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Florida’s Foreclosure Process

Shannon Boehnken discusses some eye-opening statistics on Florida’s foreclosure process in today’s Tampa Tribune. According to LPS Applied Analytics, it takes, on average, 673 days for a foreclosure sale to take place in Florida after a homeowner stops paying his/her mortgage.  That means, on average, Florida homeowners can stay in their homes for 673 days after they stop paying their mortgage.  A few things jump out at me about this. 

First, this figure is the average of all foreclosures, including uncontested cases.  For those homeowners who fight their foreclosure lawsuit with an experienced foreclosure defense lawyer, that number is sure to be higher.  Consider this another reason to fight your foreclosure!

Second, one big reason the number is so high – 673 days! – is because banks take so long, even after a foreclosure judgment is entered, to set the foreclosure sale.  There is absolutely no excuse for this delay, and that’s the point I tried to get across via my comments to Shannon. 

Bankers like to argue that the real estate market would improve if foreclosures were processed quicker (hence the quotes in the article).  It sounds like a reasonable position – prosecute foreclosures quicker, sell homes faster.  Unfortunately, that position sounds reasonable, but it’s 100% spin and is totally untrue.  The reality is that banks aren’t setting foreclosure sales on cases they’ve already won because they don’t want title to these properties.

You see, when the bank sets a foreclosure sale, that means the bank must take title (unless a third party is the high bidder, which is rare).  But the banks don’t want to take title because they don’t want to pay taxes, insurance, and maintenance expenses.  So what happens?  The banks get a foreclosure judgment, and scare the homeowner into vacating, but they don’t set the sale.  Instead, they try to find a third party who will buy the house, ensuring there is immediately a buyer in place so the bank never holds title. 

So when bankers say “we’re trying to prosecute foreclosure cases quicker to get abandoned homes on the market,” don’t believe it.  Typically, homes are abandoned because banks won a foreclosure lawsuit, and scared the homeowner into vacating, but won’t set a foreclosure sale because they don’t want title to the property.  In the interim – the time between when the homeowner vacates and the bank sets the sale and sells the property – the home is vacant.  

If you disagree, think about it like this.  Most homeowners, and my clients in particular, want to stay in their homes.  My clients leave only when they are forced to leave.  If the banks would sell the homes immediately after homeowners are forced to leave, guess what?  There would be no abandoned homes.  That doesn’t happen because banks don’t want to own the properties upon which they are foreclosing. 

Here’s the article…

TAMPA – Tampa Bay homeowners can get away with not paying their mortgage payments for about 285 days before lenders even begin to take the house back.  And if you think that’s a long time, get this: it takes about 673 days before the house is sold and the homeowner kicked out, according to data compiled by LPS Applied Analytics, which provides technology and data to the mortgage industry.

That puts the Tampa-St. Petersburg-Clearwater metro area near the top of the list for states that are slow to initiate foreclose. The Bay area is behind Maryland, Massachusetts, New York and California.

It’s no secret that Florida is no where near emerging from the real estate downturn. But data like this show just how clogged local courts are. The data also bring up some thorny issues for economists and industry onlookers who say the market won’t recover until a bulk of the distressed homes are sold.

“This data reflects that our system is overwhelmed,” said Mike Larson, a real estate analyst with Weiss Research. “It also reflects the pressure from government and others to come up with foreclosure alternatives. That’s good or bad, depending on your perspective.”

One of the reasons why it takes so long to foreclosure on Florida homes is because a judge must sign off on foreclosures in the Sunshine State. Courts are working through a backlog of tens of thousands of pending foreclosures. Some lenders halted or dramatically slowed foreclosure proceedings, amid government programs to keep struggling Americans in their homes.

Some, such as the Florida Bankers Association, have tried in the past to change Florida’s foreclosure process so a judge doesn’t have to sign off on foreclosures. Supporters say it would help improve the economy faster.  However, that could create even more problems, say consumer groups, who point to recent cases involving sloppy practices, even fraud, by lenders. At least with a judge, they say, there is some opportunity for protection for struggling homeowners.

