Archive for February, 2012
The name “Danielle Sterling” may not mean much to you. Frankly, it shouldn’t. Danielle Sterling was a receptionist for American Home Mortgage until 2005, when she was promoted to a “Collateral Reviewer,” a position she held until 2007, when American Home Mortgage went out of business. I don’t want to call her a “nobody,” but Danielle Sterling was just one step up from a receptionist at a mortgage company that’s been out of business for five years … clearly she was a bit player in the mortgage industry. So why am I talking about her?
Well, I defend foreclosure cases. In that role, I look closely at every promissory note and every indorsement on those notes that come across my desk. I’ve encountered the name “Danielle Sterling” a fair number of times as an indorser on Notes. Frankly, I didn’t think much of it at the time – it was just a scribbled signature on a Note. However, when I came to learn she was just one step up from a receptionist, and she hasn’t been in the industry since 2007, it made me wonder … “why is Danielle Sterling signing so many indorsements on promissory notes, transferring millions of dollars?” If you ran a business, can you imagine giving low-level staff members the authority to transfer millions of dollars in commercial paper with a swipe of the pen? What in the name of Wells Fargo is going on here?
With the help of my friend Matt Weidner, it seems I have an answer. According to this Affidavit, Danielle Sterling did not endorse a promissory note entered by Daniel and Christine Hunk. Ms. Sterling is very unequivocal about this – she never endorsed the Note. Yet the Note has an endorsement bearing her signature.
Let’s say that again …
Danielle Sterling did not endorse the Note, but the Note has an endorsement with her signature.
I may not be a rocket scientist, but it doesn’t take Sherlock Holmes to figure out what happened here. A bank (apparently Citimortgage, since it was the plaintiff) wanted to foreclose on the Note and Mortgage entered by Daniel and Christine Hunk, but needed an endorsement from American Home Mortgage. But American Home Mortgage was out of business. So Citimortgage took the endorsement stamp that had been used by Danielle Sterling (from when she worked at American Home Mortgage), stamped it on the Note, and forged her signature.
What’s the result? If you look at the endorsement, everything looks normal. It looks like the endorsements we all see on tens of thousands of notes in foreclosure cases throughout Florida. But there’s the rub …
the endorsement looks normal, but it’s a forgery.
For anyone who thinks this is “no big deal” or merely “sloppy paperwork, bear this in mind. Foreclosure cases turn on endorsements like this. Having a Note, endorsed in blank (or specially indorsed to the plaintiff) is almost always what a foreclosure plaintiff asserts as its standing to foreclose. In other words, endorsements like this are what gives the bank the right to foreclose on a homeowner. With an endorsement, the bank is probably going to win (and foreclose). Without it, they’re probably going to lose. Hence, if these endorsements are forged, as this one clearly seems to be, then banks are, quite literally, stealing homes that don’t belong to them.
Everyone needs to take a moment and reflect on the magnitude of this situation. As you do, bear in mind – most judges I know accept an original Note with an endorsement as gospel. If homeowners and foreclosure defense attorneys have a legitimate reason to question the authenticity of the endorsements that appear on Notes in foreclosure cases – as we clearly do in light of this affidavit – then where does that leave us? In my view, courts cannot take an endorsement at face value. They just can’t. There’s a legitimate reason to question the veracity of every endorsement, not just by Danielle Sterling, but every endorsement. After all, if we’ve proven Danielle Sterline endorsements are forged, do you really think that’s the only one? I sure don’t.
And what about the legislature? How on earth can anyone – ANYONE – justify new legislation to “push through” foreclosure cases quicker in light of evidence like this? Ahhh, I forgot. Florida is full of deadbeat homeowners, and even though we’re experiencing the biggest fraud in the history of mankind, we all need to sweep it under the rug to improve the economy. Because throwing homeowners on the streets for the benefit of banks that committed widespread fraud will help. Right.
If this isn’t a wake-up call for all of America, then nothing is. Foreclosures are littered with fraud … billions of dollars in wealth are changing hands in fraudulent ways … does anyone care?
Can you imagine if I posted on this blog some sort of proof that I had endorsed a check payable to Bank of America over to myself, then cashed it? I’d be in jail tomorrow and news stories would run about how a foreclosure defense attorney was arrested for theft. But when a bank does it, nobody cares.
