Archive for March, 2011

Distinguishing High Volume and Shoddy Practice

Stopa Law Firm has handled several hundred foreclosure cases since 2008.  Given my experiences before numerous judges throughout Florida in a wide variety of settings (many of which have been documented on this blog), it’s rare that I see something that makes my jaw drop.  But when I read this transcript from Judge Maxine Cohen Lando in Dade County (Florida’s Eleventh Judicial Circuit), that’s just what happened.  Wow.  Just … wow.

Don’t get me wrong – it’s not that this transcript surprises me.  It’s that a judge has finally said all of the things I’ve been thinking for so long.  FINALLY!  A judge calls out a foreclosure mill for their shoddy practices. 

Look, my firm can be considered a high-volume practice, so I say with experience and certainty that there’s nothing inherently wrong with a high-volume practice.  Lots of law firms do it.  Many personal injury firms are high-volume.  This is actually quite common.  However, as Judge Lando indicated, regardless of the size of a lawyer’s caseload, that lawyer still has the obligation to diligently represent all clients.  Personally, I pride myself on the pleadings filed by Stopa Law Firm, be it in foreclosure cases or other cases.  Indisputably, a high-volume practice is not a justification to file garbage before the Court or to mislead the court with factually incorrect arguments. 

Let’s put it this way.  It’s one thing for a lawyer to tell the court the sky is blue.  Many times, that’s true.  But it’s another thing for a lawyer to tell the court the sky is blue without taking two seconds to look outside and see it’s midnight and raining.  And that’s often what happens with foreclosure mills – they make presumptions that are sometimes true but are often unwarranted, if not totally false.  Given their volume, they proceed full speed ahead anyway, even with the false presumptions.  What results is, at best, shoddy paperwork and, at worst, fraud.  The transcript I’ve attached is a wonderful illustration of this. 

In my practice, I’ve witnessed this conduct time and time again.  With regularity, I see foreclosure lawyers for the banks not attend duly-noticed hearings (without cancelling them), fail to return phone calls, fail to respond to settlement offers, etc.  I see court filings that are so gross/deficient that I’d be embarassed to have to go into court and argue them.  But the mills justify their actions by saying they’re a “high volume practice.” 

There are many things I liked about this transcript, but that’s what I liked most.  Judge Lando realizes that a high caseload does not justify shoddy practice, and she called out the bank’s lawyer for not recognizing the difference.   I can only hope other Florida judges follow her example (and start issuing appropriate sanctions when the foreclosure mills fail to take heed).

Mark Stopa

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Marshall Watson – the latest Fraud-ster

With recent reports that Freddie Mac has stopped using Marshall Watson (a Fort Lauderdale foreclosure mill) to prosecute foreclosure cases, the question arises – why?  What has Marshall Watson been doing?  My answer?  The same fraudulent misconduct that Stern, Ben-Ezra & Katz and all the others have done.  As I’ve said all along, in my opinion, none of the foreclosure mills are any different – they’re all pushing fraudulent paperwork; it’s just that some have been caught whereas others haven’t (yet). 

Anyway, here’s an interesting take from Fraud Digest on Marshall Watson

Mortgage Fraud

Freddie Mac
Marshall C. Watson Law Firm

Action Date: March 12, 2011
Location: Ft. Lauderdale, FL

The Federal Home Loan Mortgage Corporation (“Freddie Mac”) announced on March 11, 2011, that it is taking its foreclosure cases away from the Marshall C. Watson Law Firm. The Watson firm, based in Ft. Lauderdale, Florida, was one of the firms most often used by Freddie Mac, Fannie Mae and mortgage-backed trusts to foreclose in Florida. The Watson Firm came under the scrutiny of the Economic Crimes Division of the Florida Attorney General for improper loan documentation and foreclosure practices.

In over ten thousand Florida foreclosure cases, the Watson firm used mortgage assignments signed by the firm’s own employees to prove that their clients owned the mortgages. In most of these cases, Freddie Mac, Fannie Mae and mortgage-backed trusts were claiming to own the mortgages. Fannie, Freddie and the trusts lost or never obtained the mortgage assignments needed to prove ownership.

