Posted on February 5th, 2012 by Mark Stopa
I recently posted this blog illustrating a Tampa judge’s frustration with a bank’s indorsement fraud in one of my cases. I just received the transcript of the hearing, so let’s revisit this issue.
Here is a copy of the indorsements which were affixed to the Note that was attached to the Complaint in a mortgage foreclosure case I’m defending.
Here is a copy of the indorsements which were affixed to the original Note, which the Plaintiff, Citimortgage, Inc., filed after filing suit.
The notes themselves were identical, but notice any differences in the indorsements?
Upon close inspection, it’s clear that the Note attached to the Complaint contains a blank indorsement, whereas on the “original” Note, the blank indorsement is filled in with the stamp of “Citimortgage, Inc.”
At my motion to dismiss hearing, the judge jumped all over this discrepancy, and here’s the transcript setting forth his concerns.
As you can see, the judge was troubled at how the original Note was specifically indorsed to Citimortgage when the Note attached to the Complaint was indorsed in blank.
The bank’s lawyer argued “maybe the Note that was stored electronically was different than the hard copy.” But the judge wasn’t buying that argument, especially since it was prefaced with “maybe.” The judge granted the motion to dismiss and directed that Citimortgage, Inc. explain, in its Amended Complaint, how Citimortgage’s stamp appeared on the original Note when it wasn’t on the Note attached to the Complaint.
The lawyer’s explanation, in my view, is hogwash. I suppose I could see this argument if there was no indorsement at all on the Note attached to the Complaint. In that event, it might be possible that the specific indorsement was done later. However, I see no innocent explanation for how there was a blank indorsement on the Note attached to the Complaint, and that very indorsement had the name “Citimortgage, Inc.” on the blank when the original Note was filed. In my view, there’s only one explanation here – Citimortgage had a Note, indorsed in blank, and said “We don’t want this indorsed in blank, let’s put our stamp on it.” Maybe I’m wrong, but let’s put it this way – I can’t wait to hear their explanation. (Of course, it’s been two months and I’m still waiting.)
Mark Stopa
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Posted on February 2nd, 2012 by Mark Stopa
It’s Career Day for my kids at school, so it seems like an appropriate time to share this …
This kid should obviously choose “government” – those guys never go to jail.
Mark Stopa
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Posted on February 1st, 2012 by Mark Stopa
Have you ever wondered what happens to houses when the banks foreclose? The Fort Myers News Press recently wondered just that, and its findings may have prompted the termination of a high-ranking bank officer.
To those in the foreclosure industry in the Tampa area, Michael E. Johnson was fairly well-known. He was the Senior Vice President of Asset Management for Synovus Bank. This was no phony title, like the “Assistant Secretary” designations we see given to robo-signers; Mike Johnson was the decision-maker on foreclosure cases for Synovus in the Tampa area. To illustrate, here was the signature on his emails (copied and pasted from an email he sent me):
Michael E. Johnson
Senior Vice President
Asset Management
12450 Roosevelt Boulevard
St. Petersburg, FL 33716
727.568.6521 – Direct
727.568.6532 – Fax
I personally dealt with Mike Johnson on several occasions in recent years, and it was clear to me that if a settlement agreement was going to be reached in a case involving Synovus, he would be the one approving it. This dynamic was both good and bad. It was good because, unlike many foreclosure cases, at least there was a person at the bank with settlement authority with whom communication was possible. It was bad because, frankly, he and I butted heads frequently and, in my view, he was rather stubborn in negotiating. (Of course, I’m confident he thought the same things about me.) That was his reputation, at least as I knew it – difficult to deal with, but Synovus liked him because he got a lot of deals done for the bank.
Anyway, with that backdrop in place, I find this article from the Fort Myers News Press particularly interesting. Essentially, this journalist studied the Public Records in Lee County to investigate what happened to properties after being foreclosed, or after they went to the bank. According to the article, there was a disturbing trend of properties being sold by Synovus to third-party investment companies, then flipped soon thereafter for a significant profit.
In my view, the information contained in the article forces some tough questions:
1. Why would Synovus sell a house for $53,000 to an investment company when said company was able to sell the house two months later for $78,000? Or a duplex in Lehigh Acres for $30,000 that was re-sold 15 days later for $79,000? Seriously, think about those numbers for a minute. More than doubling the sale price? Merely by doing a flip? 15 days later? For a bank that was so stubborn in negotiating with homeowners, why not insist on a higher sale price (to the investor)?
I suppose it’s possible the investment company did significant repairs to improve the value of the property. However, as the article notes, how much work can really be done when no building permits were obtained?
2. Doesn’t this have the feel of a shady, back-room deal? After all, why would a bank sell a house for $30,000 if it was possible to sell it 15 days later for $79,000? We may never know for sure, but it sure is interesting that Synovus had numerous deals like this with the same investor, and Mike Johnson was the one approving most of these deals.
Think about that for a minute. One man approving multiple sales of properties to the same investor, which investor was flipping those properties for a profit.
When you put it like that, it’s not hard to wonder whether this banker had a had a personal stake in these transactions. To be clear, I don’t know this to be the case, and I’m not saying that was the case, but when the same bank is selling multiple properties to the same investor, at prices like this, it’s not hard to wonder whether that banker was getting a kickback on the re-sale. It sure wouldn’t have been difficult – investor simply tells banker “sell this to me for $30,000, and I’ll give you $5,000 on the re-sale.”
You may think I’m reaching or just plain wrong, and maybe so. However, it sure is interesting that Mike Johnson no longer works for Synovus, having been let go (after what had apparently been a distinguished career with the bank) shortly after this article came out. In fact, according to my sources, he now works with investment companies who buy houses from banks!
The point here isn’t to talk about this one banker, of course. My point is that it’s terribly, indescribably sad to know that Florida homeowners are being foreclosed and this is what’s happening with their homes. Even if there was nothing shady going on with Synovus, it’s awful to know that banks are so willing to foreclose on homeowners yet so willing to sell properties for a fraction of their actual value. Anything shady, of course, only increases the level of misery.
