Getting Away With Foreclosure Fraud

Posted on February 3rd, 2011 by Mark Stopa

There is a rule of procedure in Florida that enables a plaintiff to dismiss a lawsuit, voluntarily, at any time.  The case can be on the eve of trial, after years of work and preparation, and the plaintiff can dismiss the case (and there’s nothing the defendant can do about it).  The parties can be entering a hearing on a defendant’s motion for summary judgment, which the plaintiff realizes will be granted, and the plaintiff can dismiss the case (and there’s nothing the defendant can do about it).  In both instances, yes, the case is over, and yes, the defendant has “prevailed,” but if the dismissal is without prejudice, the plaintiff can re-file the exact same lawsuit at any time in the future. 

In a recent foreclosure case, the fairness and practicality of this rule was put to the ultimate test.  The underlying facts were the classic example of foreclosure fraud.  You can read the entire opinion here, but here’s my Cliff Notes version.  The plaintiff lacked standing when it filed suit for foreclosure.  A bright foreclosure defense attorney began proving as much.  Rather than admitting their lack of evidence, the bank and its lawyers created a fraudulent assignment of mortgage.  Instead of accepting the assignment as gospel, the homeowner’s attorney challenged its veracity and began pushing for sanctions for fraud on the court, seeking some extreme but appropriate (on these facts) remedies, including dismissal with prejudice and, essentially, elimination of the mortgage. 

Undoubtedly realizing they were caught in a fraud, the bank and its lawyers voluntarily dismissed the case.  Then they prepared a new assignment and filed a new lawsuit, acting as if the fabricated evidence never existed.  The homeowner’s attorneys pushed back, asserting they shouldn’t be able to dismiss the case and sweep the fraud under the rug. 

So that was the issue before the appellate court – can a bank, when confronted with damning evidence of fraud on the court, fabricating evidence, and foreclosure fraud, simply dismiss the case, create a new assignment, and re-file (essentially sweeping its own misconduct under the rug)?  

Florida’s Fourth District Court of Appeal recognizes the significance of this question.  That’s why all of the judges on the court joined in the opinion (making it an en banc opinion, which is rare, as opposed to the standard three-judge panel), and certifying the question to be of great public importance to the Florida Supreme Court.  The judges also acknowledged the pervasive nature of fraud in foreclosure cases, ruling ”many mortgage foreclosures appear tainted with suspect documents.”  Unfortunately, however, all but two of the judges ruled that the bank could dismiss its case, and re-file, despite the rather obvious fraud on the court and fabrication of evidence.   

I readily acknowledge there are technical, legal arguments to be made in support of such a ruling.  As I said at the outset of this blog, there is legal precedent for the court’s ruling.  However, I find the decision to be a travesty of justice.  Think about it.  What is the court saying via this ruling? 

Banks, you can commit foreclosure fraud.  You can fabricate evidence.  If you get caught, simply dismiss the case, fix your evidence, and re-file a new lawsuit (without penalty).  

Everyone knows foreclosure fraud is a huge problem in Florida courts.  Even the judges in this decision acknowledge as much.  Hence, this ruling is yet another illustration of how nobody in a position of authority is willing to do anything about it. 

One aspect of the ruling that I can’t get out of my head is where the court says, in certifying the question as one of great public importance, that if the sanctions this homeowner sought were available after a voluntary dismissal, it would “dramatically affect the mortgage foreclosure crisis in this State.”  I have this horrible, nagging feeling that is what’s driving the court’s ruling.  The judges realize there is fraud (as all of us do), but they don’t want to “dramatically affect the mortgage foreclosure crisis” in Florida, so they issue a ruling that basically lets the banks get away with fraud.  In other words, as I read the ruling, what I see is “we don’t want every homeowner in Florida to be claiming fraud, and clogging up our court system, so we’ll let the banks get away with fraud for the sake of the system.” 

Maybe I’m wrong.  I’d like to think I am.  Time and time again, though, I’ve seen Florida judges be presented with an opportunity to uphold justice, to disavow fraud, and to prove they won’t tolerate fraud by big banks.  Yet time and time again, Florida judges don’t avail themselves of the opportunity to send such a message.  Respectfully, what does this say about our court system?  Our system of justice? 

We will administer justice, unless it’s inconvenient, or creates a backlog on our dockets, in which case we’ll turn the other cheek for the sake of the system.

The irony here is that if Florida judges made strict rulings disavowing fraud then it would help the very system with which they are so concerned.  To illustrate, suppose banks knew they would be harshly sanctioned for foreclosure fraud.  Eventually they’d realize (at least in theory), that they can’t engage in that fraud, so they’d prosecute cases the right way.  If that happened, foreclosure defense lawyers like me would have less to talk about in defense of homeowners, as banks were prosecuting cases correctly.  But lawyers like me virtually always have defenses to assert, often fraud, because banks routinely engage in fraud, often because there is no punishment for their having done so.  And hence the cycle continues, on and on.  Banks commit fraud, homeowners complain about it, judges won’t sanction it, banks commit more fraud, homeowners complain more, etc., etc. 

Imagine if Florida somehow passed a law that legalized armed robbery.  Do you think there’d be an increase in armed robbery?  I do.  Most people, for moral reasons, would still refrain from it.  But if armed robbery were legal, more people would commit it.  Foreclosure fraud works the same way.  Without a deterrent, more banks will do it.  Hence, where homeowners are prevented by law from robbing a bank, it seems that banks are somehow protected by our laws from robbing homeowners.

Mark Stopa

www.stayinmyhome.com

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