Archive for July, 2010

Motions to Dismiss – some judges are starting to “get it”

Stopa Law Firm is currently counsel in about 400 foreclosure cases throughout the State of Florida, so we’ve had more than our share of hearings on Motions to Dismiss.  Although there are lots of judges who systematically deny these motions even when, in my view, they are clearly meritorious, I’m happy to say there are many judges who are starting to ”get it.” 

For instance, about six months ago, I had my first hearing with Judge Scaglione in Brooksville (Hernando County, Florida).  It was clear he hadn’t heard a lot of foreclosure cases, and, at the time, he openly questioned why I’d be defending a foreclosure case because, if the homeowner hadn’t paid the mortgage, that’s ”all that matters” (or words to that effect).  Fast forward six months to a motion to dismiss hearing before that same judge, Judge Scaglione … this time, he obviously gave careful consideration to a Motion to Dismiss that I filed, and entered an Order granting the Motion to Dismiss in light of the Plaintiff’s lack of capacity and failure to attach the note or plead the essential terms of the note as part of its lost note count.  (After all, how can a court re-establish a document when the plaintiff fails to plead the essential terms thereof?)  I must say, it’s a pleasure to see judges like this, who had believed that homeowners couldn’t have a defense in a foreclosure case, take the time to evaluate the law and see what the homeowners’ lawyers are saying have merit. 

Of course, no judge, in my experience, is applying the law in foreclosure cases more than Judge Rondolino in St. Petersburg.  As reflected in this well-written Order, Judge Rondolino is consistently granting motions to dismiss in foreclosure cases where the law requires it.  My question is why more judges, up to this point, have been unwilling to make similar rulings.  It’s not like Judge Rondolino is the only judge getting cases with these fact patterns – the facts are typically very similar from one case to the next. 

Yes, I realize that homeowners are behind on their mortgage.  But many times, the bank induced them to go into default based on promises of a loan modification, then accelerated the balance owed, filed suit, and rejected the modification (leaving the homeowner with no choice but to defend a foreclosure suit and hope the bank will agree to a modification).  More importantly, regardless of the homeowner’s circumstances, the law must be followed.   And in my view, the law usually requires dismissal in foreclosure cases (admittedly, often with leave to amend). 

In most foreclosure cases, the Note and Mortgage attached to the Complaint were entered on behalf of an entity that is different than the Plaintiff, yet the Plaintiff conclusorily alleges itself to be the “holder” of the Note (without any ultimate facts explaining how or why that is so).  Before we evaluate the propriety of that argument vis a vis a Motion to Dismiss, let’s look at the law in other contexts (not foreclosure cases), when a plaintiff alleges something in the body of its Complaint that is inconsistent with the exhibits thereto.  (Stick with me, this will come full circle.)

In Blue Supply Corp. v. Novos Electro Mechanical, Inc., the Third District affirmed the dismissal of a complaint with prejudice, ruling:

[T]he contract attached to the complaint as well as the concession of Blue Supply’s counsel at oral argument establish that Carlos Novos was not a party to the Blue Supply/Nobox Electro Mechanical contract.  Because of this inconsistency, any claims against Novos, individually, predicated on the existence of a contract between Carlos Novos and Blue Supply must be viewed as properly dismissed. 

990 So. 2d 1157, 1159 (Fla. 3d DCA 2008).  This decision makes clear that if a plaintiff wants to allege someone is a party to a complaint, but the written contract shows otherwise, the complaint fails to state a cause of action. 

Another context where the inconsistency between an exhibit and the allegations in the body of a complaint frequently arises is when a plaintiff tries to bring a claim for fraud based on representations that are directly contrary to the language of a written agreement.  In Hillcrest Pacific Corp. v. Yamamura, for instance, the Fourth District affirmed a dismissal with prejudice where “the agreement plainly contradicts the allegations of the complaint and is fatally inconsistent with Pacific’s claim for fraudulent inducement.  Although Pacific alleges the appellees misrepresented the price of the property, the price is clearly stated in the agreement.”  727 So. 2d 1053, 1056 (Fla. 4th DCA 1999). 