3. I’m also troubled at what may be attempts to increase the extent of the homeowner’s liability. Using the example from the article, should the prior homeowner be liable to Synovus for $275,000, i.e. $328,000 (the judgment amount) minus $53,000 (the alleged value of the house)? Apparently, by my read of the article, that’s what the court ruled, as that $53,000 sale price is how the fair market value was determined. The fact that the house sold for $78,000 sale price two months later (and that the deficiency amount probably should have been $23,000 lower? The court may not even have known about that re-sale. Heck, the homeowner may not even have known.
This prompts a serious question … Are banks selling properties at reduced values to increase the amounts of their deficiency judgments against homeowners?
You might think that makes no sense. After all, why would a bank sell a house for less than its maximum sale price? That said, do we really know what, if any, back-room deals are going on here? For instance, is this deal an arms-length transaction when Synovus is selling many such properties to the same investor? Who’s to say there weren’t other, under-the table monies changing hands?
It’s not hard to envision ways Synovus could artificially increase the liability of homeowners … ”you give me a better deal on this one; I’ll give you a better deal on that one,” or “give me a deal for $30,000 on this one, and I’ll give you half of the profits on the resale.”
I don’t think I’m the type of person who espouses conspiracy theories. However, I just can’t help but wonder, given what I’ve read, seen, and know, if homeowners are getting screwed on a routine and systematic basis by bankers who aren’t looking out for anyone except themselves. And when a high-ranking banker is suddenly ousted after an article like this, it really raises some difficult questions.
Mark Stopa
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Posted on January 31st, 2012 by Mark Stopa
Did you know the banks and their lawyers don’t want to have to go to trial in foreclosure cases? It’s not exactly breaking news, I realize. (Recall, for instance, this post, where I showed that just 198 trials took place in the entire state of Florida in a recent, one-year period.) In fact, those of us in the industry have known this for some time, i.e. banks want to win by default and/or summary judgment, not by trial in contested cases against lawyers who are asserting valid objections each step of the way.
Given the volume of foreclosure cases in Florida, the increasing number of homeowners defending those cases, and the banks’ aversion to trial, our court system is inundated with foreclosure cases. Personally, I don’t think this is a problem – if the banks don’t want to prosecute their cases, that’s their prerogative. However, in an attempt to push through the logjam, I’ve seen some judges take measures which, in any other time, would be considered quite unusual. One local judge, for instance, has stated setting cases for trial sua sponte, one after another, regardless of how the parties feel about it. This begs the question – what is the appropriate way to set a case for trial?
I’ve blogged about this issue for some time now, including here and here, so at this point we should all know the basics of setting a case for trial, as set forth in Fla.R.Civ.P. 1.440. First, a case can’t be set for trial unless it is “at issue,” meaning the defendant has filed an Answer to the operative Complaint and no there are no pending motions directed to the pleadings. Second, when the court sets a case for trial, it must provide at least 30 days notice; anything less is insufficient. The two cases which I love to cite for these propositions are Bennett v. Continental Chemicals, Inc., 492 So. 2d 724 (Fla. 1st DCA 1986) (en banc) and Precision Constructors, Inc. v. Valtec Constr. Corp., 825 So. 2d 1062 (Fla. 3d DCA 2002). Notably, in both cases, the Florida appellate court reversed a final judgment not because there was any substantive error at trial, but because the trial had been set prematurely, in violation of Rule 1.440. That’s how big of a deal this is – it doesn’t matter if the trial was done correctly if it was set prematurely.
I’m confident the local judge who has started setting cases for trial en masse, sua sponte, is aware of these requirements. In fact, I sincerely believe she tries to follow the law, and she has refrained from setting cases for trial that are not “at issue,” which is obviously a good thing. The question that has arisen from her rulings, in my view, is whether a judge can set a case for trial on his/her own, sua sponte, when the case has not been noticed for trial.
By way of example, and to illustrate the situation at hand, I recently had a hearing before this judge on a Motion to Substitute Party Plaintiff. The issue of trial was not set for hearing, and no party had filed a Notice for Trial, so I wasn’t even thinking about a trial at this hearing. Heck, the plaintiff’s lawyers were trying to change the identity of the plaintiff, so getting proper pleadings in place, and taking discovery regarding the new plaintiff, was paramount in my mind, not trial. Anyway, at the hearing, immediately after she allowed the new plaintiff to join the case, the judge decided to set the case for trial with, quite frankly, limited input from the parties. I objected, but it was clear to me that the court was following a procedure where foreclosure cases were being set for trial.
Respectfully, I’m troubled at this sequence of events.
Any time I go into a hearing, I expect that the only matter(s) being argued are those which have been noticed for hearing. This is fairly basic, so a Court bringing up a matter like this, sua sponte, is the last thing I’d expect at a hearing on a simple motion. I could perhaps understand this better if the plaintiff had filed a Notice for Trial. But for a court to set a case for trial, totally on its own, where the case was not even noticed for trial and the issue of trial wasn’t set for hearing … I just don’t see that. In my case, for example, I think I should get to amend my pleadings and take discovery about this new plaintiff before a trial is set.
I believe the case law supports my view that a “Notice for Trial” must be filed before a judge can set a case for trial. Rule 1.440 has three subsections, and each one is a step in a three-step process. Once a case is “at issue” (subsection (a)), then it may be noticed for trial (subsection (b)), and then the court may set it for trial (subsection (c)). As I read the cases which cite Rule 1.440, I believe they all support this interpretation. See Genuine Parts Co. v. Parsons, 917 So. 2d 419 (Fla. 4th DCA 2006) (reversing final judgment where the court set the case for trial without a notice for trial having been filed); Garcia v. Lincare, Inc., 906 So. 2d 1268 (Fla. 5th DCA 2005) (“Procedural readiness for trial differs from actual readiness for trial. It is the former, coupled with a properly filed ‘Notice for Trial,’ that imposes on the court the obligation to set a trial date.”); Hartford Fire Ins. Co. v. Controltec, Inc., 561 So. 2d 1334 (Fla. 5th DCA 1990) (“The rule requires the filing of a notice of trial for review by the court in order to determine whether the cause is ready for trial”); Balboa Ins. Co. v. Shores of Madeira, Inc., 457 So. 2d 596 (Fla. 2d DCA 1984) (“Once a proper notice of trial has been filed, the duty is on the court to set the cause for trial.”).
