mortgages. Some banks have already received money from AIG and the Troubled Asset Relief Program to cover losses on bad mortgages. By then taking back a house in a foreclosure and re-selling it, banks are being “unjustly enriched,” Oppenheim said “The banks should not be permitted under any circumstances to get paid twice,” Oppenheim told Cuomo’s staff in an e-mail. Oppenheim spoke earlier this week about the issue. The interview has been edited for length and clarity. What prompted you to contact Cuomo’s office? A lot of press accounts about AIG and TARP, and their own internal notices about their investigations of AIG. But they haven’t addressed that particular issue. So I’m trying to push them along a little. What companies or agencies insure the lenders or banks? It’s AIG and a few other insurance companies that decided to issue insurance policies without providing sufficient collateral behind the policy. So if risk arose, they couldn’t pay and they knew they were creating a scenario that is a domino effect and the government would have to bail them out. They didn’t expect that risk would come to fruition. And that risk was a certain amount of defaults that would occur — default swaps or mortgage default swaps. They are insuring entire portfolios of mortgages if a certain percentage fail. They were insuring against failure. Yes. Lloyd’s of London has people who pledge their individual net worth and when Lloyd’s issues policies, they are backed by individual net worth. Collectively, the individual net worths generally will meet the obligations of the syndicate. AIG was just a bold, bold gamble. But they didn’t insure with assets. They only insured that they’d have to make payment. So who did they have to pay? One hundred sixty billion to every major bank, including Goldman Sachs, who were the counterparties. And those counterparties all received funds from AIG under these contracts. All that money came from TARP, the U.S. taxpayer. Money flowed from the taxpayer to the U.S. government to AIG to these banks. And the banks used the money to prop up their positions and financial capability so they can remain a bank because a number were losing capital they needed. So the banks have been paid for these mortgage failures but they proceeded to bring foreclosure action and try to collect again from the home owner. They’ve already collected TARP money through AIG as counterparties. And a lot of us are saying, “Why didn’t the government force AIG to go into bankruptcy?” They could have done it in an organized way, provided debtor-in-possession financing, and paid 50 cents or 60 cents or 80 cents on these contracts. But nope, they paid 100 percent. And that’s why you’re saying the bank may not be able to go after the owners in a foreclosure? And possibly later for a deficiency. For example: You have a fender-bender, and you’re paid by your insurance company because someone hits you in back. You had a $2,000 repair. Your insurance company pays you the $2,000 and then has the right to sue the other insurance company and the other person. But you don’t have that right. You’ve already been paid your $2,000. If you collect another $2,000, you’ve been unjustly enriched. Under the law of insurance, you aren’t allowed to collect twice. There are fancy legal terms for that. One is collateral source rules — you have to disclose you have already been paid from another source when you are suing someone. No. 2, you have subrogation rights — where an insurance company has laid out money for a claim and become the equitable owner of that claim. So, in this case, AIG and the U.S. government should get some of this foreclosure money back. How do you prove they aren’t? From what we’ve seen so far — and only discovery in the foreclosure process will ever provide us with this true information, which we are pursuing — will we ever be able to fully understand when a bank forecloses and gets back money and if in fact they pursue a deficiency, does that money go back to the insurance company and back to the U.S. government. That’s where the attorney general’s office of New York comes in. We have inquired if that is a scenario and if the banks are pocketing this money and being unjustly enriched. What would be the proper process? If they were collecting this money on behalf of AIG and AIG has to turn it over to the Treasury, while it’s awkward, that’s probably the proper process. The taxpayer would be reimbursed. In my heart of hearts, I don’t believe that’s happening. I believe the banks are pocketing the money. I have no evidence of it. But I have no evidence that AIG is pursuing getting money back from the banks and that the government is putting any pressure on AIG to get the money back. It just seems horrific to me that the U.S. taxpayer, who paid AIG the money to pay the banks, is going to pay a second time [for the] one in 10 families who are being foreclosed. And if, in fact, the banks have been paid twice, they ought to give a credit to the homeowner for that money and adjust the mortgage to the market value and not get paid twice. Why has no one flagged that yet? I believe there is a group of us doing foreclosure defense and looking at TARP and the internal documents the banks used to create these collateralized debt obligations, and we’re seriously starting to question this entire juggernaut. What we’re suggesting here is almost revolutionary. It’s like what Shay’s Rebellion was about. [The 1700s rebellion led by Daniel Shay over Europeans’ demand for war investment repayments prompted wealthy businessmen to confiscate the property of poor New England farmers.] This is rebellious stuff. And people will rebel. ____________________________ Attorney Roy Oppenheim says banks holding distressed mortgages that have benefited from the government bailout are wrong to also foreclose on homes: – Double dipping: “Banks have been paid for these mortgage failures, but they proceeded to bring foreclosure actions and try to collect again from the home owner.” – The borrowers: “If, in fact, the banks have been paid twice, they ought to give a credit to the homeowner for that money and adjust the mortgage to the market value and not get paid twice. – Political impact: “What we’re suggesting here is almost revolutionary. … This is rebellious stuff. And people will rebel.” Terry Sheridan can be reached at (954) 468-2614. Roy Oppenheim photo by Melanie Bell

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