With this backdrop in place, let’s look at cases where the plaintiff conclusorily alleges itself to be the “holder” of a Note and Mortgage, even in the face of exhibits attached to the Complaint in the name of another entity. 

With exceptions that typically don’t apply, see Fla. Stat. 673.3011, to sue for foreclosure, the plaintiff must be the “holder” of the Note.  See Booker v. Sarasota, Inc., 707 So. 2d 886 (Fla. 1st DCA 1998) (“to be the real party in interest on a promissory note, the plaintiff must be the holder of the note.”).  It’s easy to conclusorily allege yourself to be the “holder,” just as it’s easy to conclusorily allege fraud (as in Hillcrest) or that a defendant is a party to a contract (as in Novos).  However, as in Hillcrest and Novos, there’s more to it than that.  

“Holder” is a defined term under Florida law.  Under Fla. Stat. 671.201(21), the “holder” is “the person in possession of a negotiable instrument that is payable either to bearer or to the order of the person in possession.”  To be the “holder” when it was not the original mortgagee, (1), the Plaintiff must be ”in possession” of the Note; and (2) the Note must contain an indorsement in blank or an indorsement to the Plaintiff.  Absent both of these elements, the Plaintiff is not the “holder” as a matter of law; see also Fla. Stat. 673.2011(2) (“if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement by the holder.”) . 

Any time the plaintiff brings a claim to re-establish a lost note, the plaintiff is necessarily admitting it is not in possession of the Note.  In these cases, the plaintiff cannot be the “holder” as a matter of law.  See Fla. Stat. 671.201(21).  As Judge Rondolino has repeatedly ruled, dismissal is required on this basis.  Additionally, when the Note attached to the Complaint lacks an indorsement (in blank or to Plaintiff) or contains an indorsement to a different entity, the Plaintiff is not the holder by the very definition set forth in the statute.  See id.  Again, dismissal is required.  

Time and time again, judges throughout Florida are denying motions to dismiss on these facts.  Respectfully, those rulings are wrong.  I know judges want to push foreclosure cases.  But when the Plaintiff alleges itself to the the holder of the Note in the body of the Complaint, but the exhibits to the Complaint show it is not, plaintiff fails to state a cause of action.  Any ruling to the contrary cannot be reconciled with Hillcrest and Novos, supra

Many times, plaintiffs try to cure these pleading deficiencies after the motion to dismiss is filed but without filing an Amended Complaint.  The classic example is when the plaintiff files a “Notice of Dropping Lost Note Count” or argues, at the hearing on the Motion to Dismiss that the lost note claim is being dropped.  This does not change the outcome.  First off, Florida law does not allow plaintiffs to dismiss one count of a multi-count Complaint; the only way to “drop” a lost note count is to file an Amended Complaint eliminating that count.  See Deseret Ranches of Florida, Inc. v. Bowman, 340 So. 2d 1232 (Fla. 4th DCA 1976) (“The proper method of deleting less than all counts from a pleading is amendment of the pleading pursuant ot Fla.R.Civ.P. 1.190. Appellees attempted to do the impossible when they filed a Notice of Dismissal as to one count of a two count complaint. They should have limited themselves to filing their second amended complaint according to Fla.R.Civ.P. 1.190, omitting the undesired count.”). 

Regardless, the question is not whether Plaintiff was the holder at the time of the motion to dismiss hearing – the question is whether the Plaintiff was the holder (and has inconsistent allegations as to whether it is the holder) at the time the Complaint was filed.  After all, ”the plaintiff’s lack of standing at the inception of the case is not a defect that may be cured by the acquisition of standing after the case is filed.”  Progressive Express Ins. Co. v. McGrath Community Chiropractic, 913 So. 2d 1281, 1285 (Fla. 2d DCA 2005). 