This may sound like procedural mumbo jumbo, and I suppose to some extent it is. That said, when trial is set, the substantive rights of the parties are being adjudicated (or about to be adjudicated), so it’s important to follow the procedure correctly. As the en banc First District explained in Bennett, “strict compliance with Rule 1.440 is mandatory.” Using my example above, if a Notice for Trial had been filed, I would have had a chance to object on the basis that trial was premature because the plaintiff had just changed. At minimum, even if it was time to set the case for trial, I could have begun preparing the file accordingly (by completing discovery or amending pleadings as necessary). In my view, all litigants are entitled to this right, and to sua sponte deprive them of that right is contrary to law.
Reasonable minds can disagree, and this is certainly not the worst thing I’ve seen in foreclosure court. That said, I’d love to see legal authority that allows a judge to set a case for trial, sua sponte, when a Notice for Trial has not been filed. In light of the cases I’ve cited above, I just don’t think it’s possible.
Mark Stopa
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Posted on January 25th, 2012 by Mark Stopa
I get all sorts of comments on this blog, not to mention inquiries from prospective clients via email. This one, which I’ll paraphrase, really caught my attention, as it presents a situation I suspect a lot of Florida homeowners are facing. Here’s the question, and my response:
Question: My wife and I have always paid our mortgage, but with the economy as it is we’ve struggled to do so recently. Our house is about $150,000 underwater, and for the past year or so, we’ve borrowed money from my parents to make the mortgage payments. Unfortunately, my parents can no longer afford to lend us any more money, so we’re trying to decide what to do.
I’ve been asking the bank for a loan modification for many months. They keep telling me “we’ll get back to you,” but then I never hear anything. Most recently, the bank began insisting that my wife disclose her financial information as well. I argued with them about this, since my wife wasn’t a borrower and did not sign the Note, but they insisted that the only way I would be considered for a loan modification was if my wife submitted her financial information as well.
What should I do? My wife doesn’t want to disclose anything, but if she doesn’t, and we don’t get a modification, then we can’t continue to keep making our mortgage payments for much longer.
Answer: First off, this might sound backwards to you, but I’m glad your parents are no longer giving/lending you money for your monthly mortgage payments. I can understand the logic behind their doing so, don’t get me wrong, and I’m certainly not trying to criticize you or them. However, as I’ve explained on many occasions, including here and here, depleting a 401(k), IRA, or savings account to make monthly mortgage payments on a house you just can’t afford is almost never a good idea.
Please read this post, which I wrote in July, 2010. As I explained there in detail, it’s almost never a good idea to deplete your savings to make monthly mortgage payments, as all that will happen is you’ll run out of savings and then still be facing foreclosure anyway. If you realize you can’t afford to continue making monthly mortgage payments indefinitely into the future, isn’t it better to stop making those payments now, keep whatever money you have in your own pocket, and brace yourself for the impending foreclosure lawsuit, rather than spend all of your savings, then face foreclosure with no money left in your pocket?
The fact that your parents were lending to you, as opposed to you depleting your own savings, doesn’t change my view. In fact, it might make it worse. Your parents are obviously older than you, so they’ll have fewer years in the work force (if any) to recover, and I suspect from your email that you’ve depleted your own savings, too. Nonetheless, you’re still in the same situation you would have been in had you and your parents kept those monies in your own pockets – facing foreclosure.
It’s critical for you, your parents, and all homeowners to realize that any money in your 401(k) or IRA can never be taken by the bank (i.e. to collect on a deficiency judgment) - the only way you’ll ever lose that money is if you take it out voluntarily. Even if you get foreclosed, you’ll still get to keep your 401(k) and IRA monies. Even if you have to file bankruptcy, you’ll still get to keep your 401(k) and IRA monies. Hence, I can hardly imagine a circumstance where it makes sense to dip into these accounts to make mortgage payments. I suppose a temporary reduction in income could justify doing so for a short period of time, but that’s the catch – lots of people think/hope their reduction in income is temporary, but before they know it, they’ve made a year of mortgage payments from their IRA or 401(k) with no end in sight.
Obviously you can’t go back in time, and my point isn’t to beat you over the head with things you can’t change. Rather, my point is to help you realize, going forward, that it’s probably best that you and your parents stop depleting your savings to make monthly payments on a mortgage you cannot afford.
I can understand you thinking “let’s keep making the payments and try to get a modification … if we get a loan modification, and our monthly payment is reduced, then maybe we can afford to stay here.” Candidly, LOTS of homeowners have that mindset, especially in Florida. Unfortunately, as I’ve explained many times, including here, here, and here, loan modifications are rare, particularly those with principal reductions, and banks/servicers have all sorts of perverse financial incentives not to provide modifications to well-intentioned homeowners. Hence, what you view as “temporarily borrowing until we get a modification” or “temporarily using savings until we get a modification” is more like “depleting savings waiting for a modification that’s probably never going to come.”
As for the issue of whether you should disclose your wife’s finances, let’s put it this way. I agree with you – it’s hard to see how the bank needs your wife’s finances to evaluate you for a modification, since she wasn’t on the loan in the first place. In that sense, it seems logical to withhold this information. However, if you’re adamant about getting a modification, and that’s what the bank is saying they need, it won’t help to withhold it. Frankly, it doesn’t seem like you’re going to get the modification you want either way you proceed. Hence, whether to disclose her finances is probably a matter of how you’ll feel if you get rejected again and didn’t disclose them. Will it eat at you to feel like you didn’t do everything you could? Will you feel better knowing you disclosed them, even if you get rejected, as you’ll at least know you did everything you could?
I hate to see you in this situation. However, nothing breaks my heart more than the conversations I’ve had with clients, particularly older clients, who tell me they’ve depleted all of their savings and are now being sued for foreclosure. Please don’t make this mistake. It’s bad enough to face foreclosure – it’s even worse to do so after you’ve spent all of your money.
Mark Stopa
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Posted on January 24th, 2012 by Mark Stopa
Politics is always a sensitive topic, one where my clients undoubtedly have a wide disparity of views and opinions, so perhaps I’m nuts to broach the topic. That said, the four candidates to run against Barack Obama for President were in Tampa last night, discussing a variety of issues important to Floridians, including foreclosure. As such, I’d be remiss not to provide my perspective on each candidate vis a vis foreclosure, with an eye towards each candidate’s willingness to do something to help homeowners. In other words, are any of these Presidential candidates, if elected, going to do anything to help homeowners facing foreclosure?
