Judges in Florida Start Inflicting Pain on Foreclosure Mills and Trusts

Several readers pointed to an article in the Palm Beach Post, “Foreclosure crisis: Fed-up judges crack down disorder in the courts,” about how judges are having to resort to increasingly forceful measures to get foreclosure mill lawyers to comply with court orders. I had refrained from discussing it here because one aspect of the news story struck me as potential misreporting, so I wanted to verify it (and Lisa Epstein pointed to the transcript which enabled me to do so).

There have already been a number of reports of a marked shift in attitudes among judges in the wake of the robosigning scandal. In many courtrooms, the presumption that the bank is right has vanished. For instance, Mark Stopa reported late in March:

It was September, 2010. I was defending a motion for summary judgment before Judge Parsons (Volusia County). The argument was really strong. Yet when the hearing began, I felt like I was battling for my life. Judge Parsons’ displeasure with foreclosure defense oozed from every fiber of his being. He asked pointed question after pointed question, grilling me for cogent explanations why summary judgment should be denied. I left the hearing having prevailed, but having felt like I just ran a marathon. Even as he denied the MSJ, the judge made it clear he wasn’t pleased to have to do so.

Fast forward to today….The hearing was brief but very interesting. With very little argument, the judge [Parsons] apologized for entering the Order ex parte, noting that such matters are often uncontested and he did not realize this one was contested. Quickly, the issue became whether the motion to correct the alleged scrivener’s error should be heard right then or at a future hearing [The bank’s lawyer had admitted the securitized trust that filed the lawsuit, sought summary judgment, and filed an affidavit in support did not exist].

The bank’s lawyer asked it to be heard right then, arguing the case had been delayed. The judge interjected, saying something to the effect of:

The bank is complaining about delay? I find that ironic. In October, I was handling 40-50 foreclosure cases at a time. Nowadays, I can’t get a bank to come have a hearing. The banks all shut down in October, stopped prosecuting these cases. I don’t see how the bank is now in a position to complain about delay.

From my perspective, it wasn’t just the ruling in this case, or what Judge Parsons said. It seemed to me that his entire approach/perspective on foreclosure cases had changed. Apparently, he realized that the banks chose to shut down operations due to their ongoing, systemic fraud and he wasn’t letting them get away with it any more. Maybe I’m reading too much into it, but the ruling and the commentary were a stark contrast to his demeanor prior to October and a refreshing change.

The Palm Beach Post reported on a case . First the article, which gives an overview of the state of play in the Sunshine State:

A Palm Beach Post review of cases in state and appellate courts found judges are routinely dismissing cases for questionable paperwork. Although in most cases the bank is allowed to refile the case with the appropriate documents, in a growing number of cases judges are awarding homeowners their homes free and clear after finding fraud upon the court…

In February, Miami-Dade County Circuit Judge Maxine Cohen Lando took one of the largest foreclosure law firms in the state to task in a public hearing meant to send a message. She called Marc A. Ben-Ezra, founding partner of Ben-Ezra & Katz P.A., before her to explain discrepancies in a case handled by an attorney in his Fort Lauderdale-based firm.

“This case should have never been filed,” said Lando, who referred to the firm’s work on the case as “shoddy” and “grossly incompetent.” She called Ben-Ezra a “robot” who filed whatever the banks sent him, and held him in contempt of court. She then gave the homeowner the home – free and clear – and barred the lender from refiling the foreclosure….

Ongoing scrutiny by the FBI, the Florida attorney general, the Florida Bar, the media and defense attorneys has uncovered countless examples of forged signatures, post-dated documents, robo-signing and lost paperwork.

I wondered about this part of the article, “She then gave the homeowner the home – free and clear – and barred the lender from refiling the foreclosure.” I’ve heard of cases being dismissed with prejudice, which means the same parties can’t come back to court. But it doesn’t prevent another party (presumably the one who actually does own the note, meaning an entity earlier in the securitization chain) from asserting its rights.

Well, per an example that ForeclosureFraud) presented at the end of March (hat tip Lisa Epstein), another judge, Jennifer Bailey, did indeed give a borrower a house, so it’s plausible that that also happened in the case discussed in the Palm Beach Post.

Judge Bailey was so disturbed by the foreclosure mill and servicer’s non-compliance in a foreclosure case decided to, as she put it, sanction the bank, since sanctioning the attorney would have a permanent effect on his career and not have the needed impact on the source of the misconduct.

You really need to read the entire transcript, it’s a doozy. The short form is that the bank was unable to produce the note and the judge had agreed to let the foreclosure proceed, provided the trust posted a bond to protect the borrower from another party showing up with the note at a later date and suing the borrower, who now has no house, for the full amount. Of course, the servicer foreclosed and did not have the trust post any bond (and the borrower was current on a HAMP trial mod too, it seems…).

