The Truth Behind the Delays in Processing Foreclosures
By Charles P. Castellon, Esq.
Recently, CNN published an article on its Money web page about the long delays the banks suffer in processing foreclosures titled Foreclosure Free Ride: 3 Years, No Payments. The article chronicles the “tactics” borrowers and their clever attorneys employ to delay the process and live in their homes for free.
Prominently quoted for this piece is a lender-side foreclosure attorney named David Dunn. As a foreclosure defense attorney inspired by the recent news of the prominent class action settlement between major lenders and the states over massive nationwide fraudulent activities of the lending industry, I want to offer the lending industry and Mr. Dunn some helpful tips for moving cases along more quickly through the legal system.
Tip Number 1: Stop Committing Institutionalized Fraud
The above-referenced class action settlement is based on the fraudulent practice that came to be known as “robo-signing.” This was a convenient short cut used to bypass basic legal requirements such as lender representatives actually having personal knowledge of the facts for which they’re making a sworn statement in an affidavit. In the fall of 2010, this scandal broke. 60 Minutes did a piece on robo-signing and introduced to the world the now infamous Linda Green who signed literally thousands of affidavits claiming to have personal knowledge while risking carpel tunnel syndrome. Moreover, an entire stable of “Linda Greens” was found to exist because the poor lady just couldn’t sign them all herself.
Try Googling “Jeffrey Stephan robo-signor” and you’ll find among many other interesting items a video deposition of this alleged vice president of GMAC wearing a mullet and baseball cap emblazoned with flames. Jeffrey may be a nice enough guy with whom you can have a beer, but I’m pretty sure he’s not a major bank vice president with personal knowledge of the facts underlying the many thousands of affidavits he has signed to support cases to take homes from families.
It’s important to note that the robo-signing scandal revealed a massive criminal enterprise of fraud on the courts. This wasn’t about “paperwork problems” and other lender euphemisms the media blindly accepted. An affidavit is sworn testimony. It’s the equivalent of live testimony under oath in court and the judicial system long ago developed the custom of allowing affidavits to be used to prove certain matters in cases to avoid the trouble, expense and delay associated with bringing witnesses to court.
In other words, affidavit=testimony and a false affidavit=perjury=felony=prison. This practice has made a mockery of the judicial system and demonstrates a complete disregard for fundamental principals of justice. It’s easy to see how this kind of stuff can slow down the litigation train, once discovered.
The CNN article notes the average foreclosure timeline in Florida, where I practice, to be 1,027 days. What it fails to mention is that the lenders froze a huge chunk of the foreclosure caseload state wide in a moratorium instituted as a direct result of the robo-signing revelations. The fraudulent activity exposed essentially made 2011 into a lost year for foreclosures in the legal system.
Tip Number 2: Prove that You Have the Right to Foreclose
Attorney David Dunn and his lender clients like to simplify the analysis by presenting foreclosures as a mere matter of whether the borrower paid the mortgage, nothing more. In reality, there are a host of legitimate legal issues plaguing many foreclosure cases. These issues challenge the validity of a great many cases and the judiciary is charged with the task of sorting out many issues in an adversarial system of justice. This takes time.
For example, the issue of “standing” is very prominent in foreclosure litigation. Standing refers to who has the right to sue, or whether the plaintiff lender really has a dog in this fight. Michael Lewis authored a must-read book called The Big Short. This is a true story about the world of Wall Street, the lending industry and the mortgage-backed securities craze that created the monster bubble and consequential global financial collapse from which we are struggling to recover.
Mortgage-backed securities fueled the real estate boom and created many serious standing issues relating to the re-packaging and sales of millions of mortgages all over the world. In the process, many corners were cut and illegal and improper transfers of rights resulted.