Brian Williams started last night’s debate with Newt Gingrich, so I’ll start there as well.
As I see it, Newt’s pro-bank stance is pretty apparent. Depending on whose version of the facts you believe, it seems Newt was paid somewhere between $300,000 and $1.8 million to provide “consulting” services to Freddie Mac for upwards of a decade prior to the real estate collapse. Freddie Mac, of course, is a government-sponsored enterprise which buys mortgages on the secondary market, pools them, and sells them as mortgage-backed securities to investors on the open market. These are, mind you, the very securities which helped create the real estate crash, and Freddie Mac has been notorious in recent years for pushing foreclosures and not advocating alternatives like loan modifications.
Gingrich’s history is so anti-consumer that even Mitt Romney made Newt’s ties to Freddie Mac a centerpiece of his critiques in last night’s debate. Anticipating the criticism, Newt released one of his contracts with Freddie Mac, but read it and you’ll probably agree with me it prompts more questions than answers. For instance, what, exactly, was Newt supposed to do in exchange for these “consulting” services, why doesn’t the contract so specify (who enters a contract for these amounts without specifying what services are being performed), and what was Newt doing in all the other years of consulting?
My point isn’t to bash Gingrich. My point, simply, is that no matter how you spin his ties to Freddie, it’s clear that those ties (both personal and financial) show there’s no way he’s going to do much to help Florida homeowners.
Verdict on Newt for homeowners: No help coming for homeowners; more of the same.
Mitt Romney may have scored points by criticizing Newt’s ties to Freddie Mac, but Mitt is hardly the poster-child for middle-class America. After all, Mitt famously challenged Rick Perry to a $10,000 bet during a live debate, showing just how out of touch he is with mainstream America. I guess that’s what happens when you earn $20 million per year in interest.
To be fair, Romney shouldn’t be discounted or disqualified just because he’s rich. America was founded on capitalism, and there’s nothing wrong with someone taking advantage of a capitalist society. The question, rather, is whether Romney would do anything to help homeowners. On that score, it seems clear to me the answer is “no.”
Yes, I realize Romney met with Florida homeowners on Monday and lent a sympathetic ear. There’s a big difference, though, between showing compassion and taking action as President to fix the foreclosure crisis. As such, I think Romney’s most telling statements in this regard are those he recently said in Nevada, where he opined:
“Don’t try to stop the foreclosure process. Let it run its course and hit the bottom. Allow investors to buy homes, put renters in them, fix the homes up and let it turn around and come back up. The Obama administration has slow walked the foreclosure process … that has long existed and as a result we still have a foreclosure overhang.”
That approach sounds, to me, very much like the businessman we all know Romney to be. In Romney’s eyes, foreclosures aren’t people losing their homes; foreclosures a problem we should get through as quickly as possible and a business model where investors can make money. In other words, Romney relates to corporate America, not middle-class America, and he’s not about to implement any new policies to help stop foreclosures.
Verdict on Romney: No help coming for homeowners; more of the same.
For many Floridians, Ron Paul is a fresh voice in the Presidential debate. He famously voted against all government bailouts, predicting the housing crash years beforehand. In fact, his Presidential campaign centers largely on the drastic reduction of government intervention, in the economic sector and otherwise. According to Paul, if the government gets out of the way, and stops spending money needlessly for programs that haven’t worked, everyone will be better off.
Frankly, I’m convinced America would be better off if Paul’s ideas had been implemented years ago. However, we can’t go back in time, so that’s not the question. The issue is whether Paul’s approach, i.e. the government should “get out of the way,” would help homeowners today. On that score, I’m not so sure.
I see two problems here. First, imagine two parents who buy lavish, extravagant Christmas gifts for two of their children, then tell the third child “sorry, there’s no money left for any gifts for you.” We’d all agree that’s inherently unfair, right? Yet that’s the approach Paul would adopt. “The government gave the bailouts to the banks, but we’re not going to give any more bailouts – no bailouts for homeowners.” Even if that’s approach is “best,” it certainly leaves a lot of people cold and bitter, just like the third child who got no Christmas gifts. Paul would probably say that two wrongs don’t make a right. Maybe so, but there’s something unsatisfying about letting the banks get the bailout money and then doing nothing for homeowners.
Also, Paul’s approach, just like that of the other candidates, is not going to stop foreclosures. Sure, we might not be in this position in the first place had we listened to Paul. But we are here, and we can’t go back, so letting the free market take over isn’t going to help most homeowners.
Verdict on Ron Paul: He was right, but he’s not going to help homeowners
Rick Santorum made an interesting suggestion at last night’s debate – give underwater homeowners some type of tax relief. Unfortunately, Santorum gave no specifics for such a plan, nor did he explain how the government would pay for the tax cuts. Mind you, it’s easy for politicians to suggest tax breaks at election time; the question is whether such proposals are realistic in light of budgetary constraints.
Anyway, even if tax benefits were given to underwater homeowners, that isn’t going to stop banks from foreclosing on delinquent homeowners. Hence, the question becomes what, if anything, Santorum would do to help homeowners. On that score, Santorum’s stance seems clear. Like Ron Paul, Santorum thinks the government should get out of the way and let the housing market “find its bottom.”
Verdict on Rick Santorum: No help coming for homeowners.
When I watched the debate last night, I was disappointed that Brian Williams didn’t force a more in-depth discussion of the housing crisis. For instance, I would love to see a moderator ask each candidate “would you advocate principal reductions on mortgages, and if so, what procedures would you implement to do so?” Unfortunately, as I study all four Republican candidates, it seems that such a dialogue is unnecessary, as none of them are going to do anything to directly help homeowners.
Now that I’ve essentially rejected all four Republican candidates, you may think I’m about to support Obama. Hardly. Obama has had three-plus years to do something to help homeowners and he hasn’t. Hence, my verdict for homeowners facing foreclosure, at least with respect to the next President, is a sad one. Quite simply, no matter who is the next President, no help is coming for homeowners.
All of that said, the situation is not hopeless. Florida homeowners can fight their foreclosure case, in court, with an experienced foreclosure defense attorney. That may sound cliche, and it may appear self-serving, but I’m convinced the next President isn’t going to help homeowners. As such, if you’re looking for help, a lawyer who knows the ins and outs of foreclosure defense is probably the best you’re going to do. After all, it seems clear there’s no help coming from the next President, whoever he may be.
Mark Stopa
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Posted on January 21st, 2012 by Mark Stopa
Making the rounds this week was a story about a Seminole County judge who heard 300 foreclosure cases over a three-day period. Many media outlets and consumer advocates found this troubling, as it gave the judge less than a minute to adjudicate each case.
This is a terribly sad and unfortunate dynamic. You know the story – as Florida courts are inundated with foreclosure cases, and the Florida legislature refuses to give our courts the money it needs to function properly, some judges have felt they have no choice but to operate in this fashion.
I’m pleased to say this type of time crunch rarely if ever happens in cases in which I’m counsel. Why? Three simple reasons:
1. I’m a lawyer. I hate to say it, but sometimes attorneys are given more respect than pro se litigants. Remember, all judges are lawyers, and most judges are unlikely to force a fellow attorney to conduct a hearing in 30 seconds.
I can certainly see how some would think it’s unfair to treat lawyers better than pro se homeowners. However, candidly, I can see this from both sides. I’ve watched many hearings where homeowners try to defend themselves but, frankly, have no idea what arguments to make or how to make them. For instance, “I lost my job” is almost never relevant in a foreclosure case.
Like it or not, hiring an attorney may give homeowners a better chance of being heard in court.
2. “Contested” cases are treated differently. Many Florida judges treat “contested” foreclosure cases and “uncontested” foreclosure cases differently. “Uncontested” cases often get set for hearing at the same time as dozens of other cases. The judges’ rationale in doing so is that nobody is opposing these cases (hence the “uncontested”), so the court can have hearings in such cases quickly, one after another. Hence, if a homeowner shows up to attend a hearing in such a case, it may have already been set on the court’s calendar for a quick, “uncontested” hearing.
Conversely, judges know that hearings in “contested” cases will take longer to adjudicate, as someone is there defending them. Hence, hearings in these cases are often scheduled differently on the court’s calendar. As a result, contesting your foreclosure case from the outset may ensure your hearing is set in a manner that ensures you have more time to be heard.
If that doesn’t make sense, look at it this way …
Many Florida judges know that my colleagues and I aren’t going to roll over and consent to foreclosure in a 30-second hearing. We’re going to have extensive legal arguments and case law. So the judges aren’t likely to set a hearing in our cases at the same time as hearings in other cases where nobody is arguing. My hearing might take 20 minutes, while the court could take that same 20 minutes to hear 20 cases. What do you think the court is going to do, wait on 20 other cases to hear my one case for 20 minutes, or handle the 20 uncontested cases?
3. I ask. In the unusual situation where a hearing in one of my cases is set on a “mass motion” calendar with many other cases, all at once, I ask that the hearing be continued, i.e. file a Motion for Continuance, to ensure more hearing time.
This is a really simple argument, actually.
“Judge, I see you have many other cases set for hearing today. My argument is going to be 15-20 minutes, with case law, so I respectfully submit this case should be heard on another day.”
What do you think the judge is going to do, delay the hearing in 20 other cases, or the hearing in my one case?
Having 300 foreclosure cases heard in a three-day period is unfortunate. Frankly, however, it’s a problem that, quite often, is fairly easy to avoid.
Mark Stopa
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Posted on January 18th, 2012 by Mark Stopa
I’m not very happy right now as I read a 2-1 decision from a three-judge panel from Florida’s Third District Court of Appeal. The decision stems from an involuntary dismissal entered in favor of a homeowner, at trial, because the plaintiff failed to prove the requisite elements of its case. In the words of the trial court judge, dismissal of the foreclosure case was required “as a result of Plaintiff’s failure to establish its status as the owner and holder of the applicable Note and Mortgage with standing to bring suit.”
In the appellate court, however, two judges decided the lower court erred by so ruling. The third judge on the three-judge panel vehemently disagreed, but his opinion was relegated to a dissent.
Oddly, the majority began its analysis of whether the plaintiff proved its case at trial by discussing an interlocutory Order which permitted the plaintiff to substitute as the plaintiff in the lawsuit. That Order provided:
The Bank of New York Trust Company, N.A., as successor to JPMorgan Chase Bank, N.A., as trustee, is the real party in interest and proper Plaintiff in this action, and;
The Bank of New York Trust Company, N.A., as successor to JPMorgan Chase Bank, N.A., as trustee, is hereby substituted for JPMorgan Chase Bank, formerly known as Chase Manhattan, as trustee, residential funding corporation, as attorney in fact, as the proper Plaintiff in this action and the style is amended as reflected on this Order.
In the view of the majority, “because there was no denial or defense raised in defendants’ pleadings concerning this finding, the judgment under review cannot be permitted to stand for that reason alone.”
This is an absolute bombshell, folks. It’s a major, major trap for unsuspecting homeowners (especially those proceeding without counsel), one that the Florida courts have, perhaps unwittingly, been routinely and systematically permitting for many years. Before I explain why that is, and what we must all do to avoid it, let’s start out by explaining why the majority’s opinion is, respectfully, misguided.
First off, I struggle to see how the majority can confuse an interlocutory Order granting a motion to substitute party plaintiff, which does nothing more than allow the new plaintiff to bring suit, with proof that said plaintiff was the owner and holder of the Note and Mortgage and was entitled to foreclose. This isn’t like confusing apples and oranges; this is mistaking apples and lawnmowers.
Leave to amend is granted on a regular basis, almost as a matter of course. When that happens, it means the plaintiff is entitled to bring suit against the defendant (and prove its case at trial). It does NOT mean the plaintiff has proven the elements of his/her case (without proof at trial) – it only means the plaintiff can assert the claims. To blend these two concepts together, and confuse permission to bring a claim and proof of that claim, is, frankly, quite misguided. In fact, by my research, this is the first Florida case which in any way suggests that an Order substituting a party plaintiff not only allows the new plaintiff to bring suit, but also operates as some sort of finding that the new plaintiff is the correct plaintiff.
