Bank Servicers Whittling Away at Hard-Won Protections Against Foreclosure Abuses: The Maine Example

This site was heavily involved in the fight to stop abusive and unwarranted foreclosures in the wake of the financial crisis. As we’ll explain soon, one of the leaders in this fight, Maine attorney Tom Cox, has told us that banks have engaged in a successful campaign to roll back hard-won borrower protections. That’s evidenced by a new Maine Supreme Court decision that overturned precedents to allow banks to relitigate claims they’d lost against mortgage borrowers….which is barred for any other type of legal action.

Foreclosures peaked in 2009 and 2010 in significant measure due to securitization producing value-destroying behavior. In the stone age when banks held the mortgage they made, if a borrow got behind on payments, the bank would modify the mortgage if the homeowner was still viable, as in could catch up (ideally) or pay a pretty high proportion of the payments due over time. The bank was generally better served by getting half a loaf rather than none. Plus regulators took a dim view of REO (real estate owned, as in foreclosed homes) on a bank’s books, and a foreclosure would lower the value of homes nearby, hurting the community. And since the bank made new mortgages, it had the skills to modify mortgages.

By contrast, under the brave new world of mortgage servicing, servicers were set up to drive delinquent mortgages into foreclosure. They were paid to foreclose and not to modify mortgages; even if they wanted, to, they lacked the skills and the local knowledge. So borrowers in the old days who could have been salvaged instead lost their homes. And investors lost too, since the recoveries from these foreclosures wound up being much lower than the models assumed, which was at least in part due to the volume of foreclosures being unnecessarily high.

A small cadre of lawyers worked to contest foreclosure abuses (and servicer incompetence also made matters worse, such as trying to foreclose on a home that had never had a mortgage, or where the home had burned down but the bank was refusing to accept the insurer’s payment). One of the leaders was Tom Cox in Maine. Our description from a 2017 post:

Those of you who remember the hard-fought battles of the era of predatory foreclosures will recall the name of Maine attorney Tom Cox. Over 9 million families lost their homes, many of whom could have been salvaged through loan modifications which would have been better for investors too.

Cox broke open the fact that servicers, on a mass basis, weren’t taking the steps required for them to foreclose. And as soon became evident, what were depicted as mere paperwork deficiencies actually reflects a vastly more serious legal problem: that mortgage notes (the borrower promise to pay) often if not routinely hadn’t been transferred properly to the securitization trust. A related problem was that the lien against the property hadn’t been recorded in the local courthouse but in a mortgage registry called MERS, and the procedures for changing the MERS record when the note and the mortgage lien changed hands were legally bogus for a set of reasons that it would take too much space to recount here…..

In 2012, Cox was one of five winners of the Public Purpose prize, which as the Portland Press-Herald described it,”recognizes people older than 60 who work toward the public good and rewards them with $100,000.”

Cox has continued to win many precedent-setting foreclosure defense cases in Maine. I’ve embedded his most recent victory, which makes an argument I hadn’t seen before: that the foreclosing servicer had violated evidentiary requirements by including records from former servicers where the personnel from the current servicer who appeared in court could not attest as to their validity.

Unfortunately, things have changed since 2017. A fresh e-mail from Cox:

Since vacancies started opening on the Maine Supreme Judicial Court in 2020 after my string of wins of decisions protective of homeowners facting forclosure, one by one new justices have been appointed who are rolling back those protections. Attached is the most recent evidence of that.

Over the past 15 years I have dedicated the remainder of my legal career to trying to protect low income homeowners facing foreclosures. I figure the value of the pro bono services I have provided in that time well exceeds $2 million. As a result of the Finch decision discussed in this report, I have stopped taking on any new foreclosure cases because I no longer feel that I can assure my clients that the Maine judicial system will treat them fairly. It is sad and painful to see how the banks will always win.

My work from 2008 through 2020 focused on protecting low income homeowners in court, but also in the Maine Legislature, by blocking bank attempts there to roll back the favorable decisions I was winning in the Maine Supreme Judicial Court. They could not beat us in the courts and they could not beat us in the legislature. But they finally beat us by persuading the Maine governor ( a DINO—Democrat in Name Only) beginning in 2020 to appoint new justices to the court who would do the bidding of the banks. The attached report and news article describe how a former bank lawyer, appointed to the Maine Supreme Judicial Court in 2020, tipped a major decision to favor the banks by casting the deciding vote in a 4-3 decision to vacate two unanimous 2017 decisions which held that, when banks lose foreclosure cases, like all other losing litigants in all other categories of cases, they cannot later bring new actions to prosecute their defeated claims.

