Don’t Bite the Hand That Feeds You?

Most foreclosure defense attorneys continue to complain about how judges respond to what appears as foreclosing plaintiff blatant disregard for the rules of civil procedure.  Sometimes the response by judges not only appears lackadaisical, but outright favoring the offending plaintiff and their attorney.  It is entirely possible that even attorneys for the plaintiff are surprised too, even if only once awhile.  Nonetheless, there seem to be two sets of rules – one applying to every other type of case and another that applies to mortgage foreclosures.  And, many judges readily allow violations of the rules with such cavalier attitude that it is offensive to those that are charged with a duty to protect the integrity of the legal proceedings, attorneys who are also officers of the court.

The problem with pleading verifications is multi-dimensional.  First, where a plaintiff fails to comply with a Supreme Court mandated requirement to verify a foreclosure complaint – which can only be viewed as intentional – it opens the door for the plaintiff to offer up pleadings, allegations, documents and facts that may be pure fiction.  Second, this deliberate disregard for the verification rule further masks the real identity of the foreclosing plaintiff, or at a minimum helps shield the party bringing the action from being held accountable under the verification standard imposed by Rule 1.110(b).  Third, the failure to comply exposes every defendant to respond to the action and defend against an entity that, aided by its attorneys, has bypassed a consumer protection important enough to have been instituted by the Florida Supreme Court.  In the end, without any accountability the plaintiff that intentionally perpetrated the violation by failing to verify its complaint is left to commit courtroom sin with impunity.  This sin impacts the lives of families who are oftentimes displaced from their homes under the force of the law.

When judges refuse to enforce the rules of civil procedure it signals to the offending party that “it’s ok to do this in my courtroom – don’t worry about it.”  It also signals to others that the court is biased in favor of foreclosing plaintiffs, the banks.  But why would judges do this in light of the fact that there are many types of cases coming before them other than foreclosure?  What is the impression that litigants and their attorneys get when witnessing the judge’s outright disregard for the rules of civil procedure and often long-standing case law?  And, what would give a judge the motivation to reach and maintain this posture for such an extended period of time?  Any observer really paying attention will be hard pressed not to reach the conclusion that there is something really wrong here.

Florida Judges, conservative by nature, have been made to act in a manner contrary to their oath, duty and past history in large part because there is currently a significant conflict of interest built into the system.  That is, the judiciary’s budgetary constraints – think money – has been significantly impacted in large part by the very entities that violate its rules.  That makes the courts of our state and our elected judges beholden to the banks and other foreclosing plaintiffs, plain and simple.  The judiciary needs the foreclosure filing fees for their very survival.  A foreclosure moratorium, mythical and fictional by any stretch of the imagination, would leave the Florida court system feening for another shot.  The impact would be devastating by some accounts.  Anyone doubting this issue exists can simply refer to comments made recently by the highest judicial officer in our state, Chief Justice Charles Canady.  The good justice, while urging against continued cuts to the court system budget, appeared worried about the reduction in filings by foreclosing plaintiffs when he said “we’ve seen a drop in the filings”.  He goes on to say that “Lenders, because they didn’t have their act together, they’ve not been filing the way that was anticipated.”  Apparently there was some expectation regarding the number of foreclosure filings that did not happen and that had a big impact on the judiciary’s budget.

In all fairness the Chief justice was also saying that these filing fees are not going to bridge the budgetary gap in the short-term or the long-term.  However, it becomes one of these duh moments when any casual observer might conclude, wait a minute – the courts need money and the biggest source of money is coming from these foreclosing banks – of course the judges aren’t going to rule against the banks and bite the hand that feeds them.   The appearance of bias and conflict of interest is inescapable.  The state court system’s $370 million trust fund gets 80% of its money, or $285 million, from foreclosure fees.  What circuit court judge is going to destroy their career by bucking the system?  So what if some rules are not followed and that fraud has overtaken and compromised the integrity of the courts.  The trust funds must be protected – or so we have been told.  History will record this period as yet another example of how financial institutions corrupted even our most trusted institution, the judiciary, and how the people eventually lost faith.  It’s scary to think where all of this will go when the people no longer believe in the fairness and impartiality of what was once the best legal system in the world.

