Florida Judges, Others: Hoodwinked

Florida’s judiciary seems to have been persuaded by the mortgage industry that economic recovery cannot begin until all these nonperforming mortgage loans are off the bank’s books and the properties are made available back into the market.  I reach this conclusion because of comments that I have personally heard made by judges, including one at a foreclosure defense seminar last year.  Unfortunately, this is a shallow argument advanced by an industry having little else to offer.  The judiciary, like others victimized by the mortgage industry, has been hoodwinked.

Hoodwink – 1.  To deceive; trick; take in.  2. To blindfold.  3.  To Conceal – The American Heritage Dictionary

To deflect attention away from the main legal problems each plaintiff has in bringing defective mortgage foreclosure actions, the industry continues to push these cases through just as if there had been no requirement to comply with rules of civil procedure and long-standing law for a plaintiff to prove its right of action.  This is a game of musical chairs taking place right in our courts.  Let’s examine the layers of real people being victimized by the mortgage industry.

The Sub-Prime

The first group victimized by the mortgage industry and their buddies at Wall Street were the sub-prime borrowers – some who should have never obtained a mortgage loan but rather should have been protected by the safeguards our financial system uses to keep the economy in balance.  The mortgage industry cast a spell that was framed out in hope and entitlement to home ownership which ultimately led good people buy into a false expectation.  Sub-prime borrowers:  hoodwinked.

Investors of MBS Certificates

Next up are the investors or purchasers of certificates of mortgage-backed securities who bought the hogwash being peddled by Wall Street.  Now that their investment value has evaporated these are the same people often holding out for more bailout money so they recoup some of their money.  Investors of MBS securities hoodwinked.

Consumers with Good Credit

A huge group falling victim to the financial carnage is comprised of lots of good people with good financial net worth and excellent credit.  For all kinds of reasons these consumers bought into the roller coaster ride, absent the safety catches, and fell off.  Consumers with excellent credit and capital hoodwinked.

When the I-can’t-make-these-payments wake-up call finally came for borrowers it was a straight shot by the mortgage company to the courthouse for a judgment to sell the property.  The next target in the game:  judges.  The mortgage industry already knew there existed an institutionalized bias favoring banks that it would not take much work to obtain judgments and sell the property.  So the industry and their attorneys put in whatever they could get away with in front of judges and got judgments.  Truth be told that is still going on.  Now that so much has been revealed by consumer advocates across the US, and by judges actually paying closer attention, it’s hard not to think that many judges in this state are now feeling – well, hoodwinked.

Title Companies

Now that so many foreclosure judgments have been entered on weak and often improper or fraudulent grounds the next wave of cases the courts will likely see is a barrage of disputes between title companies and parties claiming to have been improperly dispossessed of their real property.  There can be no doubt that these problems and related litigation will make the cost of real property ownership to be higher and riskier in Florida.  Title companies who have insured deeds to Florida real property are not immune from the coming avalanche of litigation over property disputes.  But, they can thank the mortgage industry for destabilizing Florida real property titles with defectively/fraudulently obtained judgments .  Title companies, hoodwinked.

Investors

Like those in the title industry investors having purchased real property during this time of uncertainty stand to also be drawn into disputes over the validity of the judgment leading to their opportunity for purchasing houses at foreclosure sale. For those investors active in buying Florida distressed real estate, and who are not spooked by the prospect of being drawn into litigation over the validity of judgments, the key would be to quickly sell what they have purchased and make it someone else’s problem.  However, buyers of real property at foreclosure sales have a huge risk where a foreclosure sale has been set aside after proceeds have already been delivered to the mortgage company.  Under Florida law the mortgage company does not have to return these proceeds but rather the buyer of the property, whose clerk-issued deed becomes void, assumes the rights of whatever the mortgagee had at the time of judgment.  Buyers of these properties better observe that the judgment was properly obtained, otherwise they stand to suffer the same net result: Investors, hoodwinked.