By the way, compare Danielle Sterling’s signature on the affidavit to the signature on the endorsement. The two signatures aren’t even close. Frankly, that’s offensive. I mean, if you’re going to forge something, at least forge it well. Here, the banks were so callous about their fraud they didn’t even try to make it a good forgery – they just scribbled something on an endorsement and use that forged endorsement as a basis for standing. And like I said in the beginning of this post, I have many cases with endorsements by Danielle Sterling.
But the issue here isn’t Danielle Sterling. The issue here is that it’s time for everyone to stop treating an original note with an endorsement as gospel. Clearly, endorsement fraud is pervasive in the foreclosure industry, and it’s about time we all put a stop to it.
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I’m really irritated about a quote I just read from Warren Buffett and it’s time for me to rant/vent. You know Buffett – the multi-billionaire investor who owns more stock in banks like Bank of America and Wells Fargo than the combined sum of all persons reading this blog. Anyway, Buffett had the audacity today to make the following statement:
Large numbers of people who have ‘lost’ their house through foreclosure have actually realized a profit because they carried out refinancings earlier that gave them cash in excess of their cost. In these cases, the evicted homeowner was the winner and the victim was the lender.
Call me childish or immature, but I just want to get about 3 inches from this guy’s face and scream “SHUT UP!”
I mean, seriously. Warren Buffet has absolutely no idea what it’s like to face foreclosure, much less be foreclosed. No friggin’ idea. He’s certainly never experienced it himself, and I’d venture to say he has never ever spoken to anyone who has been foreclosed. As such, where does he get off saying a homeowner who was “evicted,” and hence “foreclosed,” was a “winner”?
I’ve spoken to lots of homeowners who have been foreclosed. I can think of a few adjectives to describe their state of mind. Desperate. Afraid. Depressed. Fearful. Ashamed. “Winning” is not among them.
Where does Buffett get off talking like this? Insulting, offensive, repugnant, disgusting, ignorant … pick your adjective, Buffett’s comments were all of them.
I argued this issue with a banker friend of mine (banker friend – sounds like an oxymoron, I know), and his point was that Buffett was merely trying to say that some homeowners who refinanced and took out cash for their equity only to get foreclosed (and not pay the cash back) made out well.
Ok, but so what? For every person who fits into this description, there are easily 25 or more who don’t. 25 sincere, well-intentioned homeowners who intended to pay their debts but whose world collapsed around them as the global economy went into the crapper (to no fault of their own). And even for those few homeowners who did take out cash and refinance, most of them I know did so to pay other bills/obligations. How many people do you know who cashed out their equity and partied with the money, then got foreclosed? I can’t say I know any.
Of course, last time I checked, the banks got bailed out just fine, but we’re still waiting for the homeowner bailouts.
Warren Buffett, you have no idea what you’re talking about here. I know you’re bitter because your investments in BOA and Wells Fargo haven’t worked out like you’d hoped, but before you go talking about what it’s like for homeowners who have been foreclosed, stop and make sure you know what you’re talking about. Otherwise, you just come across as ignorant, insensitive, and another ka-jillionaire who has no concept of what life is like for the typical American.
Sorry, folks. Rant over.
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Foreclosure defense attorneys see this fact-pattern frequently. The Note attached to the original Complaint contains no endorsements, yet the Note attached to an Amended Complaint is specially endorsed to the Plaintiff or endorsed in blank. This prompts an obvious question – “When was the Note endorsed?”
Plaintiffs’ attorneys love to argue this doesn’t matter because they have the original Note, with an endorsement, so they’re the holder. However, as I’ve been arguing for many years, including here, here, and here, that’s not sufficient – foreclosure plaintiffs must show they had standing at the inception of the case. Specifically, foreclosure plaintiffs must show they had an endorsement (or an assignment, as the case may be) and possession of the original Note before filing the underlying lawsuit.
In recent months, Florida’s appellate courts have borne out this distinction, requiring plaintiffs to prove “standing at inception” to prevail in a foreclosure case. See Feltus v. U.S. Bank, N.A., Case No. 2D10-3272 (Fla. 2d DCA 2012); McLean v. J.P. Morgan Chase Bank, N.A., Case No. 4D10-3429 (Fla. 4th DCA 2012); Venture Holdings & Acquisitions Group, LLC v. A.I.M. Funding Group, LLC, 75 So. 3d 773 (Fla. 4th DCA 2012). Notably, these cases make it clear that an outright dismissal (without leave to amend) is the only proper remedy for a foreclosure plaintiff which lacks standing when suit was filed.
