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Florida Lawyer Facing Suspension for Mortgage Modification Scam

Nearly every client or prospective client who has consulted with Stopa Law Firm over the years has expressed a desire to obtain a loan modification.  As much as I’d love to tell these homeowners what they want to hear, the sad reality is that mortgage modifications are few and far between, especially those with principal reductions

Unfortunately, not everyone in the industry shares the necessary candor with homeowners.  The story below, for instance, shows how one Florida lawyer duped thousands of homeowners into paying him an up-front fee based on promises of a loan modification … promises which he obviously can’t deliver. 

If you’re a homeowner facing foreclosure, let this be a gentle reminder of a a few basic things. 

1.  Loan modifications are rare, especially with principal reductions.  I know that’s frustrating, believe me – but don’t shoot the messenger.  

2.  If anyone is promising you a loan modification with principal reduction, predicated on you paying an up-front fee, be very wary – it’s probably a scam.  The number of scam operations has gone down in recent years, but as you can see, they’re still out there.

3.  Even if you’re trying to get a loan modification, you must defend your foreclosure lawsuit in the interim.  Otherwise, you may think you’re negotiating for a mortgage modification, but those negotiations will end quickly once the foreclosure lawsuit ends with a Final Judgment of Foreclosure. 

Of course, if you’ve been a victim of William O’Toole or Summit Legal Group, feel free to contact Stopa Law Firm for a consultation – we’ll be happy to see if it’s not too late to help you.   

Here is the article, courtesy of the Daily Business Review. 

The Florida Bar has called for an emergency suspension of Boca Raton lawyer William O’Toole, declaring the foreclosure defense lawyer presents “great public harm.”

In its petition for suspension, which the Florida Supreme Court is expected to rule on today, the Bar alleges that O’Toole has partnered with non-lawyers to create Summit Legal Group and collect up-front fees from clients for mortgage modifications.

State law prohibits non-lawyers from collecting up-front fees in exchange for promises of obtaining mortgage modifications. Attorneys general throughout the country have warned consumers that mortgage modification centers are a relatively new phenomenon that produce few or no results for distressed homeowners. The Bar has warned lawyers not to partner with non-lawyers on such endeavors.

According to the Bar’s petition, O’Toole is the subject of 20 complaints and has been under investigation by the Bar since March 2010. He partnered with non-lawyer Randy Baker, who is under investigation by the Florida attorney general, the petition states, to send him “leads” and then split fees with Baker in violation of Bar rules.

O’Toole currently has between 2,500 and 3,000 clients “and admits that he has so many files he does not know the status of the client’s files,” according to the Bar petition.

O’Toole did not return phone calls by deadline.

The Daily Business Review recently reported that another lawyer, Rashmi Airan-Pace, was suspended by The Bar for allegedly operating a similar mortgage modification service with a non-lawyer company. The Bar alleged Airan-Pace took up-front fees and promised to obtain mortgage modifications for underwater homeowners without results.

Mark Stopa

www.stayinmyhome.com

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A Synopsis of Foreclosure-Gate; Blame the Banks!

I’m glad to see an increasing number of reporters placing the blame for the foreclosure crisis where it belongs – in the laps of the big banks.  Here’s an article from the New York Times that sums up public perception:   

How the Banks Put the Economy Underwater

By YVES SMITH
Published: October 30, 2010

IN Congressional hearings last week, Obama administration officials acknowledged that uncertainty over foreclosures could delay the recovery of the housing market. The implications for the economy are serious. For instance, the International Monetary Fund found that the persistently high unemployment in the United States is largely the result of foreclosures and underwater mortgages, rather than widely cited causes like mismatches between job requirements and worker skills.

This chapter of the financial crisis is a self-inflicted wound. The major banks and their agents have for years taken shortcuts with their mortgage securitization documents — and not due to a momentary lack of attention, but as part of a systematic approach to save money and increase profits. The result can be seen in the stream of reports of colossal foreclosure mistakes: multiple banks foreclosing on the same borrower; banks trying to seize the homes of people who never had a mortgage or who had already entered into a refinancing program.

Banks are claiming that these are just accidents. But suppose that while absent-mindedly paying a bill, you wrote a check from a bank account that you had already closed. No one would have much sympathy with excuses that you were in a hurry and didn’t mean to do it, and it really was just a technicality.

The most visible symptoms of cutting corners have come up in the foreclosure process, but the roots lie much deeper. As has been widely documented in recent weeks, to speed up foreclosures, some banks hired low-level workers, including hair stylists and teenagers, to sign or simply stamp documents like affidavits — a job known as being a “robo-signer.”

Such documents were improper, since the person signing an affidavit is attesting that he has personal knowledge of the matters at issue, which was clearly impossible for people simply stamping hundreds of documents a day. As a result, several major financial firms froze foreclosures in many states, and attorneys general in all 50 states started an investigation.

However, the problems in the mortgage securitization market run much wider and deeper than robo-signing, and started much earlier than the foreclosure process.

When mortgage securitization took off in the 1980s, the contracts to govern these transactions were written carefully to satisfy not just well-settled, state-based real estate law, but other state and federal considerations. These included each state’s Uniform Commercial Code, which governed “secured” transactions that involve property with loans against them, and state trust law, since the packaged loans are put into a trust to protect investors. On the federal side, these deals needed to satisfy securities agencies and the Internal Revenue Service.

This process worked well enough until roughly 2004, when the volume of transactions exploded. Fee-hungry bankers broke the origination end of the machine. One problem is well known: many lenders ceased to be concerned about the quality of the loans they were creating, since if they turned bad, someone else (the investors in the securities) would suffer.

A second, potentially more significant, failure lay in how the rush to speed up the securitization process trampled traditional property rights protections for mortgages.

The procedures stipulated for these securitizations are labor-intensive. Each loan has to be signed over several times, first by the originator, then by typically at least two other parties, before it gets to the trust, “endorsed” the same way you might endorse a check to another party. In general, this process has to be completed within 90 days after a trust is closed.

Evidence is mounting that these requirements were widely ignored. Judges are noticing: more are finding that banks cannot prove that they have the standing to foreclose on the properties that were bundled into securities. If this were a mere procedural problem, the banks could foreclose once they marshaled their evidence. But banks who are challenged in many cases do not resume these foreclosures, indicating that their lapses go well beyond minor paperwork.

Increasingly, homeowners being foreclosed on are correctly demanding that servicers prove that the trust that is trying to foreclose actually has the right to do so. Problems with the mishandling of the loans have been compounded by the Mortgage Electronic Registration System, an electronic lien-registry service that was set up by the banks. While a standardized, centralized database was a good idea in theory, MERS has been widely accused of sloppy practices and is increasingly facing legal challenges.

As a result, investors are becoming concerned that the value of their securities will suffer if it becomes difficult and costly to foreclose; this uncertainty in turn puts a cloud over the value of mortgage-backed securities, which are the biggest asset class in the world.

Other serious abuses are coming to light. Consider a company called Lender Processing Services, which acts as a middleman for mortgage servicers and says it oversees more than half the foreclosures in the United States. To assist foreclosure law firms in its network, a subsidiary of the company offered a menu of services it provided for a fee.

The list showed prices for “creating” — that is, conjuring from thin air — various documents that the trust owning the loan should already have on hand. The firm even offered to create a “collateral file,” which contained all the documents needed to establish ownership of a particular real estate loan. Equipped with a collateral file, you could likely persuade a court that you were entitled to foreclose on a house even if you had never owned the loan.

That there was even a market for such fabricated documents among the law firms involved in foreclosures shows just how hard it is going to be to fix the problems caused by the lapses of the mortgage boom. No one would resort to such dubious behavior if there were an easier remedy.

The banks and other players in the securitization industry now seem to be looking to Congress to snap its fingers to make the whole problem go away, preferably with a law that relieves them of liability for their bad behavior. But any such legislative fiat would bulldoze regions of state laws on real estate and trusts, not to mention the Uniform Commercial Code. A challenge on constitutional grounds would be inevitable.

Asking for Congress’s help would also require the banks to tacitly admit that they routinely broke their own contracts and made misrepresentations to investors in their Securities and Exchange Commission filings. Would Congress dare shield them from well-deserved litigation when the banks themselves use every minor customer deviation from incomprehensible contracts as an excuse to charge a fee?

There are alternatives. One measure that both homeowners and investors in mortgage-backed securities would probably support is a process for major principal modifications for viable borrowers; that is, to forgive a portion of their debt and lower their monthly payments. This could come about through either coordinated state action or a state-federal effort.

The large banks, no doubt, would resist; they would be forced to write down the mortgage exposures they carry on their books, which some banking experts contend would force them back into the Troubled Asset Relief Program. However, allowing significant principal modifications would stem the flood of foreclosures and reduce uncertainty about the housing market and mortgage securities, giving the authorities time to devise approaches to the messy problems of clouded titles and faulty loan conveyance.

The people who so carefully designed the mortgage securitization process unwittingly devised a costly trap for people who ran roughshod over their handiwork. The trap has closed — and unless the mortgage finance industry agrees to a sensible way out of it, the entire economy will be the victim.

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Foreclosure Mills Pad the Bills

Have you ever wondered why banks sue “unknown tenant 1, unknown tenant 2, unknown spouse of John Doe, and unknown spouse of Jane Doe,” in addition to the homeowners?  Sometimes, these individuals are necessary in a foreclosure case.  For instance, if the property in foreclosure is a rental property, then the tenants must be sued and served with process.  

Often, though, as the Tampa Tribune explains, banks and their lawyers know there is no need to sue these parties, but they do so anyway – just to pad the bill.  And who receives that bill?  The homeowner, of course.  Incurring expenses that don’t need to be incurred just to pass on an expense to homeowners – ya gotta love the foreclosure mills.

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Judges Cannot Prosecute Foreclosure Cases; My Solution

Several days ago, I blogged about the flawed procedures being utilized in foreclosure cases in Brevard County, precipitating this Motion to Disqualify Judge.  Since filing that motion, I’ve continued to reflect on the issues addressed therein, and I remain comfortable with my position.  In my eyes, the issue boils down to one inescapable conclusion:

Judges cannot prosecute foreclosure cases!

Today, the Brevard judge agreed with my argument and issued this Order Granting Motion to Disqualify.  The Order is quite vanilla, but it contains a phrase that I find telling.  The judge notes that “from Defendant’s perspective,” the Motion to Disqualify is legally sufficient and requires disqualification.  The key phrase, of course, is ”the Defendant’s perspective.” 

From the Defendant’s perspective, when a judge takes it upon him or herself to set a hearing in a case that the Plaintiff has chosen, for whatever reason, to let stagnate, the judge is siding with the Plaintiff.  A judge may argue (and may truly believe), that all he/she is doing is advancing the case forward, without bias towards one party or the other with regard to the hearing being scheduled.  Particularly in foreclosure cases, though, it’s the mere advancement of the case, at the judge’s initiative, that reflects the bias.  After all, the Plaintiff is seeking relief in the case; the Defendant is not.  Hence, when the judge is advancing the case, sua sponte, the judge is necessarily helping one party to the detriment of the other. 

Let’s put it this way … If a case is languishing, whose job is it to advance the case forward, towards judgment?  The Plaintiff.  Undoubtedly, the Defendant has no obligation in this regard.  I’m not saying the Defendant can stall; I’m saying the Defendant has no obligation to accelerate the case if the Plaintiff lets it stagnate.   

Some people reading this may argue I’m a slimy foreclosure defense attorney who’s just trying to delay foreclosure lawsuits.  Not so.  My concern is ensuring the system is fair for my clients.  Lest you doubt that a judge setting a hearing on his/her own initiative is unfair, consider this:

I’ve represented Plaintiffs and Defendants in hundreds if not thousands of lawsuits throughout my career – all types of lawsuits, not just foreclosure cases.  Other than recently (in the context of foreclosure cases), I can’t ever recall a judge setting a hearing on his/her own.  It’s just not done.  For example, I’ve filed dozens of lawsuits for Plaintiffs against insurance companies, seeking monetary relief.  I think most of my litigation clients would tell you that I litigate those cases aggressively, but, on occasion, for one reason or another, some of those lawsuits have languished a bit.  When that happens, do you think there’s ever been a time when a judge took it upon him or herself to set a hearing?  Of course not.  Do you think the judge ever tells the insurance company or its lawyer that they need to accelerate the case?  Yeah, right.  Never happens.  As the Plaintiff’s lawyer, if I don’t set a hearing, the hearing never gets set, and the case stagnates.  That’s just how it works.  The insurance company has no obligation to advance the case forward (and risk entry of an adverse judgment sooner), nor would I expect them to.  My client wants affirmative relief through the court system; it’s my duty to move the case forward to obtain that relief. 

My point, essentially, is this – when this is how it works in litigation files, why should foreclosure cases be any different?  Because the homeowner (allegedly) has not paid?  Because the judge perceives the Plaintiff will win?  Because the Judge has a lot of cases on his/her docket and wants to remove the backlog?  Respectfully, that’s the rub.  If a judge is setting a hearing on his/her own initiative, for any of those reasons, it reflects a bias that should not be present among the judiciary.  Judges should treat my clients just like they treat insurance companies when I represent Plaintiffs – without any preconceived notions of who is going to win the case and without any agenda as to how quickly the case moves forward.

I can totally understand the judges’ desire to eliminate the high volume of cases with which they are dealing.  The answer, though, isn’t for judges to exceed their role as neutral arbiter and act as prosecutor.  The solution is to change to the rule on lack of prosecution. 

Fla.R.Civ.P. 1.420(e) is currently set up in such a way that it’s virtually impossible, as a practical matter, for a case to be dismissed for lack of prosecution.  For such a dismissal to be entered, (1) there can be no activity in the court file at all for 10 consecutive months; (2) the Plaintiff must be notified of the lack of record activity; (3) there must be no record activity in the ensuing 60 days; (4) an interested party must seek dismissal; and (5) there can be no “good cause” to prevent dismissal.  Under this standard, cases can languish forever.  I can file a Notice that I’m going on vacation for Christmas, and the 10-month clock starts all over again.  Respectfully,that’s crazy, particularly vis a vis foreclosure cases. 

If the judiciary wants cases to move quicker, it’s time for the Florida Supreme Court to implement an amendment to this rule.  How about something like … if six months have passed with no record activity in a foreclosure case, then, boom – automatic dismissal.  If that sounds too harsh, then give the Plaintiff a chance to prove good cause after six months.  The point isn’t how the rule is amended; the point is that some amendment is necessary to ensure that foreclosure cases progress at the pace the judiciary desires.  In other words, what I’m suggesting is this:

Judges, don’t prosecute foreclosure cases just because the bank has let those cases languish.  Instead, convince the Florida Supreme Court to amend Rule 1.420 so it’s not so impossible to dismiss a foreclosure lawsuit for lack of prosecution. 

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Aggressive Foreclosure Defense Can Prompt Changes in the Judiciary

One of my goals, both as a foreclosure defense attorney and the author of this blog, is to make everyone – the public, homeowners, and judges – aware of the many pitfalls with the way foreclosure cases are handled by our courts.  I realize not everyone agrees with my positions on all of these issues, and that’s okay.  I also realize I’m not well-liked in some circles for being so vocal in my views, and that’s okay, too.  My job isn’t to be well-liked – it’s to represent homeowners as well as I possibly can (consistent with the law and my ethical obligations).  Besides, meaningful change in how foreclosure lawsuits are handled is nothing but a pipe dream unless someone such as myself is willing to stand up and say “this is wrong.”  Not everyone will agree 100% of the time, but I stand no chance if I don’t try.

For example, a few weeks ago, I started receiving Orders from Honorable Douglas Baird in Clearwater which systematically denied my clients’ Motions to Dismiss, without a hearing.  I found this troubling, particularly since Judge Baird had not even placed me on notice that he might be ruling on such motions without a hearing.   Given my overwhelming belief that this disregarded the most basic notions of due process, I felt compelled to file a Motion to Disqualify the judge. 

As I’ve said before in this blog, I don’t want this to appear as if I disrespect Judge Baird.  I respect him plenty.  The issue is that I strongly disagree with him on these issues and, candidly, felt compelled to tell him so.  As I see it, if I can’t express respectful disagreement (especially on issues for which there is no clear “right” answer), what’s the point of being a lawyer? 

Anyway, Judge Baird granted the Motions to Disqualify, and in so doing, wrote me a letter.  The letter said, in essence, ”I figured foreclosure defense attorneys such as yourself realized that it was my procedure to deny motions to dismiss without a hearing, but since you didn’t realize that, I’m granting the Motions to Disqualify.” 

Judge Baird and I are never going to agree on some of these issues.  What I respect, though, is that even though he disagrees with me, Judge Baird realized how his procedure could be construed to others as unfair, particularly when I didn’t know about it beforehand.  In fact, since that happened, I have yet to receive an Order denying a Motion to Dismiss without a hearing from Judge Baird.  Is that a coincidence?  Maybe.  That said, I just received an Order (in a different case) from Judge Baird directing me to file a written memorandum to the bank’s response to my Motion to Dismiss within five days, after which he may rule on the Motion to Dismiss without a hearing.