Continuing Abuse Perplexing

With so much overreaching by the mortgage industry – beginning with first offering loans all the way through to getting over on judges and post-judgment investors – it remains perplexing how they continue to get away with these practices.  Perhaps they know something we don’t.  These companies and their counsel keep advancing legal arguments not on solid ground and often bringing forth documentary evidence fabricated solely for the purposes of propping up the foreclosure judgment.  One view unavoidable to consider is that Florida dockets may not have exploded with mortgage foreclosure actions, as they have, if judges here had consistently and uniformly rejected shoddy foreclosure pleading practices early upholding the then-existing set of rules and case law that should have blocked these tactics in the first place.

Last to Know – But Now They Know

Blaming the judges now is of little help and they also have a point to consider. Judges are not ordinarily the first to learn about practices that are deceptive, fraudulent or in some way in violation of the law.  These come to the court after someone has examined the facts and advanced a claim or a charge.  So, it is a natural consequence that the judges were among the last to learn about the abuses by the mortgage industry – in any real detail.  So until the judiciary got up to speed on what was actually going on they too were victims of the mortgage industry’s deception.  It’s no small wonder that foreclosure cases were moving through the courts at breakneck speeds.  The mortgage companies had to get these through before someone discovered all of the details and brought these to the court’s attention.  Now that judges “know better”, in no small part due to the consumer law defense attorneys, it remains an open question as to what they will do about it.  One thing is for sure, judges are no longer being hoodwinked – unless they let it happen.  Judges now know it is time to put to a stop this madness advanced by the mortgage industry and their attorneys.  Doing otherwise would reward the long line of deception with approval of our good state’s courts.  That cannot possibly be the will of Floridians or of its trusted judiciary.

Vacate Foreclosure Judgment & Sale? “No Problem”

Mortgage companies filing foreclosure actions on shaky ground generally do not worry about their judgments or sales being set aside because they know a secret.  They have a get-out-of-jail-card granted to them by our Florida Supreme Court.

The secret, and legal issue, may explain one reason why foreclosing plaintiffs and their attorneys have not been more diligent in bringing their claims against property owners with complete or even truthful pleadings and documentation.  The secret and its history begins with precedent established during the great depression in Quinn Plumbing Co., Inc., v. New Miami Shores Corp., 100 Fla. 413, 129 So. 690, 692, 73 A.L.R. 600 and later affirmed by Bridier v. Burns, 148 Fla. 587, 4 So.2d 853 (Fla. 1941).  In these  two Supreme Court cases it was held that when real property, subject of a mortgage foreclosure judgment, is sold and that sale is later set aside, the mortgage company does not have to return the money paid by the purchaser.  Instead, the court established that in vacating the sale the defendant property owner is restored to his position as title holder, effectively wiping out any deed created with the completion of the public sale, the rights of the mortgagee are then subrogated to the purchaser.  In other words, the purchaser steps into the shoes of the mortgage company and now has all the rights the mortgagee had.  The Bridier court stated “[S]uch purchaser becomes virtually an equitable assignee of the mortgage and of the debt it secured, with all rights of the original mortgagee, and becomes entitled to an action de novo for the foreclosure of such mortgage against all parties”.  Accordingly, to recover money paid for the purchase of the property the purchaser now has to enforce the mortgage and note.

In the case leading to Bridier, Bridier v. Burns, 145 Fla. 642, 200 So. 355, a foreclosure judgment led to the sale of real property in Volusia County. The sale was timely challenged by the filing of objections backed by a proper supersedeas bond.  The Clerk of the Court rejected the bond and relief was sought by petition seeking certiorari.  In granting certiorari the court declared the deed resulting from the sale as null and void.  On remand, however, the lower court denied the original property owner to be restored as title holder and that issue was brought before the appellate court as a petition for modification.  In reversing the lower court, the opinion stated “[W]hen a foreclosure sale is set aside by an order of court for any fatal irregularity, the title acquired by the purchaser is thereby vacated. The law subrogates the purchaser at the void foreclosure sale to all the rights of the mortgagee in the indebtedness and the mortgage securing the payment of the same.  The mortgage and final decree are not affected by the void sale.”