In these cases, two associate lawyers in the Watson firm, Patricia Arango and Caryn Graham, signed the Assignments to the trusts so that the foreclosures could proceed. When Arango and Graham signed these mortgage assignments, they did not disclose that they were lawyers in the Watson Firm. Instead, Arango and Graham signed as officers of Mortgage Electronic Registration Systems, Inc.

In the last three years, Arango and Graham signed as officers of the Mortgage Electronic Registration Systems, Inc., as Nominee for the following lenders on over 10,000 documents used in Florida foreclosures:

• Aegis Wholesale Corporation;
• America Imperial Mortgage Business, Inc.;
• American Bancorp Mortgage Corp.;
• American Home Mortgage;
• America’s Wholesale Lender;
• BNC Mortgage, Inc.;
• Century 21 Mortgage;
• Countrywide Bank, FSB;
• Countrywide Home Loans, Inc.;
• CTX Mortgage Company, LLC;
• Gateway Funding Diversified Mortgage Services;
• Decision One Mortgage Company, LLC;
• E-Loan, Inc.;
• First Choice Funding Group;
• First Magnus Financial Corporation;
• Flagstar Bank, FSB;
• Greenpoint Mortgage Funding;
• Guaranteed Mortgage Bankers;
• HomeAmerica Mortgage Corp.;
• Interstate Home Loan Center, Inc.;
• Ivanhoe Financial, Inc.;
• KB Home Mortgage Company;
• MFC Mortgage Inc. of FL;
• Quicken Loans, Inc.;
• Suntrust Mortgage, Inc.; and
• Universal American Mortgage Company, LLC.

On the majority of these documents, the date of the alleged transaction is falsely stated. The documents were so poorly prepared that in many cases, the new owner is shown to have acquired the mortgage months and even years AFTER the foreclosure cases were filed by those new mortgage owners.

The Watson Firm was also the law firm that most frequently used mortgage assignments prepared by Docx, LLC. The assignments from Docx, LLC include thousands of documents with forged signatures of Linda Green, Tywanna Thomas and Korell Harp, as well as dozens of documents where the lenders were identified as “Bogus Assignee” and “A Bad Bene.” These Docx-prepared assignments also falsely stated the dates of the alleged transfers, and even the authority of the signers to sign on behalf of Mortgage Electronic Registration Systems, Inc.

Despite the well-documented problems with foreclosure cases brought by the Watson Firm, Fannie Mae has not removed the firm from its list of approved law firms. Fannie Mae removed Florida firm Ben-Ezra & Katz in February, 2011, and required the firm to transfer over 15,000 files. Fannie also removed The Law Offices of David J. Stern in Plantation, Florida. That firm announced that it would stop doing all foreclosure work as of March 31, 2011.

No criminal charges have been filed in any case involving forged or fraudulent loan documents used by banks and mortgage lenders to foreclose.

While courts have been critical of such documents and have added requirements to civil procedure rules so that law firms can be sanctioned for using such documents, no sanction has ever included any criminal charges.

Mark Stopa

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Preparing for the Next Wave of Foreclosures


The rate of foreclosure filings in Florida has been quite low the past few months – lower than it’s been in years.  But I’m certain this is just a temporary blip in the radar.  Banks and their lawyers have been regrouping, changing their procedures, policies, and systems in the wake of the robo-signing scandal.  In other words, a new wave of foreclosures is coming. 

This may sound like speculation, but Stopa Law Firm has seen the implementation of these changes in recent weeks:

1.  Some law firms are filing “reverified affidavits,” trying to fix the flawed nature of the affidavits that gave rise to the “robo-signer” controversy.

2.  Many banks have been forced to retain new attorneys, particularly since so many files were being handled by David Stern, who is now out of business.  Several new foreclosure mills have emerged in his place, and I can see these firms getting up to speed on the foreclosure process with each passing day. 

Hence, although the foreclosure filings are down, this is no time to relax!  If you’re facing foreclosure and have yet to retain counsel, make sure you do so now, before your foreclosure lawsuit spirals out of control (which can happen quickly once the bank’s lawyers start pushing the case).  And if you’ve just been sued or realize a lawsuit is coming, remember some basic facts:

1.  You don’t have to leave your home unless and until the bank wins a foreclosure lawsuit against you.

2.  An experienced foreclosure defense attorney may uncover defenses to foreclosure, even if you haven’t paid your mortgage for many months, helping to stave off foreclosure and stay in your home.  

