MERS Learns The Hard Way: Unable To Prove Note Ownership In Foreclosure, Connecticut Court Tells It To Take A Hike

Connecticut & New York attorney Christopher G. Brown recently reported in MortgageOrb.com:

• A Connecticut court recently joined what is becoming a national trend of road-blocking foreclosure of mortgages that have been traded in the secondary market, and the implications for mortgage servicers could be significant. In April, the Connecticut Superior Court in New Haven dismissed a foreclosure action that Mortgage Electronic Registration Systems Inc. (MERS), as nominee for Finance America LLC, had commenced against Anna M. Miller because MERS did not prove that it owned the note.

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• The court was very definite in its ruling that only the true owner of the loan can start a foreclosure, while imposters will be dismissed. MERS learned the lesson the hard way, pursuing the foreclosure for over three years and coming away empty.

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• [I]n today's environment every legal and factual detail in a foreclosure action is under tremendous scrutiny. Courts are declining foreclosure to those who do not play by the rules. Servicers need to understand that these decisions will make it harder for any servicer or mortgage loan owner to collect if and when the loan goes into default. The bottom-line message is that only the institution that can prove by irreproachable evidence that it owns the loan can foreclose. It may be a monumental task, but servicers will have to do their homework to identify the loan's true owner and secure its cooperation in establishing ownership before commencing a foreclosure. If not, the servicer may find that the bridge is out on the road to recovery.

For the details on this and other cases described in the article, see New Rules Toughen Servicers' Foreclosure Procedures.

For other posts that reference the failure of some mortgage lenders and their attorneys to file the required loan documents when starting foreclosures, Go Here, Go Here, and Go Here.

Effort To Defend Poor In Mortgage, Debt Collection Suits To Be Mobilized By Central Pennsylvania Attorney Groups

In Blair County, Pennsylvania, the Altoona Mirror reports:

• The Blair County Bar Association, an organization comprised of 200-plus lawyers, is teaming up with MidPenn Legal Services to address a surge in mortgage and credit card defaults. The economic woes affecting many parts of the nation have crept into the county court system in the form of lawsuits with banks and mortgage companies suing those who owe them money. The deluge of new cases has alarmed court officials, and the organization that represents county lawyers is putting together a new program to provide free and low-cost legal services to residents in crisis.

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• Attorney Jeff Fleming, president of the bar association, and his board of governors voted to work with MidPenn, which provides aid to the poor, in obtaining a $9,800 grant from a fund known as Interest on Lawyers Trust Accounts. The state Supreme Court established the fund from interest earned by lawyers on escrow accounts, and the money is used to assist legal services statewide. The fund provides money for training attorneys and special programs.

***

• Under the new program, Mid-Penn will select the cases and assign them to attorneys who volunteer to work with the poor. Mid-Penn will train the lawyers so they know the laws concerning mortgages and other lending practices. Attorneys will be expected to handle one case for free but in subsequent cases will be paid $30 an hour.

For more, see Lawyers team up to tackle defaults (Legal action on mortgages, credit cards skyrocketing).

Central Florida Attorney Group Gears Up For Homeowner Foreclosure Defense

In Central Florida, the Orlando Sentinel reports:

• Community Legal Services of Mid- Florida and volunteer lawyers from the Florida Bar are creating a "Foreclosure Defense Project" and this week launched a recruitment effort from the region's legal ranks to bring more firepower to bear on the growing threat to community stability. Bill Abbuehl, executive director of the Daytona Beach based Community Legal Services of Mid-Florida, put out a call for pro bono attorneys to "help meet the enormous legal needs arising from the current foreclosure crisis."

***

• A training session for lawyers who will step forward to help low income homeowners, looking for signs of "predatory lending" or other legal shenanigans among lenders, will be held Friday, July 11, at the Albertson Room of the Orange County Public Library at 101 E. Central Blvd. in Orlando , from 9 a.m. to 3. p.m. Space is limited so lawyers are asked to register, by calling the legal aid group at 407- 708-1020, ext. 3101, or e-mailing to janetteh@laccf.org.

For more, see Legal group to help more people facing foreclosure (if link expires, try this link).

Editor's Note:

As has been noted on this blog in the past, the term "pro bono" doesn't necessarily mean that an attorney doesn't get paid for his/her services. While the services may, in fact, be "free" to the client receiving the legal services, there is a distinct possibility that an attorney representing "prevailing party" homeowners in foreclosure actions can leverage his/her pro bono services into court-ordered attorney fee awards to be imposed on the losing mortgage lender, loan servicer, etc.(1)

For examples of attorneys seeking to convert their pro bono opportunities into legal fee awards, see:

• The National Law Journal: Pro Bono Case Triggers a Fee Fight (Two recent instances of large firms collecting large fees in pro bono cases point to an increasingly controversial issue),
• New York Lawyer / New York Law Journal: NY BigLaw Leader Scores $1 Million Fee in Pro Bono Case.

Go here for other posts referencing legal fee awards in pro bono cases.

(1) It may be that these cases could be better described as "contingent fee" cases; attorneys taking on these cases may be well advised to have contingent fee retainer agreements with their "pro bono" clients). legal fee pro bono

North Florida Attorney Group Gears Up For Homeowner Foreclosure Defense

In Northern Florida, WCTV Channel 2 reports:

• Legal Services of North Florida says the rising number of foreclosures is putting Florida homeowners in a crisis. About one hundred attorneys from across Florida attended a seminar [Wednesday] to defend foreclosures and to try to help homeowners who are facing financial difficulties with home loans.

• Paul Levine, the Legal Services of North Florida Director, says Florida has the second highest foreclosure rate in the nation. He said, "I got 14 foreclosures in one week. Sometimes that's about what I would get in a whole half of year. So we are definitely in a lot of trouble with a lot of our clients. We're hoping this seminar will be a start to try to alleviate some of these problems. The day-long seminar was led by nationally known attorney April Charney from Jacksonville.

Source: Building Defenses Against Foreclosure.

Attorney Fee Awards For Successful Foreclosure Defense In Florida

A 1999 court decision by a Florida appeals court illustrates how attorneys representing homeowner/defendants in a foreclosure action can, if successful in their defense, request and may be granted court awarded legal fees, the liability for which will be imposed on the losing foreclosing plaintiff, the mortgage lender.

In that case, Landry v. Countrywide Home Loans, Inc., 731 So. 2d 137; (Fla. 1st DCA 1999), a mortgage lender filed a foreclosure action against homeowners Dale and Ulrike Landry. In response to the lawsuit, the Landrys, through their attorney, filed their answer and affirmative defenses, with attached exhibits. They also requested an award of attorney's fees under the reciprocity provisions of what was then section 57.105(2), and is now section 57.105(7), Florida Statutes. (In this case, the mortgage agreement required the borrower to pay the lender's attorney fee if there was a default and the lender retained an attorney to enforce collection thereof - a requirement that is common in the typical home mortgage). The concluding paragraph of their pleading stated in pertinent part:

• . . . [Landry] respectfully prays . . . for an award of attorneys' fees and costs from Plaintiff pursuant to Section 57.105(2), Fla.Stat. (1995), . . .

After the filing of a motion for summary judgment by the Landrys against the mortgage lender, Countrywide Home Loans, Countrywide filed a voluntary dismissal of the foreclosure action. The trial court then issued an order dismissing the summary judgment motion as moot, granting the Landry's motion to tax costs, but denying their motion for an award of attorney's fees.

