Archive for May, 2011

Preparing for Trial in a Foreclosure Case

I have a trial tomorrow in a foreclosure case.  It’s in Lee County, of course – the county where the judges prosecute cases by setting trials sua sponte.  Right now, I’m earnestly preparing for trial, but I thought I’d take a break to discuss the two issues are paramount in virtually every foreclosure case/trial.  Depending on the facts of a particular case, there may be other issues, of course, but these two issues are critical to a Plaintiff’s ability to win at trial and should, in my view, be vigorously defended in virtually every case:

1.  Introducing the Note into evidence.

2.  Proving the homeowner’s default in payments and the amount owed. 

Re. the former, we all know the Plaintiff must introduce the original Note into evidence, failing which a foreclosure judgment cannot lawfully be entered.  The fact that a Note is “self-authenticating” makes this seem like a low hurdle – the Plaintiff’s attorney simply needs to hand the original Note to the judge and it will be admitted into evidence.  Fortunately for homeowners, it’s not that simple. 

Under Fla. Stat. 673.3081, if a homeowner denies the authenticity of a Note or the signatures thereon in the pleadings, the Plaintiff must authenticate the Note, and its signatures, at trial.  There is still a presumption the Note and all signatures are authentic, but by contesting authentication, a homeowner can force the bank to authenticate the Note at trial.  This may be harder than you think.  For instance, if I challenge the authenticity of a blank indorsement, the Plaintiff must put on testimony from someone who can swear, under oath, that he/she saw the indorsement executed or that he/she recognizes the signature and it is authentic.  Similarly, if I challenge the authenticity of the Note, the Plaintiff must present a witness who can testify he/she saw the homeowner sign the Note or who recognizes the homeowner’s signature based on other documents.  The way that Notes change hands between banks, neither of these things would be very easy, and I doubt the Plaintiffs’ lawyers will be prepared to deal with these evidentiary issues.  In other words, it’s quite possibly that if the homeowner preserves these evidentiary objections at trial, the Plaintiff’s lawyers won’t be prepared for them and won’t even have the requisite witness(es) at trial to testify. 

Re. the second issue, testimony at trial must generally be based on personal knowledge.  That means the Plaintiff must testify to events he/she has seen with his/her eyes or heard with his/her ears.  This is virtually impossible to do with regard to proving a homeowner did not pay a mortgage payment or proving the amount owed, so the Plaintiff invariably must rely on documents to prove these facts.  This is permissible, but only if the Plaintiff can introduce these documents under the business records exception to the hearsay rule. 

Again, this is harder than you think.  The Plaintiff must show: (1) the documents are a memorandum, report, record, or data compilation; (2) made at or near the time of the event; (3) by or from information transmitted by a person with knowledge; (4) kept in the course of  regularly conducted business activity; and (5) that it was the regular practice of that business to make such a record.  All five elements must be satisfied or the documents cannot be used as evidence at trial. 

I’m not trying to teach anyone how to practice law.  Rather, my point is that there are virtually always things that can be done to make it difficult for a bank to prevail in a foreclosure case; these are just two examples.  So don’t give up – keep fighting foreclosure!

Mark Stopa

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Using Bankruptcy to Eliminate a Mortgage

This article, out of California, explains how some homeowners have realized that a Chapter 13 bankruptcy proceeding can eliminate a second mortgage if the amount owed on the first mortgage exceeds the value of the home. 

I realize the article is out of California, but we’re talking about federal law, so it applies in Florida just the same. 

So as you’re searching for options to avoid foreclosure, keep this one in mind.

Here’s the article. …

Stung by the crash of the housing market, some struggling homeowners are using a little known but increasingly popular provision of the bankruptcy code to eliminate second mortgages and avoid foreclosure.  Statistics are hard to come by, but bankruptcy lawyers say the provision has been used effectively on hundreds, if not thousands, of cases in the Bay Area during the past two years.

“It’s a big thing in our valley,” said James “Ike” Shulman, a San Jose bankruptcy lawyer. “But it’s not widely known.”

Shulman, co-founder of the National Association of Consumer Bankruptcy Attorneys, said he has helped a number of clients who have filed for personal bankruptcy use the law to hold on to their houses — including three last week.

Cathy Moran, a Mountain View bankruptcy lawyer, said one of her clients had a $132,000 second mortgage voided by the court.

“This is a really big-ticket issue that allows people to keep a home and conform the mortgage to something closer to real value,” Moran said.

Bankruptcy laws prevent homeowners from eliminating the debt of a first mortgage if they plan to stay in their home. But second mortgages are treated differently. They can be declared unsecured debt when there is no equity to cover them, as is the case for millions of houses that are now worth far less than a few years ago.