Alex Sanchez, president and chief executive for the Florida Bankers Association, supported a legislative bill last spring that would have allowed lenders to foreclose without judge approval.  “I have Floridians emailing me, asking that we foreclose on their neighbors’ empty home faster,” Sanchez said. “They don’t want to live by the eyesore. Being a non-judicial state would streamline the process.”

There are 30 states that have a non-judicial foreclosure process, allowing lenders to foreclose on properties in as little as a month.  Under Florida law, a lender can take back a home only if it files a foreclosure lawsuit and is granted one from a judge. Because of a backlog of nearly 500,000 foreclosures, the process can take several months to a year or longer.

The proposed bill, which was sponsored by Tom Grady, R-Naples, would have changed that by allowing lenders to skip legal proceedings unless the borrower requests the foreclosure go through the courts. Lenders could have foreclosed in as little as 90 days.

The controversial bill, however, hit such resistance from foreclosure defense attorneys and consumer groups that it didn’t get very far.  “The faster we can get these properties rehabilitated and sold to someone who will clean them up, the faster our economy will recover,” Sanchez said.

Lenders foreclosing faster wouldn’t help, said Mark Stopa, a Tampa foreclosure defense attorney

“Banks want to get the judgment so they can write it off their books, but they don’t want to take title and sell the home,” Stopa said. “The LPS data shows how long it takes before they sell homes.  “I’ve seen so many homeowners move out because they lose their case and then the bank cancels the sale, and the home stays empty.”

Mark Stopa

www.stayinmyhome.com

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Stern cases with Fannie Mae are “on hold”

Earlier today, Stopa Law Firm tried to set a hearing in a foreclosure case in which David Stern is opposing counsel.  An assistant with Stern’s office informed us that all cases with Fannie Mae are “on hold” and she was “not allowed” to set a hearing. 

The media has previously reported that Fannie Mae was not sending new files to Stern, but this is the first indication I’ve seen that existing cases were “on hold.”  In fact, Stern’s assistant told Stopa Law Firm that she had “just received” an email in this regard.

Suffice it to say that with each passing day, the walls continue to close in around David J. Stern.  I don’t want to sound like I’m picking on him, but there’s a lesson to be learned here – one can only commit fraud in the prosecution of foreclosure lawsuits for so long without penalty.

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Explaining Judge Rondolino’s Order – a case study on the issues we face

If you’ve ever wondered what “foreclosure fraud” is all about or how a homeowner could possibly have legitimate defenses to a foreclosure lawsuit, take a close look at the Order of Dismissal from Judge Rondolino. 

The Plaintiff in this case is Deutsche Bank National Trust Company, as Trustee Under the Pooling and Servicing Agreement Dated as of May 1, 2001.  However, the Note and Mortgage attached to the Complaint are in the name of Maxwell Mortgage, Inc.  The Note contains no indorsement, and there is no allonge, no assignment of mortgage, and no other documentary evidence reflecting a transfer of the Note/Mortgage from Maxwell to Deutsche.  Hence, on the face of the Complaint, Deutsche has no basis to obtain a foreclosure.

After Judge Rondolino dismissed the case the first time, Deutsche filed an assignment of mortgage.  However, the assignment was not created until after the lawsuit was filed, and Florida law does not enable a plaintiff to acquire standing after filing suit.  See Progress Exp. Ins. v. McGrath Community Chiro., 913 So. 2d 1281 (Fla. 2d DCA 2005).  To circumvent this deficiency, Deutsche contends the Note was transferred to it before the suit was filed (even though the written assignment was done after) by some sort of “equitable assignment.”  However, as Florida law requires the pleading of facts, alleging an “equitable assignment” is insufficient without specifying the time, place, and manner of transfer.  In other words, where the written assignment post-dates the filing of the lawsuit, how could the “equitable transfer” have taken place beforehand? 

If this sounds like a lot of legal jargon, it is.  So here’s what’s really going on, both in this case and many others.

Banks don’t have their paperwork in order.  Banks, in this case Deutsche, file foreclosure lawsuits on a regular basis without the requisite paperwork.  When foreclosure cases go unchallenged, these deficiencies go unchallenged, so the banks generally get away with the deficient paperwork.  When foreclosure lawsuits are contested, by attorneys such as myself, banks and their lawyers often try to fix the problem after the fact.  That’s why I routinely see allegations like those in this case alleging an “equitable transfer,” without any factual basis, before the suit was filed even though the written assignment is dated after suit was filed.  Again, how could an “equitable transfer” have taken place before the suit was filed when the written assignment is dated months after?

Whether these types of allegations are permitted is the issue in thousands of Motions to Dismiss (and, ultimately, motions for summary judgment) in foreclosure cases throughout Florida.  Many judges, particularly senior judges, in their ongoing attempt to “push through” foreclosure cases, have denied Motions to Dismiss by homeowners, enabling Plaintiffs such as Deutsche to get away with conclusory allegations of “equitable transfer” without any factual basis. 

As you can see, Judge Rondolino is not one of these judges.  He believes Plaintiffs, even in foreclosure cases, should have to plead some facts in support of an alleged “equitable transfer” of the Note/Mortgage, particularly when the filing of suit precedes the date of the written assignment.  Obviously, I agree … but there’s more to it than that. 

The issue isn’t just whether Plaintiffs such as Deutsche should have to plead facts in support of the alleged equitable transfer … the issue is whether such facts exist.  Again, how could an “equitable transfer” have taken place before the suit was filed when the written assignment is dated months after?

Given his reference to “incacerative sanctions” (if Deutsche’s allegations are proven untrue), it seems Judge Rondolino shares the same belief that I do – in many of these cases, the requisite facts don’t exist.  In other words, it seems there was no “equitable transfer” before the suit was filed, yet Deutsche alleges otherwise to try to “push through” the foreclosure. 

This sounds complicated, but this is the issue in foreclosure cases throughout Florida.  Is the Plaintiff entitled to foreclose?  Can it establish standing as of the date it filed suit?  Is the bank’s paperwork in order?  Many times, the answer is “no,” and it’s good to see a judge call out the banks on these deficient filings.

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Motions to Dismiss – Pleading Requirements in a Foreclosure Case

One of my greatest frustrations in foreclosure cases is how well-taken Motions to Dismiss are systematically denied by many Florida judges, especially senior judges, who routinely seem to apply a different set of pleading requirements in foreclosure cases as compared to other lawsuits.  Suffice it to say that I am pleased to receive this Order Granting Motion to Dismiss First Amended Complaint from Judge Anthony Rondolino in St. Petersburg.  The seven-page Order is an absolute “must read” for all lawyers, judges, and homeowners, as it is an excellent recitation of Florida law and the pleading requirements in foreclosure cases. 

It’s worth noting that I did not draft this Order – Judge Rondolino drafted this Order on his own.  In an era of “rocket-dockets,” the attention to detail in the drafting of this Order is commendable. 

Like most judges, I’ve won some hearings before Judge Rondolino and I’ve lost some.  That said, it’s an absolutely wonderful feeling to go into a courtroom and feel like the Plaintiff and its lawyer are going to be held to the normal requirements of “pleading” and “proof” and that the lawsuit isn’t going to be “pushed through” simply because it’s another foreclosure case.  It’s a level playing field; that’s all any litigant can ask. 

I respectfully encourage every judge in Florida to read this Order.  Respectfully, if a colleague of yours feels this strongly about these issues, shouldn’t you re-evaluate your position vis a vis Motions to Dismiss?  Also, I encourage you to think about the effect that these Orders will have in Judge Rondolino’s cases.  At this point, don’t you think Plaintiffs and their lawyers are going to think twice before they bring spurious allegations and deficient filings in his court?  To the extent your goal is to clear up your dockets, can’t you accomplish it in the manner Judge Rondolino is doing rather than just “pushing through” deficient paperwork?

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Willful blindness by judges

It’s a bit awkward to openly criticize judges’ handling of foreclosure cases, especially since I appear before these judges on a regular basis.  That said, unless someone is willing to tell these judges, respectfully but firmly, their decisions are wrong (with an intelligent explanation why), meaningful change in foreclosure cases is just a pipe dream.

For instance, I’ve been quite perturbed by this recent quote from W. Douglas Baird, a judge in Clearwater:

“We’re processing thousands of cases where no one is really contesting them, and in those instances, something like that just would not be brought to our attention.  It’s not a situation where the courts have the ability to go through every document that’s filed and challenge and question those documents.”

I’ve been before you enough, Judge, that you know I respect you.  That said, on this issue, you are mistaken.  Even in a case that is uncontested, it is the judge’s obligation to ensure that the Plaintiff met its burden of proof.  To illustrate, let’s remove ourselves from the foreclosure arena for a moment.  Suppose you’re presiding over a trial in a negligence action.  Suppose the Defendant, for whatever reason, does not attend trial, via counsel or otherwise, and puts up no opposition.  Are you going to sign a Final Judgment without making the Plaintiff put on evidence?  Of course not (or, at least I’d hope not).  The Plaintiff’s obligation to prove its case is not eliminated simply because the Defendant is not present.  Now suppose the Plaintiff puts on evidence of duty and breach but no evidence of damages, then rests its case.  Are you going to sign a Final Judgment for $100,000 in damages merely because Plaintiff’s counsel asks for it in closing?  Again, of course not.  If there is no evidence of $100,000 in damages, you can’t award that relief – even if the relief sought is uncontested.  Respectfully, these principles are not reasonably in dispute. 

Now let’s evaluate this in the foreclosure context.  Suppose you’re at a hearing on a Motion for Summary Judgment.   The Defendant has been defaulted, did not try to defend the case, and is not present at the hearing.  Judge, you’d have the public believe you essentially have no obligation to review the file before signing a Final Judgment of Foreclosure.  I’m sorry, Judge, but you’re mistaken.  It’s still your obligation, even in an uncontested case, to make sure the Plaintiff has met its burden of proof.  The volume of cases before you does not change the Plaintiff’s burden.

Now – does anyone expect you to review the file as closely as you would if the case is contested?  Of course not.  But it’s still your job, as presiding judge, to ensure the Plaintiff has done what needs to be done for summary judgment to be entered. 

In my view, the most obvious shortcoming in foreclosure cases – even those that are uncontested – is with respect to the affidavits the foreclosure mills use in support of summary judgment.  Fla.R.Civ.P. 1.510 clearly provides:

Sworn or certified copies of all papers or parts thereof referred to in an affidavit shall be attached thereto or served therewith.

I don’t know that I have ever seen a plaintiff comply with this rule in a single foreclosure case, yet judges such as yourself repeatedly enter summary judgment anyway.  Why?  The rule is clear – when the affiant references documents in an affidavit, those papers must be attached.  In foreclosure cases, the affiant always references documents (because the affiant never has personal knowledge of the amounts owed and has to rely on a life of loan history), yet these documents are never attached.  This is a fatal flaw under the plain language of the rule.  In fact, there are many appellate court decisions that reverse summary judgment on these facts.  (If you disagree, Judge, then please talk to your colleague, Judge Rondolino.  He routinely cites these cases at hearings.) 