In a situation like this, where the Complaint alleges Plaintiff to be the holder, but also alleges Plaintiff lacked possession at the time the Complaint was filed, and then asserts it has possession at the motion to dismiss hearing, some explanation is in order.  How can Plaintiff change the position alleged in its own pleading without filing an Amended Complaint?  Without any ultimate facts explaining itself?  In what other context, besides foreclosure cases, would that be permissible?  Plaintiff should be made to file an Amended Complaint, attach the Note upon which the suit was based, and allege itself to be the holder.  That’s the only way that Plaintiff’s exhibits would not be fatally inconsistent with the allegations in the body of its Complaint.  Then, as the case proceeds, Plaintiff will have to explain why it lacked possession at the outset of the case but obtained possession thereafter.  If the explanation is that Plaintiff obtained possession after filing suit, dismissal without prejudice is the proper remedy.  See id. (“if the [plaintiff] was without standing when the action was filed, the [action] was at best premature.  A new lawsuit must be filed.”). 

The analysis is the same when, on the eve of the motion to dismiss hearing, the plaintiff produces a note – the same note attached to the complaint – but this time with an indorsement in blank or an indorsement to the plaintiff.  Respectfully, if that indorsement was not on the Note attached to the original complaint, it cannot be considered for purposes of a motion to dismiss.  Since when do plaintiffs get to have the court rely on documents that are different than those attached to their complaint when adjudicating a motion to dismiss?  If Plaintiff wants the Court to consider the Note with the indorsement to it, and that indorsement was not on the Note attached to the Complaint, then Plaintiff must file an Amended Complaint with that version of the Note attached.  (Of course, as the case proceeds, Plaintiff will have to explain why the Note attached to the Complaint did not contain this indorsement, and if the evidence shows that Plaintiff obtained the indorsement after filing suit, the case must be dismissed without prejudice). 

There are many other, bona fide arguments in these Motions to Dismiss.  Respectfully, it’s time for judges to closely evaluate these arguments in the same way they adjudicate motions to dismiss in other (non-foreclosure) cases.  There is absolutely no reason to have one set of laws in foreclosure cases and another set of laws everywhere else.

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Mark Stopa, clients of Stopa Law Firm to appear on NBC Nightly News

For the third time in six weeks, Florida attorney Mark Stopa will be featured in a story by the national media. 

Stories of this type are always subject to be rescheduled, but at present, Mark Stopa and three clients of Stopa Law Firm are scheduled to appear on the NBC Nightly News with Brian Williams on Friday, July 9, 2010 at 6:30 p.m. EST.  

The interview was conducted by emmy-award winning journalist Mike Taibbi, and the NBC Nightly News is the highest-rated broadcast news program in the United States, so it goes without saying that this is a special opportunity. 

My goal, of course, is to continue to educate the public, especially Florida homeowners, about their rights through the foreclosure process.  Together, with attorneys like me, Matt Weidner, and many others in the Tampa/St. Pete area, we are making a difference – repeatedly getting noticed on a national level.  Let’s keep up the fight!

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Loan Modifications – it’s not that complicated

I am constantly befuddled at the banks’ refusal to provide loan modifications to clients and even more frustrated at the inability or unwillingness of anyone (be it those in the judiciary or the legislature) to do anything about it.  The entire process is totally out of whack.  To illustrate, the banks have somehow convinced everyone, even the Florida Supreme Court (as part of the new mediation program) that homeowners must turn over a series of financial documents before being considered for a loan modification.  Respectfully, that’s just not so.  Production of tax returns, check stubs, or other financial documents are absolutely not necessary to obtain a loan modification.  Under HAMP, ok, I will give you that.  But for a private modification, they are absolutely unnecessary.  If you disagree, take a look at my recent conversation with a bank’s attorney, which went something like this. 

Mark Stopa:  I have a client whose monthly payment was $2,500.  We want a loan modification where we pay $2,000/month at 4% interest and the principal balance is reduced by $50,000 (to better reflect the current value of the house). 

