Archive for January, 2013

Understanding the Paragraph 22 Argument

I’ve spoken about it many times, but even now, I’m regularly asked “what is paragraph 22?”  I suppose it’s time I give a real-life example and show what all the fuss is about.

Paragraph 22 of the standard Fannie Mae/MERS mortgage requires the lender give the borrower written notice of any default and an opportunity to cure that default before filing suit.  That means, before filing a foreclosure lawsuit – and as a condition precedent to the filing of that lawsuit – the lender is required to send written notice of the alleged default and give the borrower a chance to cure that default.  But it’s not enough that any letter be sent – the letter has to contain certain, specified information, as set forth in paragraph 22.  Specifically, the letter has to: (a) specify the default; (b) specify the actions required to cure the default; (c) give the borrower 30 days to cure the default; (d) inform the borrower that failure to cure the default may result in: (i) acceleration; (ii) foreclosure by judicial proceeding; and (iii) sale of the property; (e) inform the borrower of the right to reinstate after acceleration; and (f) inform the borrower of the right to assert in the foreclosure proceeding the non-existence of any default or any other defense to foreclosure.

That sounds technical, and in some ways, it is.  However, there is an excellent argument to be made that, under Florida law, if the foreclosure plaintiff failed to send this letter, and the letter failed to specify all of the required information, that the bank cannot prevail and the lawsuit must be dismissed.

The law has long recognized the validity of conditions precedent in many other contexts.  Essentially, where two parties negotiate a contract and agree that one party has to do something before exercising any rights under that contract, the law forces that party to do what he/she promised before seeking those rights.  Upholding and enforcing the conditions precedent in a contract makes sense because that’s what the parties agreed.  It especially makes sense in a context like this, where the lender drafted the mortgage, and paragraph 22 is the only paragraph in the mortgage that is drafted in bold.  Why should the bank get away with failing to comply with conditions precedent in a contract that it drafted when those conditions are drafted in boldface font?  Why should the bank be able to sue for foreclosure when it did not do what it promised to do before filing suit?

There are precious few appellate court decisions that discuss this issue.  (Typically, it takes many months for the appellate courts to rule on a relatively new issue like this.)  However, Florida’s Second District Court of Appeal has already ruled that a paragraph 22 letter in a foreclosure case was insufficient because the letter did not specify the default.  See Judy v. MSMC Venture, LLC, 37 Fla. L. Weekly D. 2711 (Fla. 2d DCA Nov. 28, 2012).  Hence, it seems the appellate courts agree with the many learned circuit court judges who have ruled on this issue … defects in the letter, even if the letter was sent, preclude the plaintiff from prevailing.

Some may argue that dismissal of a foreclosure case is not equitable merely because a letter was defective.  Some judges undoubtedly agree.  I submit, however, that it is not the courts’ role to rewrite contracts to relieve parties from the burdens to which they agreed.  More important than what I think, though, is the Florida Supreme Court’s view – and they agree.  See Home Dev. Co. of St. Petersburg, Inc. v. Deeb, 178 So. 2d 113 (Fla. 1965) (“By reconstructing the contract of the parties to accord with what he deemed to be the equities of the situation, the [judge] ignored the well settled rule that ‘courts may not rewrite a contract or interfere with the freedom of contract or substitute their judgment for that of the parties thereto in order to relieve one of the parties from the apparent hardship of an improvident bargain.’”).  In fact, the Florida Supreme Court has already said that courts should enforce acceleration clauses in mortgages as they are drafted.  See David v. Sun Fed. Savings & Loan Assn., 461 So. 2d 93 (Fla. 1984) (“It is well established in this state that an acceleration clause or promise in a mortgage confers a contract right upon the note or mortgage holder which he may elect to enforce upon default.  Safeguarding the validity of such contracts, and assuring the right of enforcement thereof, is an obligation of the courts which has constitutional dimensions.”).  That’s precisely what we’re doing here – forcing the banks to accelerate mortgages and file suit only after they do the things they promised to do (in bold, in a contract they drafted).

These legal concepts help explain why I’ve had success arguing these issues in various Florida courtrooms.  But how do we apply those principles in a normal case?  How can one identify these issues?

Take a look at this paragraph 22 default letter sent by Bank of America to one of my clients.  Read it.  Compare it to the language in paragraph 22.  Does the letter say what paragraph 22 requires it to say?  I don’t think so, and neither did the judge.  That’s why the court entered this Order Granting Summary Judgment.

The five arguments set forth in the Order are the types of arguments I’m regularly making in foreclosure cases nowadays.  If you’re not doing likewise, you may be missing the boat.

Mark Stopa

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Sharing Hope and Moving Boulders: A State-Wide View of Foreclosure Defense

In the past few years – heck, the past few months – I’ve traveled all over Florida representing homeowners facing foreclosure.  From Miami to Brooksville, Jacksonville to Fort Myers, and all areas in between, I’ve been there.  Today, I want to take a minute and explain why.

First off, I realize my state-wide approach may seem nuts.  Fellow foreclosure defense attorneys wonder why I do it.  If it could talk, my two-year-old Toyota Prius (it of the nearly 100,000 miles) would ask why.   In some ways, it would be easy to just keep representing homeowners in the Tampa/St. Pete area and stay local.  But I just can’t.  I can’t because of what I see in some of these other counties, and because of what I don’t see.

I was in Hernando County (Brooksville) last week, and I argued that a case should be dismissed based on the plaintiff’s failure to comply with the conditions precedent in paragraph 22 of the mortgage.  I showed Judge Lisa Herndon the letter the bank allegedly sent to my client but argued the letter was insufficient because it did not specify what was required.  I cited established case law prohibiting judges from re-writing contracts, even where they thought those contracts created an inequitable result.  I provided copies of appellate decisions requiring acceleration clauses in mortgages to be enforced as written.

Within 30 seconds, I could tell Judge Herndon had never heard any of it previously.  By my rough count, that makes 21 times I’ve made this argument before a judge who hadn’t heard it previously.  21!  Usually the judge admits it, but I can always tell by the look on the judge’s face – a look of surprise and intrigue, kind of like how my kids look when they’re about to eat a piece of food they’ve never eaten before.  This isn’t an indictment of those judges, it’s an indictment of the defense system as a whole.  I’ve been making this argument all around Florida for many months, yet no foreclosure defense lawyer has argued it before this judge, even once (even though she is one of just two judges who hears foreclosure cases in that county) … really?  How can that be?  And how can I not continue taking cases in that county knowing there is nobody else educating the judge on such significant defenses in foreclosure cases?

Here’s the real kicker – Judge Herndon was incredibly receptive to the argument, attentively listening, reading the case law (including numerous circuit court orders from judges in other counties), and eagerly awaiting a conversation with Judge Tatti, the other foreclosure judge in Hernando, to see if anyone had made that same argument before him.  So here we had a foreclosure judge who was fair and willing to listen, but nobody was making the argument!  How can I not make the drive to that county?

A week or so prior, the same thing happened before Judge Traynor in St. Johns County (St. Augustine).  Judge Traynor was/is the only circuit judge assigned to foreclosure cases in St. Johns, with only a few senior judges underneath him, and he quickly indicated he hadn’t ever heard the argument, either!  But like Judge Herndon, he was willing to listen and read case law, even throwing in a few compliments on the “unique” argument!  That drive from one end of I-4 to the other is a pain in the rear, but how can I not make it if it means helping the judge in charge of an entire circuit understand a bona-fide defense to foreclosure?

“Changing the world” might sound cliche, but I certainly believe we can change Florida.  One case at a time, one judge at a time, and one client at a time – we can change the foreclosure process … but only if we’re willing to try.

Not all experiences in the far-away counties have been as heartwarming or rewarding.  For instance, I went to Fort Lauderdale a few days ago and asked the judge to dismiss this case on a fact-pattern that has often resulted in dismissal.  Unfortunately, this judge refused to look at a single paper I handed him, denied the argument without explanation, then took it upon himself to say he was setting a trial.  When I pushed for an explanation on his ruling and objected to trial as premature, the judge decided, completely on his own, to disqualify himself from the case (saying only it was ”because of how I was looking at him”).

Really?  I come to court with well-taken arguments and case law, the judge refuses to read any of it, and when I refuse to be a doormat and accept a premature trial on a rocket-docket, he decides it’s easier to remove himself from the case so as to not have to deal with me any more?  Call me idealistic, but that’s not the vision I have for the justice system in my state.  I’m sorry, but administering justice and entering foreclosure judgments as quickly as possible are not one and the same.

