Florida Foreclosure Judicial Tide Changing

Even as light is increasingly being shined on massive ”fraud on the court” by lenders, mortgage servicers, foreclosure mill law firms, a protective shield is being erected around the guilty parties.

Palm Coast, FL – April 5, 2011 – GoToby.com first reported the foreclosure documentation problem over three years ago. [Story]  What seemed like a small glitch at the time has burgeoned into a crisis of major proportions with no solution in sight. Sunday evening, the problem was spotlighted in a 60 Minutes segment.         
The root of the foreclosure documentation crisis was created by banks when they decided it was too costly to actually endorse transfer documents and record them at county courthouses. So they invented MERS, the Mortgage Electronic Registration System to eliminate paper and recording fees. By eliminating the paper and recording fees, they also eliminated integral components of the "chain of title." The chain was broken.
Who’s to Blame?
Many borrowers are guilty of purchasing homes they could not afford and creating a flood of defaulted loans. The government too was culpable. They urged banks to loosen lending standards in order to achieve the noble but impractical goal of increasing home ownership. But it was the banks and Wall Street that created the system of bundling several mortgages together and reselling them. Mortgage-backed securities could not have evolved under the dated but proven paper-intensive chain of title and recordation system. MERS was created to satisfy only one need; making trading mortgages and notes more efficient. 60 million mortgages are reported to exist within MERS. The homeowner/borrower did not create MERS.
When loans started to go bad, lenders faced an increasing flood of foreclosures. But MERS, they discovered, was a one-way street, designed to "track" transactions in one direction only. MERS could not unwind the tangled chain of title because the paperwork required to process a foreclosure was gone. Foreclosure defense attorneys began challenging lenders to prove that they owned the note and mortgage. If they couldn’t product the documentation, they did not have standing to foreclose.
No problem; lenders or their proxies simply manufactured the missing documents on a massive scale at foreclosure mills staffed with "robo-signers." The 60 Minutes video portrays the extent to which that practice was pervasive. Forgery and falsification of documents presented at trial is a fraud on the court; a serious offense.
Who Will Pay
Are the lenders going to have to pay the piper or will they be given a pass? Will homeowners get a bail out or will they just have to suck it up? Two recent judicial events in Florida show which way the wind is blowing. Hint: the homeowner is down wind.
Florida Appellate Court Opinion
A recent decision by a Florida Appeals Court [Pino v. The Bank of New York Mellon] will likely be broadly sited in future foreclosure defense trials. The lender had previously committed fraud on the court by submitting manufactured forged documents but was allowed to voluntarily dismiss the action and refile the same suit five months later. The Appellate Court ruling says that the banks can dismiss fraudulent suits, go get their paperwork in order, re-file the same case, and essentially get away without any penalty for committing mass fraud on the courts. 
Once the practice of robo-signing and manufactured documents was exposed, many banks simply stopped going forward in litigation and had their suits dismissed for lack of prosecution.  As the homeowner’s attorney did in the Pino case, an attorney defending a second foreclosure suit could move to strike the notice of voluntary dismissal in the earlier case and reopen the fraud on the court issue. The Pino case says "NO." The banks can clear their mess up and escape without punishment for having committed the fraud. Bear in mind that the bank in the Pino case had a couple of shots at filing the right stuff with the court in the earlier suit and responded by committing fraud upon fraud.
The Pino "en banc" opinion will certainly be influential. Most Florida appellate decisions are decided by a panel of three judges. Each district court of appeal has a dozen judges who split the workload. On rare occasions when there is a case with special significance or or one presenting a matter of grave public importance, the appellate court will convene all of the judges to sit “en banc” to make the decision.  Only one justice dissented in the Pino opinion. One recused. The other 10 essentially gave amnesty to the bank for committing fraud on the court.
Florida Attorney General Settlement
The Florida Attorney General was one of several state attorneys general that made a big splash of investigating foreclosure mill law firms and unscrupulous mortgage servicers and lenders. In a March 25th press release, the Florida AG’s office boasts of settling an investigation against one of Florida’s largest foreclosure law firms; Marshall C. Watson. The Watson firm will pay a $2 million penalty and agree to an "imposition of certain requirements to conduct business."
“We are aggressively investigating these law firms in order to protect the interests of everyone involved in foreclosure proceedings. Homeowners, lending institutions and the courts deserve to know that the law is being followed and all documentation is true and accurate,” stated Attorney General Pam Bondi. “Anything short of total assurance of complete accuracy during such serious situations is unacceptable.”
Considering that the investigation of the Watson firm was looking into "the improper production and filing of foreclosure documents," (fraud on the court) and that the firm likely processed tens of thousands of foreclosures, the $2 million settlement is no more than a slap on the wrist.
I was raised in a small farm town in western New York State where I learned to trust bankers and politicians and to hate the New York Yankees. I guess one out of three ain’t bad.

1 reply
  1. Attorney
    Attorney says:

    One final note on the Pino decision

    The appellate court sitting ”en banc” wrote in the majority decision:

    ”We conclude that this is a question of great public importance, as many, many mortgage foreclosures appear tainted with suspect documents. The defendant has requested a denial of the equitable right to foreclose the mortgage at all. If this is an available remedy as a sanction after a voluntary dismissal, it may dramatically affect the mortgage foreclosure crisis in this State. Accordingly we certify the … question to the Florida Supreme Court as of great public importance:”

    That quote appears in page five of the Word document. The majority acknowledged that this case could have broad applicability. It is also apparent, although not expressly stated, that the judges were concerned about the banks’ ability to get money through foreclosure. Due to the scope of the fraud on the court issue, the appellate court seemed concerned about transforming secured mortgages into unsecured loans on a mass scale. Commensurate with that would could also be an additional influx of cases where people defend the foreclosures or file suits to clear the title to their properties. The court seemed to be less concerned with the frauds that had already been committed and cases that have been dismissed than it was about the potential influx of new cases and future workload that would be placed upon the system. The court referred to current state of affairs as a ”mortgage foreclosure crisis in this State”.

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply