The Big Crash Part 1 Part 2 Part 3 Email Timeline Delete This Post Edit This Post
Published December 14th, 2010 14 Comments
New Orleanians are no strangers to catastrophe. In fact, it seems we are rapidly becoming seasoned pros at disaster management. We have proven to be resilient; yet one has to wonder how much more strife our bedeviled city can endure.
To the outsider, we may appear cursed. Having experienced Katrina, the largest natural disaster in American history, and the BP oil spill, the largest environmental disaster in American history, it certainly may be reasonable to assume our city has fallen out of favor with Fortuna. As The Daily Show correspondent, Wyatt Cenak, mused after the BP oil spill, "someone is trying to kill New Orleans." Cenak might be right, but the nasty truth of it is that we, ourselves, may be the assassins.
The failure of the levees during Hurricane Katrina was a man-made disaster. Although the investigation is still ongoing, it's probably safe to assume the Horizon oil rig explosion was also a man-made disaster. Both events were the result of faulty engineering, lack of oversight, and outright corruption. Unfortunately, we may be in the midst of yet another man-made disaster brought on by the usual suspects.
What just happened?
On October 26th, the Orleans Parish Clerk of Court office experienced a computer crash. The server which held the mortgage and conveyance digital records for the entire parish, and more importantly, the only index for the records, had gone offline. At the time, it caused little concern amongst the office employees who regularly maintain and update the records, or the independent abstractors that rely on the database to research properties for banks, title companies, and insurers. The system had crashed many times before, and it usually came back up within a couple of hours at most. Most of them knew little of how the computer system worked or even where the mainframe was located in the Amoco building at 1340 Poydras. People simply accessed and entered data on the computer terminals in the mortgage and conveyance office on the fourth floor and endured the occasional crashes with little concern - trusting that someone, somewhere in the building had things under control. After all, the entire real estate industry in Orleans Parish revolved on these property records, so surely the computer system was up-to-date and contingencies had been put in place to back up all the digital files. They assumed this was just another IT hiccup. But, as the work day drew to a close, the computer system still lay dormant.
By the third day, rumors had started to circulate in the office that something was seriously wrong. A large amount of data may have been lost, including a part of the index which sorted both the digital records and the paper records, and most importantly, somehow, this data may not have been backed up. The rumors were harrowing and people started to grasp the potential danger of the situation. This wasn't a typical crash. This could be heavy.
Little communication surfaced from the Clerk of Civil District Court, Hon. Dale N. Atkins, about the nature of the problem. As days turned into weeks, conflicting stories began to emerge from Atkins' office. One title attorney was continually told, "We are waiting on a part." After a week of hearing the same excuse, he replied, "Where in the world is this part? I will personally fly there and get it for you."
The obfuscation from the Clerk's office became increasingly obvious. Anxiety peaked among the real estate professionals whose livelihoods depended on Orleans Parish's property records and alas, Atkins was forced to reveal the ugly truth: not only had almost 180,000 digital records been permanently lost from March 2009 to the date of the crash, but the section of the index which navigated those records had been lost as well. To make matters worse, that digital index was the only method available to navigate the physical paper records which had been stacked in boxes without rhyme or reason.
Things were indeed heavy.
Without the ability to check property records for potential liens or judgments, insurers and lenders can't proceed with a real estate transaction with any degree of confidence. Some higher-end transactions are taking place, based on the lender's, seller's and buyer's sense of security in bypassing the insurance process, but the bulk of transactions have come to a screeching halt and some insurers have already made it known that they have no intention of underwriting transactions.
Where are we now?
As this article is written, we are nearly eight weeks into the crisis with a nebulous timeline for resolution of recovering the records. Approximately 90 employees from multiple parishes have been commandeered to re-enter the lost data for both the mortgage and conveyance records. Optimistic estimates call for completion of the data entry in January or February of 2011. Other less rosy estimates put the date closer to April or May. Every day the system is down intensifies the city's financial devastation in orders of magnitude. The real estate industry is the lifeblood of New Orleans' economy and as of now, only 3% to 5% of transactions are currently being processed. The situation is critical. If the problem continues well into next year, the potential economic fallout is unfathomable.