The Florida appeals court, in reversing the trial court's denial of the Landry's request for attorneys fees, addressed the "prevailing party" issue in the case where a plaintiff files a voluntary dismissal of a lawsuit, and the entitlement of attorneys fees to a prevailing party defendant. The court made the following observations:

• The general rule is that "when a plaintiff voluntarily dismisses an action, the defendant is the prevailing party." See Thornber v. City of Ft. Walton Beach, 568 So. 2d 914, 919 (Fla. 1990). Further, "it is well established that attorney's fees are properly awarded after a voluntary dismissal where such award is provided for by statute or agreement of the parties." See Century Construction Corp. v. Koss, 559 So. 2d 611, 612 (Fla. 1st DCA 1990), review denied, 574 So. 2d 141 (Fla. 1990). See also Boca Airport, Inc. v. Roll-N-Roaster of Boca, Inc., 690 So. 2d 640, 641 (Fla. 4th DCA 1997), review dism'd, 698 So. 2d 543 (Fla. 1997)("for purposes of a prevailing party attorney's fees statute, a voluntary dismissal by the claimant makes the opposing party a 'prevailing party' as to the issue of entitlement to fees").

***

• The trial court's denial of a prevailing party attorney's fee was based, in part, on the court's finding that the decision whether to award an attorney's fee under section 57.102(2) is a matter of discretion. We recognize that section 57.105(2) uses the permissive "may" with regard to the trial court's ability to award a prevailing party attorney's fee. However, we believe the discretion granted by use of "may" pertains to the determination of a prevailing party in an action founded on a contract. See Hutchinson v. Hutchinson, 687 So. 2d 912, 913 (Fla. 4th DCA 1997). Once the prevailing party determination has been made, we believe section 57.105(2) "now mandates that contractual attorney's fees provisions be reciprocal obligations." See Jakobi v. Kings Creek Village Townhouse Ass'n, 665 So. 2d 325, 326 (Fla. 3d DCA 1995). See also Oakwood Plaza, L.P. v. D.O.C. Optics Corp., 708 So. 2d 959, 960 (Fla. 4th DCA), review denied by D.O.C. Optics Corp. v. Oakwood Plaza, L.P., 725 So. 2d 1107 (Fla. 1998)(unless defendant was not the prevailing party due to plaintiff's refiling its action, petitioner entitled to attorney's fees as prevailing party where plaintiff voluntarily dismissed its suit); Lanahan Lumber Company, Inc. v. McDevitt & Street Company, 611 So. 2d 591, 592 n. 1 (Fla. 4th DCA 1993)("The intent of § 57.105(2) is to provide mutuality of attorney's fees as a remedy in contract cases.").

• In the instant case, appellants specifically requested attorney's fees pursuant to section 57.105(2) in their answer to Countrywide's complaint. Countrywide voluntarily dismissed the complaint with no suggestion of any intent to refile the action. By virtue of the voluntary dismissal, appellants are the prevailing parties. n1 See Thornber v. City of Ft. Walton Beach. Pursuant to section 57.105(2), the contractual attorney's fee provisions included in the underlying mortgage note are reciprocal obligations. Therefore, we conclude the trial court abused its discretion in denying appellants' request for attorney's fees.
  
  n1 Moreover, it appears the trial court implicitly recognized appellants' prevailing party status in its award of costs.

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In addition to the ruling that the homeowners were entitled to an attorney fee award, the decision contains some instructive language emphasizing the requirement that a defendant's claim for attorney's fees must be pled, and how an attorney fee entitlement can be deemed waived if not pled properly (see also The Florida Bar Journal: Pleading Requirements for a Claim for Attorneys' Fees (added 9-22-10)).

To read the court decision, see Landry v. Countrywide Home Loans, Inc., 731 So. 2d 137; (Fla. 1st DCA 1999).

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For a case where a prevailing defendant in a Florida foreclosure action successfully availed itself of Florida's offer of judgment statute, section 768.79, to obtain an attorney fee award against an unsuccessful foreclosing plaintiff, see Novastar Mortgage, Inc. v. Strassburger, 855 So. 2d 130 (Fla. 4th DCA 2003). An excerpt from this decision:

• The trial court ruled that this was not a "civil action for damages" under the statute, because it was a foreclosure. Novastar concedes, however, that it was seeking damages in the form of reimbursement for attorney's fees and costs. In addition, the Strassburgers point out that the promissory note secured by the original mortgage had already been paid, and that this lawsuit was only about money. We agree with the Strassburgers that this was in fact an action for damages and that the offer of judgment statute accordingly applies.

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Postscript:

Three quick points to be made:

1) The Landry decision may provide a basis for private attorneys in Florida, who may otherwise be willing to take on a foreclosure defense case on a pro bono basis, to convert a pro bono opportunity into a fee paying, contingency fee case if the case is considered successfully defended for purposes of the "prevailing party" rules.

2) If, as part of defending against a foreclosure action, counterclaims are filed against the foreclosing lender and/or servicer for violation of Federal (ie. Truth In Lending Act - 15 U.S.C. Sec. 1501 et seq., Fair Debt Collection Practices Act - 15 U.S.C. Sec. 1692 et seq., etc.) or state (ie. Florida Deceptive and Unfair Trade Practices Act - F.S. 501.201 et seq.) consumer protection statutes, the points made in this post may be moot inasmuch as these statutes contain their own attorney fee provisions that allow attorney fees to be awarded to a successful plaintiff (in the case of the Federal statutes) or successful party (plaintiff or defendant) in the case of the Florida statute.

Where no counterclaims are filed, say, in a case where the foreclosure defense primarily involves a demand that the foreclosing mortgage lender produce the promissory note and prove that it has legal standing to bring the case, the Landry case could support the proposition that a homeowner in foreclosure may be entitled to an attorney fee award where the court refuses to allow the foreclosing lender to proceed with its case as a result of it being unable to produce or re-establish a lost or destroyed note, or prove that it has legal standing (ie. that it is a "party in interest") to bring the case.

3) A reminder to Florida attorneys on a point indirectly related to this post: The general rule in Florida is that a decision on a particular issue by any Florida intermediate appeals court, unless reversed by the Floida Supreme Court, or absent interdistrict conflict with sister appellate courts, is binding on all trial courts throughout the state.

I mention this only because there is an apparently incorrect belief among more than a few Florida attorneys and trial judges that a Florida state trial court is only bound by decisons of the appeals court having jurisdiction to hear its appeals, and can ignore the decisions of other appeals courts. So, for those cases outside the First District Court of Appeal of Florida (the court deciding Landry), unless there is a conflicting decision from a sister appeals court, a case can legitimately be made that Landry is binding on the trial courts all throughout Florida, and not merely those trial courts within the First District.

For the authority on this point, see Pardo v. State, 596 So. 2d 665 (Fla. 1992), in which the Florida Supreme Court stated:

• Initially, we note that the district court erred in commenting that decisions of other district courts of appeal were not binding on the trial court. This Court has stated that "the decisions of the district courts of appeal represent the law of Florida unless and until they are overruled by this Court." Stanfill v. State, 384 So. 2d 141, 143 (Fla. 1980). Thus, in the absence of interdistrict conflict, district court decisions bind all Florida trial courts. Weiman v. McHaffie, 470 So. 2d 682, 684 (Fla. 1985). The purpose of this rule was explained by the Fourth District in State v. Hayes:

• "The District Courts of Appeal are required to follow Supreme Court decisions. As an adjunct to this rule it is logical and necessary in order to preserve stability and predictability in the law that, likewise, trial courts be required to follow the holdings of higher courts--District Courts of Appeal. The proper hierarchy of decisional holdings would demand that in the event the only case on point on a district level is from a district other than the one in which the trial court is located, the trial court be required to follow that decision. Alternatively, if the district court of the district in which the trial court is located has decided the issue, the trial court is bound to follow it. Contrarily, as between District Courts of Appeal, a sister district's opinion is merely persuasive." 333 So. 2d 51, 53 (Fla. 4th DCA 1976) (footnote and citations omitted).

By the way, the Federal courts, when deciding on issues of Florida substantive (as opposed to procedural) law, are similarly bound by the same requirement. For authority on this point, see McMahan v. Toto, 311 F.3d 1077; (11th Cir. 2002), which is simply one of many cases of the 11th Circuit Federal Court of Appeals (the court having jurisdiction over appeals from the lower Federal courts in Florida) that cite the Florida Supreme Court decision in Pardo for the foregoing proposition.