Attorney:  We need financial disclosures.

Mark Stopa:  No, you don’t.  The parties can agree to this modification and my client will begin paying immediately.  If my client defaults on the modified loan, we will consent to the foreclosure in the pending case. 

Attorney:  But then we would have lost the ability to claim that $50,000. 

Mark Stopa:  No, you wouldn’t.  We’d consent that if we default on the modified loan that the bank reserves all remedies available for the breach of the original mortgage.

Attorney:  We can’t do that.  The bank would have to pay a new filing fee.

Mark Stopa:  No, it wouldn’t.  We can stipulate to the dismissal of the pending foreclosure lawsuit but have the court reserve jurisdiction to enforce the settlement.  If my client defaults on the modified mortgage, you can obtain a foreclosure judgment in the pending case, ex parte, without paying a new filing fee. 

Attorney:  (silence)

Mark Stopa:  Doesn’t this give everyone the best of both worlds?  My client gets the loan modification it wants.  The lawsuit ends.  The bank resumes collecting monthly payments (which is supposedly what it wants).  If my client defaults on the modified loan, the bank loses nothing.  In fact, if my client defaults on the modified loan, it will be easier for the bank to foreclose than it would have been without the modified loan, because we are waiving all defenses. 

Attorney:  That sounds reasonable to me.  I’m going to have to talk to my colleagues about this and get back to you.   

Mark Stopa:  (Still waiting for a return call)

Obviously this approach can’t work in every case (i.e. only homeowners who were confident that they could make the monthly payments indefinitely should enter a settlement like this).  But why can’t hundreds, if not thousands, of foreclosure lawsuits be settled in this manner?  Banks reduce the principal to the present value of the house, hence reducing the monthly payments to an amount the homeowner can afford.  The parties stipulate to dismiss the pending case but reserve jurisdiction to enforce the settlement.  If the homeowner defaults on the modified loan, the bank forecloses on the original mortgage (after, say, a 10-day notice), ex parte.  

LOAN MODIFICATIONS SHOULD BE HAPPENING EVERY DAY in this manner.  The lack of such modifications is clear evidence that banks would rather foreclose than work with homeowners.  Let me say that again:

THE ABSENCE OF LOAN MODIFICATIONS IS CLEAR EVIDENCE THAT BANKS WOULD RATHER FORECLOSE THAN WORK WITH HOMEOWNERS.  I sincerely hope, in the near future, that the legislature, the judiciary, and the public at large begin to catch on to what the banks are doing and stop letting them get away with it.

UPDATE:  On July 8, 2010, I had a hearing in Tampa on a Motion to Dismiss before Judge Levens against Barbara Couture with Shapiro & Fishman.  As the hearing progressed, we somehow began discussing the very issue set forth in this blog.  In response to my argument that banks should be settling foreclosure cases via private modifications, Ms. Couture argued just what I’ve believed all along – banks don’t want to enter loan modifications where they reduce the principal (as I suggested above) out of fear that other homeowners will go into default.  It’s not that these modifications wouldn’t make sense in that particular case – they would.  But banks don’t care – they are so concerned with other loans, they won’t work with the homeowner who is right in front of them.  In other words, banks want people who owe more than their house is worth to continue paying (accepting all of the blame for the mistakes made by Wall Street even though the banks were bailed out and homeowners weren’t), and if homeowners stop paying, the banks won’t enter a modification and will push for foreclosure.  

Anyone else think this entire process is horribly unfair?

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Mark Stopa, Stopa Law Firm clients on ABC News

In his ongoing attempt to educate homeowners about their rights, foreclosure defense attorney Mark Stopa appeared on ABC News on July 6, 2010 at 11:00 p.m. in the Tampa, Florida market.  Three clients of Stopa Law Firm were featured in the story, as well as an interview from Mark.  Here is a link to the story.,-worry-free

According to Jamison Uhler, anchor for ABC’s Action News (and the journalist who ran the story), NBC was rated #1 among all TV networks at the 11:00 hour and the newscast was “one of NBC’s top ten highest rated 11pm newscasts in the station’s history!” 