3.  Loan modifications generally don’t work.  Temporary loan modifications typically accomplish nothing, as the foreclosure lawsuit often moves full speed ahead regardless of the status of your temporary modification.  Banks are notorious for trying to lying to homeowners about this, but don’t be duped – you must defend your foreclosure case, even if a modification is presented, underway, or being evaluated. 

4.  If you try to defend the case on your own, you may be waiving defenses that an experienced foreclosure defense attorney could have asserted on your behalf.  I have a lot of experience with this issue, so let me assure you – almost invariably, the sooner I get into a file, the more I can help the homeowner.  When is the best time to retain a lawyer?  As soon as you’re sued!  Or if you know a suit is coming (which it will if you’re behind on your payments), you might as well get us on board beforehand – that will ensure we’re ready and help ease your mind. 

Here’s an article about the coming wave of foreclosures in Florida…

MIAMI (CBS4) – A new report on foreclosures in the state may have you thinking we’ve turned the corner on our troubled real estate market, but ‘all that glitters is not gold’.  According to the online tracker of foreclosed properties,, Florida foreclosures have slowed to their lowest levels in about four years. But a hard look at the numbers show the latest figures don’t tell the whole story and the number of foreclosures could very well increase in the coming months.

Last month, 18,760 homes and condos in Florida were in some stage of the foreclosure process, the second highest amount in the country. But looking at the big picture that number is down 65 percent from last year, and 71 percent from 2009.  RealtyTrac officials said the number of foreclosures across the country are slowing because of charges that some of the biggest banks and processors used faulty paperwork in their proceedings. In Florida, the foreclosure rate has slowed enough to knock the state out of the Top 5 Worst in the country for families to lose their homes. 

Once the formal investigations into the way banks and processors handle the foreclosure paperwork end, most real estate forecasters predict a second wave of mass foreclosures – and it could be a big one.

Mark Stopa

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Bickering Over a Solution to the Foreclosure Crisis

Attorneys General from various states are trying to reach a settlement with big banks for 20 billion dollars.  Sounds great, but the two sides are bickering not just on the amount of the settlement, but what to do with the money, as the New York Times explains, below.  As I see it, this is all a bunch of crap.  Everyone knows there is no perfect solution; we don’t need the banks to tell us that.  But any solution is better than none, and that’s what’s happening with all of this bickering – nothing.  Of course, that’s just what the big banks wants, as it ensures no penalty and no money out of their pockets.   

Want my solution?  I’ve said it before on this blog – reduce the principal on all owner-occupied mortgages to present value.  Boom!  Instant loan modification for everyone.  Is that arguably unfair for people who’ve already paid their mortgages?  Sure.  And is it unfair to people who have already been foreclosed?  Yes.  But there is no perfect solution, and that solution is better than any I’ve seen.  After all, it would make mortgages affordable, drastically reduce the incentive for strategic defaults, and, most importantly, keep homeowners in their homes.  Arguably, this would help banks, too, as it would induce more people to make their monthly payments (but, if we’re being honest, who cares if the banks are hurt – they’ve been helped enough already).  Also, an “across-the-board” policy like that would be hard to criticize because it applies equally to everyone; nobody could cry “favortism.”

Unfortunately, this type of policy will never be implemented because the big banks would never agree to it and nobody in a position of authority in the United States has the gumption to force it to happen.  Sigh.  (In other words, Obama has no guts, and neither does just about everyone else in D.C.) 

Here’s the article…

Showing resistance for the first time against government pressure to write off tens of billions worth of mortgage debt, Bank of America executives said on Tuesday that the idea was unworkable and warned that it would be unfair to borrowers who had managed to stay current on their loans.

“There’s a core problem that if you start to help certain people and don’t help other people, it’s going to be very hard to explain the difference,” said Brian T. Moynihan, the chief executive of Bank of America. “Our duty is to have a fair modification process.”

All 50 state attorneys general, as well as a host of federal agencies, are pushing for a settlement over investigations into foreclosure abuses by major mortgage servicers that could cost the industry $20 billion or more. Much of that money would be earmarked to reduce principal owed by homeowners facing foreclosure.

But picking just who to help is among the thorniest questions facing government regulators, as well as the banks themselves. Even the most outspoken attorney general on the issue, Tom Miller of Iowa, acknowledged on Monday that too generous a program might encourage homeowners to walk away from properties where the value of the loan exceeded how much the underlying property was worth.