Among other shocking revelations, The Big Short explains how the Wall Street demand for these securities was so insatiable, there weren’t enough warm body borrowers around to fill the need. As a result, the same individual mortgages were commonly sold to multiple investment pools (suckers), reminiscent of the old stories of the guys who would try to sell the Brooklyn Bridge to all passersby.
I have read about and personally experienced the phenomenon of the same borrower being sued by two different entities at the same time to foreclose on the same house secured by the same exact mortgage, with copies of that same mortgage attached to each set of court papers. As the band Dire Straits sang, “two men say they’re Jesus, one of them must be wrong.”
It is very common for a foreclosing plaintiff to be unable to prove it has the rights to the mortgage at issue in any given case. As important as the issue of whether payments were made may be, it is also integral to the judicial process to determine whether the party attempting to take someone’s home has the legal right to do so. Additionally, other serious legal issues require attention, including the loss of original promissory notes and the amount of money damages to which the foreclosing party is entitled, among many others. Bottom line, if you’re trying to take someone’s home, you need to prove your case.
Tip Number 3: Use the German Army Instead of the Italian Army
There is an apocryphal story about Winston Churchill that I want to believe is true. Upon being presented the declaration of war to sign against Italy, Great Britain’s WWI ally, he is reported to have said, “it’s only fair—we had them on our side last time.” In the world of foreclosure litigation, there are many players. Among them are the law firms commonly known as the “foreclosure mills.” They are the Italian Army.
For years predating the current crisis, these “mills” have handled a very large market share of the foreclosure business. Though some are better than others and there are many fine attorneys populating their ranks, their collective reputation in the legal community is pretty low. They handle far too large case loads, often numbering greater than 1,000 cases per attorney. They tend to be ineffective, disorganized, sloppy, difficult to reach and ill-equipped to effectively litigate contested cases, though they can generally field the uncontested “two hop grounders” well enough. These are institutional problems resulting from the apparent greed of the firms’ owners, who don’t seem willing to make the capital investment in labor to handle the job effectively.
Worse yet, they have been mired in scandals involving wide-scale unethical practices and fraudulent activities, including but not limited to fabricating evidence and forging affidavits. When the infamous David J. Stern, the foreclosure king of Florida and leader of the biggest mill was caught leading a criminal enterprise of fraud on behalf of his lender clients, the banks hung him out to dry as his empire collapsed and the firm dissolved. His lender clients feigned outrage at these practices just like Claude Raines’ memorable character Captain Renault in Casablanca exclaiming shock at the gambling in this establishment as he pocketed his winnings.
There has been a recent and gradual movement of cases away from the mills and toward more effective German Army firms, but Mussolini’s forces still control the large share of the market. Continuing to phase out the mills should help move cases along more efficiently.
Tip Number 4: Work With Borrowers to Avoid Foreclosure
It would be easier to preempt foreclosures than to try to complete them. Anybody with the slightest knowledge and experience in the world of foreclosures can confirm the fundamental truth that the lending industry has done the most horrible job imaginable in working with borrowers to avoid foreclosure. There is no relief for borrowers anticipating difficulties while still making payments and the common customer service refrain is “call us back when you fall behind three months.” When they do stop paying, they’re led through a Kafka-esque bizarre world of modification applications that go nowhere and documents borrowers send the banks are perpetually lost.
A big part of the problem is there are many disincentives built into the system to discourage loan modifications from being made. The lender servicing industry has been exposed to operate under routine conflicts of interest whereby the reap far greater financial gains by keeping borrowers in default and raking in resulting servicing fees than by helping borrowers make home-saving deals.
Our firm has represented hundreds of clients desperate to save their homes from foreclosure only to find no relief from modification efforts. The government sponsored HAMP program has been a dismal failure in large part due to the lenders refusal to comply with its mandates while they gladly pocket our taxpayer funded bailout money.
In summary, the banks and their legal advocates need not wallow in frustration over the nagging delays in pushing through foreclosures. These helpful tips should be a good start to a more efficient conclusion of the foreclosure crisis.
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