So when you hear foreclosure attorneys complain about plaintiff violations of rules of civil procedure and the court’s departure from essential requirements of law, take a step back and put it all into perspective.  The plaintiffs have essentially bought themselves an entire state judiciary – even if only in appearance.  Ironically, this out-in-the-open strategy is very different than when a judge is compromised by a bribe in some back office.  In the latter case there is someone to charge, prosecute and remove from the bench.  It’s a very high price to pay for such a fall.  However, in the current context where the entire judiciary has been systematically hijacked, the price to be paid will be borne by all Floridians for years to come.  Florida will be plagued with clouds on property titles for years.  And, who in their right mind would want to relocate their company to Florida when there is little to no confidence in the state’s ability to resolve disputes?  Every principal, associate, supplier or employee relocating to Florida would be exposed to buying property that may be subject to future attack on title, or perhaps entirely be ineligible for title insurance.  That is assuming the new buyer can even obtain a loan because of the history of the title is in question.

This is what those filing fees have purchased.  Want the fees to continue?  Then don’t rule against the banks.  Want a balanced system of justice everyone can believe in – restore the faith of the people by eliminating the appearance of bias and ruling according to the law before it’s too late.  So much has already been lost.

Title Problems and Litigation Ahead

From Matt Weidner’s Blog.  Telling indeed.