For an earlier post touching on these points, see Binding Effect Of State Court Decisions On Federal Courts On State Law Issues.

Convicted Northern California Foreclosure Rescue Operator To Give Deeds Back To Eleven Victimized Families

In Stanislaus County, California, The Modesto Bee reports:

• Eleven families will get their home deeds back, according to a restitution deal signed Thursday by convicted swindlers who prayed with some victims before duping them. Lonni Ashlock, 57, of Waterford also agreed to pay a total of $120,000 to 10 others, most of whom were evicted from their homes before they were sold to third parties. Ashlock and his partner, Ronald Buhler, 27, of Riverbank pleaded no contest in September to six fraud and grand theft felonies. [...] Their victims included an 86-year-old woman with dementia, a schizophrenic, a woman with brain lesions and several other disabled people, according to court documents and testimony..

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• The Bee in July 2005 chronicled several lawsuits against Ashlock, Buhler and their many corporations and eventually tracked 142 properties the men had acquired.

For more, see Waterford swindler must pay victims $120,000.

Go here for earlier posts on Ashlock & Buhler.

USA Today Highlights Mortgage Servicing Fraud & Abuse Cases From Around The Country

USA Today recently ran a story describing various court cases around the country involving the grievances of homeowners against the companies that service their mortgages, the billing and collection practices these firms engage in, and the abuse of the bankruptcy process that they have been reportedly engaging in. The following excerpt describes a couple of the cases:

• In New Hampshire, Michael Dillon, a handyman and former freelance stage technician, won a 2005 state court decision upholding his allegations that Fairbanks Capital improperly tried to foreclose on his Manchester home. Judge Gillian Abramson issued a contempt ruling after concluding Fairbanks had "created a predatory scheme of penalties," in part by billing him for fees for which Dillon "did not receive any notice." The ruling ordered the firm to give Dillon a chance to reinstate the mortgage "without penalties." The litigation is continuing.

• In Louisiana, a bankruptcy-court review of accounting by Wells Fargo Home Mortgage found the firm's servicing arm collected nearly $25,000 more from Michael Jones than he owed on his Mandeville home. Judge Elizabeth Magner ordered a refund and told Wells Fargo to pay more than $67,000 in sanctions and damages. The firm has appealed.

• [I]n Illinois, a lawsuit that consolidated 18 cases from 10 states accuses Ocwen Financial of engaging in a "nationwide scheme of illegal, unfair, unlawful and deceptive business practices" involving improper fees, costs and other charges. The case is in settlement negotiations, court records show.

For more, see Hitting Home: Homeowners fight for their mortgage rights.

Go here, go here, and go here for posts on questionable mortgage servicing practices. questionable mortgage servicing practices tactics xero

Another Maryland Foreclosure Rescue Operator Tagged With Federal Indictment

In Greenbelt, Maryland, The Baltimore Sun reports:

• A widespread probe of mortgage fraud resulted yesterday in grand jury indictments against four Maryland residents, less than a week after federal prosecutors here accused eight other people of bilking homeowners and banks of more than $35 million in an unrelated mortgage scheme.

• In the latest indictments, Cheryl Brooke, 51, and Michael K. Lewis, 56, of Upper Marlboro; his brother, Earnest Lewis, 59, of Takoma Park; and Winston Thomas, 42, of New Carrollton, are accused of conspiracy to commit wire fraud and wire fraud in connection with a scheme in which they offered to help homeowners stave off foreclosure. Instead, they defrauded mortgage lenders and the homeowners, the 12-count indictment says.

For more, see Jury indicts four more in mortgage fraud probe.

See also, WBAL-TV Channel 11: Businessman Indicted On Mortgage Fraud Charges (I-Team Investigation Uncovered Lewis's Alleged Scheme).

• A Prince George's County businessman was indicted on charges of bilking his customers out of their homes and their equity while they thought he was saving them from foreclosure. The WBAL TV 11 News I-Team first began investigating Michael K. Lewis last year. He was indicted Wednesday on mortgage fraud charges and he could face millions of dollars in fines and the possibility of spending the rest of his life in prison.

See also, U.S. Attorney press release: Michael K. Lewis and Three Others Indicted in Mortgage Fraud Scheme - Allegedly Targeted Victims Through Local TV Ads.

Go here for other posts on Maryland foreclosure rescue operator Michael K. Lewis.

Step By Step "Produce The Note" Strategy In Fighting Foreclosures

The Consumer Warning Network website has recently posted a "How-To" that may be helpful to homeowners facing foreclosure who are not represented by an attorney but who want to force their foreclosing mortgage lender to produce the actual, physical promissory note (not a copy, reproduction, nor any other reasonable or unreasonable facsimile thereof) that the homeowner signed at the closing/settlement of the transaction in which he/she originally took out the home loan.

Included in the "How-To" are links to templates that they have created for a legal request, a letter to your lender and a motion to compel to help the homeowner through the process.

Homeowners are given this tip to determine whether the foreclosing mortgage company might have a problem producing the promissory note, and what problem homeowers may face if they allow the mortgage company to proceed without having to produce the note:

• When you get a copy of the foreclosure suit, many lenders now automatically include a count to re-establish the note. It often reads like this: “…the Mortgage note has either been lost or destroyed and the Plaintiff is unable to state the manner in which this occurred.” In other words, they are admitting they don’t have the note that proves they have a right to foreclose.

• If the lender is allowed to proceed without that proof, there is a possibility another institution, which may have bought your note along the way, will also try to collect the same debt from you again.

The post provides steps to follow in situations where the lender (1) has already filed suit to foreclose on the home, and (2) has not yet filed suit against the homeowner where the homeowner has already missed one or more payments.

For more, see Produce The Note “How-To”.

Go here for the accompanying video, Fight Foreclosure: Produce The Note "How-To", featuring Tampa, Florida attorney John Yanchunis, with the law firm James, Hoyer, Newcomer & Smiljanich PA.

Go here for a recent CNN video on the "Produce The Note" strategy.

For other posts that reference the failure of some mortgage lenders and their attorneys to file the required loan documents when starting foreclosures, Go Here, Go Here, and Go Here. missing mortgage foreclosure docs beta

CNN Reports On "Produce The Note" Strategy In Fighting Foreclosures

CNN recently ran a story on what apparently is now being referred to by some as the "Produce The Note" strategy in fighting foreclosures. Among those interviewed for the story are:

• Homeowner Jacqueline O'Brien, who currently faces foreclosure on her Central Florida home and is battling mortgage lender Wachovia who, the homeowner says, is clipping her left and right with fees and won't re-work the payments on her home loan,

• Professor Katherine M. Porter, of the University of Iowa - College of Law (author of Misbehavior and Mistake in Bankruptcy Mortgage Claims, a study that concluded, among other things, that a significant number of mortgage lenders and loan servicers - and their attorneys - have been screwing up in the Federal bankruptcy courts in their attempts at improperly clipping homeowners facing foreclosure who have filed for bankruptcy protection),

• Tampa, Florida attorney Chris Hoyer (star of the YouTube video, Fight Foreclosure: Make 'Em Produce The Note!).

For the story (video only), see Produce The Note.

For some self-help information on approaching the "Produce The Note" strategy for homeowners facing foreclosure who are not represented by an attorney, see Produce The Note “How-To”.

Postscript:

Reportedly, at a court hearing last week, a Pinellas County, Florida judge denied Wachovia the right to proceed with its foreclosure against borrower Jacqueline O’Brien (profiled in the CNN story). Instead, O’Brien was granted a continuance, as she pursues the "produce the note" strategy. Wachovia expressed interest in renegotiating the terms of the loan, rather than continuing the court battle.

For other posts that reference the failure of some mortgage lenders and their attorneys to file the required loan documents when starting foreclosures, Go Here, Go Here, and Go Here.