Admittedly, it’s easy to cite a case and assert it stands for a proposition of law when that may or may not be the case. So don’t take my word for it. Read McLean:
While it is true that standing to foreclose can be demonstrated by the filing of the original note with a special indorsement in favor of the plaintiff, this does not alter the rule that a
party’s standing is determined at the time a lawsuit was filed. See Progressive Exp. Ins. Co. v. McGrath Cmty. Chiro., 913 So. 2d 1281 (Fla. 2d DCA 2005). Stated another way, “the plaintiff’s standing at the inception of the case is not a defect that may be cured by the acquisition of standing after the case is filed.” …
To summarize, the plaintiff must prove it had standing to foreclose when the complaint was filed. …
Where the plaintiff contends that its standing to foreclose derives from an indorsement of the note, the plaintiff must show that the indorsement occurred
prior to the inception of the lawsuit. If the Note or allonge reflects on its face that the endorsement occurred before the filing of the complaint, this is sufficient to establish
In the present case, as is common in recent foreclosure cases, Chase did not attach a copy of the original note to its complaint, but instead brought a count to re-establish a lost Note. Later, however, Chase filed with the circuit court the original promissory note, which bore a special indorsement in favor of Chase. Because Chase presented to the
trial court the original promissory note, which contained a special endorsement in its favor, it obtained standing to foreclose, at least at some point.
Nonetheless, the record evidence is insufficient to demonstrate that Chase had standing to foreclose at the time the lawsuit was filed. The mortgage was assigned to Chase three days after Chase filed the instant foreclosure complaint. While the original note contained an undated special endorsement in Chase’s favor, the affidavit filed in support of
summary judgment did not state when the endorsement was made to Chase. Furthermore, the affidavit, which was dated after the lawsuit was filed, did not specifically state when Chase became the owner of the note, nor did the affidavit indicate that Chase was the owner of the note before suit was filed. Therefore, Chase failed to submit any record evidence proving that it had the right to enforce the note on the date the complaint was filed.
We therefore reverse the summary judgment and corresponding final judgment of foreclosure. On remand, in order for Chase to be entitled to summary judgment, it must show,
without genuine issue of material fact, that it was the holder of the note on the date the complaint was filed (i.e., that the note was endorsed to Chase on or before the date the lawsuit was filed). By contrast, if the evidence shows that the note was endorsed to Chase after the lawsuit was filed, then Chase had no standing at the time the complaint was filed, in which case the trial court should dismiss the instant lawsuit and Chase must file a new complaint. See Jeff-Ray Corp., 566 So. 2d at 886. An evidentiary hearing may also be required if there is disputed
evidence on an issue, such as to the date the note was endorsed to Chase.
I’m pleased to say the judges before whom I appear are really starting to understand this principle of law and apply it in foreclosure cases. However, one issue I’ve begun encountering (in response to motions to dismiss) is when plaintiffs’ attorneys to say “yeah, but those are summary judgment cases.” In a motion to dimiss, they argue, the Court is confined to the four corners of the Amended Complaint, and the absence of an endorsement on the original Complaint (when the plaintiff has filed an Amended Complaint) is outside the court’s purview at the motion to dismiss stage of a lawsuit.
I’ve thought about this fact-pattern a lot, and I think the solution is clear. In cases where they’re traveling under an Amended Complaint that has an endorsement on the Note that was not on the Note attached to the original Complaint, foreclosure plaintiffs need to plead the date in which the endorsement was entered. Let’s say that again:
Foreclosure plaintiffs need to plead the date in which an endorsement was entered.
Think about it. Is this really that unreasonable? If an endorsement shows up on a Note attached to an Amended Complaint, when the endorsement wasn’t on versions of the Note filed previously, and the plaintiff’s standing is predicated entirely on that endorsement, is it really that unreasonable to force plaintiffs to plead when the endorsement was created in their Amended Complaints? Florida requires ultimate facts. Isn’t an allegation as to when the endorsement was entered the bare minimum required to get over the “standing at inception” hurdle?
For anyone who thinks this would only serve to further burden our courts, look at it this way … which is the better use of judicial resources, forcing plaintiffs to plead the date these endorsements were created, or allowing cases to proceed to an Answer, a summary judgment hearing, and potentially a trial, without any allegation on this issue? Remember, if the plaintiff can’t show the endorsement was created before the lawsuit was filed, then the case is dismissed – case over. And if the plaintiff can so allege, then this helps the parties frame the issue as they proceed forward on the merits.