Since the foreclosure crisis began, myself and a chorus of responsible, ethical attorneys have been screaming at the top of our lungs to judges and anyone else that might listen… HOW IN THE WORLD CAN YOU CONTINUE TO LET ALL THIS FRAUD CONTINUE TO BE COMMITTED? DON’T YOU UNDERSTAND THAT FRAUD IN THE FORECLOSURE PROCESS IS GOING TO WREAK HAVOC ON THE REAL ESTATE MARKETS AND COURTS FOR DECADES TO COME? EVEN IF YOU PUSH FORECLOSURES THROUGH NOW, THE TITLE TO PROPERTIES FROM FORECLOSURES GRANTED IN THIS PERIOD WILL HAVE LITTLE OR NO VALUE! and finally THE TITLE INSURORS WHO ARE UNDERWRITING TITLE POLICIES WILL GO BANKRUPT AND TITLE INSURANCE WILL BE WORTHLESS! Our realtor friends are starting to catch on…read the following article which is quite chilling… -by George Mantor Category: All Articles » REO’s and Foreclosures Agents involved in foreclosures and short sales may need to begin to disclose the possibility of serious defects in title associated with these types of lender controlled sales. If recent court decisions are any indication, we are headed for an explosion of litigation in this area. And now, Massachusetts Courts have revealed the possibility that unlawful foreclosures, dating back to 1989, might be invalidated and that buyers of foreclosed properties and short sales may have clouded titles. The implications are enormous for title companies, bankruptcy attorneys, real estate agents, those facing foreclosure, and those who have lost their homes. The problem stems from the collision of two worlds.  It illustrates what can happen when the new world fails to acknowledge or understand the old.  It is change that takes place without the cooperation of all affected parties. Real property law has an ancient tradition.  But, its laws and their purpose are not always apparent to those who want to change those traditions to benefit themselves. In the case of maintaining a public chain of title to real property, it was thought to be essential and generally required by the law. For hundreds of years, no one ever thought of any reason to change it.  It was thought to be part of the public good. That is, until Wall Street saw the money making potential in Credit Derivatives. Credit Derivatives are packages of debts such as car loans, student loans, credit card debts, and mortgage loans to name a few.  These are collected, rated according to their risk, and sold to investors around the world. One small problem; if you are going to bundle mortgages from every county in the country, you would have to physically send someone to every county recorder’s office on multiple occasions and pay multiple recording fees.  It was costly and cumbersome to those responsible for affecting the recordings. Their solution?  Stop recording the assignments in public and track them instead in an electronic data base that the major lenders would operate through a cooperative entity.  Say hello to Mortgage Electronic Registration Systems, affectionately known as MERS.  Not only did it save them a fortune in county fees and manpower, it turned out to be a cash cow. Well, good for them, right?  They figured out how to bring technology to the process and were handsomely rewarded.  Never mind that the cost of maintaining a county recording system is paid, in part, by the recording revenue. They still have to maintain the apparatus, but now they aren’t receiving the revenue intended to maintain the system.  Of course, this comes at a time when many counties are struggling to provide necessary services to their residents. But, as with many new ideas, there are unintended consequences that are now coming to light as state after state are enforcing basic property rights. Massachusetts On October 14, 2009, Judge Keith Long of the Massachusetts Land Court said in his ruling, “The issues in this case are not merely problems with paperwork or a matter of dotting i’s and crossing t’s. Instead they lie at the heart of the protections given to homeowners and borrowers by the Massachusetts legislature.” He was referring to the industry practice of trading notes endorsed in blank, in direct violation of securities law.  Here is what he said on that point; “The blank mortgage assignments they possessed transferred nothing…in Massachusetts, a mortgage is a conveyance of land. Nothing is conveyed unless and until it is validly conveyed.  The various agreements between the securitization entities stating that each had a right to an assignment of the mortgage are not themselves an assignment and they are certainly not in recordable form.” Two years earlier, Judge Rosenthal in re Schwartz, found that there was no evidence that the note itself was assigned and no evidence as to who the current holder might be. Kansas On August 28, 2009, Judge Eric S. Rosen of the Kansas Supreme Court likened MERS to a “straw man” and not a party of interest with the right to foreclose. “Indeed, in the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable.  The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note.  Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of a default. The person holding only the deed of trust will never experience a default because only the holder of the note is entitled to payment of the underlying obligation. The mortgage loan becomes ineffectual when the note holder did not hold the deed of trust.” California On October 21, 2008, Judge Samuel L. Bufford noted in his ruling that California codified the principal in 1872 in Carpenter v. Longan: “Given that ‘the debt is the principal thing and the mortgage an accessory,’ the Supreme Court reasoned that as a corollary, ‘the mortgage can have no separate existence.  An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.” Nevada On August 19th, 2008, Judge Linda B. Riegle concluded, “There is no evidence that the named nominee is entitled to enforce the note or that MERS is the agent of the note’s holder.  Indeed, the evidence is to the contrary, the note has been sold, and the named nominee no longer has any interest in the note.” Arkansas On March 19, 2009 the Supreme Court of Arkansas found that MERS was not the beneficiary under the deed of trust, although so designated in the deed of trust, because it did not receive the payments on the underlying debt. Ohio On October 31, 2007, U.S. District Judge Christopher Boyko dismissed 14 foreclosure actions and delivered a strong admonishment in a footnote: “Plaintiff’s ‘Judge, you just don’t understand how things work,’ argument reveals a condescending mindset and quasi-monopolistic system where financial institutions have traditionally controlled, and still control, the foreclosure process…There is no doubt that every decision made by a financial institution in the foreclosure is driven by money.” When you consider the origin of this problem, it is hard to disagree.  If the foreclosing entity didn’t loan the money, the original note was sold, the location of the note is unknown, and it isn’t even clear what would happen to the proceeds of the eventual sale of the property to a new owner. Until recently, MERS had succeeded in most foreclosure actions.  In non judicial foreclosure states like California, there is no judicial review of the elements of a foreclosure.  Unless the borrower files for Bankruptcy or brings a law suit against MERS alleging RESPA or TILA violations, there is no opportunity for the borrower to challenge the foreclosure. In judicial foreclosure states, there is a law suit brought by the party entitled to payment on the defaulted loan.  Not the trust, but the actual possessor in due course of the original note.  Its part judicial procedure, part uniform commercial code and part ancient property law. But, the securitization business is so complicated, intentionally so, that defendants, most of their legal representation, and the judges rarely considered the consequences to the real parties in interest.  This will continue until enough people understand the importance of the actual note and its relationship to the property. Many homes have been unlawfully foreclosed by entities not entitled to anything. The former owners of these homes have rights that will need to be addressed. People who applied for mortgage modifications and received them may have gotten approval from a bank employee with no authority to change the underlying terms of the securities in the pools. Many people bought these homes and have potential future claims.  If there is a cloud on title, the new owner is at risk of being unable to sell or encumber the property.  If the foreclosure were unlawful, the borrower is entitled to their property.  And, there is a very real possibility that the true holder of the actual note, once and if ever this mess is sorted out, could come forward with the actual note. It isn’t important to only those in foreclosure. For those seeking loan modifications, potential buyers of short sales and foreclosures and those acting in a fiduciary capacity on their behalf, you may soon be demanding, “Show me the note.”

U.S. Criminal Probe: Bogus Foreclosure Docs

Below is a Must Read article in the Wall Street Journal today about an ongoing criminal probe of a Florida-based company that is being investigated for fabricating [bogus] documents for use in foreclosure actions.

Fabricating evidence to prop up foreclosures is finally now being investigated, criminally.  A mortgage company having nothing to hide, or to fabricate for that matter, should not have to engage in this kind of conduct.