Most NJ Home Foreclosures Are Illegal, Say Some Attorneys As Lenders May Be Fumbling Ball On Proving Debt Ownership

In New Jersey, The Star Ledger reports:

• Most home foreclosures being processed in New Jersey are illegal, a growing group of attorneys contends, because lending institutions cannot prove they own the debt they are trying to collect.

• Judges in at least four New Jersey counties already have halted foreclosures, using a federal court ruling in Ohio as precedent. And with 48,000 foreclosures expected to be filed this year -- twice the number filed in 2006 -- some attorneys believe challenging foreclosures can become a large and potentially lucrative area of practice.

• "This is starting to creep up all over the state and all over the country as people start to realize these banks don't really know who owns the (promissory) note," said Peggy Jurow, a senior attorney at Legal Services of New Jersey, which is teaching lawyers how to represent pro bono clients in these cases. "It's scary to think how many people are losing their homes who shouldn't be."

***

• There were 34,457 foreclosures filed in New Jersey in 2007. The vast majority, 96 percent, were processed by the State Office of Foreclosure with no answer from the defendants, resulting in the loss of their homes. Lawyers say 75 percent or more of those cases could have been successfully challenged.

• "The rules have been there all along," said Rob Napolitano of Community Financial Services in Keyport, which provides information to attorneys on how to help clients avoid foreclosure. "What's changed is that people are finally making the banks follow the rules, and they can't do it."

***

• Lawyers say in the midst of all that packaging and slicing, banks got careless with their paperwork. In some cases, they lost track of who owned the original promissory note or couldn't prove how they came to possess it. In other cases, lawyers say, the formation of the mortgage-backed security created a situation in which the banks failed to maintain ownership of the promissory notes.

• "These transactions have become so complex, the banks can't even keep track of what they own and don't own," said Linda Fisher, director of the Center for Social Justice at Seton Hall Law School, which succeeded in getting a foreclosure dismissed in Essex County last month.

***

• The State Office of Foreclosure has attempted to provide some guidance, informing attorneys for lending institutions that as of May 1, it no longer would process foreclosures unless the attorneys could prove their clients were the owners of the loan and had the right to collect on the debt at the time the foreclosure was filed.

For the story, see New tactic slows rate of forfeited houses in NJ.

For other posts that reference the failure of some mortgage lenders and their attorneys to file the required loan documents when starting foreclosures, Go Here, Go Here, and Go Here.

Tax Foreclosure Sale Voided By California High Court; Assessor's Error, Faulty Correspondence Failed To Put Property Owners On Notice Of Delinquency

In California, Metropolitan News Enterprise reports:

• Purported notice of a tax sale did not put the property owners on actual or constructive notice of the delinquency where the notice was sent to the correct address but misnamed the owners, who reasonably believed the notice was sent to them in error, the state Supreme Court ruled [last week]. The justices unanimously overturned a Court of Appeal ruling in favor of L&B Real Estate—described by opposing counsel as “the king of the foreclosure market in California”—which purchased a Los Angeles parcel belonging to Frank and Josie Mayer for $24,000 at the 2001 sale.

For more, see State Supreme Court Overturns Tax Sale Based on Flawed Notice (Justices Say Letter That Misnamed Owners Did Not Trigger Limitations Period).

For the decision of the California Supreme Court, see Mayer v. L&B Real Estate (June 16, 2008) (available online courtesy of Findlaw.com; free registration may be required).

For another story involving questionable or improper notification to homeowners in the context of a mortgage foreclosure, see Homeowners Facing Mortgage Foreclosures Denied Constitutional Right to Proper Notification.

Go here for other posts on foreclosures involving faulty notifications to property owners.

Lender Jammed In Foreclosure Attempt; Failed To Prove Legal Standing, Says Colorado Judge

In Douglas County, Colorado, the Douglas County News Press reports on local couple Louis and Margaret Sadler, who are assiting their daughter fight a foreclosure action that threatens the loss of her home.

• The [...] couple, who hired Castle Rock attorney Michael Robinson to handle the routine foreclosure, saw a Douglas County district court judge on June 19 put a stop to the foreclosure sale when the lender could not prove it was a party of interest in the case.

• The lender's failure to prove its interest is part of an industry practice Robinson says could impact victims of foreclosure across the state. "This is a case of first impression in Colorado," Robinson said. "This is going to wake people up and make them realize 'I don't have to take this, I can fight back.'" The fight began when Robinson embarked on his research in the time he had to respond to the original foreclosure action. His search of the publicly-filed documents disclosed something was amiss.

***

• During the June 19 trial, Lorainna Diaz, the chief of mortgage litigation for Countrywide Home Loans, was unable to identify the person whose stamped signature endorsed the note or when the note was endorsed to the Bank of New York. Diaz testified by phone from the company's Fort Worth, Texas, office but her efforts did not pay off for the Bank of New York. "I don't find [Diaz] to be credible at all," said Douglas County district court Judge Vincent White when he found in Sadler's favor. "She couldn't establish when [the transfer] occurred or that it was legitimate. I would expect someone in her position to be able to say when it was transferred and how [Sadler] was noticed."

***

• For those who find themselves in similar situations in Colorado, White's decision could open the door to great possibilities, Robinson said. "So far the problem has been that everybody surrenders [in the face of foreclosure]," Robinson said. "The message here is that people aren't going to roll over, they're going to fight."

• Robinson and his co-counsel hope others join the fight and have built a Web site, www.blockcoloradoforeclosure.com, to provide a resource for those facing foreclosure in Colorado.

In dismissing the court order authorizing the foreclosure sale, the judge indicated that the lender can re-file the case if they want, presumably if it is able to get its paperwork straight.

For the whole story, see The foreclosure fight is on.

For other posts that reference the failure of some mortgage lenders and their attorneys to file the required loan documents when starting foreclosures, Go Here, Go Here, and Go Here.

Court Approves Foreclosure Rescue Scam Settlement Between Massachusetts, Ten Lenders; Case Involved State AG Claims Of Equitable Mortgage, Usury, Etc.

From the Office of the Massachusetts Attorney General:

• The U.S. Bankruptcy Court has approved a settlement between Attorney General Martha Coakley’s Office and 10 mortgage lenders and servicers that funded or serviced loans which facilitated fraudulent foreclosure rescue transactions by Brockton attorney Alec Sohmer. The Settlement Agreement with the lenders, entered last week by Judge Joan Feeney, was reached by the Attorney General’s Office and the Chapter 7 trustee in Sohmher’s bankruptcy case. The Settlement impacts 26 residential properties that are part of Sohmer’s bankruptcy case and is designed to return homeowners to their financial position before Sohmer arranged foreclosure rescue transactions that stripped their home equity and required payment of Sohmer’s fees and high settlement costs. The settlement will also provide an opportunity for Sohmer’s victims to reacquire the legal title to their homes.

***

• Under the terms of the settlement, the lenders and servicers will provide restitution to the homeowners victimized by Sohmer’s fraudulent scheme by reducing the outstanding mortgage liens on the homeowner’s properties, and in many instances allowing the homeowners to apply to assume the loans. As a result of the foreclosure rescue scheme, 26 homeowners had transferred the titles of their homes to Sohmer. The original homeowners can now reclaim their property by paying a reduced mortgage obligation instead of the inflated mortgage loan arranged by Sohmer, and by refinancing the loans.

• The mortgage lien will be reduced to the lower of the actual amount paid for prior mortgage loans on the property, subtracting any beneficial payments to the homeowners; or 80% of the current value of the properties. In total, across 26 properties, the settlement will provide approximately $1.8 million in reduced mortgage obligations.

For more, see Massachusetts AG press release: Bankruptcy Court Approves Settlement Between Attorney General’s Office and Ten Mortgage Lenders and Servicers Involved in Foreclosure Rescue Transactions.

For earlier posts on this case, see:

• Foreclosure Rescue Sale Leaseback Deals Are Usurious Equitable Mortgages, Says Massachusetts AG's Civil Lawsuit, or
• Go here for all earlier posts.

In related subsequent bankruptcy litigation, see Commonwealth of Massachusetts v. Sohmer.

