Vericrest Financial: homicidally otiose

By Felix Salmon
April 29, 2011

We’ve heard a fair amount about the human toll of the subprime crisis — although, frankly, not enough. So this story deserves wide play: Manuel Lopez and Christina Garcia, and their 12-year-old son Christian Garcia, died in a grisly fire Monday morning, because the building they lived in was full of illegally built walls which blocked access to the fire escape. Who was responsible for looking after the building and making sure it was up to code? The message I get from the NYT‘s Jim Dwyer is that it’s a Dallas company called Vericrest Financial.

The insouciance of Vericrest, here, is downright breathtaking:

Did Vericrest take care of the building while it was in foreclosure, or even know that it was supposed to?

“Vericrest is not going to comment,” a spokesman said.

The backstory, as pieced together by Dwyer, is that the three-family building at 2321 Prospect Avenue went into strategic default long ago, after the owner, Domingo Cedano, who bought the building with no money down, stopped making his mortgage payments.

Under New York state law, when that happens, and once foreclosure proceedings begin, the lender becomes responsible for the property. In this case, the loan is owned by a trust, Bank of New York Mellon is the trustee, and the bank in turn has hired Vericrest to handle the loans in the trust.

Here’s what Vericrest says about itself:

Vericrest Financial, Inc. is a privately held, premier financial services company primarily engaged in the servicing of residential mortgage and consumer finance loans. Vericrest Financial, Inc. is led by a seasoned team of financial services industry professionals who have over 20 years of experience in working with customers and investors. Our business operations are located in Oklahoma, New Jersey, California and Texas.

Vericrest Financial, Inc. is dedicated to providing superior customer care and maintaining the highest level of quality, integrity and trust that our customers, employees, investors and other business associates expect and deserve. Vericrest Financial, Inc. is regulated by numerous state and federal regulatory agencies and holds the requisite licenses to service mortgage and consumer finance loans and to conduct other aspects of its business in those states where it does business.

It’s fair to assume that Vericrest, as the holder of all the requisite licenses to do what it does in New York state, is indeed cognizant of any legal obligation it had to maintain 2321 Prospect Avenue, since it was “abandoned by the mortgagor but occupied by a tenant.” Assuming that somewhere along the line foreclosure proceedings were initiated, the law is clear:

For the purposes of this section “maintain” shall mean keeping the subject property in a manner that is consistent with the standards set forth in the New York property maintenance code… provided, however, that if the property is occupied by a tenant, then such property must also be maintained in a safe and habitable condition.

What we’re seeing here is a particularly tragic instance of something that has been happening a lot over the course of the subprime crisis — the way in which mortgages, once they become transmogrified into purely financial instruments, lose all connection to real-world buildings and humans. When my credit union makes a mortgage loan, we know the borrower and we know the building and we have relationships there. When Vericrest Financial takes on responsibility for loans in an investment trust, there’s no relationship at all, and there’s precious little incentive for the company to send someone out to the Bronx to find out what it’s responsible for.

If the law was indeed broken by Vericrest in this case, I hope that it and its principals face criminal prosecution. Only that will make these “premier financial services companies” wake up and realize what their real-world responsibilities can mean.


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Hypothetically speaking, if the lender forecloses on an occupied property and, one day later, someone dies inside this property because it was poorly maintained, or illegal modifications were made by the previous owner, should the lender still be responsible? What if it’s two days? When does the lender become responsible?

Consider that the lender does not have the right to kick out the resident right away even if he’s a squatter, even if the house is not safe to live in. (I’m not sure about NY laws, but here in CA, kicking out a squatter involves a court hearing and about a month of waiting.) If he’s a tenant of the previous owner, the lender is supposed to honor the lease. Making modifications to make the house habitable is even harder in his case, because normally a 24-hour notice is required before any agent of the new owner can enter the premises. And what do you do if the tenant does not want you there? What if there’s a lock on the door and you don’t have a key?

It is a sure guess that Vericrest tried to send someone to inspect the property after the foreclosure. (The whole point of foreclosing is so that you can clean up and resell the property.) It is less obvious that that someone even managed to get in (according to the article, city inspectors tried on many occasions and failed.)

We have to know the details and the timeline before we can conclude that the lender is to blame in any way.

Posted by Nameless | Report as abusive

And actually this whole discussion is moot, because it presupposes that the property was foreclosed. But it was not: as you can personally verify using the NYC online city recorder ( cris.shtml), Borough: Bronx, Block: 3102, Lot: 85, the foreclosure process was not completed and the property did not revert to the lender (or else there would be another “deed” recorded some time in the last couple of years).