This kind of fraud is what makes it difficult for everyone looking to get the foreclosure dispute resolved, including defense counsel, judges, mediators and the homeowner.  The mortgage and banking industry has shown over and over that it cannot be trusted.  Now the same people want to get Florida legislators to allow totally unsupervised non-judicial foreclosures in this state (pending House Bill 1523).

A memo with this article and related evidence attached should be filed with each challenge to bogus foreclosure actions.

By AMIR EFRATI and CARRICK MOLLENKAMP

A subsidiary of a company that is a top provider of the documentation used by banks in the foreclosure process is under investigation by federal prosecutors.

The prosecutors are “reviewing the business processes” of the subsidiary of Lender Processing Services Inc., based in Jacksonville, Fla., according to the company’s annual securities filing released in February. People familiar with the matter say the probe is criminal in nature.

Michelle Kersch, an LPS spokeswoman, said the subsidiary being investigated is Docx LLC. Docx processes and sometimes produces documents needed by banks to prove they own the mortgages. LPS’s annual report said that the processes under review have been “terminated,” and that the company has expressed its willingness to cooperate. Ms. Kersch declined to comment further on the probe.

A spokesman for the U.S. attorney’s office for the middle district of Florida, which the annual report says is handling the matter, declined to comment.

The case follows on the dismissal of numerous foreclosure cases in which judges across the U.S. have found that the materials banks had submitted to support their claims were wrong. Faulty bank paperwork has been an issue in foreclosure proceedings since the housing crisis took hold a few years ago. It is often difficult to pin down who the real owner of a mortgage is, thanks to the complexity of the mortgage market.

During the housing boom, mortgages were originated by lenders, quickly sold to Wall Street firms that bundled them into debt pools and then sold to investors as securities. The loans were supposed to change hands but the documents and contracts between borrowers and lenders often weren’t altered to show changes in ownership, judges have ruled.

That has made it hard for banks, which act on behalf of mortgage-securities investors in most foreclosure cases, to prove they own the loans in some instances.

LPS has said its software is used by banks to track the majority of U.S. residential mortgages from the time they are originated until the debt is satisfied or a borrower defaults. When a borrower defaults and a bank needs to foreclose, LPS helps process paperwork the bank uses in court.

LPS was recently referenced in a bankruptcy case involving Sylvia Nuer, a Bronx, N.Y., homeowner who had filed for protection from creditors in 2008.

Diana Adams, a U.S. government lawyer who monitors bankruptcy courts, argued in a brief filed earlier this year in the Nuer case that an LPS employee signed a document that wrongly said J.P. Morgan Chase & Co. had owned Ms. Nuer’s loan.

Documents related to the loan were “patently false or misleading,” according to Ms. Adams’s court papers. J.P. Morgan Chase, which has withdrawn its request to foreclose, declined to comment.

Linda Tirelli, a lawyer for Ms. Nuer, declined to comment directly on the case.

Ms. Kersch said LPS didn’t actually create the document and that the company’s “sole connection to this case is that our technology and services were utilized by J.P. Morgan Chase and its counsel.”

While the majority of foreclosures go unchallenged, some homeowners have won the right to keep their homes by proving the bank couldn’t show, on paper, that it owned the mortgage.

Some lawyers representing homeowners have claimed that banks routinely file erroneous paperwork showing they have a right to foreclose when they don’t.

Firms that process the paperwork are either “producing so many documents per day that nobody is reviewing anything, even to make sure they have the names right, or you’ve got some massive software problem,” said O. Max Gardner, a consumer-bankruptcy attorney in Shelby N.C., who has defended clients against foreclosure actions.

The wave of foreclosures and housing crisis appears to have helped LPS. According to the annual securities filing, foreclosure-related revenue was $1.1 billion last year compared with $473 million in 2007.

LPS has acknowledged problems in its paperwork. In its annual securities filing, in which it disclosed the federal probe, the company said it had found “an error” in how Docx handled notarization of some documents. Docx also has processed documents used in courts that incorrectly claimed an entity called “Bogus Assignee” was the owner of the loan, according to documents reviewed by The Wall Street Journal.

Ms. Kersch said the “bogus” phrase was used as a placeholder. “Unfortunately, on a few occasions, the document was inadvertently recorded before the field was updated,” she said.

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?

Foreclosure Defense & Attorney Hesitation

Why does defending mortgage foreclosure actions seem like a mystery to most attorneys?