When that happens in a personal bankruptcy proceeding, the second mortgage is put on hold and no payments are required while the homeowner completes a repayment plan for other debts — which typically takes three to five years. At that point, the second mortgage is eliminated.

Many of these second mortgages were granted during the housing bubble, when home prices were going in one direction only — up, up and up.

“A lot of these are loans that shouldn’t have been made at all,” said Henry Sommer, editor of Collier on Bankruptcy, a publication on bankruptcy law.

One of Shulman’s clients, Veronica — who asked that her full name not be used — was struggling to keep the San Jose house she bought in 2005 for $612,000.

Her home’s value has dropped to about $367,000 — less than her first mortgage of $489,000 — which allowed her to petition the bankruptcy court to set aside her $122,000 second mortgage. The court granted her motion.

She successfully completed her payment plan for other debts two months ago, and her second mortgage is now eliminated.

“It’s wonderful,” she said. “After almost six years, I am finally able to see the light at the end of the tunnel and I’m so, so grateful.”

Mortgage bankers don’t like the practice.

It’s “a troublesome phenomenon. It’s one of those things that’s just now developing and bubbling up,” said Dustin Hobbs, spokesman for the California Mortgage Bankers Association. But there is little the mortgage industry can do, aside from seeking to change the law. That could be difficult given the current partisan lineup in Washington.

And there are no complaints from investors in first mortgages, like the pension and retirement funds represented by the Association of Mortgage Investors. “We think with the right controls, something like this to allow a responsible, distressed homeowner to reorganize their assets, liabilities and cash flows is a very pro-business proposition,” said Chris Katopis, the association’s executive director. “We disagree with what the mortgage bankers associations are saying on this.”

The law has been like this for years, bankruptcy lawyers say. It’s just never been used as much because in the past there was usually enough equity in a home to cover the second mortgage.

“We’re having great results” using the rule, said Brette Evans, a San Jose bankruptcy lawyer. In one recent case, a small-business owner was able to hang on to her home by setting aside a $240,000 second mortgage, she said.

That put the borrower in “a safe zone” where she could work out a modification of her first mortgage, Evans said.

Mark Stopa

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What does God think about Foreclosure?

I was in Church today, on Mother’s Day (Happy Mother’s Day, all!!), and the priest asked everyone to pray:

for the unemployed and underemployed, that they may find the work that fulfills their most basic needs

It was just one line in an hour-long service, but it’s stuck with me.  

I’m Catholic, but my point here isn’t to create a religious debate.  Instead, think about it this way…

Do you think God (or any higher being in which you may believe) wants big corporations to be bailed out while average Americans struggle? 

Do you think God (or any higher being in which you may believe) wants corporate executives to give themselves lavish bonuses while countless homeowners struggle with basic necessities? 

Just something to ponder, especially on this Mother’s Day.

Mark Stopa

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Interesting Employment Applications

I receive applications for employment from all sorts of people – attorneys, paralegals, secretaries – on a regular basis.  It’s not anything I solicit – I just get them from time to time.  Unfortunately, I don’t have nearly enough openings for the qualified applicants who submit their resumes. 
Anyway, many of these applications are from people currently working at foreclosure mills.  It certainly seems like these applicants aren’t terribly happy in their present situations, and from what I know of the foreclosure mills, I can’t say I blame them.  
I’m certainly not going to disclose any personal information about these applicants.  However, the cover letter I just received, cut and pasted, below, was really interesting and worth the read.  It helped me feel good about the service that Stopa Law Firm provides to Florida homeowners.  If you’re an advocate for homeowners, hopefully it gives you a sense of pride as well. 
… I have worked for two foreclosure firms (one mill and one on its way to being a mill), and I am absolutely fed up with that area of law.  I told myself in the first couple of years that I worked in the first firm that it was just to get my foot in the door…get experience…but it got harder and harder to work in a place that I felt railroaded the average citizen.  I took another job in a foreclosure firm because it offered me trial experience.  Three weeks later I realized I could simply not work in foreclosure prosecution anymore.  If I see a doctor’s report detailing cancer treatments for an eight year old in a home that’s about to be foreclosed, I want to be with the firm that’s trying to make sure that child doesn’t have to deal with the stress of being removed from her home.
I want to be on the other side – the right side – of this mess.  I am attaching my resume in the hopes that you will find something on there that convinces you I could be a great fit with your firm. 
Mark Stopa

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Another Motion to Disqualify Judge

I had a disturbing hearing today before a local judge.  By way of background … this is the only judge in this area who rules upon (and, nearly always) denies motions to dismiss without a hearing.  Candidly, I’ve often suspected that the judge does not read these motions to dismiss as carefully as he should.  I hate to say it, but I’ve sometimes wondered if he reads them at all.