Respectfully, I still find this new procedure patently unfair, and I said as much in another Motion to Disqualify.  As I see it, the judge should not be taking it upon himself to prosecute a lawsuit that the Plaintiff has chosen, for whatever reason, to let stagnate.  In other words, it’s not a judge’s role to say “I see the Plaintiff has stopped prosecuting this case.  It’s time for me to help advance the case towards judgment.”  My concern about this conduct is heightened by the fact that the Plaintiff is seeking relief in the case and the Defendant is not.  Where only one party is seeking relief, the judge’s attempts to advance a dormant case towards judgment, sua sponte, reveal bias. 

Also, I find it unfair to be given five days “from the date of the Order to file a written response.”  By the time I received the Order, that gave me three business days to respond.  Respectfully, that’s unreasonable.  There is no emergency here; this case has been languishing for months.  For the judge to suddenly, out of the blue, require me to file a written response within three business days, failing which my client’s argument may be denied without a hearing … I find that inappropriate.  What if I were on vacation?  What if I were in trial?  What if I were busy with other files?  I have handled all types of lawsuits, from inception through trial and appeal, and I can’t ever recall being given such a short deadline.  Respectfully, why should I have to drop everything to file a written memo (in three days)?  Simply because the judge decided, on his own, to start prosecuting this case towards judgment?  

All of that said, I can’t help but feel a bit encouraged.  After all, even though I suspect he still disagrees with me, it appears that Judge Baird has changed his procedure, if only a little.  Instead of denying a Motion to Dismiss outright, without a hearing (and without any warning that a ruling may be coming), he’s at least giving me a chance to file a written memorandum before he rules.  I still think this is insufficient, but at least it shows that the judges are receptive to opposing viewpoints.  It’s a baby step, yes, but Rome wasn’t built in a day. 

Candidly, I’m don’t know how Judge Baird is going to react to this most recent Motion to Disqualify.  I’m sure no judge likes receiving such a motion, and I suspect he still disagrees with my belief that his procedures are flawed.  That said, I remain hopeful that he will continue to re-evaluate his stance on these issues.  After all, I’ll argue all day long, as I have several times now, that it’s not a judge’s role to set a foreclosure case for hearing when the plaintiff has decided, for whatever reason, not to push the case towards judgment. 

Part of my willingness to express these views in an open forum, other than my stern conviction that I’m right, is that judges are all over the map on issues such as these.  To illustrate, consider the procedures of Judge Anthony Rondolino.  Like Judge Baird, Judge Rondolino is a Pinellas County judge.  The rules are the same for both judges, the law is the same, and the cases are generally the same.  Nonetheless, Judge Rondolino often grants Motions to Dismiss, most recently via this seven-page Order (entered after a 45-minute hearing), yet Judge Baird routinely denies Motions to Dismiss, often without a hearing.  When one Pinellas County judge is regularly granting well-taken Motions to Dismiss, after duly-noticed hearings, and another is regularly denying them without a hearing, there is clearly room for reasonable people – even reasonable judges – to disagree.  As such, it’s up to us, as foreclosure defense attorneys, to assert our views as respectfully but persuasively as possible.  Be respectful, but don’t back down, and don’t give up.  Judges are paying attention, and your efforts may make a difference.

As for homeowners out there, I strongly encourage you to evaluate which foreclosure defense lawyers are willing to fight, respectfully but forcefully, and which are just “going through the motions” of a foreclosure case.

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Defending a Foreclosure Case – Re-Visiting the Basics

With foreclosure-related stories dominating national headlines on a daily basis, many lawyers, judges, and reporters have gotten knee-deep, if not neck-deep, in the foreclosure crisis.  Sometimes, we’re so immersed in the battle, so deep in the forest, it’s easy to forget that many Floridians are unaware of the basics when it comes to foreclosure defense.  Let’s take a step back, dispel some myths, and re-visit the basics:

1.  As a Florida homeowner, you don’t need to leave your home unless and until the bank *wins* a foreclosure lawsuit.  As such, even if you’re hopelessly behind on your mortgage, you don’t have to leave your home.  Even if the bank writes you a default letter and sends it by certified mail, files suit against you, and threatens you on the phone, you don’t have to leave your home.  You don’t need to leave your home unless and until the bank wins a foreclosure lawsuit against you

To put it differently, there’s a reason I chose the name of this website – www.stayinmyhome.com.   

Repeat after me:  “I have the right to ‘stay in my home’ unless and until the bank wins a foreclosure lawsuit against me.”