Judge, I don’t expect you to pore over every page in the court file before entering summary judgment in an uncontested case.  But it takes two seconds to look at the Plaintiff’s Affidavit in Support of Summary Judgment and see if any documents are attached.  Heck, that’s something an intern or judicial assistant could do.  If no documents are attached, and the affidavit references such documents (as they invariably all do), then summary judgment should not be entered, even in an uncontested case. 

Despite all of this, you told the media “[w]e’re processing thousands of cases where no one is really contesting them, and in those instances, something like that just would not be brought to our attention.  It’s not a situation where the courts have the ability to go through every document that’s filed and challenge and question those documents.”

I respectfully but firmly disagree, Judge.  You don’t have to look at “every document that’s filed” to realize summary judgment is improper.  All you had to do was look at the only document the Plaintiffs rely upon – the affidavit.  If you had, and you followed the plain language of Rule 1.510, you’d deny summary judgment, even in uncontested cases.  To act otherwise – and to tell the media otherwise – is to close your eyes to the glaring problems in foreclosure cases and to enter final judgment anyway (what the law calls “willful blindness,” hence the title of this blog). 

The unfortunate irony here, Judge, is that the foreclosure crisis has spun out of control in recent weeks because of these affidavits.  Robo-signers executed these affidavits by the thousands without having personal knowledge of their contents, as required.  What’s most unfortunate about this, in my view, is this could have – and should have – been prevented.  After all, the very purpose of the rule requiring the documents be attached is to restore credibility to the filings when the affiant lacks personal knowledge.  Unfortunately, too many judges allowed foreclosures without this required credibility, and now the situation has blown up in our faces.  (A question worth pondering – would the fraudulent affidavits be as big of a controversy if the requisite documents were attached?)

I’m not saying this is your fault.  However, I firmly believe that if judges applied the law and stopped bending over backwards to help the foreclosure mills “push through” cases the problems we’re now facing would be far less pervasive.  Even if you disagree, it’s time for you to stop acting like you have no obligation to review files.  You do, even in uncontested cases.  Also, it’s also time for you to stop systematically denying motions to dimiss without a hearing.  This causes reasonable people, including myself (and, yes, even other judges with whom I’ve spoken) to question whether you are fair and impartial.  After all, when you’re openly telling the media that you don’t review files, it’s not unfair for me to wonder (as in this Motion to DQ Judge) whether you’re reviewing my clients’ files before you deny their motions to dismiss, via a form Order, without a hearing.

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What will it take, judges?

Connecticut Attorney General Richard Blumenthal on Monday accused GMAC of using “defective foreclosure documents” in its filings and said he ordered a moratorium “to forestall horrendous, illegal harm against homeowners.”

California Attorney General Edmund G. Brown Jr. on Friday called GMAC’s document review process a “sham.”

In Illinois, Attorney General Lisa Madigan said she “wants to see GMAC stop the filing of foreclosures in Illinois as well until this situation can be remedied,” a spokeswoman said.

Iowa, North Carolina and Texas have also opened criminal and civil investigations into GMAC’s lending practices as well as those at other large mortgage companies, officials said.

With all of this in mind, I have to ask … What’s it going to take, judges? 

How many high-ranking officials have to speak up before you’ll stop pushing through foreclosure judgments? 

How much proof do you need? 

It’s one thing, I suppose, for homeowners to cry “fraud” – you’ve convinced yourself their cries don’t matter because the homeowners are self-interested, didn’t pay their mortgage, and are trying to stay in their homes.  But how can you “explain away” the positions of the AGs of numerous states?  What’s their self-interest? 

 I’m quite certain these AGs aren’t facing foreclosure, yet they’re appalled and disgusted at the conduct of the banks and the foreclosure mills.  Why aren’t you?

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Strategic default – on the rise

In recent weeks, I’ve seen a significant increase in inquiries from potential clients about strategic default.  I’ve blogged about the pros and cons of this in detail, below, but here’s the short version – many homeowners are tired of paying their mortgages when similar houses in the neighborhood are selling for one-third of they owe.  A lot of people just don’t see the benefit of paying $200,000 on a mortgage for a house worth $75,000. 