Many Florida cases have explicitly rejected this sort of rationale. For instance, there are legions of cases in the context of leave to amend which make it clear that an Order granting leave to amend does not mean the plaintiff’s claims have merit, but merely that the plaintiff is permitted to bring them. (I’m so confident in this argument it doesn’t even need a case cite.) Similarly, a plaintiff who has procured a money judgment and wants to collect against a different defendant (not named in the original suit) can initiate proceedings supplementary against that party pursuant to Fla. Stat. 56.29. To do so, the plaintiff must file a motion and procure an order from the court allowing it to sue the new defendant. When that happens, Florida courts have explained that such an Order, if granted, does not mean the plaintiff’s complaint against the new defendant has merit, only that the plaintiff is allowed to bring the suit. See Machado v. Foreign Trade, Inc., 544 So. 2d 1061 (Fla. 3d DCA 1989). Proving the allegations in the suit is, of course, a matter for trial.
Here, the situation is the same. When a party seeks to substitute in as the new plaintiff, it is only entitled to a ruling that it can bring suit (in place of the original plaintiff) – not a determination that the new plaintiff is actually the correct plaintiff, has standing, or is entitled to any relief. Apparently, the majority concludes otherwise based on that portion of the Order which says the plaintiff is the “real party in interest and proper Plaintiff.” In other words, as the majority would have it, the lower court concluded the new plaintiff was the correct Plaintiff when it entered that Order, even without proof at trial.
What’s the big deal about that, you ask? Well, it would be one thing if the Order concluding the Plaintiff was the correct Plaintiff was entered after an evidentiary hearing, where the homeowner had a chance to object, present evidence, and cross-examine the plaintiff’s witnesses. Unfortunately, that virtually *never* happens, at least not in Florida. Instead, Orders substituting a party plaintiff are routinely entered by Florida judges ex parte, without notice, and without hearing.
Let’s repeat that:
Orders substituting a party plaintiff are routinely entered by Florida judges ex parte, without notice, and without hearing.
Hence, what makes the majority’s reliance on the Order substituting plaintiff (in lieu of evidence at trial) so troubling is that said Order was undoubtedly entered without giving the homeowner a chance to be heard.
Think about this for a minute. This was a foreclosure case that advanced to trial. The presiding judge thought the bank presented insufficient evidence at trial to prevail. But two appellate judges disagreed based on an Order substituting plaintiff that was entered ex parte, without notice, and without hearing. Hence, according to these two judges, evidence to justify foreclosure is unnecessary – the plaintiff obtained the Order of substitution, and since the Order included gratuitious fact-findings (included by the plaintiff’s attorney), the plaintiff need not present evidence at trial.
I could blog all day long about the erroneous nature of this ruling. In a way, that’s really not the point. The point is this … if any judges think, rightly or wrongly, that an Order substituting party plaintiff can ever replace proof at trial, it is absolutely imperative that every Florida homeowner contest each and every motion to substitute party plaintiff. Let’s say that again:
Every Florida homeowner must challenge every motion to substitute party plaintiff in every foreclosure case.
After all, according to these two judges, the failure to challenge that motion can mean the plaintiff doesn’t have to present evidence at trial, and obviously we can’t let that happen.
Given the now-obvious risk that Florida courts will accept Orders of substitution in lieu of evidence at trial, it is imperative that all Florida judges give homeowners a chance to object to all such motions and stop entering these orders ex parte, without notice, and without hearing. In other words, it’s past time that these ex parte Orders stop being entered.
Procedurally, there’s no way anyone could disagree. The rule on substitution of parties is clear. Fla.R.Civ.P. 1.260 explicitly requires a “notice of hearing” be filed along with the motion to substitute. Where the Rule mandates a hearing, it is legal error to enter such Orders without a hearing. See Metcalf v. Lee, 952 So. 2d 624 (Fla. 4th DCA 2007).
Substantively, the need for a hearing is apparent. If judges are going to use the Order of substitution in place of evidence at trial, all homeowners should be entitled to a hearing prior to such an Order being entered. That means, of course, that all homeowners must request such a hearing and object to all motions to substitute party plaintiff. After all, as the majority ruled, if you don’t object, you could be deemed to waive your right to complain later.
So what should homeowners do to avoid this trap? I see a few solutions.
First, and perhaps most obvious – challenge the Motion to Substitute Party Plaintiff! Make it clear, in writing, that you oppose the substitution. Make it clear, in writing, that you want a hearing. Force the new plaintiff to explain, in writing (and, ideally, under oath) why it is entitled to the substitution. If the issue is that the Note/Mortgage were transferred after suit was filed, Rule 1.260 probably authorizes the substitution. But if the issue is that the original plaintiff never had standing, and a new plaintiff is trying to cure the original plaintiff’s standing deficiencies by a motion to substitute party plaintiff, then the requested substitution should be denied. And if the basis for the substitution is unclear, it should be denied until the plaintiff so clarifies.
Second, even if an Order of substitution is granted, make sure the Order does not contain any sort of finding that the new Plaintiff is the “correct” Plaintiff. By granting a substitution, all the court is doing is giving that party permission to bring a case, not making a fact-finding that the new Plaintiff has standing. Quite frankly, I don’t think any Florida judge is intending to rule that the new Plaintiff is the “correct” Plaintiff (and need not present evidence at trial) by entering an Order substituting party plaintiff, so I think most judges will be happy to so clarify. However, it’s obviously important that the written Order so reflect. For instance, I’d envision something like this:
The Motion to Substitute Party Plaintiff is granted, and XYZ Plaintiff may prosecute this case in place of the original Plaintiff. In so ruling, this Court does not pass on the question of whether XYZ Plaintiff is the correct Plaintiff or has standing to foreclose; the Court is merely giving Plaintiff leave to plead a claim against Defendants.
If the Order is worded like that, it should prevent any problems.
Third, if an Order substituting party plaintiff is granted, I’d argue the new Plaintiff should have to file an Amended Complaint, enabling the homeowner to plead in response thereto. After all, the majority makes it clear that the homeowner has to plead its standing defenses, and that being the case, the new plaintiff should have to plead its claims as well. In other words, the homeowner should get to plead in response to a complaint brought by the new plaintiff (with allegations that the new plaintiff is the owner and holder of the Note and Mortgage), not be in a position of answering a Complaint brought by the original plaintiff when a new plaintiff is in place.
Fourth, regardless of whether the presiding judge requires an Amended Complaint, all Florida homeowners should make sure they obtain leave to amend, particularly if they’ve already filed an Answer. That way, it will be impossible for any judge to conclude the homeowner waived defenses by failing to plead them. Obtaining leave to amend shouldn’t be difficult, either – it’s freely given, and it would have to be given if the court just allowed the substitution of a new plaintiff.