Indeed, industry experts estimate that nearly a trillion dollars worth of mortgage debt is “underwater,” a result of house prices having fallen since the original loans were made. Federal officials hope a settlement with the servicers will help individual borrowers and provide a cushion for the weak housing market.

Officials of Bank of America, the nation’s biggest mortgage servicer, argue that any effort to help troubled borrowers should not penalize borrowers who are underwater but have managed to make their monthly payments.

“There may be as much as $1 trillion worth of mortgages that are underwater,” said Terry Laughlin, the Bank of America executive whose unit, Legacy Asset Servicing, handles mortgages that are delinquent or in default. “What do you do for those borrowers that have a job but have negative equity and have paid on time and honored their obligations?”

“This is an unsolvable question,” he said. “It’s a very slippery slope.”

The comments by Mr. Moynihan and Mr. Laughlin came at a daylong meeting with investors and analysts in New York, the first of its kind for Bank of America since 2007.

Despite fierce criticism by regulators and political leaders that its efforts to help troubled borrowers have fallen short, Bank of America executives insist that the number of successful modifications the bank has completed is on the rise. The bank says more than 800,000 mortgages have been modified in the last three years.

Writing down billions of principal now could actually retard the recovery by encouraging borrowers to default, they argue. “It’s not that we don’t want to help troubled borrowers,” Mr. Laughlin said. “It’s a moral hazard issue.”

Late last week, the attorneys general presented the five biggest mortgage servicers, including Bank of America, with a 27-page proposal that would drastically reshape how they deal with homeowners facing foreclosure. It did not include a specific dollar figure, but government officials say they want to combine any overhaul of the foreclosure process with a monetary settlement that could finance more modifications for troubled borrowers.

The existing modification program created by the Obama administration, known as HAMP, has helped far fewer borrowers than originally promised. It also faces fierce opposition from Republicans in the House of Representatives, who voted last week to kill the program.

Mr. Moynihan believes investors who hold trillions in mortgage securities have to be involved in any settlement. It is not exactly clear what role they would play as part of the settlement with the federal government.

Officials at Bank of America, as well as other large servicers, declined to comment on the specifics of the 27-page proposal, and the industry has been cautious about fighting back too aggressively, mindful of the tales of robo-signing and other abuses that prompted the investigation by the attorneys general and federal regulators last fall.

What’s more, consumers and politicians are keenly aware that Bank of America and other financial giants have staged a remarkable turnaround since the government bailed out the industry after the collapse of Lehman Brothers in 2008.

“I think reasonable minds will prevail on this,” Mr. Moynihan said. “We do push back and we get to reasonableness.”

Still, the comments at Tuesday’s investor meeting are a preview of the arguments the industry is poised to make more forcefully in the weeks ahead as it negotiates with the attorneys general and other regulators behind closed doors. On Monday, Mr. Miller said he hoped a settlement could be reached within two months.

As the huge volume of loan losses recedes and the economy improves, Mr. Moynihan said his company had the power to earn $35 billion to $40 billion a year. Bank of America lost $2.2 billion in 2010, weighed down by special charges and the lingering effects of the housing bust and the recession on consumers.

He also reiterated his position that the long wave of acquisitions undertaken by his predecessors was over. “I can’t stress enough to you how much of a peace dividend we’ll get without mergers,” Mr. Moynihan said. “That peace dividend is effectively a permanent dividend.” The bank intends to resume payouts to shareholders in the second half of 2011.

Mark Stopa

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David Stern is Finished

According to this letter, which he appears to have drafted and signed himself, David Stern is finished with all foreclosure cases in Florida effective the end of March, 2011.  Can we say “justice is served”?? 

I can’t help but notice, even as he’s leaving, that Stern continues his unethical conduct.  Here, instead of doing whatever is necessary to ensure his withdrawal as counsel in cases where his legal services have been terminated, Stern blames his client for not retaining a new attorney and the new attorneys for not filing substitutions of counsel.  Typical Stern – blaming everyone except himself.  This is particularly egregious because the law and ethics rules are clear – since he’s been fired, Stern must take all necessary steps to ensure his withdrawal as counsel.  That’s not the client’s responsibility, nor is it the new counsel’s job – it’s Stern’s.  You’re the lawyer; you’ve been fired – you need to withdraw as counsel. 

