NYC Bar, Federal Reserve To Launch Pro Bono Foreclosure Intervention Initiative

In New York City, the New York Law Journal reports (appearing at NY Lawyer.com):

• A unique partnership between the federal government and the New York City Bar Association is the latest of several initiatives by which attorneys are volunteering to help individuals caught in the kind of financial distress registered by record numbers of bankruptcy filings, home foreclosures, evictions and debt recovery litigation. Set to launch next month is the Lawyers Foreclosure Intervention Network, a two-year pilot project developed by the Federal Reserve Bank of New York to be administered by the City Bar Justice Center.

***

• Lawyers interested in volunteering service to the financially distressed may go through a learning process of their own on June 19 during a full day's workshops at Fordham University School of Law. The workshops, co-sponsored by County Lawyers and the Feerick Center for Social Justice at Fordham Law, aim to develop strategies for pro bono lawyers in helping New Yorkers "stabilize and improve their financial health, build wealth ... and be better protected against deceptive and abusive practices" by credit card companies and other lenders, according to a program statement.

For more, see Federal Reserve Joins Bankruptcy Pro Bono Efforts.

Go here for:

• Defending Mortgage Foreclosures 2008,
• New York City Pro Bono Training Calendar,
• New York State Pro Bono Opportunities Guide.

Cincinnati Cop Indicted For Alleged Fraudulently Obtained Mortgages In Sale Leaseback, Foreclosure Rescue Scheme

In Cincinnati, Ohio, WLWT-TV Channel 5 reports:

• A federal grand jury indicted a Cincinnati police officer Thursday on fraud and other charges in connection with an alleged foreclosure scheme. Adrian Mitchell is accused of forging signatures, falsifying documents and taking out fraudulent loans for several hundred thousand. [...] According to authorities, Mitchell bought the homes and rented them back to the previous owners.

• In one case, investigators said, Mitchell attempted to evict a Springfield Township couple from their home after they fell behind on their rent. Mitchell discovered the husband had hanged himself in the home’s basement and then forged life insurance documents [see Indictment - Counts 1-4], investigators said, which allowed him to collect nearly $200,000 in benefits intended for the man’s widow.

Source: Police Officer Indicted On Federal Fraud Charges.

Regarding the charges related to the alleged fraudulently obtained mortgages in the foreclosure rescue deals, Mitchell was indicted for (see Indictment - Counts 5-12)

• bank fraud, and
• mail fraud (multiple counts).

To view the federal grand jury charges, see Indictment - U.S. v. Mitchell.

For other media reports:

• The Cincinnati Enquirer: Accused cop pleads not guilty (Suicide victim's insurance part of alleged take),
• WKRC-TV Channel 12: Cincinnati Officer Pleads Not Guilty.

Ten Face Felony Charges In Alleged Southern California Foreclosure Rescue, Equity Stripping Scam

In Southern California, The Press Enterprise reports:

• Ten San Bernardino County residents face criminal charges of participating in a predatory lending scheme based in Rancho Cucamonga that generated more than $2 million in fraudulent mortgages. A lawsuit filed this week in San Bernardino County Superior Court alleges that the scam was headed by Andrew Whitaker, 52, of Alta Loma, who had a prior real estate-related felony conviction for which he served prison time. Targets of the scheme described by Deputy District Attorney Larry Roberts were homeowners desperately trying to save their homes from foreclosure who thought they were obtaining refinancing but wound up selling their houses to straw buyers. In the process the remaining equity in their houses allegedly was stolen through inflated commissions, escrow charges and other fees.

Those charged are Andrew Webb Whitaker, Karren Marian Whitaker, Katrina Michelle Whitaker, Heather Nicole Whitaker, Mojgan Cox, Jesse Sinclair Cox, Juleanne Le Brooks, Phillip Parker, Jason Vince Harvey, and Andre Thomas Silva.

For more, see 10 San Bernardino County residents accused of predatory mortgage fraud.

See also, San Bernardino County District Attorney Press Release: DA Arrests Predatory Lenders Operating Throughout Southern California.

Go here for criminal prosecutions of foreclosure rescue operators.

Florida Foreclosure Rescue Conveyances With Buyback Right To Be Treated As Equitable Mortgages Unless Established Otherwise

The Florida legislature recently passed a statute regulating foreclosure rescue transactions. One key provision is contained in Florida Statute Sec. 501.1377(6) which creates a rebuttable presumption that any foreclosure rescue transaction involving a lease option or other repurchase agreement is an equitable mortgage. Below is the provision in its entirety (begins at line 345 of the bill):

• (6) REBUTTABLE PRESUMPTION.--Any foreclosure-rescue transaction involving a lease option or other repurchase agreement creates a rebuttable presumption, solely between the equity purchaser and the homeowner, that the transaction is a loan transaction and the conveyance from the homeowner to the equity purchaser is a mortgage under s. 697.01. Unless the lease option or other repurchase agreement, or a memorandum of the lease option or other repurchase agreement, is recorded in accordance with s. 695.01, the presumption created under this subsection shall not apply against creditors or subsequent purchasers for a valuable consideration and without notice.

[Editor's Note: The reference to "creditors or subsequent purchasers for a valuable consideration and without notice" is a reference to bona fide purchasers / encumbrancers.]
The following comments relate to how this rebuttable presumption could affect the following legal issues involved in foreclosure rescue conveyances: usury, bonafide purchaser, and tenant evictions.

Usury

Because the new statute creates the rebuttable presumption that the foreclosure rescue conveyance is a loan, it appears that usury claims by the financially distressed homeowner will be much easier to bring in a lawsuit against a foreclosure rescue operator since the statute clearly places the burden of demonstrating that the so-called "rescue" arrangement was a "true sale" (as opposed to a "financing/refinancing arrangement") on the foreclosure rescue operator. Put simply, the law treats the deal as a secured loan to the financially strapped homeowner unless established otherwise.

Accordingly, the operator is simply treated like any mortgage lender and the financially strapped homeowner is still presumed to be the true owner of the the home, notwithstanding any deed and leaseback agreement executed by the parties to the contrary.

Florida arguably has among the toughest usury statutes in the country. Florida's civil usury statute (where interest exceeds 18% per year) generally requires a forfeiture of the right to collect interest on the loan and requires the creditior to pay a penalty of double the amount of interest actualy reserved or collected (Fla. Statute Section 687.04).

Its criminal usury statutes (where interest exceeds 25% per annum) generally makes the entire amount of money advanced by the operator an unenforceable loan, and triggers those penalties commonly associated with misdemeanor (over 25% but not more than 45%) and felony (over 45%) crimes (Fla. Stat. Section 687.071).

Based on the Florida case law on equitable mortgages, the foreclosure rescue operator in Florida may be hard-pressed to sucessfully rebut the statute's presumption.(1)

______________

• (1) See Hull v. Burr, 58 Fla. 432; 50 So. 754 (Fla. 1909) - "In case of doubt the transaction will be held a mortgage"; Connor v. Connor, 59 Fla. 467; 52 So. 727 (Fla. 1910) - "A deed absolute on its face may by parol evidence be shown to be a mortgage, and in cases of doubt the instrument should be held to be a mortgage", citing DeBartlett v. DeWilson, 52 Fla. 497, 42 So. 189; Hull v. Burr, 58 Fla. 432, 50 So. 754; Franklin v. Ayer, 22 Fla. 654; McLendon v. Davis, 131 So. 2d 765; (Fla. App. Ct., 3rd Dist. 1961) - "In applying the rule in doubtful cases, the law will resolve the doubt as to the intent of the parties in the light of the advantage the creditor always has over the debtor whose property he holds, and will give the debtor the benefit of the doubt and hold his equity of redemption to be still existing. Certainly complete justice is done because the creditor's advances are secured by the debtor's property and the debtor has the opportunity of full redemption by payment." (my emphasis added).