One reason defending foreclosure actions has been an idea foreign to most attorneys is due, in part, to the many negative perceptions about such an undertaking. First, there is the mix of assumptions collectively held by nearly everyone looking at the homeowner’s situation.  The bank lent the money and the homeowner did not repay, therefore, the home will inevitably be lost.  The bank’s contract is valid, bullet-proof and there are no real defenses, therefore, the judge will likely grant judgment against the homeowner.  Sound familiar? Second, to defend mortgage foreclosures the advocate must navigate contract law, the Uniform Commercial Code, state and federal consumer protection statutes, banking and securities laws, among other bodies of law, legal doctrines and related rules.  The lending industry has made it even more complex with the bundling of mortgages and securitization. Third, until recently, representing a homeowner in mortgage foreclosure has been viewed by attorneys as not worth the risk.

Between the homeowner’s expectations and associated liability to the advocate, the amount of work required defending the action, the likelihood of getting paid fees and the low likelihood of success – it just has not been seen as a worthwhile pursuit. Before the current mortgage crisis, little was known about abuses in the lending process.  However, news coverage over the past two years has drawn attention to the dark side of the lending industry and revealed how lenders win big at the expense of unwitting borrowers in mortgage transactions that were once were relatively straight-up deals. Abuses by the mortgage lending industry and violations of numerous laws range from the first time a homeowner is offered a mortgage loan through servicing of that loan, collections activities and to the prosecution of the foreclosure action.  These abuses, when uncovered, translate into defenses that can be advance in representing homeowners in mortgage foreclosure by tapping into the arsenal of existing laws, regulations and procedural requirements that regulate enforcement of these loan agreements. CASECLARITY training arms advocates with knowledge and practice skills to advance the strongest arguments for homeowners facing the loss of their home.  What makes this training superior to anything else on the market is that beyond a comprehensive review of the law applicable to these cases, there is a strong emphasis on the workflow and business issues that makes taking on these cases both practical and profitable.

Required Insight

What you don’t know can hurt your case.

Types of Foreclosure Plaintiffs. One size does not fit all – especially in defending foreclosure actions. For example, of the 12 different types of foreclosure plaintiffs discussed in our training two are at completely separate ends of a contractual relationship with the homeowner. The first is a non-bank entity having the right to foreclose a lien that has been voluntarily given in exchange for something of value, such as repair to the home. Defending a foreclosure action by this type of plaintiff is markedly different than if the action were brought by a bank lender. The second type of foreclosure plaintiff is an assignee of a promissory note and mortgage, not a holder in due course, who has purchased what the industry calls a “scratch-and-dent loan”. These two types of plaintiffs are not only far apart in terms of what potentially gave rise to their right of action, but they are treated differently in the defensive context as well. Although not all are named here, other types of foreclosure plaintiffs include property owners’ associations, bank lenders, non-bank/non-institutional lenders, trustees of mortgage-backed securities and others.

Stages of Foreclosure Distress. As a foundation to CASECLARITY foreclosure defense we help attorneys expand their view of the foreclosure fact-finding and representational opportunities spectrum. How? By showing that a homeowner’s distress relating to mortgage foreclosure begins with the first time that consumer was first offered a loan. This range continues through servicing the loan, foreclosure proceedings and ultimately to everything taking place after the foreclosure – including displacement of the consumer from the property. The stages are:

1. Loan
2. Default
3. Acceleration
4. Foreclosure
5. Disposition
6. Judgment
7. Appeal
8. Sale
9. Eviction
10. Post-Eviction

Learn More Here

Enemy One in Mortgage Foreclosure Actions. The enemy to slay in defending clients facing foreclosure is known as ASSUMPTIONS. No one can really argue that bias and prejudice does not exist when a homeowner is accused of not paying their mortgage. The collection of assumptions that tracks this allegation works such a prejudice against the homeowner that often, and before all the facts are in, everyone having any connection to the foreclosure will simply assume that the homeowner failed to pay; had no excuse for not paying; it is entirely the homeowner’s fault; the contract is air tight and not subject to attack; that the bank has not been paid and is innocent; that the homeowner has absolutely no defenses and will ultimately lose the home. Why would any attorney want to take on a case with such built-in negative bias and prejudice against their client? The truth is that attorneys who have looked past these assumptions have found serious overreaching by mortgage industry and others associated with the prosecution of foreclosures. The stories about abuses uncovered can fill several books. CASECLARITY teaches attorneys how to leverage new information about these abuses to attack the ASSUMPTIONS enemy and simultaneously advance both legal and equitable defenses in foreclosure actions.

