Tag Archives: rule of law

President Trump’s Two Residential Mortgages

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Dan Abrams

I was interviewed in Trump’s Mortgage Fraud Hypocrisy on The Dan Abrams Show (SiriusXM POTUS 124) (behind paywall). A recording is available on YouTube (no paywall). The auto-generated (cleaned up a bit) transcript of the relevant part reads,

Dan Abrams: This effort to get rid of Lisa Cook as one of the governors at the Fed has heated up. Remember, the Supreme Court basically said Trump couldn’t do it without due process, and it seems now he’s beginning the process of quote-unquote doing the due process, telling her that they want to get rid of her. It made me remember an article that came out in December, which I think is very important in this context — it’s from ProPublica, and the headline is “Trump’s Own Mortgages Match His Description of Mortgage Fraud, Records Reveal.” It talks about how in 1993, Trump signed a mortgage for a home in Palm Beach, pledging it would be his principal residence. Seven weeks later, he got another mortgage for a seven-bedroom, marble-floored neighboring property, saying it too would be his principal residence. And in reality, ProPublica reports, Trump — then a New Yorker — does not appear to have lived in either home, let alone used them as a principal residence. That seems to me precisely the issue the administration is focusing on with regard to Lisa Cook. And if you’re interested in the article, it’s got all the documents Trump signed, with images of them.

Remember, in October federal prosecutors charged Letitia James, and a central claim in that case was that she purchased a house in Virginia pledging to her lender that it would serve as her second home, and then used it as an investment property and rented it out. [The source transcript is garbled here — something to the effect that Trump’s mortgage agreements were arguably a more significant misrepresentation, since his said the properties would be his primary residence, not merely a second home as in the James case; recommend checking the audio for the exact wording before publishing.] But Trump, when he was declaring that he was going to fire Lisa Cook, specifically noted that she had signed two primary-residence mortgages within weeks of each other — exactly as the records show he did in Florida. Here’s the quote they sent her: “You signed one document attesting that a property in Michigan would be your primary residence for the next year. Two weeks later, you signed another document for a property in Georgia stating it would be your primary residence for the next year. It is inconceivable that you were not aware of your first commitment when making the second. At a minimum, the conduct at issue exhibits the sort of gross negligence in financial transactions that calls into question your competence and trustworthiness.” The Trump administration has made similar claims regarding Adam Schiff and Eric Swalwell as well.

So when Trump administration officials are confronted about this, they do the usual, which is talk about it from a law enforcement perspective, talk about how important this is. This is Bill Pulte — remember, this guy’s the worst person in this administration, as far as I’m concerned, the most politicized. He’s the one who was acting director of National Intelligence; he couldn’t get confirmed, I don’t think, for any position, and yet they keep bouncing him around — but he’s been overseeing housing, and that’s given him access to all these mortgage records. So here is Bill Pulte, speaking in June:

“This is not political from my perspective. I’m in charge of making sure that we have a mortgage market that is safe and sound. It doesn’t matter whether you’re Republican or Democrat or a Fed governor — if you commit mortgage fraud, we’re going to refer it. And that’s what we did in the Lisa Cook case. I do believe that eventually she’ll be indicted. And let’s say the Supreme Court rules against the people who are saying there’s cause, or there’s ability, to fire her — I do expect her to eventually be indicted. That’s just my own opinion; I’d refer you to the DOJ for specifics. But if she is indicted, obviously that would give the ability to fire her for cause, even more so than we believe — I’ll just speak for myself — already exists.”

Let me bring in David Reiss. He’s a clinical professor of law at Cornell Tech and Cornell Law School, an expert in the real estate sector. Professor, thanks very much for coming on — appreciate it.

David Reiss: My pleasure.

ABRAMS: From a legal perspective, these are the kinds of cases that are almost never prosecuted — is that right?

REISS: That’s correct. There was a lot of this kind of behavior before the Great Financial Crisis in the early 2000s, but it was very rarely prosecuted.

ABRAMS: So is there a difference between what ProPublica seems to have been able to show that Donald Trump did and what Lisa Cook is accused of?

REISS: I don’t think so. I think it’s the same, or in some ways an even worse set of facts. There’s the statement by the broker who said these were going to be rentals from the beginning. This is exactly the kind of behavior that Pulte says is unacceptable — the kind he’s identified with opponents of the Trump administration.

ABRAMS: So could she use that — meaning, let’s assume for a moment that she is indicted — is that really just something for the court of public opinion, or is that something she could potentially introduce as a defense?

REISS: That’s an interesting question. On a straight legal answer, I’d say selective enforcement — arguing that I’m being prosecuted but somebody else isn’t — is a very high standard to meet, especially for a political case like we’re seeing with Cook and some of the others. But I do think judges have been choosing not to give a [presumption of regularity] to the Trump DOJ, so judges may use their discretion to look at this with some sense that it’s just a political hit job.

ABRAMS: Right — because the Trump allegations, the Trump information, is outside the statute of limitations. So there’s no way that could be prosecuted. Correct?