Isn’t it more efficient to require the date of the endorsement any time there’s an Amended Complaint? To prevail in a foreclosure case, the plaintiff must prove the “endorsement occurred prior to the inception of the lawsuit,” see McLean; shouldn’t they have to plead that as well?
With this backdrop in place, I’m very pleased to see this Order, which Judge Lee Haworth in Sarasota drafted himself, dismissing an Amended Complaint with instructions that the plaintiff, upon amendment, include allegations showing when the endorsement was put on the Note. The judge cited all of the appropriate cases regarding standing at inception and basically said “I’m not going to let this case proceed further if plaintiff can’t show when the endorsement upon which it relies for standing was entered.”
This should be happening across the board, in all Florida courts. There are far too many junk pleadings where endorsements magically show up after-the-fact. These garbage pleadings should stop. When foreclosure plaintiffs rely on an endorsement that wasn’t on the Note attached to the original Complaint, they should be made to plead the date that endorsement occurred in an Amended Complaint, failing which their cases should be dismissed and they should be ordered to re-file a new lawsuit. See cases, supra.
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Any attorney who represents homeowners facing foreclosure has seen it. A homeowner settles a case on his/her own via a short sale, deed in lieu of foreclosure, or loan modification. Contemporaneously, the plaintiff’s attorney voluntarily dismisses the case and, in doing so, procures an ex parte Order directing the Clerk to return the original Note and Mortgage to plaintiff’s counsel.
I saw this in a case recently, and it really rubbed me the wrong way. Not the settlement – that was fine. (Great, actually. Any time a client gets a satisfactory resolution, it’s a great feeling.) But the return of the original Note and Mortgage to Plaintiff’s counsel, ex parte, without notice and without hearing … why? Why does the plaintiff need the original Note and Mortgage when the case has settled, the house has been sold, and the bank forgave any deficiency? Why should the original Note be floating around in the stream of commerce, creating the potential for someone to take the position the debt was still outstanding?
As I explained in this written Objection and cover letter to the Court, I suppose I could understand if the settlement was a loan modification and the homeowner remained indebted (to someone, if not the Plaintiff) under the Note and Mortgage. After all, in that circumstance, there could be a scenario where a bank needed the original Note to collect on the remaining debt. That said, why does the Plaintiff need the Note and Mortgage back when the property was sold at a short sale and the homeowner’s liability under the Note and Mortgage is extinguished? And why should this relief be granted ex parte, without notice, and without a hearing?
My concern is far greater than this one case. I’ve seen this issue far too often, and I see it as an industry-wide problem. Any time there’s a short sale or deed in lieu with a deficiency waiver, there should be no need for the original Note and Mortgage to be returned to the Plaintiff, yet we all see that happen in virtually every settlement. Why? Is there something nefarious going on here?
I’m pleased to say a Pinellas County Court shares my concerns, as the Hon. Amy Williams just entered this Order vacating her prior Order and directing Plaintiff’s counsel to set a hearing and explain to the Court why it needs the Original Note and Mortgage to be returned when the home was sold and the homeowner’s liability under the Note/Mortgage have been extinguished.
This is an issue everyone should be pushing. No, it’s not the biggest problem in foreclosure cases, but until we get answers, it may be symptomatic of a greater problem. For instance, if the Plaintiff wants the original Note returned because it wants to assert (to anyone, not necessarily just the homeowner) the debt remains outstanding, then that’s an enormous problem/fraud of epic proportions. And if the Plaintiff isn’t trying to assert money is owed, then why does it want/need the Note and Mortgage?
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No commentary, no elaboration … just read the Motion, including the footnotes.
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Whitney Houston was a great singer, don’t get me wrong. However, I find it totally insane that much of America has spent the greater part of the past week mourning her death. A day (playing her songs in trubute), fine. But a week of nonstop media coverage? Lowering flags to half mast? Seriously? Is this what our country has become? Could our priorities be any more misplaced?
I don’t want to speak ill of the dead, so I’ll spare the adjectives about how she lived the past decade of her life. After all, the point here isn’t the death of a singer … the point is how she is the most glaring example of misplaced priorities in America since, well, the Kardashian wedding/divorce.