Apparently, the increase in strategic defaults is not limited to my practice, as numerous media outlets are reporting the same thing (throughout the country):

http://www.istockanalyst.com/article/viewiStockNews/articleid/4490544

http://starglobaltribune.com/2010/home-mortgage-loan-strategic-defaults-on-the-rise-2081

http://staugustine.com/interact/blog-post/rusty-collins/2010-09-24/foreclosure-exit-strategy

These articles seem to suggest that as many as one-third of all foreclosures are “strategic” in nature.  Apparently, the stigma of going into foreclosure is lessening with each passing day.

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My solution to the foreclosure crisis

There’s no sense in belaboring the point any longer.  For me, the solution to the foreclosure crisis is clear:

Reduce the principal on every mortgage on every owner-occupied home in America such that the mortgage is no greater than the home’s present value.

Is this a radical solution?  Absolutely.  But let me ask you this: who would it harm?  Banks?  Please.  The banks got bailed out – with OUR tax dollars.  The bailout has enabled banks to recover, so much so that they’re now earning record profits, while mainstream America continues to suffer.     

When do the American people get their bailout? 

How many millions of Americans need to be foreclosed before the U.S. government steps in?  I don’t want to turn this into a political debate, but what I find most ironic about Obama’s failure to act in response to the foreclosure crisis is that, prior to the election, he was criticized as a socialist, wanting to take from the rich to give to the poor, yet exactly the opposite is happening:

with every foreclosure, the rich are getting richer at alarming rates while the poor and middle class continue to suffer.

It’s absolutely amazing to me that so much wealth is being transferred from the middle class and the poor to the rich – right under the nose of a Democractic president.

Anyway, would reducing every mortgage on owner-occupied properties to the current value of the property be a radical solution?  Absolutely.  Some people would argue this would be unfair to homeowners who’ve paid their mortgages.  I’m not oblivious to such arguments.  However, what’s our alternative?  Continuing to foreclose on thousands of homes every day?  Continuing to allow banks to earn billions and billions of dollars while the public suffers? Haven’t we seen by now that helping banks isn’t going to help Americans, the public at large, or the economy as a whole?  Banks only care about themselves and the profits of their CEOs – helping banks isn’t going to improve our economy.  For me, this all begs the question:  

Where are we headed here? 

In five years, are banks going to own 25% of all real estate in the United States?  30% 40%?  

Can you imagine how our economy would function with banks controlling that much real estate?  It’s a scary thought. 

Times like these are why we have a President.  Mr. Obama, it’s time for you to get involved and make a difference.  If you wait five years, or even two years, it will be too late.  Right now is the time to

Reduce the mortgage on every owner-occupied home to its present value. 

Of course, unless and until something like this happens, it’s incumbent upon homeowners facing foreclosure to retain a competent foreclosure defense attorney.  You never know – if you don’t give up, and hire an attorney to defend your case, maybe the government will do something like this, enabling you to keep your home (whereas if you give up, you’ll lose your home forever). 

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Strategic Default and Depleting Savings / Retirement Accounts

In recent weeks, an increasing number of prospective clients have met with Stopa Law Firm for an initial consultation about foreclosure even though they haven’t missed a mortgage payment.  A few years ago, that would have sounded crazy.  Nowadays, though, millions of Florida homeowners are tired of making payments on a home worth a fraction of what they owe.  Generally, these homeowners fall into two categories – those considering a “strategic default,” i.e. intentionally stopping payments even though they can afford to pay, and those homeowners who can afford to pay but are slowly depleting their savings or retirement accounts to do so.  It’s time that I blog about both scenarios. 

