Monday, May 14, 2012

Fla. High Court Hears Arguments In Lawsuit That Could Undo Thousands Of Foreclosures & Leave Banksters Holding Reams Of Unenforceable Mortgage Paper

Reuters reports:

  • The Florida Supreme Court [heard] oral arguments Thursday in a lawsuit that could undo hundreds of thousands of foreclosures and open up banks to severe financial liabilities in the state where they face the bulk of their foreclosure-fraud litigation.

  • The court is deciding whether banks who used fraudulent documents to file foreclosure lawsuits can dismiss the cases and refile them later with different paperwork.

  • The decision, which may take up to eight months to render, could affect hundreds of thousands of homeowners in Florida, and could also influence judges in the other 26 states that require lawsuits in foreclosures.
  • The case at issue, known as Roman Pino v. Bank of New York Mellon, stems from the so-called robo-signing scandal that emerged in 2010 when it was revealed that banks and their law firms had hired low-wage workers to sign legal documents without checking their accuracy as is required by law.

  • "This was a case of an intentionally fraudulent document fabricated to use in a court proceeding," says former U.S. Attorney Kendall Coffey, author of the book Foreclosures in Florida.

  • If the Supreme Court rules against the banks, "a broad universe of mortgages could be rendered unenforceable," Coffey says. "The cost to the financial industry is difficult to estimate, but it could be substantial."

  • For comparison, some legal experts point to the Massachusetts Supreme Court's decision in January 2011 that ruled a foreclosure invalid because at the time of the foreclosure the bank couldn't prove it had a valid assignment of mortgage - a similar issue to the one in the Pino case.

  • In the wake of the decision, hundreds of house titles in Massachusetts became void, says foreclosure attorney Tom Cox, who brought what was one of the first foreclosure fraud suits in the country.

  • "If the Florida court takes a strong stand, it sends a strong signal to the mortgage servicing industry in the rest of the country," says Cox. Judges in other states could start penalizing banks with sanctions and overturning foreclosure suits, he says.
  • Last summer, Pino's case was headed to the Florida Supreme Court, which said it was of "great public importance" because "many mortgage foreclosure cases appear to be tainted with suspect documents."

  • But on July 22, just before the case was scheduled for oral argument, Bank of New York Mellon struck a confidential settlement with Pino. The same day, Bank of New York Mellon, which declined comment for the story, filed a "satisfaction of mortgage" document with the Palm Beach County property recorder's office. Pino now owned the house, free and clear.

  • Even though Pino and the bank have settled, the Supreme Court decided to rule on the issue of voluntary dismissal anyway, settling a question that has vexed Florida's lower courts for nearly five years. Its decision won't affect Pino's case.

  • Voluntary dismissal is the banks' main strategy in judicial states for dealing with homeowners who challenge foreclosures, says Georgetown University consumer and housing finance professor Adam Levitin, who has served as special counsel to the Congressional Oversight Panel.

  • After a dismissal, the banks can then refile their case using different documents. "If that fails, strategy number two is to buy them off," says Levitin.

  • If the court rules against voluntary dismissal, the banks face the costly specter of not being able to simply refile cases and expect homeowners to not challenge the suits. [...] Advocates say upholding the use of voluntary dismissal could empower the banks to do nothing to change their questionable foreclosure practices.

  • "The banks have a bully business model. You pick on the weak consumer, you demand his lunch money and he runs away," says Levitin. "But what if he pushes back -- what if he's Roman Pino?"

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