The people on the front line of the crisis, those who have immediately felt the effects of the crash, are real estate abstractors. Abstractors are responsible for researching all records of a property before a real estate transaction can be processed in confidence.
Dawn Mouledoux is a title abstractor who has worked in the New Orleans metro area since 1977
Who's calling the shots?
The mortgage and conveyance records are legally the responsibility of the Orleans Parish Clerk of Civil District Court as of January 1, 2009, when Louisiana Act 621 took effect. 621, known as the act of consolidation, essentially abolished the previous hierarchy which was composed of three independent offices: register of conveyances, recorder of mortgages, and custodian of notarial records.
Prior to the consolidation, much of the financial and service responsibilities for the three independent offices handling property records were under the purview of the Orleans Parish Civil Court Judicial Expense Fund (JEF), an organization comprised of the Orleans Parish Civil Court judges as well as the First and Second City Court judges. Orleans Parish is unique in this respect. The JEF's financial and procedural control over the mortgage and conveyance records is a curious anomaly in the state of Louisiana.
Atkins inherited the IT system which was implemented at the behest of the JEF in September of 1987. During the migration from paper records to a computer database, the JEF made the decision to eliminate a paper or physical index for the paper records in order to save money, thereby making the digital database the sole catalogue of all records. The computer system essentially became the central nervous system for all real estate transactions in the city. It is worth noting that many other parishes in the state eliminated their physical index after moving to a computer system as well; the JEF's decision was not out of the ordinary.
The consolidation act made Atkins directly responsible for the recording and preservation of all documents but curiously, the JEF retained the maintenance and financial responsibilities of the existing IT infrastructure. IT Director Tynia Landry oversaw the entire chain of computers which powered the mortgage and conveyance records, and any money or changes needed to update or service this critical system would be approved by the judges, not the Clerk. Legally, Atkins seems to be ultimately responsible for the records yet did not seem to have direct control over the critical IT infrastructure on which her entire office depended.
Ironically, the consolidation act was passed in 2007 with the intent of streamlining services and lessening the financial burden of the disparate property record offices.
Do the bosses understand the business?
As the crisis was beginning to resonate past the real estate community and become known to the general public, one of the Civil Court judges commented in a meeting with real estate officials that the abstractors were just being lazy, as they had access to the paper records and could conduct their research without the use of the digital archive:
Dawn Mouledoux explains the complexity of researching titles within the current system.
According to sources working within the Clerk's office, the judges and Clerk have a limited understanding of the nuts and bolts of the record archiving and retrieval process for mortgage and conveyance. For the first few weeks of the crisis, there was an unnerving lack of urgency among those in charge. In fact, there was much confusion as to who was in charge, the Clerk or the judges. Both Judge Rosemary Ledet and Judge Piper Griffin admitted in the Times Picayune that the judges were responsible for the IT services of the office, and hence for the failure to back up the missing data. But Griffin placed the blame of "the server failure" on a national back up service provider, i365. This claim doesn't seem to make sense, as i365 was supposed to be providing off-site back up services. The company was not directly responsible for the administration and maintenance of the office's servers. Tynia Landry has claimed that she began experiencing problems after she installed a software update from i365, but it is still unclear if this is what caused the server crash. Humid Beings has made interview requests with Judge Griffin and other judges to clarify their explanation but all have declined to comment.
Can the cavalry save the day?
So far the best explanation of what actually happened has come from various members of the New Orleans real estate community who have been working with the Clerk of Court to resolve the crisis. Members of NOMAR, New Orleans Metropolitan Association of Realtors and NOMATA, New Orleans Metropolitan Association of Title Attorneys have volunteered resources and advice to Mrs. Atkins' office. Title attorney Brent Laliberte, President of Bayou Title and point man for NOMATA, has been communicating with the Clerk of Court's office since the beginning of the crisis:
Brent Laliberte, President of Bayou Title, discusses the computer and database failures the city experienced.
The lack of action to resolve the problem in the first few weeks of the crisis may prove to be fatal for some companies and individuals in the long run. One month of inaction equates to one month of lost income to the companies who power the real estate industry. Payroll must be met by companies like Bayou Title, and while Laliberte is confident in his own company's ability to weather the storm, he worries about the industry as a whole. Precious time was lost since the beginning of the crisis and the real estate professionals who understood the seriousness of the problem had difficulty getting city and state officials to understand the problem:
Brent Laliberte, President of Bayou Title, shares his fears with what be the effects of this failure on the city.