Editorial Note:

As best as I can figure it, the $1.8 million hit that the lenders are taking represents the approximate home equity that the foreclosure rescue operator ripped off from the homeowners. Further, the settlement in this case appears to be a good illustration of how equity stripping, foreclosure rescue lawsuits in which a claim of equitable mortgage is made should be resolved when the financially strapped homeowners sign over the title to their homes but remain in possession thereof pursuant to some form of lease/buyback arrangement.

The homeowner's continued possession of the home after signing over the deed generally constitutes either actual or constructive notice to the foreclosure rescue operator's (or straw buyer's) mortgage lender of the homeowner's rights in the home under the equitable mortgage doctrine. This would be the case even if the mortgage lender had no actual knowledge of the arrangement between the foreclosure rescue operator and the homeowner (as any experienced real estate attorney will advise, one can be deemed to have "actual or constructive notice" of another's rights in real estate without actually having knowledge of the existence of those rights - see The Bona Fide Purchaser for Value of a Legal Estate Without Notice for a beginner's guide to actual and constructive notice, and the bona fide purchaser doctrine).

The effect, as illustrated in the Massachusetts AG's settlement, is that it is the lender, not the homeowner, that gets the screwing over in the deal. Of course, the lender will then have a cause of action against the foreclosure rescue operator, any straw buyer, possibly the title insurance underwriter who issued any title policy in the transaction, and anyone else who participated in the fraud for any damages it suffered.

Ohio Couple In Foreclosure Seek Constitutional Right To Free Court Appointed Attorney

In Cincinnati, Ohio, The Enquirer reports:

• A Westwood couple faced with losing their home of 22 years through foreclosure has asked the Ohio Supreme Court to declare that they have a constitutional right to a court-appointed lawyer to represent them.

• The petition came after Hamilton County Common Pleas Judge Beth A. Myers ruled Tuesday that William and Mary Hill were not entitled to a free lawyer because the case involved property rights, not individual liberty.

• Attorney Robert B. Newman, who represents the Hills, argues that too many homeowners in foreclosure lose hope and abandon their homes, even if they have valid defenses, because they can't afford a lawyer. The Legal Aid Society of Southwest Ohio has supported his argument, saying its lawyers are overburdened with foreclosure cases and have had to turn away homeowners.

Source: Homeowners demand lawyer (if link expires, try here).

119K+ Collection Cases Clog Chicago Courts; Sloppy Practices, "Zombie Debt" Hurting Consumers

In Chicago, Illinois, a story in the Chicago Tribune makes apparent that mortgage foreclosures are not the only cases that are clogging the court system:

• Cook County Circuit Court has been turned into a frenetic debt collections machine, a reflection of easy credit gone sour and a collections industry determined to get paid. More than 119,000 civil lawsuits against alleged debtors are clogging courtrooms, and at least half will result in judgments that debt collectors will use to dock wages, seize bank accounts and file liens against homes, compounding the woes of troubled borrowers.

• But because debt collectors operate on volume—pushing through lawsuits based on little more than lists of names, addresses and alleged amounts due—there are also plenty of instances of mistaken identities, cases where debts are alleged when the bills have been paid and even situations where people have fallen behind and tried to work out repayments only to be hauled in to court. "The system is out of control," said Michelle Weinberg, a supervisory attorney at the Legal Assistance Foundation of Metropolitan Chicago.

***

• A new breed of collector has transformed the industry in the last decade, purchasing distressed debt from credit card issuers, retailers and other consumer lenders. Debt buyers usually only pay pennies on the dollar for packages of unpaid bills that include limited electronic information about the borrowers.

***

• Consumer groups say the high number of default judgments can mask flaws with the lawsuits. Credit agreements and payment histories are often not included when suits are filed. Instead, debt collectors file an affidavit attesting to the validity of the debt, and it's not unusual for that affidavit to be erroneous, said Bob Hobbs, deputy director of the National Consumer Law Center. [...] In New York, an Urban Justice Center study in 2006 found that in 99 percent of a sampling of default judgments that the evidence used to obtain the judgment did not meet the state's legal standards.

The experience of one consumer victimized by the sloppy practices of a purported creditor and the creditor's attorney was reportedly described as "a perfect example of zombie debt. You pay it, and it comes back to life."

For more, see Debt collectors pushing to get their day in court (More aggressive strategies fill court dockets, result in mistaken identities) (if link expires, try here).

Go here for other posts on zombie debt.

NYC Foreclosure Rescue Ringleader, Mortgage Broker Cop Plea In Equity Stripping Scam Involving $200M+ In Fraudulently Obtained Loans

In New York City, The Associated Press reports:

• One company billed itself as a white knight that could rescue desperate homeowners from foreclosure. The other passed itself off as an honest brokerage that helped wealthy New Yorkers get mortgages to buy $1 million apartments. In reality, both firms dealt primarily in fraud, according to prosecutors.

• Two Brooklyn mortgage specialists pleaded guilty to federal conspiracy charges this week in a pair of loosely related cases that cost banks millions of dollars and led to some people losing their homes.

• Maurice McDowall, the owner of a "foreclosure rescue" company called Lost and Found Recovery, copped to an indictment accusing his firm of persuading scores of struggling families to enroll in a program to "save" their homes by temporarily signing them away to someone else. Mortgage broker Aleksander Lipkin admitted criminal wrongdoing in both that case and a separate fraud in which his firm, Lending Universe, used bogus paperwork to arrange more than $200 million in loans they knew would probably never be repaid.

For more, see 2 plead guilty in NY mortgage frauds targeting homeowners.

See also:

• Indictment - U.S. vs. McDowall, et al.,
• New York Daily News: Two found guilty in mortgage scam and face 30 years in prison,
• U.S. Attorney Press Release: Leader of Foreclosure Rescue Scheme and Mortgage Broker Plead Guilty to Multimillion Mortgage Fraud.

Go here for other posts on foreclosure rescue operator Maurice McDowall.

Go here for other criminal prosecutions of foreclosure rescue operators.

For more on equity stripping scams, generally, see DREAMS FORECLOSED: The Rampant Theft of Americans' Homes Through Equity-stripping Foreclosure 'Rescue' Scams (4.61 MB approx.).

South Florida Attorney Seeks To Undo Lousy Loans; Files 25 Federal Suits On Behalf Of Homeowners Alleging Fraud, Violations Of Lending Laws

In South Florida, The Miami Herald reports:

• Some South Florida borrowers who are in default on their home loans aren't waiting around for their lender to begin foreclosure. They have beaten their lender to the courthouse by filing lawsuits that allege the institutions committed fraud and violated federal lending laws by overstating the borrowers' incomes to qualify them for loans, changing the loan terms just before closing, and failing to disclose the loan costs.

• ''These [borrowers] are basically sheep among the wolves,'' said Frank J. Ingrassia, a Margate lawyer who last week filed about 25 lawsuits on behalf of the borrowers against various lenders in U.S. District Court in Miami and Fort Lauderdale.

• The suits mark the latest salvo against the subprime lending industry, which consumer advocates contend recklessly extended loans to borrowers and fed a buying frenzy that led to the real-estate bust.

***

• Legal Services of Greater Miami is taking a similar tack -- alleging lenders committed fraud -- in defending homeowners in some foreclosure cases, said Carolina Lombardi, a senior attorney for the agency.

For more, see Troubled borrowers sue mortgage lenders (Some South Florida homeowners have sued their mortgage lenders, alleging the institutions committed fraud in making loans that borrowers couldn't afford to pay) (if link expires, try here or try here).

For other posts on homeowners using Federal & state consumer protection statutes to try and undo bad mortgage loans, Go Here and Go Here. undo mortgage loans TILA batallion

More On Alleged Metropolitan Money Store Equity Stripping, Foreclosure Rescue Scam; Victims Speak

In Maryland, The Baltimore Sun features a story of two area homeowners who were victimized in the alleged Metropolitan Money Store equity stripping scam in which Federal prosecutors indicted eight suspects this week. The alleged scam resulted in over $35 million in fraudulently obtained mortgages and over $10 million in stolen home equity, say authorities.