Plaintiff Fails to Adequately Allege It’s Identity: Foreclosure Dismissed

In this mortgage foreclosure action by plaintiff Wachovia Mortgage, FSB F/K/A WORLD SAVINGS BANK the defendant argued that Wachovia had failed to adequately identify itself within the body of the complaint.  The circuit court agreed and dismissed the complaint granting the plaintiff 20 days to fix the problem.  Plaintiff’s counsel argued that 1) Wachovia was both a national  bank and also not required to register with the Secretary of State in order to establish its capacity to sue; 2) Wachovia was a foreign corporation and exempt from registration pursuant to Fla. Stat. § 607.1501.  The court did not buy that argument stating:  “The inconsistent allegations made in Plaintiff’s response are not facts that have been plead and such facts must be plead so that Defendant may respond to them through a responsive pleading”.

This defense argument is consistent with the 865 argument contained within motions to abate the action.  If you are not using these arguments to procedurally attack the foreclosure complaint you’re missing out.  Contact me if you’re unclear how to frame this in your motions.

Thank you Judge Rondolino for ruling properly in weighing this defense.  Congratulations to attorney Matthew Weidner for this result.  Thanks to attorney Brian Willis for shining a light on this case.

Indymac/OneWest Article

Please take a moment to read a well presented analysis of one example of backroom deals that stand in the way of mortgage loan modifications.  This article was posted on iamfacingforeclosure.com blog.   For those working in the area of foreclosure defense this is an article worth reading.   A job well done by the author.

 

Anatomy of a Government-Abetted Fraud: Why Indymac/OneWest Always Forecloses

Several times per week, I get phone calls from attorneys. These calls all start out the same. “I am unable to get loan modifications done through a lender. What can I do?” The first question I ask is if the lender is Indymac/One West. Invariably, it is.I also field the same type of calls from homeowners and from loan modification companies. Everyone is having the problem of Indymac not cooperating with regard to doing loan modifications. Furthermore, if I google the issue or check out loan modification forums, the same is true on the internet.What is going on with Indymac/One West? Why aren’t they doing loan modifications? This article will try and bring together the known facts for a better understanding of the situation, and discuss what the Indymac situation means for foreclosures in general — and the government’s response to the crisis. First, to understand the situation today, one must have an understanding of the recent history of Indymac. 

History

Indymac was a national bank in the U.S. It was insured by the FDIC. On July 11, 2008, Indymac failed and was taken over by the FDIC.

Indymac offered mortgage loans to homeowners. A large number of these loans were Option ARM mortgages using stated income programs. The loans were offered by Indymac retail, and also through Mortgage Bankers would fund the loans and then Indymac would buy them and reimburse the Mortgage Banker. Mortgage Brokers were also invited to the party to sell these loans.

During the height of the Housing Boom, Indymac gave these loans out like a homeowner gives out candy at Halloween. The loans were sold to homeowners by brokers who desired the large rebates that Indymac offered for the loans. The rebates were usually about three points. What is not commonly known is that when the Option ARM was sold to Wall Street, the lender would realize from four to six points, and the three point rebate to the broker was paid from these proceeds. So the lender “pocketed” three points themselves for each loan.

When the loans were sold to Wall Street, they were securitized through a Pooling and Servicing Agreement. This Agreement covered what could happen with the loans, and detailed how all parts of the loan process occurred.

Even though Indymac sold off most loans, they still held a large number of Option ARMs and other loans in their portfolio. As the Housing Crisis developed and deepened, the number of these loans going into default or being foreclosed upon increased dramatically. This reduced cash and reserves available to Indymac for operations.

In July, 2008, the FDIC came in and took over Indymac. The FDIC looked for someone to buy Indymac and after negotiations, sold Indymac to One West Bank.

OneWest Bank and its Sweetheart Deal

OneWest Bank was created on Mar 19, 2009 from the assets of Indymac Bank. It was created solely for the purpose of absorbing Indymac Bank. The principle owners of OneWest Bank include Michael Dell and George Soros. (George was a major supporter of Barack Obama and is also notorious for knocking the UK out of the Euro Exchange Rate Mechanism in 1992 by shorting the Pound).

When OneWest took over Indymac, the FDIC and OneWest executed a “Shared-Loss Agreement” covering the sale. This Agreement covered the terms of what the FDIC would reimburse OneWest for any losses from foreclosure on a property. It is at this point that the details get very confusing, so I shall try to  simplify the terms. Some of the major details are:

• OneWest would purchase all first mortgages at 70% of the current balance
• OneWest would purchase Line of Equity Loans at 58% of the current balance.
• In the event of foreclosure, the FDIC would cover from 80%-95% of losses, using the original loan amount, and not the current balance.