The following is a list of items that merit our mourning/attention/concern. This isn’t an exhaustive list by any means; just my attempt to get America talking about something more important than a dead singer:
– Greece is on fire. Literally. If you’re not concerned this is where America is headed, then you’re either: (i) not paying close enough attention; or (ii) not part of the 99%. Maybe this is how the USA will wind up and maybe not, but the similarities between the economic problems in Greece and those in America are striking (and at least worth discussion). Why isn’t anyone talking about this?
– The GOP lacks a frontrunner (and, arguably, a viable candidate) for the 2012 Presidential nomination. Republicans have allowed Rick Santorum, Mitt Romney, and Newt Gingrich to “lead” the race just long enough for most Americans to realize none of them should be the leader. (“He’s horrible, let’s take him. Nah, he’s terrible, let’s take him.”) Meanwhile, Ron Paul hasn’t won a single state so far yet thinks he can procure the nomination by getting more delegates than anyone else. Can someone who has lost every state really win? How? If so, why aren’t the other candidates doing it? And why is nobody talking about this? Is Whitney Houston really more important than a strategy to get nominated for President?
– 1,771 military members have died in Afghanistan since 2001. Did New Jersey lower its flags to half mast for the death of each of those servicemembers (as it just did for Whitney Houston)? And why, exactly, are we still fighting wars overseas?
– A written agreement between the AGs and the banks has STILL not been signed. You know, that $26 billion settlement where big banks were supposedly paying to help homeowners and remedy some of the injustices from their foreclosure fraud … the one the AGs all announced on February 9 as if it were some sort of cure-all … it still hasn’t been signed. Does anyone care? Was the purpose of the settlement to accomplish something for American homeowners, or just blow smoke where the sun doesn’t shine?
The New York Post reports the settlement is still being tweaked, which can only mean one thing – the banks are still negotiating for better terms, and the AGs have no leverage to stick to their guns because the banksters know the AGs can’t let the deal fall through. Can you imagine the AGs now having to put their tails between their legs and announcing the lack of a deal? Once again, big banks have screwed over America, yet nobody seems to care.
– Foreclosure cases throughout America are being prosecuted by servicers who often don’t even know the identity of the owners of the Notes and Mortgages they’re seeking to foreclose, a phenomenon I’m calling the Wizard behind the Curtain. I won’t rest until the law is clear that a thief can’t foreclose; I wish everyone felt similarly.
– America’s unemployment rate is above 8%, and while that’s down from the 10% rate we saw during the height of the Great Recession, it’s still way too high. Plus, I can’t help but think a significant reason for the decrease is based on how unemployment is defined. Remember, “unemployed” is defined as someone searching for work unable to find it, so anyone who still lacks a job but gave up searching isn’t considered “unemployed” and, hence, isn’t part of the 8%.
Nearly 10% of Americans don’t have a job … can we please talk about that instead of Whitney Houston?
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I’m a bit frustrated at an Order I just received in the mail, entered sua sponte, without notice, and without hearing, which purported to grant a Motion to Dismiss for Lack of Prosecution but gave Plaintiff leave to amend and directed my clients to file an Answer. (Obviously, that’s not a dismissal of the case).
Florida’s rules on lack of prosecution have changed recently, see Chemrock Corp. v. Tampa Elec. Co., 71 So. 3d 786 (Fla. 2011), but, frankly, it’s not that complicated. If there is no record activity in the 10 months preceding a Notice of Intent to Dismiss for Lack of Prosecution or the 60 days thereafter, and a defendant files a Motion to Dismiss for Lack of Prosecution, then a plaintiff can avoid dismissal only by a showing of “good cause” for the inactivity. In other words, any activity which occurs after the motion to dismiss is irrelevant in determining the propriety of dismissal, and the Court has no discretion to keep the case pending simply because the plaintiff has woken up and says “I’m ready to proceed now.”
In layman’s terms, there are no do-overs for a plaintiff’s failure to prosecute – if a year passes with no activity, the defendant follows the procedures in Rule 1.420(e), and the plaintiff fails to show good cause, then the case is over, dismissed, kaput, finito.
Here is a Motion I just drafted which lays out some of these principles of law.
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I observed a foreclosure trial today, and one aspect of it in particular really bothered me. The plaintiff prosecuting the case was not the owner of the Note, but merely the servicer. Many judges and, of course, plaintiffs’ attorneys, seem to think this is fine, arguing the servicer can foreclose because it’s the “holder” of the Note, even though, by its own admission, it’s not the owner. In other words, the plaintiff/servicer concedes it does not “own” the Note, i.e. it’s not the plaintiff’s Note, but because it has the Note in its possession, and the Note is indorsed in blank, it can foreclose.