• "They hurt a lot of people," said [homeowner Nadine] Bostic, who is a plaintiff in a class-action civil suit against some of the federal defendants. "I never thought I'd ever say I wanted someone to be in jail, but I do. They need to be put underneath the jail. Not on top, not inside - underneath." [...] "When I was told they [arrested the alleged perpetrators], I didn't know if I should jump for joy or what," she said. "It was a strange feeling. I never thought anyone was going to do anything."

***

• With her father serving in Iraq and money tight at home, [another victim, Jeanette] Meadows, 19, sounded less pleased about the arrests than weary of the whole affair yesterday as she described how her family became a target of the alleged mortgage schemers."They're backstabbers who can't be trusted," Meadows said from her home on Glenarm Road in Northeast Baltimore, a property that has avoided foreclosure only because a lawyer for the family last month asked a Circuit Court judge to invoke a federal law [the Servicemembers Civil Relief Act] that exempts active-duty military personnel from being forced from their homes.

For more, see Relief, anger follow arrests in mortgage loan scheme (Homeowners express emotions in alleged fraud that victimized them).

To read the Federal indictment of the alleged perpetrators, see U.S. v. JoyJackson, et al. (available online courtesy of the consumer protection attorneys at The Holland Law Firm, P.C. and the Legg Law Firm).

For more on the class action lawsuit filed against Metropolitam Money Store, go here to read the class action complaint; and for updates, check with the Metropolitan Money Store Class Action website.

Go here and go here for other posts on the alleged Metropolitan Money Store foreclosure rescue scam.

Go here for posts on the Servicemembers Civil Relief Act. joyjackson

Feds Bag Eight In Alleged Equity Stripping, Foreclosure Rescue Scam Involving $35M+ In Fraudulently Obtained Loans, $10M+ In Lost Home Equity

In Greenbelt, Maryland, The Associated Press reports:

• Federal prosecutors have charged a Maryland mortgage foreclosure rescue company in a fraud scheme that allegedly involved more than $35 million worth of fraudulent loans and mortgages. Joy Jackson, the president of the former Lanham-based Metropolitan Money Store, and Jennifer McCall, the company's CEO, are among eight people named in an indictment released Thursday in U.S. District Court on charges that include conspiracy, mail fraud and money laundering. Metropolitan was a foreclosure rescue operation that claimed to help strapped homeowners at risk of losing their homes.

• It allegedly convinced homeowners to sign over their homes to people with strong credit to keep the homes from foreclosure. Homeowners were told that they could keep their homes and repair their credit, get better mortgages and eventually buy back the homes. But prosecutors allege once it took control of the homes, Metropolitan would borrow heavily against the properties, sucking out any equity the original homeowners had built up. Many couldn't buy back the homes. Prosecutors say homeowners lost more than $10 million in equity.

Source: Feds file charges in Md. foreclosure rescue scheme.

See also, The Washington Post - Prince George's Woman Arrested in 'Massive' Mortgage Fraud:

• [Joy J.] Jackson, 40, and [her husband, Kurt] Fordham, 38, both of Fort Washington, were charged with conspiracy to commit mail and wire fraud, six counts of money laundering and 15 counts of mail fraud to obtain money and property from homeowners and lenders.

• Also arrested today were Jackson's business partner, Jennifer McCall, 46, and her husband, Clifford McCall, 47, McCall's daughter, Chandra Jones, 30, Wilbur Ballesteros, 32, all of Lanham; and Fordham's sister, Katisha, 35, and Ronald Chapman, both of Washington. All are facing mail and wire fraud charges, and Jennifer and Clifford McCall and Jones are each charged with one count of money laundering.

Go here for other posts on the alleged Metropolitan Money Store equity stripping, foreclosure rescue scam.

For more on equity stripping scams, generally, see DREAMS FORECLOSED: The Rampant Theft of Americans' Homes Through Equity-stripping Foreclosure 'Rescue' Scams (4.61 MB approx.).

Are Foreclosure Prevention Counselors Letting Lenders Off The Hook?

A recent article on CNNMoney.com gives an informative description of:

• [t]he complicated and time-consuming foreclosure prevention process. Working together are mortgage servicers - the companies that manage the loans - and the borrowers, with foreclosure prevention counselors often acting as go-betweens.

For more, see The trick to getting a mortgage fixed (Foreclosure prevention is a messy business -- more art than science. Here, an inside look at why some people get a loan workout and others don't).

Editorial Note:

Unfortunately, what is not included in the article (and implicitly points to a weakness in the negotiating process for the financially strapped homeowner - the lack of participation of competent legal counsel on his/her behalf) is the need to remind lenders of the legal problems they face in connection with the enforcement of the loan agreement if a loan modification satifactory to the homeowner can't be worked out in the event:

• they don't have physical possession of the actual promissory note (see Fight Foreclosure: Make ‘Em Produce The Note!; and 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)),

• in the case of a mortgage obtained in a home refinancing (as opposed to a home purchase), the loan documents contain violations of the Federal Truth In Lending Act (see Homeowners Misled By Mortgages Finding Ways Out; and see Finding a legal escape clause (Attorney rescues homeowners from loans they can't afford)),

• the loan violated any applicable state predatory lending and/or consumer protection laws (see Fighting Back Against Foreclosure - New York Judge Denies Foreclosure Based on Alleged Predatory Lending),

• in attempting to collect on the loan, the Federal Fair Debt Collection Practices Act (or any applicable state debt collection statutes) has been violated (see Un-Fairbanks - How West Haven sisters fell victim to a national mortgage scam, and how it could happen again).

Loan counselors who are not attorneys are obviously not in a position to practice law. Consequently, (unless working in conjunction with an attorney experienced in negotiation and familiar with the relevant legal issues ) they are unable to raise these issues during the loan workout negotiation process and will likely result in homeowners unwittingly overlooking the leverage they possibly (some may say probably) have in reaching the best possible deal they can with their mortgage lender.

----------------

For other posts that reference the failure of some mortgage lenders and their attorneys to file the required loan documents when starting foreclosures, Go Here, Go Here, and Go Here.

For other posts on homeowners using Federal & state consumer protection statutes to try and undo bad mortgage loans, Go Here and Go Here.

Does Foreclosure Rescue Statute Prohibit Attorneys From Taking Upfront Fees In The Course Of Representing Florida Homeowners Facing Foreclosure?

A recent article by Central Florida attorney Michael Alex Wasylik, of the firm Ricardo & Wasylik, PL, points to an apparent flaw in the newly passed Florida state statute, The Foreclosure Rescue Fraud Prevention Act of 2008.

The flaw relates to the ability of attorneys, engaged in typical attorney-client arrangements with Florida homeowners facing foreclosure, to charge and collect upfront retainer fees from those clients. The law prohibits "foreclosure rescue consultants" from charging and collecting upfront fees for performing "foreclosure-related rescue services" to Florida homeowners facing foreclosure.

A reading of the plain language of the new statute appears to include (or ensnare) attorneys among those prohibited from charging upfront fees for their services. (See Section 501.1377(2)(b), Florida Statutes, for definition of the term "Foreclosure-rescue consultant.")

Further, the definition of the term "Foreclosure-related rescue services" in Section 501.1377(3) appears broad enough to include those services typically provided by attorneys in the course of defending clients in foreclosure actions, as well as those services in connection with Federal bankruptcy proceedings. In addition, Section 501.1377(2)(b) enumerates six persons or entities that are specifically excepted from the definition of the term "Foreclosure-rescue consultant"- attorneys are not included on the list.

Based on the reading of the plain language of the statute, it appears that a Technical Corrections Bill by the Florida legislature is in order to correct, what appears to be, an inadvertent but obvious flub in the drafting of the statute that ostensibly prohibits attorneys from charging upfont legal fees from homeowners that they represent in foreclosure-related legal proceedings.