Florida Judge “Sanctions” Bank for Noncompliance by Canceling Mortgage

So what did the judge do?

1. Cancelled the note

2. Ordered title to be conveyed by the trust back to the owner

3. Ordered the HSBC trust that tried to foreclose and the foreclosure mill and its successors to jointly and severally indemnify the borrower should the original note resurface in another case

So consider what happened if the servicer was foreclosing in the name of the wrong trust…it has just made the trust it filed under and the foreclosure mill liable if the right party ever shows up.

A few rulings like this will really focus the minds of everyone in the food chain.

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  1. attempter

    This sounds like an encouraging anecdotal trend.

    The last thing left in this system is, certainly not “the courts”, but the possibility that individual judges will decide to take justice seriously. As it is, by now whenever there’s a significant wealth disparity between adversaries entering a court, all bets are off as far as law, morality, equity, justice.

    1. Michael H

      Welcome back! I haven’t seen anything from you in a while and was afraid you might have stopped posting comments.

      And thanks to Yves for this article.

      1. skippy

        Do that again and I’ll hunt you down, chain you to the steps of Wall St. with a shoe shine box…Capisce!

        Skippy…I don’t think anyone has enough spit for that action, you’ve been warned!

    1. dejavuagain

      True – when the bank goes belly up. In a related issue, title insurance is not the answer either. The title company can go belly up.

      Even worse, in general, the title company is not ordinarily going to promise that a subsequent purchaser will be able to obtain title insurance. The title policy only provide insurance to the insured . To be meaningful, the title insurance would need to “run with the land” and insure all subsequent purchaser of the property.

      Will title companies write this type of insurance – I doubt it.

  2. Transor Z

    One thing that legal commenters on this subject have not done very well for the benefit of the general public is explain a basic tenet of property law: there is no such thing as absolute ownership of property in American law.

    “A man’s home is his castle” is qualified by the man’s obligations to the bank, the IRS, the water & sewer company, the contractor who added a bedroom, and the lurking possibility that the State might decide it wants to build an expressway or sports stadium on his land. Most people understand that much. But what they don’t necessarily get, and that lawyers have drilled into their heads from moment one of law school, is that everything about property is relative. When someone has title to a house or a boat or a diamond ring, the legal question is always “superior title against whom?” Everything is relative.

    Recording statutes establish priority among mortgage holders and protect one buyer against a subsequent buyer or even someone who claims to have bought the property earlier but never bothered to record. Everything about property ownership is relative. “I have superior title to the house as against A, but if B comes calling I might be screwed.”

    So right now, the home owner in the case in the OP has superior title against this bank and any claims that might run through the bank. But the order to post the bond was to also protect the borrower against claims from third parties who might have superior title to the bank — not a trivial possibility given the chaotic state of the bank’s paperwork.

    But if and when the bank goes belly up and it no longer exists to indemnify the home owner, what then? In all likelihood, we’re talking about a judicial resolution of this dispute that will apply to a finite window of time.

    Last point: I guarantee that Attorney Huffman was absolutely shitting bricks when the judge had him sworn in to testify for HSBC and his professional life flashed in front of his eyes.

  3. Roger

    First, I must disclose that I am a Banker and not an attorney. Secondly, I must disclose that I am a COMMUNITY Banker and do not work for a foreclosure mill. Third, I am a little offended when ALL banks are accused of fraudulent foreclosures.

    I have seen firsthand what the foreclosure defense mills produce and the stall tactics that they employ. My Bank did not “shut down” last October but we were brought to a screeching halt with some of the foreclosure defense mills claimed that we were not in possession of the original Note and Mortgage (we were in possession of these documents) and that we wrongfully served the Borrower because he was not served at the home (contrary to Florida law as I have the right to have the Borrower served anywhere I can find him or her). I have even had an attorney claim in court that the Borrower had no right to pledge the collateral, which left the client open to a fraud charge. I have also had a Borrower that has been in Bankruptcy for over a year and has not made a payment for over 2 years and the matter has still not been resolved.

    Most of the time and no matter who the Lender may be, the Borrower did not make the payments as outlined in the contract with the Lender – that is why the Mortgage is being foreclosed. Also, with the money paid to the foreclosure defense mills, the Borrower likely could have worked out a reasonable deal with the Lender and kept the home. While there are certainly unscrupulous foreclosure mills out there, there are also unscrupulous foreclosure defense mills out there as well.