I guess nobody should be surprised that Stern is shirking his ethical responsibilities because he doesn’t want to spend the money to retain enough staff to ensure the job is done correctly (which could be accomplished rather easily, by the way, if Stern retained lawyers to ensure his firm’s withdrawal in these cases).  Of course, if he had done that from the outset of his practice, he wouldn’t have found himself in this situation in the first place.

Mark Stopa

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Understanding MERS

The New York Times has a good article, here, which explains MERS and how it has, perhaps more than anyone or anything else, destroyed America’s real estate market.  You can’t understand the housing collapse without understanding Mortgage Electronic Registration Systems.

Mark Stopa

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Temporary Loan Modifications Don’t Stop Foreclosure

The story below is another illustration of how temporary loan modifications don’t stop foreclosure. 

Oh, and it’s example 7,845,139 of how banks are crooks and fraudsters. 

Chase Deceives Another Honest Homeowner

Mark Stopa

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Understanding the Need for an Assignment of Mortgage

In recent months, as virtually every assignment of mortgage on record has been showed to be fraudulent, banks and their lawyers have tried to distance themselves from the fraud, and their impact on foreclosure lawsuits, by arguing they are irrelevant.  Their argument, essentially, is that an Assignment of Mortgage is recorded in the public record to alert creditors as to the owner/holder of the note and mortgage (not as a defense for the homeowner) and that the way a note is transferred is via indorsement. 

Before you scoff, I should say that this argument has a lot of legal precedent.  Many non-lawyers are unfamiliar with this concept/argument, so think about it like this.  If John writes a check for $100 payable to Jane, and Jane gives that check to Suzie, can Suzie go to the bank and cash that check?  No – it’s payable to Jane, so unless Jane signs the check and writes “pay to the Order of Suzie” on the back, then Suzie, despite having possession of the check, is out of luck.

Promissory notes, like checks, are negotiable instruments (generally speaking, anyway) under Florida law.  This means that, like Suzie, if a bank tries to foreclose on a note without an indorsement, it is out of luck.  Remember, the mortgage follows the note, not the other way around, so it’s the indorsement on the note (or lack thereof) that is key to establishing a bank’s right to foreclose. 

Banks and their lawyers have taken this argument to an extreme in Florida foreclosure cases, often prosecuting cases without any Assignment of Mortgage whatsoever.  Essentially, they’re relying exclusively on an indorsement to prove standing. 

Whenever this happens, my thought has always been “but the pubic records still show MERS, as Nominee for ABC Corp” (or whoever the company may be) as the mortgage holder of record, and no foreclosure can be completed without that entity being joined in the suit.  I’ve been arguing that to judges and colleagues for many months.  Think about it.  How can Bank of America foreclose on a mortgage when the mortgage holder of record is MERS, as Nominee for ABC Corp, there is no Assignment of record, and neither ABC Corp nor MERS is a party in the lawsuit?  In other words, even if a Foreclosure Judgment were granted, wouldn’t the mortgage in the name of MERS, as Nominee for ABC Corp, still exist, and still act as a cloud on title?  And wouldn’t ABC Corp. as Nominee for MERS still be able to sue on that mortgage?  On both counts, I say yes.  And that’s obviously a huge problem; after all, the purpose of a foreclosure lawsuit is to remove all clouds – here, the very mortgage that is the subject of the foreclosure still remains!

It seems that MERS is catching on to these problems.  In a recent memo, MERS instructs its members (the big banks) that it cannot commence foreclosure lawsuits in MERS’ name.  No suprise there – MERS is usually not a plaintiff anyway.  What I also find fascinating, though, is this quote:

Until further notice, all commitments prepared to insure title through a foreclosure proceeding where MERS is shown to be the record owner of the mortgage will contain a requirement for an assignment of that mortgage from MERS to the holder of the note or the servicer for that note.

(h/t to my friend and colleague, Matt Weidner, for posting the memo).

 What does this mean?  As I see it, MERS is acknowleding, despite the need for an indorsement to prove standing to foreclose, that an assignment of mortgage is also necessary for title purposes.  That’s a significant concession, one that should be argued in foreclosure cases.  I see the argument going like this. 