The Bridier court cited Quinn, where the court held “It is well established in this jurisdiction that the purchaser of mortgaged property at a foreclosure sale, when for any reason the foreclosure proceedings are imperfect or irregular, becomes subrogated to all the rights of the mortgagee in such mortgage and to the indebtedness that it secured. Such purchaser becomes virtually an equitable assignee of the mortgage and of the debt it secured, with all rights of the original mortgagee, and becomes entitled to an action de novo for the foreclosure of such mortgage against all parties holding junior encumbrances who were omitted as parties to the foreclosure proceedings under which the purchaser bought.”  The holding in Bridier remains law in Florida as it was also cited in American Bankers Life Assur. Co. of Fla. v. Williams, Salomon, Kanner & Damian, 399 So.2d 365 (Fla. 3^rd DCA 1981).

So what’s the big deal?  For starters, there appears to be very little incentive for the foreclosing plaintiff to make its foreclosure complaint to be accurate or even truthful at the time of filing the action.  Foreclosing plaintiffs realize that judges are always inclined to grant a foreclosure judgment.  Why work any harder?  There is also little risk associated with presenting shoddy or even fraudulent foreclosure pleadings because after the property is sold, and the plaintiff gets paid, the law established by Quinn and Bridier shield the mortgage company from having to forfeit the proceeds – assuming someone else has purchased and paid for the property.  If the foreclosing plaintiff has acquired the property by bidding any portion of their judgment there is also little risk because the setting aside of the sale merely leads to restoring the property owner to his position as title holder prior to the completion of the vacated sale.  No sanctions, attorneys’ fees or other form of risk – ever.

Additionally, if the foreclosing plaintiff has also taken possession of the property beyond the sale, even if set aside, Florida law even shields the mortgage company from having to relinquish possession to the mortgagor according to the holding in 601 West 26 Corp. v. Equity Capital Company, 178 So.2d 894 (Fla. 3^rd DCA 1965)(holding it would not be proper under the law to require the mortgagee in possession to surrender the premises to the mortgagor (or to a receiver unless need for the later should appear) pending accounting and necessary resale. This is so because it is established that a mortgagee who acquires possession of property in good faith on a foreclosure sale which later is set aside holds as a ‘mortgagee in possession,’ entitled to retain the property until the mortgage debt is paid or redeemed, or the property foreclosed).

This might explain the mortgage industry’s mad dash to get foreclosure complaints through the courts as quickly as possible.  The strategy has been effective and even aided by the concept of a “rocket-docket”.  And, the foreclosure mills are all too eager to be paid to prop up the scheme.  It’s easy money.  For about $1,200 a case all we have to do is get the judgment – using a production line workflow.  File the complaint, even if it is not accurate, complete or truthful; push it through and get the judgment; sell the property and collect the money.  The buyer at auction is S-O-L if the sale is set aside – minor detail.  Mortgage company client gets to keep the proceeds and the buyer has to work it out.  Next case.  One has to wonder how many times this precedent has been the subject of discussions, negotiations or letters exchanged between foreclosure property buyers and the foreclosing plaintiff’s attorney.  It would be throwing good money after bad for the investor to try getting their purchase money back especially with precedent dating back to 1930.  Investors would simply have to take it on the chin.

The foregoing suggests that any litigation flowing from vacated judgments or sales set aside, the fight over the property, the rights of the mortgagee and anything related to the proceedings leading up to the public auction and sale will be between the former property owner and the purchaser at the sale conducted by the Clerk of the Court.  Such a deal.  Can anyone say “caveat emptor”.  In the end, this well-kept secret will continue to fuel the mortgage industry’s rush to displace homeowners even when there is no right to foreclose in the first place.  After all, what’s the risk?