• Because these cases instruct the courts to treat the transaction as a mortgage "in the case of doubt", it is arguable that the standard of proof necessary to overcome the equitable mortgage presumption in the new statute is higher than a mere "preponderance of the evidence", possibly requiring "proof by clear and convincing evidence."

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Bonafide Purchaser

.
The new statute clearly states that the rebuttable presumption is created "solely between the equity purchaser and the homeowner" (at lines 347-348). In addition, the statute goes on to provide that the presumption is not applicable against those who do not have notice of the "rescue" arrangement ("the presumption created under this subsection shall not apply against creditors or subsequent purchasers for a valuable consideration and without notice" - at lines 353 to 355) - the so-called bonafide purchasers / encumbrancers.

The statute, however, seems to be silent as to how it applies to those (other than the equity purchaser and the homeowner) acquiring an interest in the property who have notice of the "rescue" arrangement, and who consequently would not be entitled to bonafide purchaser / encumbrancer status. Why is this important?
.

Actual Possession as "Notice To The World"
In a typical foreclosure rescue conveyance (one involving a sale with a concurrent leaseback, coupled with a right to reaquire the home in the future), the financially strapped homeowner never relinquishes actual possession of the property. Florida law (and the law of many other states as well) is that actual possession of the property serves as notice to subsequent purchasers and encumbrancers of all rights and equities that the occupant in possession may have.
The Florida Supreme Court, in the case of Marion Mortgage Co. v. Grennan, 106 Fla. 913, 143 So. 761 (cited in Florida Land Holding Corp. v. McMillen, 135 Fla. 431, 186 So. 188 (Fla. 1938)), stated the following with respect to possession and notice:

• Actual possession is constructive notice to all the world or anyone having knowledge of said possession, of whatever rights the occupants have in the land. Such possession when open, visible and exclusive, will put upon inquiry those acquiring any title to or a lien upon the land so occupied to ascertain the nature of the rights the occupants really have in the premises. Carolina Portland Cement Company v. Roper, 68 Fla. 299, 67 So. 115; Tate v. Pensacola G.L. & Dev. Company, 37 Fla. 439, 20 So. 543; McAdams v. Wachab, 45, Fla. 482, 33 So. 702. This court also specifically held in the case of Crozier, et al., v. Ange, 85 Fla. 120, 95 So. 426, that 'where at the time property is mortgaged it is actually occupied by others than the mortgagor, the mortgagee is thereby put upon notice to inquire as to the rights of the occupants.' 19 R.C.L. 421, Sections 201 and 202.

The Florida high court reiterated its position in Blackburn v. Venice Inlet Co., 38 So.2d 43, 46 (Fla. 1948) (cited in Waldorff Ins. v. Eglin Nat. Bank, 453 So.2d 1383 (Fla.App. 1 Dist. 1984)), where it stated:

• It is settled law in Florida that actual possession is constructive notice to all the world, or anyone having knowledge of said possession of whatever right the occupants have in the land. Such possession, when open, visible and exclusive, will put upon inquiry those acquiring any title to or a lien upon the land so occupied to ascertain the nature of the rights the occupants really have in the premises.

It appears that the new statute may contain an ambiguity with respect to its apparent silence as to whether it applies to "non-bonafide" purchasers and encumbrancers. Assuming the Florida courts, by applying the appropriate rules of statutory construction, rule that the new statute does, in fact, apply to those "non-bonafide" purchasers / encumbrancers (upon whom notice of the "rescue" arrangement is imputed), and given that actual possession by the occupying homeowners imputes said notice on them, one can reasonably conclude that the rights of those acquiring an ownership or security interest in the home during or subsequent to the foreclosure rescue conveyance (ie. the foreclosure rescue operator, straw buyer, mortgage lender providing financing, etc.) will be inferior to the rights of the occupying homeowner under the statutorily "presumed" equitable mortgage (provided that the subsequent purchasers / encumbrancers fail to make proper dilgent inquiries as to the rights and equities of said occupying homeowner as required by Florida case law).

If this is the case, the inferior interests of those "non-bonafide" purchasers / encumbrancers would arguably be subject to being voided by the homeowner. (As an aside, it might be a good idea for any homeowner entering into a foreclosure rescue conveyance to record with the county office that handles the recording of deeds and mortgages, at a minimum, an affidavit / memorandum that places the world on notice of the foreclosure rescue conveyance, and the existence of any (purported) lease, occupancy agreement, and/or right or option to reacquire the home in the future.)

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

Tenant Evictions In Foreclosure Rescue Conveyances
.

Given that the new statute creates a rebuttable presumption that the foreclosure rescue conveyance involving a "lease option or other repurchase agreement" is an equitable mortgage, it appears that foreclosure rescue operators will be unable to evict a homeowner who fails to comply with his/her obligations under the "rescue" arrangement (ie. the leaseback or other occupancy agreement) unless and until it can overcome the statute's presumption by demonstrating that the arrangement was not an equitable mortgage, but rather, a true sale. After all, the presumption that the arrangement is an equitable mortgage means that the homeowner, even after making the foreclosure rescue conveyance, is still the true owner, and the foreclosure rescue operator is only a secured lender and not a landlord, notwithstanding that it may technically be holding the paperwork showing it has legal title to the home.

In addition, it also appears that those seeking to evict homeowners involved in a foreclosure rescue conveyance will no longer be able to accomplish such evictions through a summary proceeding under Chapter 83 of the Florida Statutes since the Florida County Courts hearing these proceedings are of limited jurisdiction(2) and, accordingly, don't have the jurisdiction to determine whether the foreclosure rescue operator can overcome the presumption that the "rescue' arrangement was an equitable mortgage.

_______________

• (2) see Hewitt v. State, 101 Fla. 807; 135 So. 130; (Fla. 1931) - County Judge to dismiss the cause for want of jurisdiction when, in proceedings in the County Judge's court to recover the possession of land as from a tenant, the title or boundaries of the land in controversy are at issue.

_______________

To get possession in these cases, it appears that the foreclosure rescue operator may first have to seek a declaratory judgment from a Florida Circuit Court declaring that:

1. the "rescue" arrangement was a "true sale" and not an equitable mortgage (thereby overcoming the statute's newly created rebuttable presumption), and
2. the operator is, in fact, the true owner of the home and the (now-former) homeowner is only a tenant.

Failing that, the foreclosure rescue operator, as a lender (equitable mortgagee) may find itself having to proceed ousting the homeowner via a foreclosure action (just like any other mortgage lender).

Go here for posts on Florida Equitable Mortgage & Usury. florida equitable mortgage alpha Florida bona fide purchaser

Florida Lawmakers Pass Foreclosure Rescue Legislation; Governor Expected To Sign Into Law

In Florida, The Miami Herald reports:

• [I]n an effort to protect the growing number of homeowners [in foreclosure], the state Senate approved a foreclosure fraud bill Thursday, reining in the growing field of consultants and equity purchasers offering home-saver services to delinquent borrowers. Some have been accused of duping homeowners into signing over their property and then selling for profit or charging them stiff fees to get it back -- a scheme sometimes called equity stripping.

For more, see Foreclosure fraud bill OK'd (State lawmakers passed a bill to protect delinquent borrowers from losing their homes and money to fraudulent foreclosure rescue services) (if link expires, try here).

Go here for the new Florida foreclosure rescue fraud law (CS/HB 643E1): (bill history) (bill text). Upon Florida Governor Charlie Crist's signing the bill into law, the new law will be found in Section 501.1377, Florida Statutes and will take effect on October 1, 2008.