For what it’s worth, Stopa Law Firm has been challenging Motions to Substitute Party Plaintiff – systematically, in every case – for a long time. There are two ways to do so, i.e. by written objection (if an Order hasn’t been entered), or by a Motion to Vacate Order (if an ex parte Order was signed). Frankly, I saw this trap coming a long time ago, and I’ve been trying to prevent it from prejudicing my clients. It’s a touchy issue, though, one that I couldn’t imagine pro se homeowners handling without counsel.
Before concluding, there are four other things about the majority’s ruling that really bother me which merit discussion:
1. I am well aware of the line of cases cited by the majority for the proposition that standing is an affirmative defense which must be pled. However, the majority overlooks the fact that the plaintiff being the “owner and holder” is an element of the plaintiff’s case, not a defense by the homeowner. See Fla.R.Civ.P. Form 1.944. As such, unless the homeowner admitted the plaintiff was the “owner and holder” in his/her Answer (which I highly doubt, lest the majority would have said as much), then the plaintiff proving it is the owner and holder is not something the homeowner could have waived – it’s something the plaintiff must prove at trial, like any element of a plaintiff’s case in any lawsuit.
2. The majority acts as if this interlocutory Order which substituted the plaintiff was set in stone and that a contrary finding was impossible. In other words, the majority would have you believe that once the trial court signed an Order saying the plaintiff was “the real party in interest and proper Plaintiff in this action” that it could not, even in the face of evidence at trial, conclude otherwise. Respectfully, that is simply not true. As with any interlocutory Order, the judge had the discretion to reconsider that Order prior to the conclusion of the case. See Fla.R.Civ.P. 1.530. Hence, if the court conducted the trial and concluded based on the evidence presented that the plaintiff was not the correct plaintiff, nothing about the prior, interlocutory order prevented it from so ruling.
Without mentioning it, the majority seems to rely on a legal doctrine called “law of the case.” Under this legal principle, once an appellate court rules on an issue in a given case, the lower court is prohibited from ruling otherwise in that case. Many lawyers cite this doctrine in support of an argument that a court cannot change its prior rulings. However, that is not how it works. “Law of the case” only applies when an appellate court makes a ruling, binding a lower court to that ruling; law of the case does not apply to rulings by the trial court. Here, the lower court’s Order substituting the plaintiff, even to the extent it contained fact-findings, was not ”law of the case,” so the court was free to disregard or reconsider said Order as it saw fit. To rule otherwise is to fly in the face of years of established precedent enabling trial court judges to reconsider interlocutory orders at any time prior to entry of final judgment.
3. The majority characterizes the assignments of mortgage as “self-authenticating.” Respectfully, this is a false statement of law. A Note is self-authenticating under the UCC, as are the indorsements on a Note. However, assignments of mortgage are not negotiable instruments, are not subject to the UCC, and are not self-authenticating. Tellingly, the majority cites no case law otherwise, as no such case law exists. (To the extent the majority cites Riggs, that decision discusses Notes, not assignments.
Respectfully, it is very disappointing to see such a glaring misstatement of the law in a Florida appellate decision, particularly one that touches on novel issues that have not previously been addressed. What’s more troubling is that I can’t help but wonder if the majority cited the law in this manner because it was looking for an excuse to rule against the homeowner. That may sound harsh, but for those who know this area of law, it is troubling to see a statement that an assignment of mortgage is self-authenticating, without any legal citations, when I know that statement is false.
4. The majority makes conclusory assertions that the plaintiff presented sufficient evidence to re-establish a lost note, yet it cites no facts to support such a conclusion. This failure is particularly troubling when I read the dissent, which explains that the plaintiff had no idea when the Note was lost or who lost it.
Florida courts are inundated with foreclosure cases. We are all dying for insightful, detailed opinions from our appellate courts, giving us guidance on the law and how to apply the law to a given set of facts. Respectfully, citing a statute and saying the plaintiff complied is of little value.
Here, for instance, is the majority trying to say the plaintiff need not show when the Note was lost or who lost it? Frankly, I have no idea, because the majority does not elaborate. As a result, lawyers like myself and the many able trial court judges before whom I appear will continue to decide for themselves, with little direction or insight, exactly what proof is required in a foreclosure case.
Unfortunately, this is why Florida judges have such disparate views on how to rule on such issues – we have, quite frankly, very little guidance from our appellate courts. What’s good about this, though, is that this shows why lawyers can be so beneficial for homeowners facing foreclosure. There is a LOT of gray area in foreclosure cases, so having a lawyer who knows the ins and outs, and can avoid falling into the traps like the one in this opinion, can make all the difference.
Mark Stopa
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Posted on January 15th, 2012 by Mark Stopa
The fix is in, and those of us paying attention have been saying as much for a long time now. Don’t believe me? Check out the Florida legislature’s most recent effort to cater to the whims of the banks. Florida Statute 702.065 now provides:
702.065 Final judgment in uncontested proceedings where deficiency judgment waived; attorney’s fees when default judgment entered.—
(1) In uncontested mortgage foreclosure proceedings in which the mortgagee waives the right to recoup any deficiency judgment, the court shall enter final judgment within 90 days from the date of the close of pleadings. For the purposes of this subsection, a mortgage foreclosure proceeding is uncontested if an answer not contesting the foreclosure has been filed or a default judgment has been entered by the court.
(2) In a mortgage foreclosure proceeding, when a default judgment has been entered against the mortgagor and the note or mortgage provides for the award of reasonable attorney’s fees, it is not necessary for the court to hold a hearing or adjudge the requested attorney’s fees to be reasonable if the fees do not exceed 3 percent of the principal amount owed at the time of filing the complaint, even if the note or mortgage does not specify the percentage of the original amount that would be paid as liquidated damages. Such fees constitute liquidated damages in any proceeding to enforce the note or mortgage. This section does not preclude a challenge to the reasonableness of the attorney’s fees.
My thoughts, in no particular order:
1. The requirements to recover attorneys’ fees in Florida have been long-established over many decades and countless court cases. Any attorney wishing to recover fees must prove the reasonableness of those fees (both the number of hours and the hourly rate) by affidavit or live testimony. Additionally, an independent, third-party expert must opine the fees are reasonable. Any order granting such fees must contain written findings, by the judge, that the fees were reasonable. And except in contingent fee cases, the amount of fees cannot exceed what the client paid/owed to the lawyer.