Some would argue that’s a judge/county I should just avoid.  Why bother?  When judges in Tampa/St. Pete regularly go out of their way to be fair to both sides, and a judge in a county that’s four hours away is so obviously hostile towards defense arguments, why not just avoid that county/judge?  For me, this unfortunate episode just means there’s more work to be done in Broward.  Sometimes, convincing courts in foreclosure cases is like moving a boulder.  You’re not going to do it with one push, or even several – it takes lots of long, steady, sustained effort to get the boulder moving in the right direction.

Moving a boulder sounds arduous, and in some ways, it is.  But what’s the alternative?  I know if I’m getting treated that way, and I have as much foreclosure defense experience as virtually anyone, I can only imagine how it is for others, particularly those without counsel.  So walking away is not an option, particularly when that same county is now setting up 100 foreclosure trials per day.  Yes, 100 per day.  Think about that for a minute.  You thought rocket dockets were over?  Pfft.  Not in that county … and it’s not alone.

Part of my hope is that everyone in the foreclosure crisis will think about the legacy they’ll leave behind.  This crisis will end eventually.  When it’s over, how will citizens remember the court system in their county?  Will the people know the judges were fair and impartial, always striving to follow the law?  Or will the citizens believe the court was set up to enter foreclosure judgments as quickly as possible, with the end (getting cases off the dockets) always justifying the means?  While some judges are obsessed with the size of their dockets, there truly isn’t a more important question in the foreclosure crisis than how the public views the judiciary.  The crisis will end, but the perception of the courts will remain.

Lest it appear I’m picking on Broward, I’m not.  I recently recounted an awful experience in Miami-Dade, and there are many other counties that are, shall we say, less than friendly to the defense side.  How do I summarize foreclosure defense in such counties?  One word – sadness.  It’s sad when an experienced litigant goes to court in some counties (before some judges, anyway), on fact-patterns that are winners in other counties (not every time, but lots of times), knowing there is basically no chance of winning in that particular court.  The rules and the laws are the same throughout Florida, so there’s really no legitimate way to explain why we have a fighting chance in some courtrooms but no chance in others.

If I’m sounding critical, I don’t mean to be.  My point isn’t to be critical; my objective is to share hope.  I hope all of Florida’s courts will soon realize the system doesn’t have to sacrifice justice for expedience.  For those that do, I hope they look to counties like Pinellas, Pasco, and Hillsborough and realize there are better ways to deal with the foreclosure crisis.  At the end of the day, that’s what motivates me to keep traveling to Jacksonville and Ft. Myers and Miami and numerous other cities in Florida … it’s the feeling that fairness doesn’t yet exist in many of these counties, but it should.

If I lose, fine.  I’m not happy, of course, but if the judge listened and tried to follow the law, that’s all I can ask, really.  But I’ll be darned if I lost because the playing field isn’t level.  Don’t expect me to just suck it up and take it if the judge makes it obvious he/she views his/her job as entering foreclosure judgments as quickly as possible, the law and the facts be damned.  There’s value in expediency, but there’s more value in justice.

Not all Florida counties agree with my views here, at least not yet.  One day soon, I hope they will.  One day soon, I hope I won’t feel like I have to drive/fly to these far-away counties to ensure justice.  Until then, I’ll keep driving and keep hoping and keep trying to move boulders.  Maybe it won’t change the world, but at least I’ll know I did my best to uphold the justice system throughout my state.

Mark Stopa

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Order to Show Cause Requires REAL Verification

Florida Statute 702.10 sets forth a procedure by which a foreclosure plaintiff can request an expedited foreclosure.  Under the statute, if the plaintiff files a motion and follows the procedures in the statute, the Court will enter an Order requiring the defendant to come to court and explain why a Final Judgment of Foreclosure should not be entered.  I’ve seen foreclosure plaintiffs try to utilize this procedure every so often, but they always do it wrong!  Quite simply, they don’t follow the procedure in the statute.