Subprime Borrower Lawsuits Allege Consumer Protection Law Violations, Racial Discrimination

American Association for Justice reports:

• Amid the subprime mortgage crisis, many people across the country—with both good and bad credit—have found themselves stuck with loans that are not what they anticipated. Mortgage lenders and related institutions are under intensifying scrutiny for a wide range of illegal conduct, including misrepresenting loan terms, adding bogus fees, inflating appraisals, committing securities fraud, and discriminating against borrowers based on their race and gender. Lawsuits allege violations of the Truth in Lending Act (TILA), the Fair Housing Act, the RICO statute, and state consumer protection laws, to name a few.

***

• The option ARM has proved especially problematic. “It’s a subprime product being marketed to everybody,” said Jeffrey Berns, a Tarzana, California, lawyer, whose firm has filed 60 federal class actions against major lenders over option ARMs. He noted that these clients range “from doctors and lawyers to field workers.”

***

• Paul Kiesel, a Beverly Hills, California, lawyer, also represents borrowers suing over option ARMs. His firm has filed 56 class actions, most of which revolve around TILA violations, all on behalf of borrowers who stand to lose their primary residences. He estimated that half had loans with low interest rates before signing up for the option ARMs. “They were eligible for far better mortgages than they got,” he said.

• If the terms are not adequately disclosed, a mortgage is rescindable, but the general public may not be aware of that, Kiesel said. He and his colleagues have built a consortium of firms to work together—which is necessary because “we have taken on the largest lenders in the United States, and they have unlimited resources,” he said. “We are facing such an imminent threat” of people being forced out of their homes that lawyers have a responsibility to take on this type of litigation.

***

• The problem is acute in Cleveland, where foreclosure rates are among the highest in the country. Cleveland lawyer Edward Kramer and his firm have more than 25 cases pending over predatory-lending practices, most arising from foreclosure actions. [...] More recently, the Cleveland-based public-interest law firm Housing Advocates, Inc., which Kramer directs, filed a complaint with the Ohio Civil Rights Commission against Argent Mortgage Co. for racial discrimination, claiming that the company offered loans that were likely to result in foreclosure in mostly African-American neighborhoods. The commission investigated and found that the evidence substantiated the alleged discrimination claim. [...] (Housing Advocates, Inc. v. Argent Mortgage Co., (CLE)H4(38066)05212007, 05-07-0938-8 (Ohio Civ. Rights Commn. Mar. 13, 2008).) A hearing is to follow. [...] The complexity of mortgage securitization—determining which company is doing what—makes things difficult for plaintiffs, Kramer said, because “no one’s taking personal responsibility.” [...] “It’s not an easy situation,” Kramer said, but “if we could get lawyers to take a case or two, we could have a tremendous impact in the community.”

For more, see Predatory-lending litigation looms.

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

Go here for other posts on alleged discriminatory subprime lending.

Attorneys Nailed For $150K In Sanctions For Misrepresnting Ownership Of Promissory Note In Foreclosure Action; Lender/Servicer & Trustee Hit For $500K

The Wall Street Journal Law Blog reports:

• On Friday, two law firms — Buchalter Nemer and Ablitt & Charlton, along with name partner Robert Charlton — got whacked with a combined $150,000 in sanctions. In a decision regarding an order to show cause in the case, called Nosek v. Ameriquest, bankruptcy judge Joel Rosenthal found that, throughout earlier proceedings, lawyers at both firms, in representing Ameriquest, had continually represented that Ameriquest was the holder of Nosek’s mortgage, when in fact it had been assigned, at least twice, to other lenders.

• Judge Rosenthal held: “At a time when mortgages and notes are bought and sold at a pace so swiftly that the assignor and assignee cannot keep up with the paperwork, had the attorneys at the Ablitt firm checked the firm’s file, they would have seen that Norwest was perhaps the real party interest. . . . The firm cannot shield itself from institutional knowledge.” Rosenthal fined the firm $25,000, and attorney Robert Charlton another $25,000. (The Buchalter firm was fined the remainder, or $100,000.)

According to the court order, the lender/servicer and trustee involved, Ameriquest and Wells Fargo, were also clipped for $250,000 each in sanctions. Judge Rosenthal, however, declined to sanction the two associates who assisted Charlton in the case.

For more, see Judge Has Stern Words (But No Fine) for Associates at Sanctioned Firm.

See also, Wells Fargo Is Sanctioned For Role in Mortgage Woes:

• Joel B. Rosenthal, a Massachusetts federal bankruptcy judge, wrote in a decision that Wells Fargo "turned all responsibilities over" to the servicer but "turn[ed] a blind eye" to the servicer's mistakes. Had the company "shown even a modicum of oversight or review" of the servicer's behavior, "it should have been able to correct the misrepresentations" made to the court. He added: "This court will not allow Wells Fargo or any other [mortgage holder] to shirk responsibility by pointing fingers at their servicers." A Wells Fargo spokeswoman said in a statement: "We believe the judge failed to appreciate Wells Fargo's limited role as trustee in the servicing of the home loan. As a result, Wells Fargo plans to appeal the order."

For the relevant court documents in this case, see:

• Memorandum Of Decision,
• Order Sanctioning Attorneys.

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

"Pro Se" Homeowner Fails To Prove Violations Of NYS Anti-Predatory Lending Statute; Trial Court Gives Foreclosure Sale Go-Ahead

In Nassau County, Long Island, The New York Law Journal reports (reported at law.com):

• Declining to halt a foreclosure sale, a Long Island, N.Y., judge has been left with the "unhappy result" of a loan that should not have been taken for which the homeowner is nevertheless responsible. The case of Alliance v. Dobkin, 10625/06, is illustrative of the nationwide mortgage lending crisis: An increasing number of borrowers who agreed to onerous loan terms to finance homes they could not otherwise afford now are facing foreclosure. [... Nassau County Justice Daniel R. Palmieri] ruled that Dobkin could not rely on the state's prohibition against predatory lending to forestall foreclosure of her home.

***

• In her court papers, Dobkin, who represented herself, relied exclusively on LaSalle Bank, N.A. v Shearon, 100255/07, a Staten Island case where a judge found the lender guilty of multiple violations of the state's anti-predatory lending laws. [...] The only difference between that case and hers, argued Dobkin in court documents, was that her situation was "more outrageous."

***

• John Cilmi, whose Manhattan firm, Cilmi & Associates, represented the plaintiffs in the Shearon case, said in an interview that the decision was "concise and well-reasoned" under the applicable statutes. However, utilizing only the statutes can paint an incomplete picture, said Cilmi, who was not involved in the Dobkin matter. "When you review the statute, even if a home loan does not fall under it due to the dollar amount involved, that does not mean that there is not potential fraud involved in other aspects of the lending process."

For more, see N.Y. Judge Finds Homeowner Liable for Loan (Homeowner relied on 'LaSalle Bank v. Shearon,' thought to be the first reported decision enforcing provisions of the Banking Law).

Go here other posts referencing the LaSalle Bank v. Shearon NYS predatory lending case.

Editorial Note:

Not having the benefit of legal counsel, Ms. Dobkin represented herself in this case.

State AG Comments On Team Of Volunteer Lawyers Put Together To Represent Ohio Homeowners Facing Foreclosure

U.S. News & World Report recently ran a story on how the State of Ohio is addressing its foreclosure crisis. It reports that "the state has enlisted more than 1,300 lawyers—from state agencies and the private sector—to help struggling homeowners avoid foreclosure by reaching agreements with lenders or, if need be, through litigation." It interviewed Ohio Attorney General Marc Dann, who commented on what the function of these lawyers will be:

• The lawyers will work with the borrowers to see if there are defenses to the actual foreclosure, whether there was fraud or unsuitability in the creation of the mortgage to begin with, and then to assist in two other ways: either to help litigate the case or to help structure a settlement.