I’ve thought about this argument a lot, read a lot of case law, and see some fatal problems. Frankly, I’m frustrated these problems are largely being ignored and hope that everyone starts arguing and adjudicating this issue appropriately.
First off, taking the plaintiff’s argument to its logical extreme, anyone can steal a Note with a blank indorsement – literally, be a thief – but because he possesses the Note, and the Note is indorsed in blank, he could foreclose simply because he’s the holder. That sounds insane, but once you accept the argument that the plaintiff need only be the “holder,” and that ownership is irrelevant, that’s what you’re allowing – a thief can foreclose. Anyone can foreclose. Come to court with a Note with a blank indorsement, and how you obtained that Note is irrelevant – you can foreclose.
Respectfully, that’s just not the law. It can’t be the law. There’s no way the law can allow or would allow a thief to foreclose. Undoubtedly, this is why Rule 1.944 requires the plaintiff be the “owner and holder.”
I can hear the plaintiffs’ attorneys now. “But many Florida cases say being a holder is sufficient; they don’t have an ownership requirement.” To a limited extent, I suppose that is true, but read those cases. For example, Riggs v. Aurora Loan Services, 36 So. 3d 942 (Fla. 4th DCA 2010), talks at length about whether the plaintiff was the holder, and plaintiffs’ lawyers love to cite Riggs for the proposition that being the “holder” is all that matters. However, the issue of ownership wasn’t a question in Riggs – in that case, the plaintiff showed it was the “owner and holder.” Respectfully, it is totally misguided to take a case where ownership was not in question and use that case for the proposition that ownership is immaterial. It may have been immaterial in that case because ownership wasn’t disputed, but that certainly doesn’t mean ownership is immaterial in all cases.
Consider, again, my thief example. Once you accept that a thief cannot foreclose, you necessarily accept that the plaintiff who forecloses must own the Note.
Again, I can hear the plaintiffs’ lawyers. “But a servicer can foreclose because the servicer is the holder and has a servicing agreement with the owner, so it’s foreclosing with the consent of the owner of the Note.” This was the argument being espoused at the trial I observed today – the servicer doesn’t own the Note, but is foreclosing with the consent of the owner.
This argument may sound unique or complicated, but it’s one the Florida courts have adjudicated for many years in a number of contexts – that of principal and agent. Here, the plaintiff is saying that it, the servicer, is acting as the agent of the owner, the principal, by prosecuting the foreclosure case. This is the dynamic we see in thousands of foreclosure cases – the servicer alleges it can prosecute the case for the owner under a theory of agency.
In my view, this begs the question of when can an agent bind the principal? Let’s say that again:
Under what circumstances can an agent bind a principal?
There are zero Florida cases that discuss this concept in the context of foreclosure cases, so let’s look to case law in other contexts.
In Fla. State Oriental Med. Ass’n v. Slepin, the First District ruled an attorney was not entitled to collect attorneys’ fees incurred representing a corporation because the attorney (the alleged agent) did not have the authority to act on behalf of the corporation (the alleged principal). 971 So. 2d 141 (Fla. 1st DCA 2007). The attorney said he was acting on the corporation’s behalf, and he purported to act on its behalf, but the First District ruled he wasn’t, in fact, an agent and didn’t have the authority to bind the corporation. In so ruling, the court explained:
A finding of actual authority would require evidence that a principal acknowledged an agent’s power, that the agent accepted the responsibility of representing the principal, and that the principal retained control over the agent’s actions.
Similarly, the Florida Supreme Court has explained:
Essential to the existence of an actual agency relationship is (1) acknowledgment by the principal that the agent will act for him, (2) the agent’s acceptance of the undertaking, and (3) control by the principal over the actions of the agent.
Villazon v. Prudential Health Care Plan, 843 So. 2d 842 (Fla. 2003).
Let’s read those requirements closely, and break them down, one by one.
1. The principal acknowledged the agent’s power.
2. The agent accepted the responsibility of representing the principal.
3. The principal retained control over the agent’s actions.
In the trial I observed today, the plaintiff/servicer admitted it did not even know who the owner of the Note was. Think about that for a minute. The servicer was supposed to be acting on behalf of the owner, with the owner’s consent, but it didn’t even know who the owner was. On these facts, how on earth could the servicer possibly prove the owner/principal “acknowledged the agent’s power”? Clearly, it couldn’t, and it didn’t. The servicer couldn’t even identify the owner, much less prove the owner authorized the servicer’s actions.