2.  As a Florida homeowner, you are entitled to have a foreclosure defense attorney represent you until the conclusion of your foreclosure lawsuit.  In my view, my job as a foreclosure defense attorney is quite simple – to do whatever I can, within the law and consistent with my ethical obligations as an attorney, to try to prevent banks from winning foreclosure lawsuits against my clients.  In any given case, my hope is that I can do a good enough job that the bank will offer my client a reasonable settlement offer and/or loan modifications that it otherwise would not offer.  I’ve said this when I started practicing foreclosure defense and I still believe it – if you give up, you’re going to get foreclosed, but if you fight your foreclosure case, you at least give yourself a chance to avoid foreclosure

3.  Many non-lawyers think it’s easy for a bank to win a foreclosure lawsuit.  That’s not necessarily so.  When foreclosure defense attorneys such as myself force lawyers to prove their entitlement to foreclose in court, banks sometimes struggle to meet their burden of proof.  Every case is different, and there’s no way to know for sure how any particular case will play out in court.  That said, it’s possible the bank’s lawsuit will get dismissed.  It’s possible, once you retain a competent and reputable foreclosure defense attorney, that the bank will be hesitant to go to court altogether.  It’s possible the court will deny the bank’s motion for summary judgment and force the bank to prove its entitlement to foreclosure at trial (which would extend the duration of the foreclosure lawsuit and, hence, your time in your home).  The court process, candidly, can be a bit uncertain.  In my view, though, uncertainty is better than giving up and accepting foreclosure on your home. 

As we’ve seen with the huge, national stories in recent weeks, nobody knows for sure what the future will bring.  If you give up, foreclosure is all but set in stone.  But if you defend your foreclosure lawsuit, you just may be able to stay in your home, perhaps for a long time, or even avoid foreclosure altogether.

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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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Homeowners vs. Bankers – Tug of War, in quicksand

The foreclosure crisis has spawned a myriad of headline-grabbing, national stories.  Foreclosure fraud.  Robo-signers.  Strategic default.  Many brilliant Americans are trying to figure out how to solve the problem.  Finding the solution begins with understanding the problem. 

As a foreclosure defense attorney on the “front lines” of the crisis every day, I believe the problem is much simpler than people realize. Homeowners and bankers are in a Tug-of-War.  On one side of the rope, homeowners are pulling, trying to get loan modifications.  On the other side, bankers are pulling, trying to finalize foreclosures.   

                      Homeowners                    vs.                              Bankers

 (I have homeowners on the left because they’re clearly the underdogs, struggling with inferior resources.  The bankers are on the right due to their vast resources, aided by the bailout from the government.)

Everything we’ve seen in the foreclosure crisis falls under the umbrella of this Tug-of-War.  In my view, it started with the bail-out of the banks, so let’s start there. 

1.  In 2008, with our nation’s economy in the toilet, the government bailed out the banks, intending to spur lending and stimulate the economy.  But the bankers don’t modify loans. 

Government Bails Out Bankers ==> No Loan Modifications.

2.  The lack of loan modifications spawned more defaults by homeowners and unprecedented increases in the volume of foreclosures.

No Modifications ==> More Defaults & More Foreclosures 

3.  Faced with higher volume, bankers instituted questionable procedures to cut corners.  Robo-signers.  Foreclosure fraud (or, at minimum, neglect). 

No Modifications ==> More Foreclosures ==> Bankers Cut Corners

4.  Without modifications, and facing foreclosure, homeowners fight back, hiring foreclosure defense attorneys (particularly in states like Florida, which require judicial oversight). 

No Modifications ==> Homeowners fight back, Hire Lawyers

5  Foreclosure defense attorneys help homeowners, uncover fraud.

No Modifications ==> Homeowners Hire Lawyers ==> Bankers’ Fraud Exposed 

6.  As this whole process continues, the real estate market and economy as a whole continue to stagnate.  The ongoing Tug-of-War is being played in quicksand – both sides are pulling, and everyone is sinking. 

More and more Americans wonder why they should pay they should pay their mortgage when a house down the street is selling for 40% of the mortgage.  It’s the advent of strategic default.

No Modifications ==> Strategic Default

7.  Not wanting everyone to default, bankers still refuse modifications.  (This is one of the big perversities of the system.  Bankers will never admit it, but the single biggest reason they won’t modify loans is they don’t want to incentivize all of the homeowners who are current on their loans to go into default.) 

No Modifications ==> Strategic Default ==> No Modifications

8.  Meanwhile, in states with judicial oversight of foreclosures, like Florida, judges see their caseloads quadruple, essentially overnight, prompting unprecedented procedural changes, and, in many circles, skepticism in the judiciary (due to the increasing perception that courts have enabled the foreclosure fraud). 