• With these complex mortgage products—the adjustable rates, the no-document loans that were out there—there are all types of things in the generation of loans that give rise to defenses. And with the fact that these loans then started to become sold seven, eight, nine, 10 times in the process, there are even legitimate legal issues as to whether or not the person filing the foreclosure has the legal right to file a foreclosure because they don't have ownership of the mortgage note. [...] We just convinced a court of appeals—the 10th District Court of Appeals in Franklin County, Ohio—to find that you can't bring a foreclosure action if you don't have paper that proves that you own the house.

When asked about the progress of Ohio's initiative so far, Dann commented:

• It's been actually kind of rewarding. My uncle is a retired transactional lawyer, and he said, "I've been negotiating with banks my whole life. I am so excited about getting to do this." So he signed up, went to the training. My aunt is happy because it gets him out of the house. Here is a guy that was representing big Fortune 500 companies negotiating with their banks. All of a sudden, that playing field is about to get leveled.

For more, see How Ohio Is Tackling the Foreclosure Crisis.

For other posts that reference the failure of some mortgage lenders and their attorneys of filing mandatory 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.

Mortgage Servicers' "Maze Of Fees, Firms & Flim-Flams" No Longer Fool Bankruptcy Judges

The New York Times reports:

• SLOWLY but surely, a handful of public-minded bankruptcy court judges are drawing back the curtain on the mortgage servicing business, exposing, among other questionable practices, the sundry and onerous fees that big banks and financial companies levy on troubled borrowers. It isn’t a pretty sight, if you are a borrower. But shining a light on this dark corner certainly qualifies as progress. The cases come out of bankruptcy courts in Delaware, Louisiana and New York, and each one shows how improper, undisclosed or questionable fees unfairly penalize borrowers already struggling with mortgage debt or bankruptcy.

***

• “These cases clearly indicate that bankruptcy courts are no longer being fooled by the maze of fees, firms and flim-flams of the mortgage servicing industry,” said O. Max Gardner III, a lawyer who represents borrowers in Shelby, N.C. “The servicers and their lawyers should recognize the clear and present danger of these decisions while they still have time to turn their ships around and do the right thing.”

For more, including the details of the aforementioned Delaware, Louisiana and New York cases, see Piling On: Borrowers Buried by Fees.

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

Editorial Note:

The next question that arises is how long will it take for the state courts, where the vast majority of foreclosure actions are litigated and decided, to stop "rubber-stamping" foreclosure judgments against unrepresented homeowners and catch on to what the Federal bankruptcy judges are now discovering.

"Fractional Interest Deed Transfer" Foreclosure Rescue Bankruptcy Scam Alleged As Two Face Multiple Felony Charges In Southern California

In Southern California, the Los Angeles Times reports:

• Michael D. Henschel of Van Nuys, who has had a long history of legal run-ins, was arrested Thursday by Los Angeles County authorities, who accused him of operating foreclosure scams that took in hundreds of homeowners, costing some their houses. Henschel, 59, faces 71 [state] charges, including forgery and conspiracy counts, in an alleged scheme to defraud homeowners from 2000 to 2004. Canoga Park resident Alan Mitchell, 70, also was arrested and faces 32 charges.

***

• Henschel and Mitchell are accused of offering to save homeowners from foreclosure if they paid a monthly consulting fee and transferred part-ownership of the properties -- often to a fictitious entity. While pretending to renegotiate loans, the pair charged rent to homeowners, Christopher said. The two men would file for bankruptcy protection using phony debt and made-up names to hold off the banks and extend the "rental" period for several months, he said. After a protracted, expensive process, the banks would reclaim the properties and evict the homeowners anyway, Christopher said. Although only seven victims are mentioned in the complaint, the scheme extended to hundreds of homeowners, he said. [...] Bail was set at $800,000 for Henschel and $400,000 for Mitchell.

• In the past, Henschel has faced a slew of misdemeanor and felony charges and has been convicted at least five times, but he has always managed to dodge prison time. In 1995, he was charged and acquitted in Los Angeles of stealing nearly $90,000 from family friends by filing phony bankruptcies and deed transfers against two properties. In an Arizona case that mirrors the current one, Henschel pleaded guilty in federal court in 2004 to filing more than 200 fraudulent bankruptcies and pocketing more than $50,000 in rental income and fees from homeowners with shaky mortgages. He was sentenced to probation, community service and restitution.

For more, see 2 arrested in alleged foreclosure fraud (The men are accused of operating a scam that took in hundreds of homeowners).

For a 1998 report issued by a California Federal Bankruptcy Court task force that details the types of foreclosure scams involving the abuse of the bankruptcy court system, see Final Report Of The Bankruptcy Foreclosure Scam Task Force (available online courtesy of the Loyola of Los Angeles Law Review).

Go here for other posts on fractional interest deed transfer, foreclosure rescue bankruptcy scams.

Fighting Foreclosure? Make 'Em Produce The Note!

For video aficionados, there is a short video called Fight Foreclosure: Make ‘Em Produce The Note! that is floating around in cyberspace. Nothing technical; pretty straightforward message, don't know who made the video; but I got a kick out of it. It's a "must see" video, in my judgment, for anybody currently facing foreclosure, or who may be in the future. I stumbled into it from a link on the home page of the website of Tampa, Florida law firm, James, Hoyer, Newcomer & Smiljanich, PA.

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

Lifting Restrictions On Legal Aid Attorneys May Help Poor Homeowners Caught In Foreclosure Crisis

An Op-Ed article in The New York Times opines:

• Legal aid lawyers are among the few allies of poor homeowners caught in the subprime-mortgage meltdown. But these lawyers are hamstrung by federal regulations that limit homeowners’ access to speedy, low-cost legal relief.

Among the restrictions is an inability by legal aid lawyers, unlike their colleagues in private practice, to collect attorneys fees from companies who violate their clients' rights when those rights are vindicated in court:

• One restriction prohibits legal aid lawyers, unlike their corporate counterparts, from collecting attorney fees on behalf of vindicated clients. Fee awards are an incentive for both parties to negotiate quickly because legal costs increase as litigation drags on. Recalcitrant lenders can stall as long as they like, knowing it will cost them nothing.

For more on how federal rules are arguably impeding the work of legal aid lawyers, see Unleash Legal Aid.

Violations Of Minnesota's New Anti-Predatory Lending Law Alleged In Suit By Elderly Couple

In St. Paul, Minnesota, Minnesota Public Radio reports:

• Last year, state lawmakers passed a new consumer protection law designed to prevent mortgage lenders from overcharging borrowers. Now an elderly couple from Red Wing has filed what appears to be the first lawsuit under Minnesota's Anti-Predatory Lending law. It could be the first of many such suits under the law, which is meant to protect homeowners from unscrupulous lending practices.

***

• [The state's Anti-Predatory Lending law] makes it illegal for mortgage companies to charge excessive fees. It requires brokers and lenders to act in the best interest of the borrower. And it requires verification of a borrower's income and ability to pay. [...] As in other states, foreclosures are continuing at record levels in Minnesota. The state's predatory lending law is meant to stem the tide of homeowners losing their homes.

For more, see Elderly couple files first lawsuit under new anti-predatory lending law.