For more, see New Florida Law May Hurt Homeowners in Foreclosure (New Section 501.1377 may make it impossible for homeowners to find lawyers to represent them in foreclosure or bankruptcy proceedings).

Postscript: The same issue was raised in Massachusetts in a January, 2008 article in connection with that state's Attorney General's foreclosure rescue regulations - see Massachusetts Lawyers Weekly: Lawyers: unclear foreclosure regs forcing them to turn down business (Claim that new rule bars acceptance of retainers in certain types of cases).

Mass AG Tags Option One, H&R Block For Alleged Deceptive Practices In Race-Based Discriminatory Predatory Lending Suit

In Boston, Massachusetts, Reuters reports:

• Massachusetts authorities sued H&R Block Inc. on Tuesday, charging that its mortgage unit discriminated against black and Latino borrowers and escalated a crisis over property foreclosures in the state. The lawsuit is the first by a U.S. state to accuse a subprime-mortgage lender of civil rights violations following a wave of foreclosures of homes in poor, often black, neighborhoods nationwide. The complaint, filed in Suffolk Superior Court, accuses H&R's subprime-lending subsidiary, Option One Mortgage Corp, of engaging "in unfair and deceptive conduct on a broad scale."

According to Massachusetts Attorney General Martha Coakley in the lawsuit, Option One and its corporate parent, H & R Block, allegedly marketed loans with layers of risky features, including:

1. 100% Financing,
2. 2/28 Loans with “Teaser Rates”,
3. “Stated Income,” “No-Doc” or “Low-Doc” Loans,
4. Substantial Prepayment Penalties,
5. Lucrative Broker Incentives to Sell Expensive Subprime Loans.

For more, see Mass. sues H&R Block over mortgages to minorities.

From the Massachusetts Attorney General's Office:

• Lawsuit - State of Massachusetts v. H&R Block, Inc., et al.,
• Press Release - Attorney General Martha Coakley Files Lawsuit Against National Mortgage Lender Option One and Parent H&R Block for Deceptive and Discriminatory Lending Practices.

Go here for other posts on alleged discriminatory subprime lending.

Act Of Forgery Need Not Be Committed At The Hand Of Person To Be Charged

Reported in a recent blog entry on a California case is a reminder that, in California, tricking someone into signing a document may constitute forgery on the part of the scammer.

In addition, a decision of the New York Court of Appeals, recently cited in two 2007 state court decisions, serves as a reminder that, in New York as well, the act of forgery need not be done by the hand of the person being charged; fraudulently procuring the signature of another to an instrument which the signer has no intention of signing constitutes forgery on the part of the procurer. It is sufficient that the forgerer caused or procured it to be done.

The New York Court of Appeals decision in Marden v. Dorthy, 160 N. Y. 39 (NY 1899), a case over a century old, is the support for this proposition.

This case has been recently cited by a Brooklyn trial court in:

• Olympus Servicing, L.P. v Lee, 2007 NY Slip Op 50833(U), 15 Misc 3d 1124 (April 23, 2007),

and also by a New York state intermediate appellate court in:

• Ameriquest Mtge. Co. v Gaffney, 839 N.Y.S.2d 203, 41 A.D.3d 750 (App. Div. 2d Dept., 2007).

While over a century old, Marden v. Dorthy appears to still be valid precedent, based on the two recent cases citing it. Thanks to Jonathan Schloss for bringing the two 2007 cases to my attention.

***

It is unknown to me why New York authorities haven't raised this issue in the context of foreclosure rescue transactions (either in civil or criminal prosecutions) where financially strapped homeowners are unwittingly signing over the deeds to their homes, deeds that are, in many cases, intentionally buried in a stack of legal documents described to the homeowner as "refinancing papers". Perhaps it is a legal theory that should be given some thought.

For those outside New York and California who are having problems with foreclosure rescue operators scamming trusting homeowners, whether by cleverly sneaking instruments of conveyance into "stacks of papers" or otherwise, and getting the homeowners to unwittingly sign those papers, you might want to check your state's statutes and case law as it relates to forgery, criminal possession of forged instruments, securing writings by deception, and other similar sounding illegal acts to see if the law of your state is similar to that of New York and California in that an instrument containing an authentic signature can still be considered a forgery if the signer was somehow tricked into signing it.

NY Fed, City Bar Announce Formation Of Pro Bono Lawyer Group To Help Homeowners Facing Foreclosure

In New York City, Crain's New York Business reports:

• The Federal Reserve Bank of New York and the City Bar Justice Center are joining forces to help New Yorkers in danger of losing their homes to foreclosure. The two organizations [yesterday] announced the formation of the Lawyers’ Foreclosure Intervention Network, a pro bono pilot program that will marshal the resources of the city’s legal community to assist residents facing foreclosure.

• The program aims to narrow the gap between the number of legal aid lawyers trained to deal with foreclosures and the growing number of distressed homeowners.

***

• Private lawyers rarely take on foreclosure cases because clients usually don’t have enough money to pay. The mounting crisis has stretched thin the few lawyers who work for nonprofit organizations that will take on such cases. The program will provide training to lawyers on ways to prevent unnecessary foreclosures. Lawyers will assist homeowners in assessing their options, negotiating with creditors and will represent them in court — if necessary.

***

• Training sessions will be held June 18 and 19 at the City Bar [1.5 Days of Free CLE Training]. The program is one of many sprouting up across the city to help struggling homeowners, including the Center for New York City Neighborhoods, a nonprofit organization started by the city and partners.

For the story, see New legal aid program to protect homeowners (The Lawyers’ Foreclosure Intervention Network, a pro bono pilot program created by the Federal Reserve Bank of New York and the City Bar Justice Center, will assist residents facing foreclosure).

See also, New York Fed press release: New York Fed Announces Formation of the Lawyers' Foreclosure Intervention Network.

Go here for other posts on the Lawyers’ Foreclosure Intervention Network.

Facing Foreclosure? Before Walking Away, Contact The Lender & Make 'Em Produce the Note!

A recent article in Forbes reported that borrowers are increasingly viewing voluntary foreclosure (ie. walking away from the home) as a practical financial decision (see Deadbeat Homeowners Hit The Road). Such action would typically take place when the payments become unaffordable and /or when the homeowner owes more on the mortgage loan than what the home is worth.

Keep in mind that there is a decent chance that the mortgage lender or company servicing the home loan has lost the actual promissory note that was signed on the date the loan was closed. So, to anyone considering taking a hike and mailing in the keys, before you bolt (even if you are not yet in foreclosure), contact the lender and make 'em produce the note.

For other posts that reference the failure of some mortgage lenders and their attorneys of filing mandatory loan documents when starting foreclosure actions, Go Here, Go Here, and Go Here. missing mortgage foreclosure docs beta

Mortgage Company Tells Homeowner Current On His Mortgage Payments That It Lost The Promissory Note; Is The Lender Up To Something?

One reader recently wrote that he received a letter from his mortgage company saying that it lost his promissory note in connection with his home loan. The reader stated that he never missed a payment on his mortgage, and wonders whether this is something to be concerned about.

I can only think of two possibilities (arguably unlikely, but then again, maybe not) that a lender might be up to by placing the borrower on notice that the promissory note has been lost. Assume that the borrower does nothing to assert any legal rights that may arise in connection therewith and simply keeps making the mortgage payments. It may be that, in a possible future legal action to foreclose the mortgage, the lender might attempt to say that:

1. the borrower's inaction in asserting any rights that arose at the time he was placed on notice of the loss of the promissory note constitutes a "waiver" of those rights, thereby preventing the borrower from raising the issue, and


2. the borrower's continued payments on the mortgage loan after being placed on notice that the promissory note was lost possibly operates as an "estoppel" against the borrower (the borrower is estopped, or precluded, from raising the lost note as an issue).

Could the lender be laying the groundwork for a defense against having lost the promissory note in a possible future foreclosure action against the reader (and all other borrowers that it placed on similar notice)?

