Tuesday, June 5, 2007

Defending Consumers In Foreclosure Actions

A number of articles have recently addressed the use of the Federal Truth In Lending Act by attorneys defending homeowners facing foreclosure as a way to undo subprime mortgages where it is alleged that the loan originator failed to fully comply with Federal law when making the loan. For prior posts on this point, containing links to online media reports, see:

Another approach in defending homeowners facing foreclosure is addressed in a recent article in Forbes magazine. Mortgage loans get sold and resold in the open market and, if they end up in the hands of the Wall Street players who issue mortgage-backed securities, the ownership interests in those mortgages will then get "sliced and diced" among short, medium, and long term "investor pools". The focus of the Forbes article is the apparent difficulty many foreclosing mortgage lenders are having in maintaining, keeping track of, and presenting in court the required mortgage loan paperwork when they initiate a foreclosure action, given the number of times the mortgage loans are sold, resold, sliced, and diced.

Stated another way, some attorneys representing homeowners are making an issue of the sloppiness with which foreclosing mortgage lenders maintain their loan paperwork and the sloppiness with which they present their case in court. In one case in Florida, Jacksonville Area Legal Aid lawyer April Charney got a foreclosure filed against her client withdrawn after discovering that the company that filed to foreclose didn't own the mortgage loan that they were attempting to foreclose. The following excerpt from the article reflects the thinking behind this approach in defending homeowners:
  • ""I buy time, then get lenders to cut interest rates and fees," says Charney, who claims she's stopped dozens of foreclosures over ownership issues. Other lawyers are making similar moves in Maryland, New York, Massachusetts, Ohio, Kansas and Washington State--often forcing sloppy lenders to offer generous terms to avoid litigation."

The article goes on to report that Charney "stumbled upon the industry's paperwork problem two years ago after noticing that nearly all lenders seeking to foreclose against clients were filing "affidavits of lost notes."" These affidavits are filed in court by foreclosing mortgage lenders in an attempt to get the judge to, in effect, waive the legal requirement that they present the required paperwork that proves that they, in fact, own the loan they are trying to foreclose.

Reference is also made in the article to prominent foreclosure filer--Mortgage Electronic Registration Systems ("MERS"), a Vienna, Virginia company whose name is reportedly on 30% of the mortgages in county clerk offices around the country, and have been known in the industry as a company that files foreclosure actions in connection with mortgage loans that they may service but do not actually own.

For more, see Paper Chase (You're in luck. Your mortgage lender has flipped, sliced and diced your loan--and now no one knows who holds it).


The carelessness and sloppiness in which some foreclosing mortgage lenders and their attorneys often go about their business when initiating forecloure actions has been observed by at least one Federal bankruptcy judge in Massachusetts. In fact, the judge, Judge Joel B. Rosenthal, "has observed instances in which attorneys representing alleged mortgagees or their servicing agents did not know whether the client was a mortgagee or a serving agent, or how their client came to acquire its role." For more on the apparent cluelessness (or possibly willful ignorance) that some lenders and their attorneys seem to possess as it relates to their legal obligations when initiating a foreclosure action, see Judge Rosenthal's Memorandum of Decision in In re Shwartz, (Bankr. Ct., Ma. April 19, 2007).

For a comment on the significance of a foreclosing mortgage lender's failure to present in court the actual, original promissory note, signed by the borrower / homeowner when bringing a foreclosure action, see "Editorial Note" in my prior post, Dillon Continues Battle Against Alleged Predatory Mortgage Servicer.

For a copy of a court order from a Pinellas County, Florida trial court ruling that the mortgage servicer mentioned above, Mortgage Electronic Registration Systems, Inc. ("MERS") "lacked standing" to bring foreclosure actions on behalf of the actual mortgage holders whose loans MERS was servicing, (and, accordingly, dismissed twenty foreclosure actions that MERS brought on their behalf), see in re Mortgage Electronic Registration Systems, Inc. (MERS), available online courtesy of Mortgage Servicing Fraud .org, at msfraud.org.