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

Countrywide Class Action Alleges Abuse Of Disaster Victims Regarding Home Mortgage Payments

According to a press release from the James, Hoyer, Newcomer & Smiljanich, PA Law Firm:

• In response to Countrywide Home Loans refusal to fulfill promises made to Gulf Coast hurricane victims, the James Hoyer Law Firm announced [last month] the filing of a new class action lawsuit against the mortgage company. The suit was filed in the United States District Court in the Southern District of Mississippi. The suit alleges Countrywide took advantage of these disaster victims by offering them mortgage deferrals with no penalties attached and then reneging on that promise.

***

• After Hurricanes Rita & Katrina, Countrywide offered 90-day mortgage payment deferrals to homeowners affected by the devastation and in many cases 6-month deferrals. Countrywide represented this as a good deed to help people in their time of suffering and even issued a press release to promote its actions. Homeowners were told by agents over the phone their deferred payments could be tacked onto the end of their mortgages. They were assured they would not face penalties like late fees, interest and reports to the credit bureaus. Countrywide went so far as to tell homeowners who wanted to pay, not to do it. In some cases, they even returned checks. Struggling hurricane victims accepted the offer of help, some reluctantly, when assured they would not be economically penalized by late fees, penalties or credit reporting.

• When homeowners followed up later to resume payments, they discovered Countrywide was reneging on its promise. The company said it could not add the payments to the end of the loan, without penalty, after all. Instead, Countrywide told homeowners they would either have to pay the lump sum owed immediately or face a loan restructuring which would cause them to pay thousands of dollars more over the life of their loan.

• The suit, filed on behalf of victims in Mississippi, is in addition to two suits already pending in Louisiana and Texas.

For the press release, see Countrywide Class Action Suit: Hurricane Victims Feel Betrayed.

To view the lawsuit, drop me a line at HomeEquityTheft@yahoo.com and I'll e-mail it to you (be sure to put "Brumfield v. Countrywide Home Loans" in the "Subject" line).

Go here for more on recent Countrywide problems with consumers.

Florida-Based Foreclosure Rescue Operator Banned In Texas By State AG

From the Texas Attorney General's Office:

• Texas Attorney General Greg Abbott has shut down a fraudulent “foreclosure rescue” firm that preyed on hundreds of struggling Texas homeowners. An order by the Bexar County District Court requires Foreclosure Assistance Solutions Inc. of Florida, and its principal operators, Herb Zerden and Adolfo Quintero, to return $370,000 to 338 Texas homeowners. Additional defendants J.W.W. Services Inc. of California and owner John Woodruff are also included in the judgment. Another $105,000 will be held in escrow to assist remaining homeowners who can demonstrate they were victimized by this scheme.

***

• Today’s settlement requires the defendants to pay $100,000 in civil penalties and $175,000 in attorneys’ fees. The judgment also prohibits the defendants from conducting Texas-based mortgage foreclosure mitigation in the future.

For the entire Texas AG press release, see: Attorney General Abbott Obtains Judgment That Brings Relief To Foreclosed Homeowners (Foreclosure Assistance Solutions and owners must return $475,000 to harmed homeowners).

See also:

• Agreed final judgment and permanent injunction - Foreclosure Assistance Solutions, et al.,
• Original Texas AG's lawsuit (9/2007) - State of Texas vs. Foreclosure Assistance Solutions, et al.,
• Other posts referencing Foreclosure Assistance Solutions.

Illinois AG Files Suit Against "Bishop" Who Allegedly Ran Illegal Foreclosure Rescue Operation

In Chicago, Illinois, WLS-TV Channel 7 reports:

• In the last year, the Illinois attorney general's office has sued or investigated about a dozen foreclosure rescue services. The AG's office says the latest one it's suing violated the Consumer Fraud and Deceptive Business Practices Act and used religion to sell its services. [...] At first, Reverend Walter C. Armstrong wouldn't answer questions about his company's promises to save people like Evelyne Allen from foreclosure. Armstrong is a bishop and a reverend at Prayer of Faith Church on the city's West Side. He also ran Victory Consulting, a now defunct company that the AG says went door to door, passing literature to prospective clients.

***

• In this lawsuit, the attorney general alleges Victory Consulting gained consumers' trust by saying the company was a faith-based organization. "So the consumer isn't likely to answer a lot of questions, isn't likely to demand documents because of this sort of aura of faith and trust," said [said Illinois Ass't AG Michelle] Garcia. The lawsuit says homeowners in foreclosure would sign their home over to a "surrogate owner" and then continue to pay the mortgage to the surrogate owner.

For more, see Foreclosure Chasers (They claim they'll save your home if you're being foreclosed on, but local authorities say most so-called foreclosure rescue services are rip-offs).

To view the Illinois AG's lawsuit, see State of Illinois v. Victory Consulting & Investments, Inc., et al.

For the Illinois AG's press release, see Attorney General Madigan Files Suit Against Chicago Mortgage Rescue Fraud Company (Deceptive Tactics Sent Five Homeowners into Foreclosure).

Florida AG Levels Civil Charges Against Upfront Fee Foreclosure Rescue Operator For Allegedly Violating State Deceptive & Unfair Trade Practices Act

In Clearwater, Florida, the St. Petersburg Times reports:

• State Attorney General Bill McCollum [last] Thursday sued a Clearwater foreclosure rescue operation, accusing it of engaging in deceptive and unfair business practices. The lawsuit alleges that Law & Associates pitched services to homeowners facing foreclosure in Florida and across the country through direct mail and various Web sites. Those who responded were charged an up-front cash fee of $1,500 to $2,000 for guidance and help negotiating with lenders, but the services never materialized, according to the suit.

***

• The attorney general's office reviewed more than 65 consumer complaints about the company, which began operating in Clearwater in 2004. In none of those cases did the company actually prevent foreclosure of a home, the lawsuit says. [...] McCollum's lawsuit alleges six counts of violating the state's Deceptive and Unfair Trade Practices Act.

The Florida AG seeks to:

1. shut down the company's foreclosure rescue operations,
2. nail it for at least $10,00o in penalties for each violation of the law,
3. recover its attorney's fees,
4. force a return of all fees paid by the homeowners,
5. among other things.

For more, see:

• Business duped homeowners facing foreclosure, suit says,
• Florida AG press release: Clearwater Company Sued for Deceptive "Foreclosure Consulting Services",
• View copy of the lawsuit - State of Florida v. Law & Associates LLC.

Arizona AG Settles With "Straw Buyers" In Equity Stripping Civil Suit; Proceedings Continue As To Other Defendants

In Phoenix, Arizona, The Associated Press reports:

• Four Phoenix-area residents who acted as "straw-buyers" in a foreclosure rescue scheme have agreed to pay $89,000 to settle a civil suit filed by Arizona Attorney General Terry Goddard's office. Goddard's office says the four participated in a scam scheme designed to skim equity from the residences of distressed homeowners. They obtained millions of dollars in mortgages and left the homeowners even further in debt. The defendants did not admit guilt but agreed not to engage in similar practices in the future. Other defendants are still being sued by the state under provisions of Arizona's Consumer Fraud Act and its Racketeering Act.

Source: Arizona AG settles case with "foreclosure rescue" buyers.

For the Arizona AG press release, see Terry Goddard Announces Settlements in Foreclosure Rescue Scheme (The case, Arizona v. Peter Hou, Yanjun Hou, and Stress Free Equity Corp., et al., is pending against other defendants in Maricopa County Superior Court).