How does this translate to the “Real World”? Let us take a hypothetical situation. A homeowner has just lost his home in default. OneWest sells the property. Here are the details of the transaction:

• The original loan amount was $500,000. Missed payments and other foreclosure costs bring the amount up to $550,000. At 70%, OneWest bought the loan for $385,000
• The home is located in Stockton, CA, so its current value is likely about $185,000 and OneWest sells the home for that amount. Total loss for OneWest is $200,000. But this is not how FDIC determines the loss.
• ‘FDIC takes the $500,000 and subtracts the $185,000 Purchase Price. Total loss according to the FDIC is $315,000. If the FDIC is covering “ONLY” 80% of the loss, then the FDIC would reimburse OneWest to the tune of $252,000.
• Add the $252,000 to the Purchase Price of $185,000, and you have One West recovering $437,000 for an “investment” of $385,000. Therefore, OneWest makes $52,000 in additional income above the actual Purchase Price loan amount after the FDIC reimbursement.

At this point, it becomes readily apparent why OneWest Bank has no intention of conducting loan modifications. Any modification means that OneWest would lose out on all this additional profit.

Note: It is not readily apparent as to whether this agreement applies to loans that IndyMac made and Securitized but still Services today. However, I believe that the Agreement does apply to Securitized loans. In that event, OneWest would make even more money through foreclosure because OneWest would keep the “excess” and not pay it to the investor!

Pooling And Servicing Agreement

When OneWest has been asked about why loan modifications are not being done, they are responding that their Pooling and Servicing Agreements do not allow for loan modifications. Sheila Bair, head of the FDIC has also stated the same. This sounds like a plausible explanation, since few people understand the Pooling and Servicing Agreement.  But…

Parties Involved

Here is the”dirty little secret” regarding Indymac and the Pooling and Servicing Agreement. The parties involved in the Agreement are:

• The Sponsor for the Trust was…………Indymac
• The Seller for the Trust was……………Indymac
• The Depositor for the Trust was………..you guessed it………….Indymac
• The Issuing Entity for the Trust was……………….(drumroll)……………….Indymac
• The Master Servicer for the Trust was……..once again………Indymac

In other words, Indymac was the only party involved in the Pooling and Servicing Agreement other than the Ratings Agency who rated these loans as `AAA’ products.

To make matters worse, Indymac wrote the Agreement in order to protect itself from liability for these garbage loans. By creating  separate Indymac Corporations — which the Depositor, Sponsor, and other entities were — Indymac created a bankruptcy-remote vehicle that could not come back to them in terms of liability. However, they did not count on certain MBS securities and portfolio loans coming back to bite them and force them under.

Now, the questions become:

• If Indymac was responsible for Securitization at every step in the Process, and was responsible for writing the Pooling and Servicing Agreement, can they be held accountable for the loans that they are foreclosing on?
• Since Indymac was the Issuing Entity, can they actually modify loans, but refuse to do so because they can make money for OneWest Bank by refusing to do so?
• Does Indymac have to “buy back” the loan from the Indymac Trust in order to do a loan modification?

These are questions that I have no answer for. All I know is that at every step of the way, Indymac was involved in the process, and have taken steps to protect themselves from liability for loans that should never have been made.

Loan Modifications

As referred to earlier, the Agreement covers all aspects of the Securitization Process. With respect to Loan Modifications, the Agreement for Indymac INDA Mortgage Loan Trust 2007 – AR5, states on Page S-67:

Certain Modifications and Refinancings

The Servicer may modify any Mortgage Loan at the request of the related mortgagor, provided that the Servicer purchases the Mortgage Loan from the issuing entity immediately preceding the modification.

Page S-12 states the same “policy”:

The servicer is permitted to modify any mortgage loan in lieu of refinancing at the request of the related mortgagor, provided that the servicer purchases the mortgage loan from the issuing entity immediately preceding the modification. In addition, under limited circumstances, the servicer will repurchase certain mortgage loans that experience an early payment default (default in the first three months following origination). See “Servicing of the Mortgage Loans—Certain Modifications and Refinancings” and “Risk Factors—Risks Related To Newly Originated Mortgage Loans and Servicer’s Repurchase Obligation Related to Early Payment Default” in this prospectus supplement.