No Modifications ==> Higher Volume ==> Strain on Judiciary

Now we sit, in October, 2010, with terms like robo-signer, moratorium, and foreclosure-gate a part of daily conversation.  The Tug-of-War is now more intense than ever.  Public debate rages about which side is right – the bankers or the homeowners, each side growing larger in number and getting more entrenched in their respective positions.  Meanwhile, high-ranking officials try to solve the problem, struggling to come up with a solution. 

Respectfully, the solution is simple.  AMERICANS NEED LOAN MODIFICATIONS.  Let me shout it from the rooftops:

AMERICANS NEED LOAN MODIFICATIONS

I’ve blogged on this website repeatedly about the problems with the loan modification process.  If the government has any intention of fixing the mess, and the economy as a whole, it must find a way to force banks to modify loans.  A few suggestions:

1.  Every time a bank forecloses, impose a tax.  A stiff one.  Make the tax pro rata based on the value of the property.  “You want to foreclose, bank.  Fine.  Pay $25,000.  Or $50,000.”  If bankers won’t modify loans, incentivize them to do so by hitting ‘em where it hurts – the wallet. 

2.  Reduce the principal on every owner-occupied property to its present value.  I made this suggestion on this blog weeks ago, before Foreclosure-Gate became a national phenomenon.  Yes, it’s a drastic suggestion, but this would drastically reduce strategic defaults, eliminate the backlog in our courts, and make mortgages affordable again.  The bankers got bailed out (and didn’t help homeowners at all) – it’s time to bail out the people.  Bankers may argue this is unfair, but I’d counter that this would stabilize housing prices, spur home sales, and get homeowners to start borrowing again. 

3.  Require judicial oversight of foreclosures in every state.  If it’s harder for banks to foreclose, it will give them incentive to work out loan modifications. 

4.  Require banks to attempt modifications as a condition precedent to foreclosure.  More importantly, make the banks prove that they complied with these conditions, to a judge, even in uncontested cases, before they can begin a foreclosure suit. 

Until some such actions are taken, the Tug-of-War will continue.  So if you’re a homeowner facing foreclosure, unable to get a loan modification, you really have little choice but to retain a competent foreclosure defense attorney, fight your foreclosure, and see what happens in the court system.  At worst, you’ll be able to stay in your home a bit longer, and, hopefully, get back on your feet. 

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How to Avoid Foreclosure Rescue Scams

Indiana’s Attorney General has filed suit against ten companies who took advantage of homeowners in financial distress, i.e. foreclosure rescue scams.  Given the nature of my practice, I’ve encountered many homeowners with horror stories about foreclosure rescue scams.  ”They promised me a loan modification, took $2,500, and I never heard from them again.” 

Unfortunately, there is sometimes no way to know for sure if the company with whom you are dealing is a “scam” until after the fact.  That said, here are some warning signs that the company with whom you are dealing may not be on the “up and up”:

1.  An out of state company.  I have received inquiries from from homeowners facing foreclosure from all over the country.  My response is always the same.  “Unfortunately, I can only represent homeowners with properties in Florida.”  Is that to say it’s impossible for an out-of-state company, or even an out-of-state lawyer, to help you?  Not necessarily.  That said, how is someone going to handle a foreclosure lawsuit from out of state? 

2.  A non-lawyer.  If you’re sued for foreclosure, there are only two types of people who can defend the foreclosure lawsuit – (1) the defendant/homeowner; and (2) a lawyer.  A non-lawyer cannot defend a foreclosure case; to do so would constitute the unlicensed practice of law. 

3.  A guarantee.  The Rules Regulating The Florida Bar preclude lawyers from guaranteeing a result to a client (in any case, including foreclosure cases).  Even if the Rules did not so require, I’d never give a client a guarantee.  Unfortunately, there’s no way to know, for sure, what the bank is going to be willing to do in the future.  Likewise, there’s no way to know, for sure, how a judge will rule.  If you’re being given a guarantee, chances are pretty good that it’s a scam.   

4.  Up-front payments.  This one is tough, because most lawyers charge up-front fees.  So don’t view this as a determining factor in and of itself, but consider it in conjunction with the others.  In other words, if an out of town, non-lawyer is guaranteeing you a loan modification and requiring you to pay up front, chances are excellent that it’s a scam.