Under the plain language of the statute, an Order to Show Cause can only be entered when the plaintiff files a “verified” pleading.  Even though Fla.R.Civ.P. 1.110(b) authorizes foreclosure pleadings to be verified on “knowledge and belief,” the verification requirement in Fla. Stat. 702.10 is different.  For a foreclosure plaintiff to avail itself of the expedited process set forth in the statute, it must verify its pleading in the manner required by Fla. Stat. 92.525, i.e. under penalty of perjury.

That analysis might sound wrong in light of the Second District’s recent rulings on verification, which allow foreclosure pleadings to be verified on “knowledge and belief.”  However, those decisions concerned the verification obligations in the normal, run-of-the-mill case, not the special procedure set forth in Fla. Stat. 702.10.

The plaintiffs’ failure to recognize/apply this distinction has always irked me, so I was pleased when one local judge agreed with it.

Still don’t understand?

Take a look at the Objection that I filed when a foreclosure plaintiff in one of my cases filed a Motion for Order to Show Cause.  Then check out this Order Denying Motion for Order to Show Cause.  Clearly, this learned judge agreed with my view that foreclosure plaintiffs who wish to avail themselves of the procedure in Fla. Stat. 702.10 must file a verified pleading (as defined by Fla. Stat. 92.525), not one verified on “knowledge and belief” (under Rule 1.110(b)).  I raise this distinction, of course, because it’s a useful tool for your toolbox if you’re defending an Order to Show Cause and, frankly, because I’ve never seen a foreclosure plaintiff comply with this requirement.

Mark Stopa

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Zombie Titles – The Moral of the Story

Have you seen the article about zombie titles that’s been making waves in foreclosure defense circles?  The story is an all-too-common one, but everyone is misunderstanding the moral of the story.

A “zombie title” begins when a homeowner walks away from home, thinking he’s about to be foreclosed.  Often, however, as the story explains, the bank doesn’t finalize the foreclosure, so title remains in the homeowner’s name.  Unfortunately, by the time the homeowner realizes he’s still on title, the house is destroyed and the homeowner remains on the hook for thousands of dollars in expenses associated with home ownership.

Sounds bad, right?  That’s the media’s angle, to feel bad for the poor homeowner who walked away and is still getting billed because the bank won’t finalize the foreclosure.  The media also seems to be criticizing the banks for not finalizing the foreclosures.

I’m all for criticizing banks.  But should we be criticizing here?  Is this all bad, as the media suggests?  Let’s stop and think about this.

As things unfolded for this homeowner, it’s bad that he retained title and has some expenses associated with a house in which he’s no longer living.  But what if he made a different decision?  What if, instead of moving out and giving up on the house, he kept living in the house until the foreclosure was over?

If he hadn’t given up, and hadn’t just walked away, then he would have realized the bank didn’t finish the foreclosure and could have kept living in the house.  For free.  For years.  Eventually, he would have realized the bank decided not to finish the foreclosure.  Do you think he would have been upset then?  Hell no – he’d have had a free house (if not permanently, then for a long, long time).

Apparently, banks are doing this more and more – choosing to just walk away from their mortgages.  So you tell me, who’s the crazy one – the banks, not finishing the foreclosures?  Or the homeowners who walk out and give up when the foreclosure isn’t over?

In my experience, banks completely walking away from their mortgages is not terribly common.  However, it does happen.  It happened on a case of mine a few weeks ago.  So who’s to say it won’t happen more in the future?  Who’s to say it won’t happen on your house?

Even if the bank doesn’t simply walk away from your mortgage altogether, who’s to say it won’t fail to finalize your foreclosure for many months or years?  I have a friend who was foreclosed over two years ago (he didn’t retain counsel), but is still living in the house as the bank refuses to set a foreclosure sale.  Situations like that, in my experience, are far more common.

I’m not saying I’d plan on the bank walking away.  However, if there’s a moral to the “zombie title” story, it’s this – don’t give up.  Don’t give up on your house until the foreclosure is 100% finalized.  That’s the moral of this story … if you keep fighting, maybe you’ll be one of the lucky ones.

Mark Stopa

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Fannie Mae – Who’s Buying at their Auctions?

Remember this post, where I discussed the income requirements for buying foreclosed properties in bulk at auctions from Fannie Mae?  Or this post, where I lamented the sale of 700 Florida houses for 12.3 million ($17,571 per house)?

Well, I have it on good information that one of the investors at these auctions is none of than former President Bill Clinton.

Mark Stopa

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