Posted by Nameless | Report as abusive

Nameless, obviously if the property was foreclosed, the new owner is responsible for it. But the point here is that the lender is responsible even *before* the property has been foreclosed, and in fact as soon as foreclosure proceedings have been started.

Posted by FelixSalmon | Report as abusive

My first point was that the new owner can’t be responsible for things that he can’t reasonably be expected to prevent.

Under the section of the law that you linked, the lender can only be held responsible after he obtains the judgment of foreclosure. I looked and looked and I can’t find any firm evidence that the lender ever got this judgment. (There’s some foreclosure-related activity in Bronx Civil Supreme Court between Bank of NY, but their web site does not let me see the actual decision, or even to confirm that it applies to the same property.)

Posted by Nameless | Report as abusive

I don’t think you need the judgment of foreclosure. I’m looking at the bit which says “or is abandoned by the mortgagor but occupied by a tenant, as defined under section thirteen hundred five of this article” — which was clearly the situation here.

Posted by FelixSalmon | Report as abusive

But right before that there’s an overarching statement: “A plaintiff, who obtains a judgment of foreclosure and sale, involving residential real property … that is vacant, or becomes vacant after the issuance of such judgment, or is abandoned by the mortgagor”.

The biggest question on top of that is, even if “the plaintiff” has to maintain the property, does he have the right to evict squatters from the property under the NY law? If not, what is he supposed to do? Section 1307 does not say.

Several articles say that the first floor of the building was occupied by drug dealers. These drug dealers wouldn’t let anyone in except for their “customers”, not even city inspectors. One article says that these drug dealers went as far as hang surveillance cameras around the building, and that bank lawyers didn’t think that they could authorize the cops to arrest those drug dealers for trespassing.

Posted by Nameless | Report as abusive

The blame goes to those who physically built the walls that violated the building code and those who authorized, directed and paid for the building of these illegal walls. Cedano appears to deserve nearly all of the blame, as it seems – according to the story – that he was responsible for the illegal construction, and had been warned many times by building inspectors.

While the law may have targeted the financial institution that owned the mortgage, the fact is, they didn’t build those illegal walls. And though I love my credit union, I doubt the board would willingly dedicate the funds necessary to provide continuous inspection and oversight of foreclosed properties.

As one would note, property auctions are always accompanied by the fine print: “You are responsible for your own due diligence.”

Posted by GRRR | Report as abusive

There’s one thing you need to explain, Felix. I can see why you might accuse Vericrest of being negligent, dilatory, indolent, or venal, but in what sense are they otiose? Surely your case for charging them with liability presupposes that they have played an indispensable role in creating the situation – the opposite of otiose.

Posted by Greycap | Report as abusive

@Greycap: “I can see why you might accuse Vericrest of being negligent, dilatory, indolent, or venal, but in what sense are they otiose?”

o·ti·ose (–adjective):
1. being at leisure; idle; indolent.
2. ineffective or futile.
3. superfluous or useless.

Otiose is not the opposite of indispensable, it is the opposite of effectively engaged, of meaningfully paying attention to. Which is what Felix is alleging.

Posted by SteveHamlin | Report as abusive

@Greycap, remember Asimov’s first law of robotics? “A robot cannot harm, or through inaction cause harm, to humans”. Vericrest, here, caused harm to humans through inaction.

Posted by FelixSalmon | Report as abusive

Felix, I was wondering if you wouldn’t mind elaborating on your comments about “your” credit union: LES People’s Credit Union? It sounds like you work there or are on the board? I live on LES and am considering looking for a re-fi package. I’d just as soon stay away from our current CDO mess.

Posted by RoobsNY | Report as abusive

@Roobs, come on in, we’re quite friendly!

Posted by FelixSalmon | Report as abusive

Vericrest Financial is a horrible company with ties to the Bass Brothers. They are predator sharks exploiting struggling homeowners by operating in bad faith. Their claim to fame is their ability to buy sub-prime loans and liquidate the portfolios at the lowest possible cost, often using illegal and immoral tactics. These people are the lowest of the low and our elected officials and our justice system should hold them accountable for their actions. I want to see some heads on pikes and this is where we should start.

Posted by Lyann | Report as abusive

I am not 100% sure of New York law, but I would have thought that as part of the foreclosure process, the court would have appointed a receiver to manage the building. I don’t think Vericrest would do that themselves. Assuming someone is at fault, it is probably the court appointed receiver.

Posted by Yahonza | Report as abusive

Or if there is no receiver, Vericrest probably would have hired a management company.

Posted by Yahonza | Report as abusive