    1. steelhead23

      Roger, I know you are not defending MERS, the document service, or the big banks, but your lament deserves a response. In my view, the honest bankers should be mad as hell at these guys. THEY screwed the pooch. And the entire industry is getting tarred with the same brush. What are you going to do about it? Will you stop using MERS? Will you require clean titles prior to issuing new paper? It is up to you guys to clean up this image problem you have. The Mortgage Association ain’t helping.

    2. Wild Bill

      Hiarious, Roger! “Foreclosure defense mill.” Just crankin’ through, huh, with no thought to what happens to those poor small banks. How’d you get that underperforming loan, Roger? You write that crappy paper, or did you buy it on the secondary market? You won’t have your cases come to a “screeching halt” now because the judge is making you show your original documents right from the get-go. Since, of course, you have all those documents, your foreclosures should sail through. Now what are you going to do with all your repossessed houses, Roger, in a housing market that is still going down? Who you kidding, the last thing in the world you want is to have all those houses come on your books — you’d be done. Peddle your trash somewhere else, we read Naked Capitalism.

    3. Yves Smith Post author

      There is no such thing as a foreclosure defense mill. The fact that you’d try to peddle a line like that says you are not to be believed.

  4. GeneH3

    “…in a growing number of cases judges are awarding homeowners their homes free and clear after finding fraud upon the court …”

    I have been waiting for this.  Almost all judges recognize fraud on the court as a most serious offense against the rule of law and gross disrespect of the courts — they take it personally.  That sanctions were not imposed beginning with the first foreclosure case, or at least after robosigning became known as an industry practice, is mystifying.  It can only be explained by judicial complicity, not requiring that a plaintiff establish it’s standing or proving it’s case, and overlooking fraud in the interest of efficiency.

    Last year I wrote to the Inspector General of the Florida Courts voicing my displeasure with what was happening in Florida:

    Ladies and Gentlemen:
    I expect that you might already be aware of Matt Taibbi’s article in the November 25 issue of Rolling Stone magazine, which hit the newsstands today.  The article, which is linked here (http://www.rollingstone.com/politics/news/17390/232611?RS_show_page=0), asserts that Florida judges are flagrantly ignoring the rule of law for the sake of efficiency.  Inasmuch as your office appears to be responsible for both efficiency and adherence to the rule of law, this now very public matter should be commanding your immediate attention and full application of your resources.  Rolling Stone is no longer viewed as a bunch of potheads.  It has proved itself to be (more than occasionally) a good source of investigative journalism and it has no small amount of public credibility.  You should not dismiss this article out of hand.
    I am a retired corporate lawyer and an inactive member of the Florida Bar.  My family has been practicing law in the United States for at least 100 years.  So my pride in the integrity of the profession is intensely personal – to the extent that when my friends complain about the McDonald’s coffee case or the O.J. verdict, I patiently explain how our legal system works and, on balance, delivers a just result.   But for the past two years, my firm belief in the American system of justice has been shaken.  The people who have shaken it the most are in Washington.  And the people that appear most ready to defend it are state attorneys general.  I trust that you are also among those who consider it your personal mission to validate public confidence in our courts.
    Lately, it appears that the foreclosure mess has overwhelmed many state judicial systems.  And because Florida seems to be the state where most foreclosures are taking place, Florida’s judicial system has been extraordinarily stressed. 
    I have followed in the Bar News how the Florida system has dealt with this huge challenge, and I must say that I have been impressed that the court system has responded appropriately by providing judges to accelerate foreclosure proceedings and that the Bar has worked hard to provide pro bono legal services to homeowners.  It is no doubt extraordinarily taxing and our lawyers and the court system have done well even though it appears that many homeowners remain unrepresented.  But if the Florida judges assigned to these matters are ignoring the rule of law and are not requiring plaintiffs to prove their cases, they are undermining the trust that the entire U.S. population places in them and the rule of law.  And as the Rolling Stone article illustrates, Florida judges themselves are being judged.
    Of course, the basic issue is whether the plaintiff in a foreclosure action has the right, or standing, to bring the foreclosure action.  For goodness sake, how in the world does a judge allow a stranger to take someone’s home – even if the homeowner is a deadbeat?  Whose burden of proof is it?  The plaintiff, at a minimum, should have the papers to establish its standing, its right to be in court in the first place.  And judges are empowered to dismiss a suit sua sponte for lack of jurisdiction if the plaintiff has no standing.  Thus, it seems, judges at a minimum, even in a default judgment, need to consider whether the plaintiff has a right to take someone’s home.  As burdensome as it may seem to the system, even in the absence of challenge, judges need to consider and rule on what the plaintiff has proffered to prove its entitlement to take someone’s home, especially in Florida where home ownership can arise to a constitutional issue.
    The Florida judicial system is not operating under the radar.  The world is watching how the Florida courts are responding to this complex and difficult situation.  And it is a very skeptical world. 
    The financial cognoscenti – people who evaluate, understand and discuss the daily developments in the financial world – are very, very cynical, and unhappy, about what they perceive as financial risk-taking at the expense of the public and the complicity of the “system” in concealing outright fraud.  Please consider, for example (and the examples are vast), http://www.oftwominds.com/blognov10/fraud-is-lifeblood11-10.html and the opinions linked therein.   There are a vast number of reports, articles and opinions that illustrate how upset the members of the investing public are at Florida’s seeming abandonment of the rule of law.
    This is not a matter of winners and losers (we all know that foreclosure is the appropriate remedy against people who don’t pay their mortgages).  It is about the neutrality of the courts and their vigilant adherence to the common assumption that a judge will require proof.
    Attitudinal changes throughout the United States will ensue from the public performance of the Florida courts and how we respond to this terribly troublesome matter.  The IG’s role must – must – be to publicly validate the integrity and efficiency of our judicial system and to recommend any remedial action necessary to assure that justice is done.  As the first step, it is most important that plaintiffs be required without exception to establish their standing on the record.
    If you have not already done so (and I expect that you have), please take appropriate action to commence an investigation to verify (or re-establish) that the Florida courts will require proof (if challenged) that a foreclosure plaintiff is entitled to foreclose.