These sections would appear to suggest that the only way that OneWest could modify the loan would be as a result of buying the loan back from the Issuing Trust. However, there may be an out. Page S-12 also states:

Required Repurchases, Substitutions or Purchases of Mortgage Loans

The seller will make certain representations and warranties relating to the mortgage loans pursuant to the pooling and servicing agreement. If with respect to any mortgage loan any of the representations and warranties are breached in any material respect as of the date made, or an uncured material document defect exists, the seller will be obligated to repurchase or substitute for the mortgage loan as further described in this prospectus supplement under “Description of the Certificates—Representations and Warranties Relating to Mortgage Loans” and “—Delivery of Mortgage Loan Documents .”

The above section may be the key for litigating attorneys to fight Indymac. If fraud or other issues can be raised that will show a violation of the Representations and Warranties, then this could potentially force Indymac to modify the loan.

HAMP

At this point, it becomes important to note that Indymac/OneWest signed aboard with the HAMP program in August 2009. Even though they became a part of the program, they are still refusing to do most loan modifications. Instead, they persist in foreclosing on almost all properties. And even when they say that they are attempting to do loan modifications, they are fulfilling all necessary requirements so that they can foreclose the second that they “decide” the homeowner does not meet HAMP requirements, — which, since they can make more money by foreclosing on the property, meets the HAMP requirements for doing what is in the best interests of the “investor”.

Why did Indymac even sign up for HAMP, if they have no intention of executing loan modifications?  Clearly, just for appearances.

One Final Question

It now becomes incumbent upon me to ask one final question. The Shared-Loss Agreement states the following:

2.1 Shared-Loss Arrangement.

(a) Loss Mitigation and Consideration of Alternatives. For each Shared-Loss Loan in default or for which a default is reasonably foreseeable, the Purchaser shall undertake, or shall use reasonable best efforts to cause third-party servicers to undertake, reasonable and customary loss mitigation efforts in compliance with the Guidelines and Customary Servicing Procedures. The Purchaser shall document its consideration of foreclosure, loan restructuring (if available), charge-off and short-sale (if a short-sale is a viable option and is proposed to the Purchaser) alternatives and shall select the alternative that is reasonably estimated by the Purchaser to result in the least Loss. The Purchaser shall retain all analyses of the considered alternatives and servicing records and allow the Receiver to inspect them upon reasonable notice.

Such agreements are usually considered to be interpreted to the benefit of the homeowner, as with HAMP and other programs. In legalese, it is called “Intent”.

What was the “Intent” of the Shared-Loss Agreement? Was the intent to provide OneWest Bank solely with a profitable incentive to take over Indymac Bank? If so, then OneWest has been truly successful in every manner.

Or was the intent to offer to OneWest Bank a way to be compensated for losses for foreclosures, but with the primary goal to assist homeowners in trouble? If this was the intent, then OneWest has failed miserably in its actions. And if so, could OneWest be actionable by the Federal Government for fraud?

In fact the true “Intent” was to limit losses to the Treasury Department. Each and every loan modification done would save the Treasury, and the tax payer, from 80-95 cents on every dollar.

Since, technically, One West would get 5-20 cents of any savings, it should have been an incentive to use foreclosure alternatives. But the reality is  that the quick turnaround on foreclosure seems to give OneWest a better return. As a result, OneWest appears to simply ignore the intent and just foreclose (as far as I can tell).

So, OneWest’s failure to modify loans may actually amount to fraud on the Treasury and US taxpayers.

Conclusion

I have presented the story of Indymac/OneWest and what is happening today. But the story does not end with OneWest. There are over 50 different lenders and servicers who have Shared-Loss Agreements executed with the FDIC. Each Agreement offers essentially the same terms. Though other Lenders do not appear to be acting as flagrantly as OneWest, they are all still engaging in the same actions.

What is the solution for this problem?

• For homeowners individually, the most successes are being achieved by borrowers who are getting knowledgeable attorneys who will not just threaten litigation, but are also willing to act and file the necessary lawsuits. That tends to bring OneWest Bank to the table.
• For the country as a whole, and homeowners in mass, the problem must be brought to the attention of your local Congress Critters. You must hold their feet to the fire. They must know that if they do not respond to what OneWest and other lenders are doing, then they are subject to being voted out of their nice and cushy Congressional Offices.

Will this be easy? No way. After all, the lenders have the money and the ears of Congress. But if we do not draw the line here, then in 10-15 years, the Banks will devise another plan to “loot” the economy, as they do every 10-15 years.