Nine Mortgage Servicers, Governor Strickland Reach Agreement On "Non-Binding" Publicity Stunt To "Help" Ohio Homeowners Facing Foreclosure

In Columbus, Ohio, Bloomberg News reports:

• Citigroup Inc., HSBC Finance Corp., and seven other mortgage companies agreed to help delinquent Ohio borrowers avoid foreclosure in the first such accord between a state and home-loan servicers, Ohio Governor Ted Strickland said. [...] The companies signed non-binding compacts agreeing to notify borrowers four to six months before their adjustable-rate mortgages reset, said Kimberly Zurz, director of Ohio's Department of Commerce. Seven agreed to lock in adjustable rates for qualified borrowers for as long as five years, she said.

***

• The other companies that signed agreements were GMAC RESCAP/Homecomings Financial, Carrington Mortgage Services, Ocwen Financial Corp., Option One Mortgage, Saxon Mortgage Services, Select Portfolio Servicing and Litton Loan Servicing, Strickland said in a statement.

For the rest of the story, see Citigroup, HSBC, 7 Others to Assist Ohio Homeowners.

Editorial Note:

It's hard not to believe that the loan servicers who agreed to this non-binding agreement (which, in law, is no agreement at all) are simply giving lip service to take the heat off them in Ohio. Given the facts that:

• Ohio recently announced that qualified homeowners in foreclosure may have free legal representation available to them,

• the same announcement informs us that Ohio foreclosure defense training for attorneys representing homeowners in the state has reportedly been made available through the Ohio Bar Association,

• it is no secret that foreclosing mortgage holders and servicers are having a tough time finding and filing the proper documentation in court proving their right to bring foreclosure actions,

• a recent media report informs us that an Ohio appeals court ruled last month that a foreclosing mortgage company is not entitled to a foreclosure judgment if they can't prove their ownership of the promissory note and how they came about owning the mortgage (see Everhome Mtge. Co. v. Rowland, 2008-Ohio-1282; (10th Dist. Ct. App.; March 20, 2008)), and

• other Ohio appellate court decisions also seem to point to the apparent need for a foreclosing mortgage lender to prove that it is the owner of the promissory note and, thererfore, the real party in interest to initiate the legal action (see First Union Natl. Bank v. Hufford (2001), 146 Ohio App.3d 673; 3rd Dist. Ct. App. ; and Washington Mut. Bank, F.A. v. Green (2004), 156 Ohio App.3d 461; 7th Dist. Ct. App.),

the loan servicers are obviously feeling enough pressure to participate with the Ohio governor in this publicity stunt. Everyone appears to come away looking good, but it seems to me that unless the loan servicers can physically produce the promissory note, and prove that there were no violations of the Federal Truth In Lending Act ("TILA", as well as any applicable state consumer protection law) when the loan was originated, the homeowners really have little incentive to agree to a loan workout (unless, of course, the terms of any such loan workout are highly favorable to the homeowners and reflect the fact that promissory notes are missing and "TILA" violations were committed).

Now that there are attorneys involved who are representing homeowners, it appears to me that those attorneys have now taken up the obligation to assure their clients/homeowners that all the laws affecting their mortgage loans and all the rules governing the legal procedure in foreclosure cases have been complied with. I expect that these attorneys will not let the mortgage companies off the hook on their obligations, unless of course, they are prepared to make significant concessions to the homeowners when ironing out a loan modification.

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For more on mortgage companies' obligations in foreclosure actions, see Fight Foreclosure: Make ‘Em Produce The Note!.

For other posts that reference the failure of some mortgage lenders and their attorneys of filing madatory 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. undo mortgage loans TILA batallion missing mortgage foreclosure docs beta

Lender Not Entitled To Foreclosure Judgment Due To Failure To Prove Promissory Note Ownership, Says Ohio Appeals Court

In Ohio, the Akron Beacon Journal reports:

• The state attorney general's office is looking for new ways to slow foreclosures in court, hoping a recent Ohio appellate court decision will help in those efforts. [... Ohio Attorney General's Office representative Tom] Winters said the office was encouraged by a March 20 decision by the 10th District Court of Appeals in Columbus and is looking for similar cases.

• "That ruling was the first time that a court in Ohio has held that a mortgage company must prove that it still holds the mortgage to the home before it can proceed with a foreclosure," Winters said. "That's consistent with what the federal courts have done, and that's encouraging."

***

• "If we can slow the filings down and educate the homeowners on how they can negotiate to stay in their homes, then you have a better chance of resolving this stuff," Winters said. "It's not going to work for everybody, but right now nothing's been working for anybody, and that's the problem."

For more, see Ohio looking for new ways to slow foreclosures in court.

For the decision of of Ohio Court of Appeals, see Everhome Mtge. Co. v. Rowland, 2008-Ohio-1282; (Case #07AP-615; 3-20-08).

Editorial Note:

A quick reading of this case reveals that the Ohio trial judge originally hearing the foreclosure case ruled against the homeowner and held that the foreclosing lender didn't need to prove ownership or show how it came to be the holder of the mortgage. The homeowner subsequently filed an appeal of this ruling. Upon considering the appeal, the Ohio appeals court ruled that the trial judge's decision was in error and, accordingly, reversed the original ruling. Among other things, this case:

1. illustrates the fact that trial judges will make incorrect decisions from time to time, and
2. reflects the importance of being represented by an attorney who is ready, willing and able to file an appeal to seek a reversal of an incorrect decision. Had the attorney not known enough to file an appeal, the homeowner would have been stuck having to follow an incorrect ruling (and probably wouldn't have realized that the judge's ruling was wrong).

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

The following excerpts from the Ohio appeals court reflects its position on this issue:

• {¶11} "Every action shall be prosecuted in the name of the real party in interest." Civ.R. 17(A). A real party in interest is one who is directly benefited or injured by the outcome of the case. Shealy v. Campbell (1985), 20 Ohio St.3d 23, 24. The purpose behind the real-party-in-interest requirement is " 'to enable the defendant to avail himself of evidence and defenses that the defendant has against the real party in interest, and to assure him finality of the judgment, and that he will be protected against another suit brought by the real party at interest on the same matter.' " Id. at 24-25, quoting In re Highland Holiday Subdivision (1971), 27 Ohio App.2d 237, 240.

• {¶12} In foreclosure actions, the real party in interest is the current holder of the note and mortgage. Chase Manhattan Mtge. Corp. v. Smith, Hamilton App. No. C-061069, 2007-Ohio-5874, at ¶18; Kramer v. Millott (Sept. 23, 1994, Erie App. No. E-94-5 (because the plaintiff did not prove that she was the holder of the note and mortgage, she did not establish herself as a real party in interest). A party who fails to establish itself as the current holder is not entitled to judgment as a matter of law. First Union Natl. Bank v. Hufford (2001), 146 Ohio App.3d 673, 677, 679-680. Thus, in Hufford, the Third District Court of Appeals reversed a grant of summary judgment where a purported mortgagee failed to produce sufficient evidence explaining or demonstrating its right to the note and mortgage at issue. In that case, the record contained only "inferences and bald assertions" and no "clear statement or documentation" proving that the original holder of the note and mortgage transferred its interest to the appellee. Id. at 678. The failure to prove who was the real party in interest created a genuine issue of material fact that precluded summary judgment. Id. at 679-680.

• {¶13} Similarly, in Washington Mut. Bank, F.A. v. Green (2004), 156 Ohio App.3d 461, the Seventh District Court of Appeals reversed the trial court's finding of summary judgment where the plaintiff failed to prove that it was the holder of the note and mortgage. There, the defendant executed a note and mortgage in favor of Check 'n Go Mortgage Services, not Washington Mutual Bank, F.A. Although Washington Mutual Bank, F.A. submitted an affidavit alleging an interest in the note and mortgage, it did not state how or when it acquired that interest. Id. at 467. The court concluded that this lack of evidence defeated the purpose of Civ.R. 17(A) by exposing the defendant to the danger that multiple "holders" would seek foreclosure based upon the same note and mortgage. Id.