Anyway, at today’s hearing, I argued that his prior Order denying the Motion to Dismiss should be vacated because he had not ruled on my Amended Motion to Dismiss (which was drafted specifically because he tends to rule on motions to dismiss without a hearing).  When he tried saying he had reviewed the Amended Motion and had intended to deny it through his “inartfully” drafted Order, I had no choice but to inform him, in open court, that he could not have read the Amended Motion to Dismiss prior to his Order because the Amended Motion to Dismiss was not even in the Court file. 

Look.  I know judges are backlogged.  It’s unfair, it really is.  However, is this what it’s come to?  Saying you read a motion and intended to deny it when the motion was not even in the Court file?   Would it really have been that big of a deal to vacate the Order and rule on the Amended Motion to Dismiss (even if that ruling was another Order denying)?

Suffice it to say this sequence of events prompted me to file this Motion to Disqualify Judge.

Mark Stopa

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Why Age Impacts Strategy in Foreclosure Cases

At Stopa Law Firm, we represent homeowners with various bankgrounds, races, ethnicities, genders, ages, and affluence.  As I consult with such clients, I often find myself coming back to the same general themes/concepts.  Yes, everyone’s situation is different, but generally speaking, there are a handful of suggestions that apply to many different homeowners facing foreclosure. 

For instance, one theme I’ve seen emerging a lot in recent weeks is homeowners in their late 50s or 60s trying to plan their financial future in the midst of a looming or pending foreclosure.  Similarly, other seniors are wondering if a strategic default makes sense for them. 

If you find yourself in this boat, here are a few important facts to keep in mind.  In other words, this is how age can affect strategy in foreclosure cases:

– Many foreclosure defense lawyers appropriately caution homeowners about the potential pitfalls of a deficiency judgment (i.e. the difference between the balance owed on a note/mortgage and the value of the home).  For many homeowners, avoiding the deficiency, i.e. not having to pay the bank any additional money after a foreclosure, is their primary objective.  After all, it’s bad enough to lose your home; it’s even worse to lose your home and then still have to keep paying. 

I’m not saying this is an unreasonable goal.  Generally, avoiding a deficiency is eminently reasonable.  My point is that the younger you are, the more important it is to avoid a deficiency judgment.  Conversely, the older you are, the less of a concern this is. 

Consider two homeowners in identical situations.  Both are married, own the home they’re living in, have two cars, retirement accounts, and a modest, middle-class income.  Both have homes worth $150,000 but owe $350,000.  However, one couple are both age 42; the other is age 62. 

For the 42 year olds, avoiding a $200,000 deficiency judgment is really important.  Those homeowners will have 20(+) years in the work force.  That’s 20(+) years where the bank could garnish wages.  That’s 20(+) years where the judgment will accrue interest.  That’s 20(+) years where the deficiency judgment will be an anchor on those homeowners’ financial future. 

For the 62 year olds, the situation is much different.  Yes, avoiding the deficiency judgment is still preferred.  However, the 62-year-old homeowners don’t have 20(+) years in the work force – they have 2-3 years.  The potential for the bank to garnish wages is small (particularly if a foreclosure case is defended and a deficiency is avoided in the short term).  Yes, their other assets could, in theory, be subject to execution to satisfy the judgment, but that’s actually the point.  These homeowners (and many like them) don’t have much in the way of assets.  Most importantly, the assets he/she does have cannot be taken!  Bear in mind:

– Retirement accounts cannot be taken to satisfy a judgment!

– IRAs cannot be taken to satisfy a judgment!

– 401(k) money cannot be taken to satisfy a judgment! 

In fact, even if you file bankruptcy, retirement accounts, 401(k) monies, and IRAs cannot be taken.  The same goes, in fact, for college fund money. 

The only way you can lose your retirement money is if you withdraw the money yourself

For the 62-year olds, preserving those retirement monies should be the top priority.  I can hardly think of a circumstance where it makes sense for homeowners like this to withdraw retirement monies to pay the mortgage, especially if they are upside-down like in my example.  62-year-olds only have so many years left to invest into retirement accounts; the last thing you’d want to do is deplete those monies to pay a mortgage on a house worth less than you owe.  If you disagree, think about it this way – where will that couple be when the retirement money is gone, they’re too old to work, and they’re still upside-down on their home?  Conversely, if that couple defaults, defends the foreclosure case, tries to get back on their feet, and preserves or increases their retirement monies, then they’ll be much better off in the long run, I’d say. 

To put it differently, the potential pitfalls of strategic default are much less for the 62-year-old homeowners.  What’s the biggest problem with strategic default?  A potential deficiency.  Well, for a couple like this, the deficiency is probably not something they’ll ever pay anyway, given their ages and limited time left in the workplace.  So they’d be eliminating an anchor from their necks while preparing for their upcoming retirement. 

