Slippery Slope

Posted by kevin on March 17, 2013 under Foreclosure Blog | Comments are off for this article

For the better part of 3 years, legal scholars and commentators of mortgage crisis have commented the the Federal government (and many state governments including NJ) has not prosecuted criminally one major bank or Wall Street investment house notwithstanding that there have been numerous incidents of outright fraud in the origination of loans, and the sale of loans to both GSE’s and in private securitization. Frontline had a show on this about a month ago. Lanny Breuer, the head of DOJ criminal division, tapped danced around the issue, and pointed out all the mortgage brokers that were indicted. Little guys without the funds to put together a defense. Yet, the higher ups at the investment houses and the “too big to fail” banks have skated.

Finally, about 2 weeks ago, Eric Holder admitted to a Senate committee that “too big to fail” is, in fact, “too big to jail”. What a disgrace. People, who are not in foreclosure because they continue to work hard and pay their mortgage every month, have lost 40-50% of their pension money and more than 50% of the value of their homes. Why? Because the too big to fail banks broke the law. But nothing is being done. Small monetary fines in relation to the money lost is but a slap on the wrist, and gives these banks and Wall Street no incentive to change their ways.

It no better on the State level. The NJ Supremes held that lenders had to strictly comply with Notice of Intent requirements but waffled on the remedy issue thereby reversing the trend of cases which were decidedly pro-borrower.

Now, there have been a series of cases (Polanco, Russo and this week DeCastro) where three appellate panels have ruled that a foreclosure plaintiff can sell your house without proving that it owns or holds the underlying note if the defendants did not answer the complaint in a timely manner. In Polanco, the plaintiff was listed as a securitized trust. However, research indicated that the trust did not exist. In three sets of submissions to the court, the plaintiff was challenged to prove standing, but did not address the issue. Plaintiff restricted its argument to the fact that the borrower had not responded to the court proceeding until hit with a sale notice. Technically true because the borrower opted to deal with the servicer. Polanco got what they call “double tracked”. The servicer led him down the primrose path and then rejected a short sale after ok’ing it, while plaintiff’s attorneys moved forward to judgment. Dual tracking was declared improper by the Justice Department in the $25 billion settlement. The new HAMP guidelines specifically say you can’t double track. Little consolation for Polanco and his family, though.

In Russo and DeCastro, the appellate panels stated that lack of standing (right person to sue) is not a meritorious defense under Rule 4:50 while deals with setting aside default judgments. Note the in two separate rulings, however, the NJ Supremes said that if a plaintiff does not prove standing, then the court cannot decide the substantive issues of the case. Unless it is explained to me a little better, it would seem that the current foreclosure rulings are at odds with established NJ Supreme court rulings.

I am disappointed by the comments of Breuer and Holder and the decisions of the appellate division especially in regard to standing. I am one of those lawyers (and citizens) that believe that the courts are there to protect the weak from the strong- not the other way around. Clearly, that is not happening. Doing foreclosure work for 3 years now, I get the vibe that the courts want to just get over this mortgage problem. But it should not translate into lowering standards of proof for the plaintiff at the expense of borrower’s homes.

What is the practical lesson? If you find yourself in arrears on your mortgage, try to work out a modification. If you need a lawyer’s help in this regard, get it. If you are served with a Notice of Intent to Foreclose or Complaint, seek out help right away from a lawyer who is active in foreclosure defense. Don’t sit your rights.