The only other possibility I can think of is that the reader was simply pulling my leg and never received a letter from the mortgage company in the first place.

Thoughts anyone???

Ownership Interest Under Equitable Mortgage Defeats Interest Of Subsequent Buyer; Lack Of Knowledge Not Enough To Sustain Bona Fide Purchaser Status

A February 14, 2008 decision of the Michigan Court of Appeals provides an illustration of how the equitable mortgage doctrine and the bona fide purchaser doctrine operate in a given case.

The case, Vernier v. Sipe (No. 276037, Mich. Ct. App., February 14, 2008), involved an arrangement whereby a real property owner ("Defendant" or "equitable mortgagor") executed a deed which, on its face, purported to convey absolute legal title to real property to another ("original grantee" or "equitable mortgagee"). The undisputed purpose of the conveyance was to provide collateral for a loan.

The original grantee subsequently conveyed its interest in the property by quit claim deed to another, and after another conveyance, the property interest ended in the hands of the Plaintiff. The Plaintiff had no knowledge of the original arrangement between Defendant/equitable mortgagor and the original grantee/equitable mortgagee.

Given the facts of the case, the trial court originally hearing the case ruled that:

• the conveyance from the Defendant did not convey absolute legal title to the original grantee. Because the conveyance was intended to secure a debt, the conveyance was treated as an equitable mortgage;

• because the Plaintiff had no knowledge of the original arrangement between the Defendant and original grantee, the Plaintiff was a bona fide purchaser without notice of the interest. Therefore, according to the trial court, despite that the original arrangement was ruled to be an equitable mortgage, the Plaintiff's property interest, acquired as a bona fide purchaser without notice, defeats the property interest of the Defendant under the equitable mortgage.

On appeal, the Michigan Court of Appeals ruled as follows:

• affirmed the trial court ruling that the arrangement was an equitable mortgage, and

• reversed the trial court ruling that the Plaintiff was a bona fide purchaser without notice, despite the fact that Plaintiff had no knowledge of the original arrangement giving rise to the equitable mortgage.

Even though the Plaintiff had no knowledge of the existence of the arrangement ultimately held to be an equitable mortgage, the Michigan appeals court (given the specific facts of the case), ruled that the Plaintiff nevertheless "had notice" of the equitable mortgage arrangement, and consequently, was not entitled to bona fide purchaser status.

The court based its ruling on the fact that Plaintiff had failed to satisfy his obligation of exercising due diligence in inquiring as to the possible existence of rights of others in the subject property. Given the specific facts of the case, the court ruled that had the plaintiff satisfied his obligation to exercise said due diligence and made the appropriate inquiries, it would have discovered the rights of the Defendant/equitable mortgagor under the equitable mortgage arrangement.

Given that the specific facts of the case are a bit convoluted, anyone interested in finding out exactly what transpired will have to read the case. What follows below are the observations of the Michigan Court of Appeals regarding the bona fide purchaser doctrine in the context of an equitable mortgage, as applied under the law of the state of Michigan (Note: For ease of reading, I made a couple of minor alterations to the excerpts from the original text of the decision below. For the exact text as it appears in the case, please refer to the court decision itself).

• However, if the [equitable] mortgagee, i.e., Holtz, transfers the property to a bona fide purchaser for value, the interest of the equitable mortgagor, i.e., Sipe, is defeated. MCL 565.32; In re Van Duzer, [390 Mich. 571, 578; 213 N.W.2d 167 (1973)]; 1 Cameron, Michigan Real Property Law (3d ed), § 18.8, p 685.

***

• A bona fide purchaser is one who has acquired a property interest for consideration and without notice of claims of interest in the property by a third party. Richards v Tibaldi, 272 Mich. App. 522, 539; 726 N.W.2d 770 (2006); 1 Cameron, Michigan Real Property Law (3d ed), § 11.20, pp 395-396. Notice may be actual or constructive and has been defined as follows:

"When a person has knowledge of such facts as would lead any honest man, using ordinary caution, to make further inquiries concerning the possible rights of another in real estate, and fails to make them, he is chargeable with notice of what such inquiries and the exercise of ordinary caution would have disclosed." [Richards, supra at 539, quoting Kastle v Clemons, 330 Mich. 28, 31; 46 N.W.2d 450 (1951).]

• A purchaser of real estate has a duty to investigate the seller's title as follows:

"It is the duty of a purchaser of real estate to investigate the title of his vendor, and to take notice of any adverse rights or equities of third persons which he has the means of discovering, and as to which he is put on inquiry. If he makes all the inquiry which due diligence requires, and still fails to discover the outstanding right, he is excused, but, if he fails to use due diligence, he is chargeable, as a matter of law, with notice of the facts which the inquiry would have disclosed." [American Fed S&L Ass'n v Orenstein, 81 Mich. App. 249, 252; 265 N.W.2d 111 (1978), quoting Schweiss v Woodruff, 73 Mich. 473, 477-478; 41 NW 511 (1889).]

--------------------

To view the court decision, see Vernier v. Sipe (No. 276037, Mich. Ct. App., Per Curiam - Unpublished, February 14, 2008).

This is an UNPUBLISHED OPINION. In accordance with Michigan Court of Appeals rules, UNPUBLISHED OPINIONS are NOT PRECEDENTIALLY BINDING under the rules of STARE DECISIS. Michigan equitable mortgage alpha Michigan bona fide purchaser

California Authorities Bag Five Suspects In Alleged Foreclosure Rescue Scam That Bilked 100s Of SoCal Homeowners; Both Criminal, Civil Charges Brought

In Southern California, The Associated Press reports:

• Hundreds of homeowners lost the deeds to their houses and small fortunes in a scam that masqueraded as a strategy to help them avoid foreclosure, authorities said Thursday. Troubled homeowners most of them Hispanic immigrants in San Diego, Riverside, San Bernardino and Los Angeles counties were lured to foreclosure rescue seminars and conned into signing over title to their homes with the purpose of establishing their property as a federal land grant.

***

• Late Wednesday, FBI and investigators from the San Diego County district attorney's office arrested William Hutchings, 62, and Xiaoke Li, 43, both of San Diego; Edgar Martinez, 30, and Diego Gil, 38. It was not immediately clear where they lived. An arrest warrant was also issued for Shawna Landis, 29, of Sorrento Valley. All face multiple counts of conspiracy, grand theft and deceitful practices as foreclosure consultants, authorities said. Prosecutors have also taken steps to freeze the defendants' assets and bank accounts, while [California Attorney General Jerry] Brown's office on Thursday sought an injunction and penalties against the company through which the scam was operated.

***

• Homeowners who attended the foreclosure rescue seminars were told that they could keep lenders from taking over their properties if they signed over the grant deeds on their homes to one of the corporations, which then would record a land grant on the property, according to court documents. Some homeowners who fell for the scam paid up to $10,000 to place their home in a land grant. Others paid at least $500 up front and then made monthly rent payments to continue living in the property, authorities said.

For more, see Feds arrest four Calif. people, claim they conned homeowners.

See also:

• The Press Enterprise: Arrests cap land grant probe,
• San Diego County District Attorney press release: Home Foreclosure Rescue Scam Ring Broken Up, Leaving Approximately 400 Victims,
• KFMB-TV Channel 8: Five Accused In Home Foreclosure Scam Plead Not Guilty ("Martinez and Gil were arrested as they were giving a presentation to more than 50 prospective victims, District Attorney Bonnie Dumanis said").

For more on the civil charges brought by the California Attorney General, see:

• Complaint - People v. FLG Company LLC, et al.,
• Memorandum of Points and Authorities (detailed narrative of alleged scheme, including citations to the applicable California law relating to issuing preliminary injunctions),
• AG Press Release (describes the alleged "federal land grant" scam; used seminars, which had up to 50 participants, to lure homeowners into lease back schemes in which the homeowners deeded over their property and then made monthly payments, purportedly for rent).