This argument is so simple it’s ridiculous.
“I have authority to foreclose.”
“Who gave you authority?”
“I don’t know, but I have authority.”
I can just see my kids making this argument to me and my wife.
“I have permission to stay up until 10:00. That’s my new bedtime.”
“Who gave you that permission?”
“I don’t know, but it’s allowed.”
These arguments don’t even begin to make sense, but that’s what the servicer was arguing today. “I don’t know who gave me authority, but I have authority.”
As I see it, to prove the requisite authority, the servicer must either (a) introduce a servicing agreement into evidence; or (b) provide testimony from the owner as to the servicer’s authority. Without one of those two things, I just don’t see how the servicer can possibly show the owner of the note authorized the servicer to foreclose. Do you disagree? You tell me … without a servicing agreement or testimony from the owner as to the servicer’s authority, how can the servicer prove the owner “acknowledged the servicer’s power”? Once you conclude there is no such answer, then you necessarily agree that a servicer cannot foreclose without such proof.
Similarly, in the trial I observed, the plaintiff/servicer failed to show the owner of the Note “retained control over the agent’s actions.” After all, how could the servicer possibly show the owner of the Note “retained control over the servicer’s actions” when the servicer couldn’t even identify the owner? Clearly, the servicer was acting as its own boss here, answering to nobody.
I realize that some of the arguments being espoused by servicers in foreclosure cases seem unique, and there appears to be an absence of case law setting forth these issues. However, once you realize a servicer purports to act on behalf of the owner, and is hence just another fancy word for an agent, it should become clear that basic principles of law regarding agents and principals must apply, as quoted above. This requires proof in foreclosure cases that, many times, is simply not forthcoming.
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Through my experience litigating foreclosure cases, I’ve become convinced that the plaintiffs prosecuting foreclosure lawsuits often don’t even realize those lawsuits are pending. Let’s say that again:
The Plaintiffs who have filed suit don’t even realize a lawsuit is pending.
How can that be? Simple. Third-party servicers retain a foreclosure mill, a.k.a. a plaintiff’s lawyer, and, without actually appearing as a party in their own names, direct the foreclosure mill to file suit on behalf of the plaintiff, i.e. the owner of the Note and Mortgage. Does the servicer actually have authority to do so? Honestly, who the heck knows. This strange phenomenon is something I’ve started to call the “Wizard Behind the Curtain.” The servicer isn’t named in the lawsuit, but it’s the one behind the scenes, calling all the shots, directing the foreclosure of thousands of homes throughout America.
I see a myriad of problems with this. In fact, just last month, I expressed my concerns when I saw a foreclosure mill’s written admission that it had no relationship whatsoever with the plaintiff it was purporting to represent. Think about that for a second:
The lawyer had no relationship whatsoever with the plaintiff it purported to represent.
Instead, the firm’s alleged authority to file the foreclosure lawsuit came from, you guessed it, the “servicer.”
I recently came across a document filed in a court case that sheds more light on this troubling phenomenon, and this document will provide a useful example to illustrate the problem.
Take a look for yourself … what do you see?
Obviously this document, which Shapiro & Fishman calls a “Non-Title Document Review,” is a checklist used prior to filing a foreclosure complaint. What really strikes me about this document (which Shapiro filed with the Complaint in this case and is a matter of public record) is that it has one box for the “Plaintiff” and the heading/style of the case, and an entirely separate box for the “Client.” Here, for instance, the “Plaintiff” is U.S. Bank, National Association, but the “client” is “Bank of America, N.A.”
Call me crazy, but shouldn’t the “client” and the “plaintiff” be the same? How can Shapiro & Fishman be filing a lawsuit on behalf of U.S. Bank when its “client” is Bank of America?
This may sound technical, and perhaps it is. But think about how this “wizard behind the curtain” phenomenon will play out in a foreclosure case. I see four huge problems.
First, the Florida Supreme Court requires via Fla.R.Civ.P. 1.110(b) that the Plaintiff verify its Complaint in all residential foreclosure cases. Given the relationship between the foreclosure mills and the servicers, it seems clear the required verifications aren’t being done by the plaintiffs, but by the servicers. Many learned judges in Florida before whom I appear have made it clear that verification by a servicer is insufficient – the complaints are supposed to be verified by the “plaintiff.” Remember, the Rule doesn’t permit verification by a third party, but by “the plaintiff.” In fact, Shapiro & Fishman moved for rehearing of the Florida Supreme Court’s ruling on this precise issue, and the Court rejected its motion.