In fact, when you really think about it, virtually everyone should be putting far more emphasis on their retirement accounts.  Why not?  This is money you can never lose.  Even if you get a judgment against you, even if you have to file bankruptcy – that money is yours, forever, unless you withdraw it voluntarily.  Viewed from that perspective, it’s hard to think of a scenario where, if forced to choose, it’s not better to keep funding a retirement account than pay a mortgage on a home worth less than you owe.

Mark Stopa

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Identifying those who Strategically Default

Below is a well-written article in today’s Palm Beach Post, which continues the ongoing debate about strategic defaults.  I’m quoted in the article. 

I’m fascinated by the gentleman who refuses to strategically default, even though it’s clearly in his best financial interests, because it’s “not in the best interests of the United States.”  This is, in all sincerity, a very noble view.  So why shouldn’t everyone be so noble?  Well, first off, I don’t think any one particular homeowner can or should bear the burden of the overall economy – it’s up to each homeowner to do what’s best for him/her, just as the banks did when they took the bailout money.   

Perhaps more importantly, this homeowner’s position overlooks the real possibility that if more people strategically defaulted (and stopped making monthly payments on properties worth 1/3 of what they owe), then banks might be forced to make meaningful loan modifications to ensure a continued income stream.  In other words, I fear that continuing to pay gives in to the banks’ way of thinking, and we’ve all seen how far that’s gotten us. 

Here’s the article. …

By Kimberly Miller

Palm Beach Post Staff Writer

Homeowners who strategically default on their mortgages hope to fly under the radar, living payment-free while their foreclosure wends its way through the courts – a years-long process in some cases.  But the nation’s leading credit-scoring company says it has developed a better way to identify borrowers who can afford to pay their mortgage but choose foreclosure instead.

FICO’s new analytical tool, which combines such factors as spending habits, changes in a person’s debt and housing depreciation, is heralded as a way to ferret out borrowers making a business decision to walk away vs. homeowners who truly can no longer afford their mortgage. FICO claims to be able to make this distinction before a borrower is even in default.

For banks, identifying strategic default borrowers early can help them make decisions on how to handle the delinquencies, including what kind of language to use during phone calls, and whether to pursue deficiency judgments. 

A study released in March by the University of Chicago Booth School of Business found that 35 percent of mortgage defaults in September were strategic, compared with 26 percent in March 2009.

“It’s critical for the mortgage servicer to understand the motivation, particularly while the borrower is still current on the loan, so they can take preventative action,” said Joanne Gaskin, FICO’s director of mortgage markets. “It’s important to make sure the consumer understands the implications of walking away. They might not be aware of the continued liability.”

A hit of 150 or more points to a person’s credit score can be expected from foreclosure, FICO estimates. Also, in Florida, a lender has five years to file for a deficiency judgment and up to 20 years to collect.

A Palm Beach Post analysis of deficiency judgments showed only 133 claims were filed between April 2006 and November 2010 on foreclosed residential properties in Palm Beach County. But experts said more may be coming as banks work through the bulk of foreclosures or even sell the claims to debt collection companies.

Mark Stopa, a Tampa-based foreclosure defense attorney and proponent of strategic default, said financial institutions are just trying to scare homeowners, discouraging strategic defaults by convincing borrowers they are easily identifiable targets.

“Strategic default is a sound business decision for many people,” Stopa said. “Bankers try to make it about morality, but they have to realize that there is an overwhelming incentive at this point for people to strategically default.”

That’s because home values have sunk so much from their boom-time prices. In Palm Beach County, the median price for an existing home in March was $186,500, down 52 percent from the March 2006 median price of $393,700, according to Florida Realtors reports.

Traditionally, banks have used only the degree of home price depreciation when determining whether a default is strategic. FICO said its new tool considers other characteristics and looks for someone with a good credit history and a low credit-card balance who has lived a short time in the home and has opened new credit in the past six months.

West Palm Beach resident Anthony Armenti, 59, fits some of those characteristics. He also has seen his home value plummet from his 2006 purchase price of $274,100 to a total market value today of $77,000.

Retired, Armenti can afford the payments, but he’s also scrimping a little on other things and using coupons.

“I never had to live like that before,” said Armenti, who has considered a strategic default. “I don’t really need a credit score anymore. It would mean $1,600 in my pocket every month.”  But Armenti said he won’t walk away.

“I won’t do it because it’s not the right thing to do for the United States,” he said.

But banks are preparing for people who don’t share Armenti’s sentiment.

Gaskin said loan servicers are grooming teams of employees on how to deal with strategic defaulters.

“Specialists should be trained to engage in a pragmatic, rational discussion that corresponds to and joins with the thinking process in which these customers are already engaged,” said a FICO report about its new product. “They can help work through the alternatives and trade-offs to make a decision that potential strategic defaulters regard as less of a moral nature than a purely financial one.”

Mark Stopa

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