5.  The company instructs you not to communicate with your bank.  It’s hard for me to envision a scenario where I’d tell a client who is seeking a loan modification or some other resolution in lieu of a foreclosure not to talk to the bank.  If that’s what you’re being told, chances are good that your “foreclosure rescue” company doesn’t want you to talk to your bank to catch on to the fact that they aren’t doing anything. 

6.  The company is not filing papers in response to your foreclosure lawsuit.  As I’ve blogged repeatedly, meaningful loan modifications are few and far between, especially prior to a foreclosure lawsuit being filed.  If the “foreclosure rescue” company you’ve retained is not going to defend your foreclosure case, chances are they aren’t going to help you.

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Real stories of foreclosure victims

Just as I was finishing my last blog about loan modifications, I received a comment on this blog from a homeowner.  The homeowner’s story moved me, so much so that I felt compelled to post it (with her permission), below.  As you read it, ask yourself “Does this sound like a deadbeat?  Or does this sound like an honest, honorable, hard-working American who is trying to do right for her family and meet her financial obligations?” 

What particularly irks me about this situation is that she was induced to default by a scam operation out of California that promised a loan modification but never delivered.   

Dear Sir, I am writing to you as my last hope to save my home. My husband lost his job here in Tampa Fl. and had to move to Houston in order to keep his job at a lower rate. On March 8, 2010, we paid $2,500, up front, to a California company called National Relief Group to get a loan modification.  They told us it would take 120 days to complete, not to contact our lender, and to stop paying our mortgage in order to get our home modified. Its been now 8 months and still no answer and we are now $14,000.00 behind including late fees and penalties. Since then my husband was cheating on me and left me right after life support and took off. I filed for divorce and got granted the house. However I was to refinance the house in my name and the kids. Since my divorce, my credit was ruined being so lengthy almost 18 months and costly.  As the months went by I got a letter from the Attorneys for Bank of America.  They filed a suit for foreclosure, I panic because that was not our intention. I want to keep my home – I just needed assistance to lower the modification in order to keep paying the house. I called the company that was supposed to modify the loan and for months they kept saying it was in negotiation process, and we kept getting deeper in the hole with no promises it would go through. So I called Bank of America. I was told that if I wanted to keep my house, I would have to come up with $14,000. I told them to please work with me by doing a repayment plan for the back paid fees and penalties, or to put the back pay towards the end of the loan and I would continue to pay the mortgage, as I do not want to lose my house. The lady I spoke to from BOA was rude, obnoxious and uncaring to my plea. She said to ask my family, friends, etc. to help bring my mortgage up to date in order to keep it from foreclosure. She also informed me that I would have to come up with $10,000 and they would do a six month plan which would take me from $1234 a month to $2700 a month. I told her I could not afford that payment and she told me that was the only way I could keep my house from foreclosure and she also said I would have to come up with the money soon because they move fast on foreclosures, within 30 to 60 days. I cried to her, I pleaded to her that this was not my fault, why I was in this position and it would be a win-win situation to keep the house out of foreclosure if I’m willing to pay my mortgage every month but I could not come up with the back payments thru no fault of my own, all we were trying to do was to get help by modifying the loan to make it affordable to us since my now ex had lost his job in Tampa.

Needless to say that I sat there in shock and confused as to how a person wants to keep their home and can find noone to help them. I recently got another letter from the court advising that the attorneys for BOA are also not only doing the foreclosure but also seeking attorney’s fees as well. This is insane. I am a disabled woman on a fixed income now receiving alimony, my sons have moved back into my home and between the 3 of us we can pay the mortgage. However, I am so disgusted that the banks will not work with me, I can’t refinance, I can’t seem to get any help from anyone in keeping my home. Its all I have left. I am turning to you for help, guidance and direction as to what I can do so I don’t lose my home. I am able to make my monthly mortgage payments, however I cannot cough up, nor do I have family left and/or friends who can help me with this kind of back pay.  Something has to be done as I am not one to walk away from my responsibilities without giving my all. I am not a loser or a low life as people are calling us that now, just a disabled woman trying to keep a roof over her head.

Anything you can do to help us would be greatly appreciated as I feel you are my last hope. If you have any questions, please feel free to contact me at 727-XXX-XXXX.

Sadly, this story is not unusual.  In fact, I hear stories like this every single day.  Contrary to what many Americans think, most homeowners aren’t “deadbeats.”  Most of my clients aren’t “taking advantage of the system.”  These homeowners are good people who are trying to do the right thing.  Can the banks say the same?

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