First off, everyone’s situation is different, and it’s hard to make blanket statements in a blog that apply to everyone.  That said, if you’ve been depleting your savings or retirement account(s) to pay your mortgage, then, unless you expect your finances to improve in the near future, it’s probably time that you re-evaluate your situation

For example, suppose you had $70,000 in savings/retirement in July, 2009, but in your ongoing attempt to pay your mortgage (and other necessary expenses), that number is down to $35,000.  If that sounds like you, then the first question I’d ask is this:

Do you expect your situation to improve in the near future? 

If the answer is “no,” and you’re going to continue depleting your savings/retirement at a rate of roughly $35,000 per year, then my next question would be:

What are you going to do when your savings/retirement runs out? 

Many smart, hard-working, well-intentioned clients have no answer to this question.  For most people, there is no answer.  What can you do when you run out of money and can’t pay your mortgage?  The next question I’d ask is:

Would it be better to stop paying your mortgage, and face a foreclosure lawsuit, now, with $35,000 in your pocket, or to continue paying your mortgage for another year, run out of money, and then face foreclosure? 

For most people, the answer to this question is clear.  I mean, if you’re going to (possibly) get foreclosed, isn’t it better to do so with $35,000 than with zero?  Heck, for that matter, wouldn’t it have been better to do so with that original $70,000?  Generally, the way I’d characterize it is this: 

if you realize a foreclosure lawsuit is inevitable, and it’s just a matter of when (not if) it comes, it may be better to stop paying your mortgage now, and face the problem sooner, with money in your pocket, rather than later, with no money in your pocket. 

After all, if you choose to give all the money to the bank in the future, you certainly can, but if you give the bank all your money and then get foreclosed, you’re never going to get that money back. 

At Stopa Law Firm, we’ve been giving advice like this for a long time.  In fact, I was in the news with this as far back as October, 2009 – here.  (While I don’t agree with everything that reporter wrote in that story, the point is clear – for some people, stopping payments is the right option.)  Anyway, now that Stopa Law Firm has hundreds of clients, I can’t tell you how many homeowners are thrilled with their decision to stop paying, save their money, and defend their foreclosure.  In fact, many clients have told us they wish they had stopped paying sooner.  Does that mean everyone should stop paying?  Of course not.  But:

if you realize you’re slowly depleting your savings, and you’re going to soon be out of money, what are you supposed to do – give your last dime to the bank and then get sued for foreclosure anyway? 

If you can accept the premise that some people should stop paying, the logical question becomes “why shouldn’t everyone?”  Many Florida homeowners are, in fact, considering a “strategic default” – intentionally withholding mortgage payments even though they can afford to pay because their house is worth so much less than what they owe.  The rationale is clear: 

Why pay $250,000 for something worth $150,000?  

At the outset, let me be clear.  Nothing in this blog is intended to encourage anyone to stop paying on their mortgage, particularly if they can afford to do so.  The decision to strategically default is complicated and must be evaluated on a case-by-case basis.

That said, I can totally understand if, after consultation with an attorney, a homeowner were to make the conscious decision to withhold mortgage payments on a home worth $150,000 with a mortgage balance of $250,000. For many homeowners, this is a perfectly leigitmate business decision. 

Contrary to what the banks want you to believe, there’s nothing immoral, unethical, or slimy about a strategic default.  A strategic default is, quite simply, a business decision – no different than those made by the banks every day.  Some people may disagree, but it’s not my job to enforce someone else’s version of morality – it’s my job to represent Florida homeowners. 

If you’re wrestling with the ethics of strategic default, consider two real-world world comparisons – one big, one small. 

First, suppose you buy a new, two-year cellphone plan with unlimited minutes, 24/7/365, for $100/month.  In so doing, you’re entering a contract, “promising” to pay $100/month for two years.  Now suppose in two months, a different cellphone provider offers the same plan for $50/month.  If you could get out of the first contract by paying a $200 cancellation fee, wouldn’t it make sense to do so, even though you’d be going back on your “promise”?  I think so, and I suspect most people would agree.  (After all, you’d have saved the $200 cancellation fee after four months with the new plan and every month thereafter would entail $50/month in your pocket.)  A situation like that is not driven by ethics or morality – you’re making a business decision – doing what’s best from a financial perspective.  How is that wrong?