In one swoop, the Florida legislature has completely changed the law in these regards. Now, there’s no need for expert testimony. Heck, there’s no need for any other proof whatsoever. Instead, the legislature has decided, in its infinite wisdom (insert sarcasm here), that 3% of the amount owed is always a reasonable fee in mortgage foreclosure cases. Hence, if the mortgage is $1,000,000, then $30,000 is a reasonable attorneys’ fee – even though the case was uncontested (which is what happens when the bank wins by “default judgment”).
$30,000 in fees for an uncontested mortgage foreclosure case? Seriously? Respectfully, this law is absolutely disgusting. If you don’t understand why, bear in mind there is no relationship whatsoever between the amount owed on a mortgage and the attorneys’ fees actually incurred foreclosing that mortgage. None. Nada. Zero. You can’t even say “well, homeowners with bigger mortgages will defend more aggressively, resulting in more fees” because the statute only applies when judgment was obtained by “default.” By definition, there is very little work done on such files, yet the banks get a rubber-stamped judgment entitling them to 3% attorneys’ fees. That’s $30,000 in fees on a $1,000,000 mortgage for a case that was uncontested. Truly appalling.
2. The only saving grace about the automatic, 3% fee is that it only applies in uncontested cases. Consider this another reason to fight your foreclosure case. After all, if you don’t fight, and you lose by default, the bank can tack on 3% to the judgment amount, and it can attempt to recoup this amount from you via deficiency judgment, whereas if you defend your case, the bank’s lawyers will have to prove the fees they seek are reasonable.
You might think a bank can’t recoup the 3% fees via deficiency, but you’d be mistaken. Look closely at the statute and you’ll see the waiver of deficiency language is only in subsection (1). Per subsection (2), a bank can win by default, tack on 3% in fees, and pursue those amounts from the homeowner via deficiency.
3. Other than contingent fee cases, I can’t ever recall seeing a situation where an attorney could recoup more in attorneys’ fees than what the client actually owes/pays. The law has been set up this way, of course, to prevent an attorney from getting a windfall against his/her opponent. By way of example, if I bill my client just $3,000, I shouldn’t get to recoup $10,000 from the other side just I beat them in court.
Despite years of established law in this regard, the Florida legislature has turned this law on its head via this statute. Now, it doesn’t matter how much the bank’s lawyers charged or received – they’ll always (in uncontested cases) get 3% of the amount owed. And if they weren’t charging 3% of the mortgage amount previously, you can darn sure bet they will now.
4. Conspicuously absent from this new law regarding 3% attorneys’ fees for bank lawyers is a reciprocal provision entitling homeowners’ attorneys to recover a 3% fee if the homeowner prevails in the mortgage foreclosure case. In every other context, Florida law ensures fee provisions are reciprocal for both sides. See Fla. Stat. 57.105(7). As far as mortgage foreclosure cases go, though, the legislature clearly doesn’t care about reciprocity – it’s all about giving a windfall to the banks.
Personally, I intend to argue that 57.105(7) makes the fee provision of 702.065 reciprocal, meaning I should recoup 3% of the mortgage amount in cases where I’ve prevailed. Unfortunately, I’m not holding my breath.
5. I’m less appalled at subsection (1), which basically directs a court to enter final judgment against any homeowner who defaults if the bank has waived a deficiency claim. I will note, however, that this portion of the statute is also rife with problems.
For instance, the statute directs that Florida courts enter a final judgment of foreclosure in uncontested cases 90 days after the pleadings have closed. “Uncontested cases,” though, are defined as those where a “default judgment” has been entered. Hence, the legislature is trying to tell Florida courts to enter judgments in cases where they’ve already entered judgments. Nonsensical? Yes, and that’s the point.
I presume the legislature intended to require judgments be entered in cases where a “default” (not a default judgment) had been entered, but that’s not what the statute says (and there’s an obvious difference between a “default” and a “default judgment” – see Fla.R.Civ.P. 1.500). Apparently, the legislature was in such a rush to enter something pro-bank, it couldn’t take the time to create a statute that makes the slightest bit of sense.
6. The fact that I have to cite the Florida Rules of Civil Procedure to explain this statute is telling, and it’s illustrative of the statute’s problems. Under Article V, Section II of the Florida Constitution, the Florida Supreme Court has the exclusive authority to designate rules of practice and procedure in all Florida courts. If the Florida legislature creates a statute which purports to set forth a rule of practice or procedure, it is acting in derogation of its constitutional authority and such a statute should be deemed unconstitutional.
Here, I’d argue that Rule 1.500 sets forth the procedure by which a Florida court can enter a judgment after a default and that the legislature’s attempt to direct courts when to enter judgment in foreclosure cases unconstitutionally infringes on the terms of the Rule. In other words, I see a fair argument that subsection (1) of Fla. Stat. 702.065 is unconstitutional, and I expect court rulings on this issue in the near future.
Speaking of the unconstitutionality of this statute, I also expect constitutional challenges to the 3% fee provision in subsection (2). If I find that law appalling, I’m sure others do as well. But it’s more than just appalling - it’s easy to couch that statute in terms of a violation of due process or in derogation of Fla.R.Civ.P. 1.525.
Putting aside the legal technicalities, Fla. Stat. 702.065 is a bad sign for Florida. It’s sad that the legislature is willing to stoop to these levels to cater to the whims of the banks. If you’ve been ignoring issues like this, get involved. Stand up and fight. Tell the legislature what you think about it. The banks are obvoiusly pushing the legislature to do what it wants … are you?
Mark Stopa
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Posted on January 15th, 2012 by Mark Stopa
Monday, January 16, 2012, we celebrate the birthday of Martin Luther King, Jr. To truly celebrate, let’s take a look at some of MLK’s famous quotes and ask ourselves what he would think about America if he were alive today:
- A nation that continues year after year to spend more money on military defense than on programs of social uplift is approaching spiritual doom.
- A riot is the language of the unheard.
- He who passively accepts evil is as much involved in it as he who helps to perpetrate it. He who accepts evil without protesting against it is really cooperating with it.
As I read through quotes like this, and many more that were similar, one image came to mind …
Mark Stopa
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