    Thank you for your service and your commitment to the common principles that we hold dear.  
    There is no good solution overall to the fix the many dimensions of the foreclosure mess. It will take years to unravel the tangled web woven by the bankers and their agents. “Efforts to achieve a global settlement that would validate the flawed system, pardon the frauds, and compensate the States, investors, CDS counterparties and banks for their losses, will be very difficult if not impossible to achieve.” See http://thematrixnot.blogspot.com/2010/12/perspective-on-mortgage-mess.html. But heavy-handed judges who uphold the rule of law and impose significant sanctions can have an immediate effect to end the use of criminal behavior to take people’s homes.

  5. Will Bill

    “But it doesn’t prevent another party (presumably the one who actually does own the note, meaning an entity earlier in the securitization chain) from asserting its rights.”

    Yves, you’re right, the author probably didn’t understand the theory behind chain-of-title rights. But has this happened recently, where a party down the chain asserts foreclosure rights? My thought is that a claim of this nature would open the door to discovery that the TBFBs, as well as the trusts, don’t want opened. As you have documented, nothing significant is going to happen on this matter until the crowbar of justice gets wedged into the cracks in the trusts’ operations. Perhaps a foreclosure by down-the-chain title owners would open that fissure.

    1. Transor Z

      There are well-documented instances of multiple banks foreclosing on the same borrower.

      1. financial matters


        Re-Foreclosure, Counterfeit Notaries, and Petrified Lawyers: Tales of Foreclosure Fraud

        By: David Dayen November 15, 2010

        In some cases, the banks can obtain a successful eviction and control the property, but find themselves unable to obtain title insurance that they need to sell the property. So they go back to the previous homeowner, give them back the home, and try to foreclose on them again.

        Maybe Congress could make a certain entity, like MERS, legal in terms of title, but that wouldn’t end the uncertainty and would have to be tested in court, which means the title insurer would remain reluctant to sell a policy. And you would still have incidents like this, where Prommis Solutions created a flat-out counterfeit notary seal of the former Superior Court Clerk in Fulton County, Georgia to sign off on foreclosure paperwork. Where exactly will Congress go to make that activity legal?

        Bank lawyers prosecuting the 80,000 foreclosure cases in New York are all but admitting that the cases they have filed over the past number of years have been riddled with fraud.

        Basically, the lawyers prosecuting these cases bailed as soon as they realized they could be held personally liable for all the errors in the paperwork. They’re still processing foreclosures, but they’re afraid to take them to court.

        1. Transor Z

          That’s a little different. That’s the same back foreclosing on the same borrower multiple times after trying to rectify paperwork problems.

          1. financial matters

            Yes, but interesting that they would have trouble getting title insurance for the property..

          2. financial matters

            My take is that they are trying to launder the home back through the homeowner in an attempt to get a clear title.

          3. Transor Z

            I’ll reply here because of the nesting. Yves posted about banks taking a stab at using captive title insurance as a workaround to this problem a few months ago, providing examples of coverage language with carve-outs that excluded certain title problems from the policies. Personally, I’ll take my title insurance with actual title coverage, thankyouverymuch. :-)

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