REISS: That is correct. Even if it violated the law, it’s past the statute of limitations. There’s no way to bring it back.

ABRAMS: Right. Now, in response to questions, a White House spokesperson told ProPublica: “President Trump’s two mortgages you’re referencing are from the same lender. There was no defraud[ing]. It is illogical to believe that the same lender would agree to defraud itself.” [As transcribed — worth checking this quote against the ProPublica article’s exact wording before publishing.] What do you make of that?

REISS: Well, it’s interesting, because that’s not the standard that applies. It’s a federal standard — a section of federal law, 1014. It’s really about whether, at the time you signed it, you knew it was false. It’s not a fraud standard — it doesn’t have all the elements of fraud, such as materiality. So that’s a bit of a misdirection, suggesting that the lender knew about this or went along with it. That’s not the standard for the criminal law here.

ABRAMS: Putting aside the criminal law for a minute — does what they’re saying make sense? I’m trying to figure out what their point even is. “President Trump’s two mortgages you’re referencing are from the same lender … it’s illogical to believe that the same lender would agree to defraud itself.” It seems to be suggesting the lender wouldn’t have done it a second time — but if there was fraud in the first case, maybe they just didn’t realize it. I don’t know — this isn’t my area of expertise, but as I think about it, maybe they didn’t realize, when they made the first mortgage, that the information was false, and so they just used the same information for the second one.

REISS: Interpreting the statement from the administration in the best possible light, they’re saying perhaps he intended the first property as his primary residence, and that was true at the time — and the lender knew about the first one and knew about the second one. If you think about the statute requiring knowledge of falsehood at the time of signing, you can construct a story where that’s the case. That would be the argument they’d make at trial, if this weren’t past the statute of limitations and if Pulte had referred it to DOJ and DOJ chose to pursue it.

ABRAMS: It is amazing to me — and again, I don’t know if you’re going to want to answer this, you don’t have to — but it feels like the double standard the president often applies to others versus himself is astonishing. This is such an apples-to-apples comparison. We often say, well, it’s not really apples to apples — but this really is apples to apples, isn’t it?

REISS: It is. I’m going to say a few things in response to that. One: this is genuine hypocrisy, but unless it enrages his base — unless they say, “yes, our leader is applying two standards, and that’s unfair, and we want to punish him for that and not vote for him or for his slate” — it doesn’t really matter. Second — and this doesn’t excuse his behavior in the slightest, or Pulte’s behavior in the slightest — hypocrisy is a real bipartisan issue. You have Spitzer prosecuting johns, you have Hastert and Gingrich bringing the impeachment against President Clinton. There’s a lot of hypocrisy by politicians, and this, I think, is just part of something massive—

ABRAMS: I guess what makes this different to me is that with these cases, you can make the argument that none of them should be brought, or you can make the argument that they’re really important to be brought. I don’t think Eliot Spitzer — who suffered, who lost his job, there were real consequences for him — was out there in public saying, “these johns, they’re a real problem.” And that’s what Trump is doing. He’s going out there criticizing Lisa Cook as if she’s a criminal. I think that’s what makes this different.

REISS: I agree. It’s more extreme, but it’s really part and parcel of his approach to politics, which is attack, attack, attack, and deny, deny, deny, if anything comes close to touching your behavior or your team’s behavior. And it’s not just Trump — there are members of the administration who have similar mortgage issues, and allegedly Letitia James, Cook, and Schiff have that issue too. It’s part and parcel of behavior on the left and on the right, but he’s only going after Democrats. And that’s obviously true.

ABRAMS: Yep — and again, [the source transcript is garbled here: “only going after Democrats is sort of part and parcel of this administration going after Democrats for doing exactly what he did to me, is a step further” — recommend checking against the audio for the exact wording before publishing]. David Reiss, thank you so much for coming on the program. Really appreciate it.

The Brewing Constitutional Crisis

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Benjamin Franklin bust by Jean-Antoine Houdon

437 law professors (myself included) from across the country have signed the following statement to call attention to the constitutional crisis that the nation is now facing.

A CALL TO URGENCY

The opening weeks of the second Trump administration convince us, as law professors who have spent years studying the American legal system, that we are beginning to see unfold the gravest threat to the rule of law and its constituent principles – the separation of governmental powers, the independence of prosecutorial authority, the inviolability of human rights, the transparency of government action, and the sanctity of constitutional accountability itself – ever presented in our lifetimes. The president’s and his associates’ actions, and threats of action, profoundly undermine the bedrock principle of our federal government system – that the Chief Executive and his agents are constrained by the United States Constitution. The fundamental guardrails of our constitutional democracy itself are threatened and notably battered. They are, as we write, at risk of complete collapse.

We recall that Benjamin Franklin warned, when asked by Elizabeth Willing Powell whether he and his colleagues had delivered “a republic or a monarchy,” that we have “a republic” but only “if you can keep it.” We hope that all Americans, and especially all lawyers, will recognize the gravity of this situation and will be prepared to answer that challenge with the urgency required in the days, weeks, and months ahead.