If that example is too simplistic for you, let’s look at a big-business example of “strategic default” transpiring now, right in our own backyard.  The Tampa Bay Rays play their home games at Tropicana Field in downtown St. Petersburg.  They have a contract with the City of St. Petersburg to remain at that stadium through 2027.  The Rays owners, though, are frustrated with low attendance rates and want the team to move to Tampa.  (Anyone who knows the Tampa/St. Pete area knows the best place for a stadium would be in western Tampa – near where Stopa Law Firm has its Tampa office, actually, and not downtown St. Pete).  Moving to Tampa, though, would breach the Rays’ agreement with the City of St. Pete.

Gee, does this sound familiar?  A decision about whether to breach a contract for business purposes … that’s precisely the situation so many Florida homeowners are facing.  What’s fascinating to me, though, is that when the media talks about the Rays, it does so purely from a business perspective, yet when the same discussion is about homeowners, morality somehow enters the picture.  Why?  I realize some homeowners have a sentimental attachment to their home, and that’s their prerogative.  Aside from that, though, I see no reason why strategic default should not be viewed any differently than the cellphone example or the Rays’ stadium example.  The decision to initiate a strategic default is complicated, yes, but if it makes sense from a business perspective, why not?  That’s why I’d be shocked if the Rays are still in St. Pete as of 2027 – once the business dynamics get this awry, something has to give. 

For an interesting take on strategic default, check out this well-written article.

It’s unfortunate that our society is at the point where homeowners must decide whether to stop paying on a mortgage, whether it’s because they are slowly depleting their savings or owe more than the house is worth (or both).  That said, when banks took billions of dollars in bailout money, they did what was in their own best interests (by putting the money in their pockets and not giving loan modifications as was intended).  With that in mind, the question for me becomes:

If the banks can do what’s in their best interests, why can’t homeowners? 

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Trial in a foreclosure case – my thoughts the day after

On July 19, 2010, foreclosure defense attorney Mark Stopa defended a homeowner at trial in a foreclosure case in St. Petersburg, Florida.  

Every case is different, and there is no way to know whether other foreclosure cases will play out the same way.  That said, my experience at trial reinforced two of my long-standing beliefs about the foreclosure process.  Specifically:

1.  If you’re facing foreclosure, don’t give up.  If you give up, and don’t defend the case, the bank can obtain a foreclosure against you by default, often in just a matter of months.  Conversely, if you have an attorney defend your case, you may induce the bank to enter a settlement it otherwise would have been unwilling to enter.  To illustrate, as I was in trial yesterday, I found myself telling the bank’s attorney that they should settle the case because there was a real risk the bank would lose the trial or, even if it won, a real risk that the appellate court would reverse that decision on appeal.  If you fight, and defend your foreclosure case, you give yourself leverage to settle.  If you give up, you lose all leverage, enabling the bank to foreclose without opposition.  Admittedly, defending your foreclosure case does not guarantee a settlement, but at least you give yourself a chance. 

2.   When hiring a lawyer to defend your foreclosure lawsuit, it’s important that you retain someone with experience in court.  As a result of the struggling economy, lots of Florida attorneys have begun representing homeowners facing foreclosure.  Before retaining a lawyer, make sure you question that lawyer’s experience, and not just as a lawyer, but his/her experience in court.  How many foreclosure cases has he/she handled?  How many trial has he/she conducted?  How many appeals has he/she handled?  The Rules Regulating The Florida Bar prohibit lawyers from discussing the results of their prior cases, but lawyers are permitted to discuss their experience.  Choosing a lawyer to defend your foreclosure case is a critically important decision – gather as much information as possible so as to make an informed decision.

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