Cox highlighted the key, and pointed, paragraphs from a dissenting justice in Finch, which the other two justices joined:

[¶53] Not even seven years ago, in two separate but analytically related cases each decided unanimously, the Court held that a judgment entered against a mortgagee in a foreclosure action barred successive lawsuits seeking the same relief. See Pushard v. Bank of Am., N.A., 2017 ME 230, ¶¶ 4, 35-36, 175 A.3d 103 (where the judgment in the first proceeding was based, in part, on a deficient notice of default); Fed. Nat’l Mortg. Ass’n v. Deschaine, 2017 ME 190, ¶¶ 7, 37, 170 A.3d 230 (where the prior judgment was issued as a sanction for the plaintiff’s failure to comply with a pretrial procedural order). This conclusion is unremarkable because it treats mortgagees like any other claimant that had already sought relief but was unsuccessful—when a party loses its case through a final judgment arising from a failure of proof or some other reason that is dispositive, that party is barred from trying again. See U.S. Bank, N.A. v. Tannenbaum, 2015 ME 141, ¶¶ 6, 10, 126 A.3d 734. Today, the Court retreats from that principle. It does not do so because the law emanating from those cases has become antiquated. It does not do so because the law has changed. Rather, the Court does so simply because it now disagrees with the outcome of the cases we decided a short time ago.

*15 [¶54] In my view, Pushard and Deschaine remain good and settled law. And the effects of the Court’s holding today go well beyond overruling most or all of those two 2017 cases; it calls into question other consequential areas of established foreclosure law. Even beyond that, the Court’s willingness to make an abrupt change in the direction of the law in these circumstances reasonably raises questions about the extent to which this Court is willing to adhere to established precedent generally.

An egregious element of the adverse Finch is that the newly-appointed bank-friendly justice, Catherine Conors, has such an extensive history of representing banks, including on foreclosure matters, that she should have recused herself. This case is so blatant that the Committee on Judicial Conduct has recommended a disciplinary action against her (see the first embedded document below). The second document contains articles about the possible sanction, which would be a first for a Maine Supreme Court Justice.

Cox also pointed out that the Finch decision was effectively punitive, since banks had other ways to recoup these losses:

I should add here that there is a fundamental truth which the four majority justices on the Maine Supreme Court refused to consider in their 4-3 vote in the Finch case. Whenever a loan owner, which has a legitimate claim of foreclosure, loses a court foreclosure case, that loss is necessarily due to the negligence of that loan owner’s mortgage servicer and/or the foreclosure mill attorney hired by the servicer. This is so because in every legitimate foreclosure case the loan owners attorney has the duty to, and indeed has the capacity to, ensure that the loan owner’s evidence will meet all of the proof requirements for the elements of a foreclosure claim.

The problem in Finch was a defective default notice letter. Any competent lawyer for a mortgage loan owner should determine, and indeed is capable of determining, before suit and before trial whether the default letter meets statutory requirements. When the loan owner loses at trial due to a defective default letter (they are written by the foreclosure mill lawyers about 50% of the time) the loan owner can sue the foreclosure mill lawyer for negligence. Loan owners lose judicial foreclosure cases only because their lawyers are negligent and lazy in the handling of those foreclosure cases. Loan owners have a complete remedy when they lose foreclosure cases—they can sue their lawyers. There is no need for courts to instead allow loan owners to inflict second lawuits against homeowners who struggle enough to find lawyers even in the first suits.

The Maine court and many in other states just cannot stand the idea that maybe there will be an occasional “free house” for a mortgagor as the price of keeping the loan owners, their servicers, and their foreclosure mill lawyers honest and careful in the judicial foreclosure process.

But to return to the discussion at the top of the post, borrowers fighting foreclosures were not seeking a free house. They wanted a mortgage modification. But the servicers were no set up to either give or get paid for giving them, so they’d fight the borrower instead.

00 Committee Report to Maine SJC filed on 2024-10-11
00 2024-11-03 Me. Monitor--Ethics inquiry puts Maine Supreme Court in uncharted territory-compressed
00 Finch v US Bank NA, 2024 ME 2 (Westlaw ed.)
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5 comments

  1. vao

    Does it mean that the only remaining path to quash the contestable decision of the judiciary in Maine is to convince the USA Supreme Court to overturn it? That would be a tall order with all those issues of standing, importance of the case, and the inclinations of the current members of the USC.

  2. ambrit

    Tip toeing across a minefield here; when legal recourse is denied, especially in such an egregious manner as has happened here, what other “recourse” is there? (There is one available, hence my caution in speaking.) It looks like the Maine Supreme Court and their “backers” have sown the wind.

  3. The Rev Kev

    Sounds an awful lot like how Republicans stacked the US Supreme Court with conservative judges in a campaign that goes back decades. But here it is a – kinda – Democrat who also stacked the Maine Supreme Court with conservatives judges so that they too will give business friendly interpretations of the law. It really is a uniparty, isn’t it?

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