You can find the current list of signatories here.

Taking Apart The CFPB, Bit by Bit

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graphic by Matt Shirk

Mick Mulvaney’s Message in the CFPB’s latest Semi-Annual Report is crystal clear regarding his plans for the Bureau:

As has been evident since the enactment of the Dodd-Frank Act, the Bureau is far too powerful, and with precious little oversight of its activities. Per the statute, in the normal course the Bureau’s Director simultaneously serves in three roles: as a one-man legislature empowered to write rules to bind parties in new ways; as an executive officer subject to limited control by the President; and as an appellate judge presiding over the Bureau’s in-house court-like adjudications. In Federalist No. 47, James Madison famously wrote that “[t]he accumulation of all powers, legislative, executive, and judiciary, in the same hands … may justly be pronounced the very definition of tyranny.” Constitutional separation of powers and related checks and balances protect us from government overreach. And while Congress may not have transgressed any constraints established by the Supreme Court, the structure and powers of this agency are not something the Founders and Framers would recognize. By structuring the Bureau the way it has, Congress established an agency primed to ignore due process and abandon the rule of law in favor of bureaucratic fiat and administrative absolutism.

The best that any Bureau Director can do on his own is to fulfill his responsibilities with humility and prudence, and to temper his decisions with the knowledge that the power he wields could all too easily be used to harm consumers, destroy businesses, or arbitrarily remake American financial markets. But all human beings are imperfect, and history shows that the temptation of power is strong. Our laws should be written to restrain that human weakness, not empower it.

I have no doubt that many Members of Congress disagree with my actions as the Acting Director of the Bureau, just as many Members disagreed with the actions of my predecessor. Such continued frustration with the Bureau’s lack of accountability to any representative branch of government should be a warning sign that a lapse in democratic structure and republican principles has occurred. This cycle will repeat ad infinitum unless Congress acts to make it accountable to the American people.

Accordingly, I request that Congress make four changes to the law to establish meaningful accountability for the Bureau :

1. Fund the Bureau through Congressional appropriations;

2. Require legislative approval of major Bureau rules;

3. Ensure that the Director answers to the President in the exercise of executive authority; and

4. Create an independent Inspector General for the Bureau. (2-3)

Mulvaney gets points for speaking clearly, but a lot of what he says is wrong and at odds with how the federal government has operated for nearly one hundred years. He is wrong in stating that the CFPB Director acts without judicial oversight. The Director’s decisions are appealable and his predecessor’s have, in fact, been overturned. And his call to a return to the federal government of the type recognizable to the Framers has a hollow ring since at least 1935 when the Supreme Court decided Humphrey’s Executor v. United States.

I would think that it should go without saying that the federal government has grown exponentially since its founding in the 18th century. The Supreme Court has acknowledged as much in Humphrey’s Executor which held that Congress could create independent agencies.  Independent agencies are now fundamental to the operation of the federal government.

Mulvaney and others are seeking to chip away at the legitimacy of the modern administrative state. That is certainly their prerogative. But they should not ignore the history of the last hundred years and skip all the way back to 18th century if they want their arguments to sound like anything more than a bit of sophistry.

Stealing Fannie and Freddie?

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Jonathan Macey and Logan Beirne have posted a short working paper, Stealing Fannie and Freddie, to SSRN. It advocates a position similar to that taken by the plaintiffs in the GSE shareholder litigation. They argue,

Politicians are running rough-shod over the rule of law as they seek to rob private citizens of their assets to achieve their own amorphous political objectives. If we were speaking of some banana republic, this would be par for the course – but this is unfolding in the United States today.

“The housing market accounts for nearly 20 percent of the American economy, so it is critical that we have a strong and stable housing finance system that is built to last,” declares the Senate Banking Committee Leaders’ Bipartisan Housing Finance Reform Draft. The proposed legislation’s first step towards this laudable goal, however, is to liquidate the government sponsored enterprises Fannie Mae and Freddie Mac – in defiance of the rule of law. This paper analyzes the current House and Senate housing finance reform proposals and faults their modes of liquidation for departing from legal norms, thereby harming investors and creditors, taxpayers, and the broader economy.

Under proposals before Congress, virtually everyone loses. First, the GSEs’ shareholders’ property rights are violated. Second, taxpayers face the potential burden of the GSEs’ trillions in liabilities without dispensing via the orderly and known processes of a traditional bankruptcy proceeding or keeping the debts segregated as the now-profitable GSEs seek to pay them down. Finally, the rule of law is subverted, thereby making lending and business in general a riskier proposition when the country and global economy are left to the political whims of the federal government. (1)

I found a number of unsupported assertions throughout the piece. For instance, they assert, without support, that Fannie and Freddie “never reached the point of insolvency.” (3)  Badawi & Casey convincingly argue that without “government intervention, [Fannie and Freddie] would have defaulted on their guaranty obligations and more generally on obligations to all creditors.” (Badawi & Casey at 5) All in all, I don’t find this short working paper to be compelling reading — perhaps a more comprehensive one is in the works.