“Yes, judge, I see the indorsement on the note and the note in the file.  But the public records still show MERS as Nominee for ABC Corp. as the mortgage holder of record (because there is no assignment), and you can’t foreclose under that circumstance – the mortgage still exists.  In other words, nothing would stop MERS as Nominee for ABC Corp., or some other entity, from suing to foreclose on the mortgage because the mortgage still exists in its name..  In fact, MERS has acknowledged the need for an Assignment of Mortgage for title purposes, and if there isn’t clear title after this foreclosure, then what’s the point?”

Mark Stopa

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States Seek Mortgage Modification Overhaul

Below is an interesting article from the New York Times about how state attorneys general are pushing for an overhaul of the mortgage modification system.  I’m glad to see this is being discussed, but I’m not terribly optimistic.  As one analyst opined in the article, “I’ve watched bankers try to find ways around the rules.  They are adept.” 

Here’s the article. …

State attorneys general have presented the nation’s five biggest banks with a list of demands that could drastically alter the foreclosure process and give the government sweeping authority over how mortgage servicers deal with millions of Americans in danger of losing their homes.

Under the blueprint, banks would be prohibited from starting foreclosure proceedings while a borrower was actively trying to lower the interest rate or ease other terms of the home loan, a process known as a mortgage modification.

Any borrower who successfully made three payments in a trial modification would be given a permanent modification. When a modification was denied, it would be automatically reviewed by an ombudsman or independent review panel.

The proposed changes, which will be discussed by the attorneys general when they meet in Washington early next week, would compel the banks to treat each borrower in default individually.

It was the banks’ attempt to process foreclosures on a large scale that led to robo-signing, in which lawyers and bank officials signed thousands of documents a month after only a cursory review.

The ensuing furor over robo-signing, and other abuses like foreclosures that proceeded with missing documentation, prompted the attorneys general and regulators to begin a broad investigation last fall.

The blueprint from the attorneys general, obtained by The New York Times, is still just a draft, and weeks, if not months, of tough negotiations with the banks remain. Several big banks, including Citigroup, Bank of America and JPMorgan Chase, declined to comment.

The government’s current program to help troubled home borrowers, known as HAMP, continues to face fierce criticism. Both conservatives and liberals have found fault with the program, which aided far fewer homeowners than originally promised.

The latest proposal, delivered to the banks late Thursday, represents an expansion of powers for the newly created Consumer Financial Protection Bureau, which government officials say has taken a more aggressive stance in the talks than some other banking regulators.

The big banks are already wary of the new bureau and its overseer, Elizabeth Warren, a former Harvard law professor who has been sharply critical of the financial services industry and has pushed for a separate financial penalty of $20 billion or more.

“This further cements the C.F.P.B.’s authority in the financial space and puts them at the top of the pyramid when it comes to the mortgage modification fight,” said Jaret Seiberg, a policy analyst at MF Global in Washington. “From the perspective of the banks, this is the last place you want to be.”

On Capitol Hill, many conservatives are also wary of Ms. Warren, a sentiment echoed by Representative Scott Garrett, an influential Republican member of the House Financial Services Committee.

“I have deep concerns that an unconfirmed political appointee is making calls that affect the safety and soundness of our financial institutions,” Mr. Garrett said in a statement. “This is another attempt by the Obama administration to circumvent the rule of law and unilaterally implement its failed housing agenda at the expense of responsible homeowners.”

In addition to the attorneys general and the consumer bureau, the package is backed by the Department of Housing and Urban Development, Treasury, the Department of Justice, and the Federal Trade Commission.

If adopted in anything like its current form, the proposal would probably compel banks to hire many more customer service employees, or slow the foreclosure process even further. Many households are already in foreclosure for more than 500 days.

But a program aimed at reducing the volume of foreclosures would affect far more than the families in distress. It would also help reshape the housing market.

About two million households are in foreclosure, and 2.2 million more are severely delinquent. Housing analysts have been waiting for these properties to make their way back onto the market, where they will swell available inventories and, at least initially, depress prices. Housing prices are already on the verge of falling through the floor established in the spring of 2009.

Giving some of these households loan modifications, allowing families to stay in their houses at least for a while, might help stabilize the market. But it also might prolong the day of reckoning, shifting a housing recovery to 2013 or 2014.