• {¶14} In the case at bar, the note and mortgage identify TrustCorp—not Everhome—as the lender. Therefore, Everhome needed to present the trial court with other evidence to prove its status as the current holder of the note and mortgage. To accomplish this, Everhome relied upon the affidavit testimony of Becky North, an Everhome officer. In her affidavit, North stated that "the copies of the Promissory Note and Mortgage Deed attached to Plaintiff's Complaint are true and accurate copies of the original instruments held by Plaintiff." (Emphasis in the original.) Beyond this tangential reference, North's affidavit contains no further averments regarding Everhome's interest in the note and mortgage.

• {¶15} We conclude that North's testimony is insufficient to establish that Everhome is the current holder of the note. First, Everhome failed to attach the note to its complaint. Thus, North's statement does not prove anything with regard to the note, much less that Everhome currently holds the note. Second, North does not specify how or when Everhome became the holder of the note and mortgage. Without evidence demonstrating the circumstances under which it received an interest in the note and mortgage, Everhome cannot establish itself as the holder.

• {¶16} Lacking the necessary evidence in the trial court record, Everhome attempts to introduce that evidence on appeal. In its brief, Everhome alleges that TrustCorp assigned to it TrustCorp's interest in the note and mortgage on April 19, 2007. Although evidence of an assignment would establish Everhome's status as the current holder of the note and mortgage, we cannot consider Everhome's belated allegation that an assignment occurred. See State v. Ishmail (1978), 54 Ohio St.2d 402, paragraph one of the syllabus ("A reviewing court cannot add matter to the record before it, which was not a part of the trial court's proceedings, and then decide the appeal on the basis of the new matter.").

Representing the homeowner in this case was Adam R. Todd of Dinsmore & Shohl, LLP.

.

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

For a consumer video devoted to the subject of making mortgage lenders produce the mandatory paperwork when filing a foreclosure action, see Fight Foreclosure: Make ‘Em Produce The Note!. missing mortgage foreclosure docs beta

Bankruptcy Judge Gives Green Light To U.S. Trustee On Countrywide Inquiry

In Pittsburgh, Pennsylvania, The Associated Press reports:

• A federal judge ruled the Justice Department can subpoena documents and question Countrywide Financial Corp. executives under oath to determine whether the lender abused borrowers and the bankruptcy-court process. U.S. Bankruptcy Judge Thomas Agresti said "it certainly has not been proven that Countrywide did anything wrong," but noted a bankruptcy trustee "has made a showing of a common thread of potential wrongdoing" in several cases. The cases are a representative sample of nearly 300 Pennsylvania bankruptcy cases involving Countrywide borrowers. The potential wrongdoing warrants further inquiry by a bankruptcy trustee on behalf of the Justice Department, Agresti said.

***

• The company has acknowledged errors in handling some debts, but has denied any systematic effort to thwart bankruptcy protections to collect money. Some bankrupt borrowers, however, have accused the company of threatening them with foreclosure even after they made payments under court-approved bankruptcy plans that were meant to shield them from Countrywide's subsequent efforts to collect the debts. Agresti's 50-page ruling was issued late Tuesday in Pittsburgh. [...] Agresti is overseeing 293 cases filed in Pittsburgh that include allegations that Countrywide sought improper fees or payments from bankrupt homeowners and otherwise violated bankruptcy court orders and regulations.

For more, see Judge OKs fed subpoenas of Countrywide.

See also, Reuters: Judge OKs probe into Countrywide practices.

Go here for Judge Agresti's ruling.

Go here for more on recent Countrywide problems with consumers.

Big Profits By Assembly Line "Foreclosure Mill" Law Firms Attract Interest From Private Equity Investment Firms

In Tampa, Florida, The Tampa Tribune reports:

• Their work can be so repetitive that some are known, disparagingly or not, as "foreclosure mills." But the niche field of foreclosure law is profiting enormously from the boom in Florida home foreclosures and is on a hiring spree. [...] Because many law firms file foreclosures across Florida, the biggest firms' monthly foreclosure caseload can grow to a thousand or more, with each case carrying a potential attorney fee of up to $1,200 - although it's not clear what the firms' profit margin is.

***

• The foreclosure business is so strong that it has caught the eye of private equity investment firms, which buy companies using equity and debt financing. Private equity firms have begun buying the back-office foreclosure-processing operations from big law firms and are offering law firms outsourced foreclosure help. These outsourcing companies are keen on moving into Florida.

For more, see Law Firms Cash In On Foreclosures (A surge in foreclosure filings has Florida law firms scrambling for more staff).

Countrywide, Counsel Getting Slammed Around The Country

A story was run recently in The Atlanta Journal Constitution on a fight Countrywide Home Loans faces with the U.S. Trustee in a Georgia Federal bankruptcy court for alleged mistakes and/or misconduct during the course of one particular consumer bankruptcy case. The story also describes the wrath directed towards Countrywide by judges around the country as a result of its "missteps" committed both in the servicing of home loans and in its conduct in the courts:

• A Texas judge, Jeff Bohm, rebuked Countrywide, Atlanta-based McCalla Raymer and a Texas law firm in a 72-page ruling [Judge Bohm's two-part ruling - Part I and Part II]. He found fault with each of the three parties' handling of a case in which Countrywide sought permission to foreclose on a homeowner who was up to date on payments. The Texas law firm hired by McCalla Raymer was singled out by the judge. "Above all else, what kind of culture condones its lawyers lying to the court and then retreating to the office hoping that the Court will forget about the whole matter?" Bohm wrote.

***

• In Ohio and Florida, the U.S. Trustee's office has filed complaints in the past month seeking sanctions against Countrywide. In Ohio, Countrywide sought payments in bankruptcy court from a homeowner who had already paid off Countrywide. In Florida, Countrywide tried three times to foreclose on a homeowner who no longer owed Countrywide any money on the property.

• Countrywide has already been sanctioned in other cases. A judge in Pennsylvania sanctioned the lender for trying to foreclose on a couple in that state who had made required payments "like clockwork," according to the judge.

• Countrywide's Texas law firm was hit with a $75,000 sanction for its behavior in a case that included court filings that were "erroneous" and "clearly legal nonsense."

• A judge in North Carolina sanctioned Countrywide for twice changing the locks on a house that it had sought to repossess, even though the foreclosure had been stopped by a bankruptcy filing. Countrywide's agents disposed of the family's Christmas ornaments, family pictures and a christening dress when it improperly seized the home. "It is difficult to imagine more deliberate, unwarranted and egregious conduct," Judge Catharine R. Carruthers wrote when sanctioning Countrywide.

For the article, see Couple lose home in Countrywide dispute, but may yet win (Feds seek sanctions, say lender abused bankruptcy laws).

For an article examining mortgage companies frequent non-compliance with law in consumer bankruptcy cases, see Misbehavior and Mistake in Bankruptcy Mortgage Claims, by Katherine M. Porter University of Iowa - College of Law.

Go here for more on recent Countrywide problems with consumers.

Ohio Attorneys Organizing In Defense Of Homeowners Facing Foreclosure

In Ohio, The Columbus Dispatch reports:

• Low-income Ohioans facing foreclosure now have access to free legal help. Gov. Ted Strickland and the Ohio Bar Association have mobilized 1,100 lawyers statewide to offer free legal services to those Ohioans who earn $54,000 or less to help them keep their homes. [...] In addition to free legal help, the campaign also offers homeowners a new foreclosure hot line, 1-888-404-4674, to call for help. Consumers can also access information on the Web site www.savethedream.ohio.gov.

For more, see Low-income Ohioans facing foreclosure offered free legal aid.