I don’t agree with everything the media says in these types of stories (e.g., in this story, the portion about me telling homeowners to stop paying is not true – clients have already stopped paying by the time they come to me).  However, it’s important to keep involving the media with stories like this to educate the public about the process.  So thanks to everyone for tuning in, and make sure to keep fighting your foreclosure case!  Let’s keep the fight going; we are making progress.

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The mediation process in Florida’s foreclosure lawsuits – why it’s flawed and what must be done to fix it

Foreclosure defense attorney Mark Stopa attended a hearing last week on a Motion to Dismiss before a Pinellas County judge.  The hearing was, unfortunately, like all too many other hearings in foreclosure cases – the judge denied the motion to dismiss (without reading or even looking at the case law and statutes provided).  This hearing stood out, though, for two reasons:  (1) the judge, upon seeing the case had been pending since 2008, actually said it was his/her (no reason to reveal the gender of the judge) ”job” to move cases towards judgment; and (2) the judge ordered the parties to mediation even though both parties said they did not want to go, then acted like he/she had done my client a favor.   The tone and demeanor of the judge was as if he/she was saying ”I denied your motion to dismiss, but I’m ordering mediation, and now you can work something out there.”  

In my view, the judge was totally missing the boat.  Respectfully, how is a mediation going to accomplish anything when the bank has already indicated it’s not going to settle?  More importantly, how are mediations ever going to keep homeowners in their homes when judges are systematically pushing through foreclosure lawsuits, entering final judgments for the banks for all of the relief requested?   The incident got me thinking, and, ultimately, writing a letter to the Honorable Thomas McGrady, Chief Judge of Florida’s Sixth Judicial Circuit, which can be found here –   

Open Letter to Judge McGrady

Mediations have settled lawsuits throughout Florida for many decades, primarily for two reasons: (1) parties want to avoid expenses (attorneys’ fees) associated with litigation; and (2) parties want to eliminate their risk of losing the case.  The problem with mediating foreclosure cases is that banks perceive no risk of loss because judges so rarely, if ever, rule in the homeowner’s favor.  Why should a bank settle when it knows the judge will enter judgment in its favor for all of the relief requested?   

Contrary to what banks and their lawyers (and even some judges) may believe, Florida homeowners have valid defenses to foreclosure in many cases – and I’m not just talking about the fraudulent assignments with which we’ve become so familiar.  For instance, in recent weeks I’ve seen several cases where the bank attached a Note to a Complaint that contains an indorsement to a different company (not the plaintiff), I move to dismiss on the basis the bank is not the “holder” under Section 671.201(21), and magically, the bank then files the same Note, only this time it has two more indorsements on it, including one to the bank that is suing.  When this happens, it’s clear that the indorsements were done after the suit was filed – after all, if they were done beforehand, the Note attached to the Complaint would have contained all three indorsements.  This is a fatal impediment to forelosure because standing cannot be acquired post-filing.  In cases like this, final judgments should be entered for homeowners, yet that never happens.  Why?  There have been hundreds of thousands of foreclosure cases filed in Florida, yet I don’t know that I’ve ever seen a case where a final judgment was entered in the homeowner’s favor on a standing defense.  With respect to our learned judges, how is that possible? 

I get that judges want us to mediate these cases.  I get that judges want to reduce the backlog of cases on their dockets.  But until judges start ruling for homeowners in some of these cases, banks will never perceive that they have a risk of losing, and they’ll never settle, no matter how many mediations they’re ordered to attend.  

If judges want cases to settle, it’s incumbent upon them to start listening to the arguments of the many bright foreclosure defense attorneys in Florida, applying the law, and, when appropriate, entering orders and judgments in favor of homeowners, even if they haven’t paid their mortgage.  Until the banks start perceiving that they can lose a case, the mediation process, no matter how well-intentioned, just won’t work.

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