“Do you rip the Band-Aid off and deal with a shorter and sharper housing decline that ultimately puts homes in the hands of borrowers who can afford them for the long term?” said Mike Larson of Weiss Research. “Or do you let this drag on and on?”

Indeed, the big banks are already arguing that the recommendations, especially the consumer bureau’s new powers, will slow the foreclosure process and inhibit lending in the future. Banks would have to provide the agency with their formulas for determining if and when modifications would proceed, as well as quarterly reports on their internal procedures.

Training documents and videos for employees at the servicing centers would have to be reviewed by the consumer bureau and the attorneys general, who would also appoint an independent monitor to examine the banks’ compliance with any eventual settlement.

Among the provisions being proposed, the banks would have to reward their employees for pursing modifications over foreclosures. Late fees would be curtailed. A fund would compensate borrowers who were victims of banks’ misconduct, while mortgage balances would be cut in “appropriate circumstances.”

The initial reaction to the proposed changes by those who work with families in default ranged from quietly optimistic to disbelief that the banks could be compelled to change. Many earlier programs to provide homeowner relief were voluntary and did not achieve expectations.

“If these changes are enforceable and enforced, it will make a significant difference,” said Michael Calhoun, president of the Center for Responsible Lending. But he said it would require the banks to make radical changes: “This is very hands-on, time-intensive, one-off stuff.”

Walter Hackett, a former banker and managing attorney at Inland Counties Legal Services in Riverside, Calif., was less hopeful. “For 20 years I’ve watched bankers try to find ways around the rules,” he said. “They are adept.”

Mark Stopa

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The Right Way to Settle a Foreclosure Case

I recently helped a client settle a foreclosure case via a short sale with a waiver of deficiency.  Everything was great, until the bank’s attorneys submitted this Order_Dismissing_Case to the Court, without submitting it to me for review beforehand, resulting in the Order being signed before I ever received a copy.  (The foreclosure mills’ repeated, ex parte submission of contested Orders is absolutely appalling, but that’s a blog all to itself.)

The problems with the Order are obvious:

1.  The foreclosure lawsuit was dismissed without prejudice, enabling the bank to re-file suit.

2.  The Order said the mortgage was “considered to be in full force and effect.” 

3.  The Order said Note “shall not be considered cancelled” and the original Note was to be returned to the Plaintiff. 

When I read this Order, I was beside myself.  This case settled.  The property was sold.  Any deficiency was waived.  Hence, the mortgage was paid/satisfied as a matter of law, as was the Note.  There was plainly no basis for the Plaintiff to take the position that the Mortgage and Note remained in place, nor was there any reason for the Plaintiff to have the original Note returned to it.  Similarly, there was no reason for the dismissal “without prejudice,” as there was no circumstance where the lawsuit could be re-filed. 

I filed a Motion to Vacate this Order and for Sanctions, arguing, essentially, just that.  I asked for sanctions against counsel for submitting the Order, with these flaws, without my consent.  Interestingly, when I spoke to the attorney at Florida Default, he said that he understood my concerns but that upper management required Orders to be submitted in this manner.  I pushed for an explanation.  Why?  What is the purpose of an original Note being returned, with an Order saying the Note and Mortgage were still in effect, if the property had been sold and any deficiency waived?  The FDLG lawyer had no answer (as there was none). 

After I continued pushing the issue, FDLG relented, consenting to the entry of this Amended_Order of Dismissal.  Note the differences?  This Amended Order clarifies:

1.  The foreclosure lawsuit is dismissed with prejudice;

2.  The mortgage is satisfied, cancelled, and of no further force and effect; and

3.  The original Note is to be kept in the court file, where it shall be removed from the stream of commerce and destroyed in the normal course. 

These differences may appear to be subtle to non-lawyers, but they make a world of difference going forward.  Under the first Order, the bank could have re-filed suit on the same note and mortgage, which were still in place.  Yes, we had a short sale agreement with deficiency waiver, but if the bank tried to sue in 5-10 years, would my client still have the paperwork to prove it?  Who knows.  With the Amended Order, she won’t have this concern, as the public record now appropriately reflects that the mortgage is satisfied, the Note has been removed from the stream of commerce, and the foreclosure lawsuit can never be re-filed.

Mark Stopa

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