See also State adds free legal aid to foreclosure prevention effort:

• Gov. Ted Strickland, Ohio Supreme Court Chief Justice Thomas J. Moyer and several other state officials gathered Tuesday to announce it has added the legal component to its Save the Dream initiative [... . S]tate officials last month sent letters to more than 34,000 registered Ohio attorneys requesting they help provide free legal aid. As of Tuesday, more than 1,100 attorneys have registered. About 350 of those attorneys have received foreclosure training from the Ohio State Bar Association, while more training sessions are scheduled, officials said.

More Attorneys Coming Forward To Represent Homeowners In Predatory Lending Cases

In New York City, the Staten Island Advance reports:

• [T]he legal landscape is changing and more local lawyers are willing to represent homeowners against banks that made high-interest, problematic subprime loans. "Their ranks have been growing. Over the last two weeks, we've gotten several more private attorneys calling to say they can handle cases," said Margaret Becker, director of the Homeowner Defense Project at Staten Island Legal Services in St. George.

***

• A Harvard Law School graduate who said she was once misled on the interest rate she received on a home equity line of credit, Ms. Becker recently conducted a course on foreclosure defense for members of the Richmond County Bar Association.

• She makes a point of telling attorneys that they can win back their fees and expenses from banks if they are successful in their claims against those lenders. That's important because most people in default don't have the money to pay for lawyers, and proving mortgage fraud can be a complex and costly process.

• One legal recruit is Robert Brown, an Annadale resident and retired New York City police captain who graduated from St. John University's Law School in 2000. Brown is carving out a niche bringing violation of truth-in-lending claims on behalf of the clients he represents, [...].

For more, see New legal arsenal to battle bad loans.

For a story involving a Staten Island couple who recently obtained a favorable court decision against a mortgage lender for violating a New York State anti-predatory lending statute, see:

• Staten Island Advance: Stuck with a bad loan, a Staten Island family fights back (if link expires, try here),
• For the court decision itself: LaSalle Bank, N.A. v Shearon, Supreme Court, Richmond County, 2008 NY Slip Op 28032 (January 28, 2008),
• Kelley Drye & Warren LLP newsletter: LaSalle Bank v. Shearon: A Harbinger of Things to Come (New York Supreme Court Rules in Favor of Borrower on Defensive Claims Under State’s Anti-Predatory Lending Law).

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

Editorial Note:

The significance of attorney "fee shifting" statutes, which are commonly a part of Federal and state consumer protection statutes, anti-unfair labor statutes, civil rights cases, etc. and allow for attorneys to win back their legal fees and expenses from the losing party in a successful case, can't be emphasized enough. For an example of one case where the lawyers representing aggrieved parties were allowed to win back their legal fees as a result of such a "fee shifting" statute, see NY BigLaw Leader Scores $1 Million Fee in Pro Bono Case (or go here for the actual court decision itself).

Gerogia Attempts To Address Confusion From Home Foreclosures By Companies Without Legal Standing

In Georgia, an opinion article in the Atlanta Journal Constitution addresses the confusion taking place with home foreclosures in the state where the company bringing the foreclosure action doesn't own the promissory note being enforced:

• The General Assembly is attempting to reduce the confusion by requiring clear proof of mortgage ownership before a foreclosure can proceed. But its efforts have been stymied by banks reluctant to come clean on ownership, and there are suggestions the Legislature may put off definitive action until next year.

***

• "We want to be able to be certain that our clients are being foreclosed on by the legal entity that has standing," says William Brennan, director of Atlanta Legal Aid's Home Defense Program. "And we want to know who to talk to about the foreclosure. Now, we often don't know who holds the note."

***

• Even if 5,000 investors own a piece of a mortgage, the mortgage owner is considered to be the trustee bank that manages the pool. But rather than have to deal with desperate homeowners, those banks prefer to let contractual servicers —- companies that collect the monthly payments or record the deeds —- become the public face of foreclosure while they lurk in the shadows. Those servicing agencies have no incentive to negotiate with borrowers. Lawyers have complained to the Legislature that they can't even get a live person on the phone to talk about a pending foreclosure, leaving homeowners stranded.

For more, see Owning up to a crisis (Georgians faced with foreclosure have a right to know who exactly holds their mortgage) (if link expires, try here).

For other posts that reference the sloppiness and carelessness of some mortgage lenders and their attorneys in connection with their mortgage loan documents, Go Here , Go Here , Go Here , Go Here, and Go Here. missing mortgage foreclosure docs beta

Scrutiny Increases As Profits Mount For "The Foreclosure Machine"

According to a column in The New York Times:

• Nobody wins when a home enters foreclosure — neither the borrower, who is evicted, nor the lender, who takes a loss when the home is resold. That’s the conventional wisdom, anyway.

• The reality is very different. Behind the scenes in these dramas, a small army of law firms and default servicing companies, who represent mortgage lenders, have been raking in mounting profits. These little-known firms assess legal fees and a host of other charges, calculate what the borrowers owe and draw up the documents required to remove them from their homes.

• As the subprime mortgage crisis has spread, the volume of the business has soared, and firms that handle loan defaults have been the primary beneficiaries. Law firms, paid by the number of motions filed in foreclosure cases, have sometimes issued a flurry of claims without regard for the requirements of bankruptcy law, several judges say.

***

• Law firms and default servicing operations that process large numbers of cases have made it harder for borrowers to design repayment plans, or workouts, consumer lawyers say. “As I talk to people around the country, they all unanimously state that the foreclosure mills are impediments to loan workouts,” [one consumer advocate] said.

For more, see Foreclosure Machine Thrives on Woes (if no subscription, try here).

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

NYS Anti-Predatory Loan May Leave Mortgage Holders Holding The Bag

A client newsletter from the law firm Kelley Drye & Warren LLP contains a discussion of a recent court decision by a New York State trial judge which applied a state anti-predatory lending statute in favor of the borrower and which potentially can leave mortgage lenders holding loans that were originated in violation of this statute holding the bag. The discussion begins as follows:

• In an opinion that may well mark a rise in predatory lending claims and an expansion in the scope of lender liability, the New York Supreme Court recently found in favor of a homeowner who, in defending a motion for summary judgment in a foreclosure action, alleged that he was the victim of predatory lending practices prohibited by New York Banking Law §6-L. The court, in LaSalle Bank, N.A. v. Shearon, No. 100255/2007, 2008 WL 268449 (N.Y. Sup. Jan. 28, 2008), denied LaSalle’s motion and granted summary judgment for the homeowner based on his defenses under the state’s anti-predatory lending law. A hearing on damages is pending.

For more, including the reasons why the article's author believes the court’s decision in Shearon is noteworthy, see LaSalle Bank v. Shearon: A Harbinger of Things to Come (New York Supreme Court Rules in Favor of Borrower on Defensive Claims Under State’s Anti-Predatory Lending Law).

To view the trial judge's decision, see LaSalle Bank,N.A. v. Shearon, No. 100255/2007, 2008 WL 268449 (N.Y. Sup. Jan. 28, 2008).

For a February 3, 2008 media article from the Staten Island Advance reporting this story, see Stuck with a bad loan, a Staten Island family fights back (if link expires, 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.

Editor's Note:

For those unfamiliar with the New York judicial system, the "New York Supreme Court" is simply what the state calls its trial courts, not to be confused with the state's highest court - the New York Court of Appeals. So, while this case could potentially have significant ramifications, it is simply one decision by one trial judge which has yet to be reviewed by a state intermediate appellate court or the state high court. While there may be cause for celebrating this case in the future, consumer advocates who have already begun wild celebrations may well consider "putting the cork back in the champagne bottle" for the time being.