What are the effects?
The immediate effect of the crisis on real estate professionals is really just the tip of the iceberg. Real estate is the cornerstone of New Orleans' economy, but the inability to access the mortgage and conveyance records affect many issues which transcend the core industry. At this point, it is difficult to project how extensive the effects of the collapse could be. Real estate agents Katie Witry and Scarlett Giambelluca share their concerns about the depth of the problem:
Katie Witry, Realtor, shares her thoughts on the ripple effects this is having to her industry.
Scarlett Giambelluca, Realtor, explains the issues with acquiring title insurance.
The economic factors are harrowing, but the inability to access the records has some wicked side effects for the community which may not be readily apparent to those outside of the industry. Mouledoux describes what happened in the mortgage and conveyance office when one of these implications was first realized:
Dawn Mouledoux shares her experience soon after the crash.
The inability for an OPP inmate to bond out of jail makes New Orleans' government subject to numerous civil rights lawsuits. Also, keep in mind that the same governmental entity (Orleans judicial branch) that decides the fate of an accused inmate is now largely responsible for their inability to make bail. Marjorie Esman, Executive Director of the ACLU Foundation of Louisiana, explains the problem:
Marjorie R. Esman, Executive Director, LA. ACLU, explains how this crash effects bonding from jail.
Add divorce settlements to the list. People seeking to separate property in a divorce are essentially stalled until the records are made whole again. People trying to make a business lease to open a building, or even lease a residential property, are affected as well. We still don't really understand all the tangential issues which may arise.
Scarlett Giambelluca does not believe the public understands the far-reaching economic impact of this crash.
Perhaps the the most damaging effects are those we can't foresee - the long-term fallout from three, six, or possibly eight months of a crippled real estate industry are frightening to imagine. This contretemps may prove exceptional in regards to our city government's previous missteps in that the one bright note of New Orleans' post-Katrina economy was that our real estate market has actually grown in defiance of a national industry slump. For people looking to relocate to the city, the inability to purchase a house, or even the difficulty of trying to lease a business or residential property, could drive them on to greener pastures. It seems, once again, we are walking on the mines we've laid.
"A bigger impact than BP."
What are city officials doing?
This is a good question. "What is our city government doing to address the problem?" While Mayor Landrieu has been conspicuously quiet up to this point, many city council members are attempting to dissect the problem. The challenge they face is that they have very little jurisdiction over the Clerk of Civil Court's office or the judges (JEF), as both entities are state-run offices. Most of the money generated by the Clerk of Court's fees goes to the city's general fund and those critical finances are being factored into the upcoming year's budget. (Part 2 of the series will examine the finances generated by the Clerk of Court's fees and how the money is disseminated.)
District C Councilperson Kristin Palmer admits the crisis has brought to light a lack of understanding on the part of city officials, the general operations of the Clerk of Civil Courts' office, as well as its revenues and political structure:
District C Council person Kristin Palmer thinks this is an example of lack of transparency.
The third party Palmer refers to would most likely be a state legislative hearing. New Orleans City Council does have subpoena powers, but any actual changes made to the structure and operations of the Clerk of Courts' office would have to be executed on the state legislative level. The city legislative body has little to no purview over the office.
District B Councilperson Stacy Head agrees with Palmer that some form of public hearing must take place in order to understand the factors which led to the crash:
District B Councilperson Stacy Head hopes questions can be answered about the fund.
The encouraging news is that Head and other city officials seem to understand the gravity of the situation.
Stacy Head shares the importance of keeping real estate healthy as our only proven bright light for success.
In part two of this series, we will conduct the "autopsy" of the crash: why it happened, who was truly responsible, and what is being done to correct the problems. We will also examine the history of the Judicial Expense Fund, it's relationship to the Clerk of Court's office, where the money generated by property record transactions end up, and whether or not the two entities are actually in compliance with Act 621 and Louisiana state law in general.
Stay tuned....the best is yet to come.
Thanks to BlackBird Media for the video assistance.