This prompts a significant question – if verification is required by the plaintiff, and the attorneys representing the plaintiff have no relationship with the plaintiff, how on earth can they get the required verification? Undoubtedly, this is why the mills ask for 90 days or 120 days to get the requisite verification (when complaints are dismissed with leave to amend), as they often don’t even represent the plaintiff prosecuting the foreclosure case! Literally, the mills are in the position of calling up an entity who they don’t represent and saying “You don’t know me, but I’m representing you in this foreclosure case, and I need you to verify under penalty of perjury that the allegations we’ve raised are correct.”
A bit awkward, eh? Yet that’s the position in which the mills have put themselves (in a large percentage of foreclosure cases in Florida).
Second, I struggle to see how the mills can prosecute lawsuits on behalf of plaintiffs without the plaintiffs’ knowledge or consent in a manner consistent with The Rules Regulating The Florida Bar. I’ve spoken with the Bar on this, and given our conversation, I’m not prepared to say it’s impossible, but I will say this. Personally, I couldn’t imagine appearing as counsel for a party in any lawsuit without that party’s knowledge or consent, much less doing so on a widespread, systematic basis.
Think about it this way. An attorney is able to act on behalf of a client because the attorney’s actions bind the client. Stipulations, representations, court filings, etc. … we as attorneys are, quite literally, agents for our clients. If a client is going to be bound in this manner, the attorney’s authority to represent/bind the client must be clearly established. This is why, for example, there are strict rules about how an attorney may appear as counsel, failing which the attorney’s actions don’t bind the client. See Pasco County v. Quail Hollow Props., Inc., 693 So. 2d 92 (Fla. 2d DCA 1997).
If these foreclosure attorneys don’t have an attorney-client relationship with the plaintiff, it seems to me they cannot represent the plaintiff at all and should be disqualified from doing so. After all, how can an attorney bind the plaintiff when the attorney has no relationship with the plaintiff? Why should any court accept the representations or stipulations of a plaintiff’s attorney when that attorney has no relationship with the plaintiff?
There must be a better answer than “there are lots of foreclosure cases in Florida, and this is just how it’s done.”
Third, you want to know why the Florida Supreme Court’s mediation program failed? How can anyone expect to get a binding agreement with U.S. Bank when the attorneys prosecuting this foreclosure case don’t even represent U.S. Bank? Remember, Shapiro & Fishman’s client is Bank of America, so the contact person for Shapiro & Fishman on this file is undoubtedly an agent of Bank of America, not U.S. Bank. Again, how can anyone expect to get a loan modification under these circumstances, i.e. the appropriate parties aren’t even at the bargaining table.
Fourth, when the plaintiff alleges in the complaint that it is the owner and holder of the Note and Mortgage, what exactly does that mean? Taking plaintiff’s allegations literally, the plaintiff is the owner/holder. But in all of these cases where the entity driving the suit is actually the servicer, it seems that the servicer is the “holder” of the Note, not the Plaintiff. Remember, to be the holder, the “plaintiff” must be in “possession” of the Note. See Fla. Stat. 671.201(21). However, are these plaintiffs really in possession when they don’t even know a case has been filed? I suppose it’s possible, but when the Note is subsequently put into the court file, how did it get there? If it’s from the servicer, as I’d think it must since the servicer is the only one who knows about the case, then doesn’t that show the servicer was in possession, not the Plaintiff? And that the servicer was the “holder,” not the Plaintiff? Actually, no – where the Note is specifically indorsed to the plaintiff, the servicer isn’t the holder, either. In that situation, the servicer has possession, but the plaintiff has the indorsement, so neither one is the “holder.”
So what’s the solution to all of this madness? It’s two-fold: (1) Require verifications by the plaintiff (not the servicer, the plaintiff) and dismiss all cases without it; and (2) Require the foreclosure mills to have attorney-client relationships with the plaintiff (not the servicer, the plaintiff prosecuting the case) and disqualify all attorneys who lack such a relationship. That sounds harsh, but it’s ridiculous to inundate our courts with garbage pleadings that languish for years without a resolution when the parties prosecuting them don’t even know they’ve been filed.
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