Turning the Screws on Borrowers

Posted by kevin on May 24, 2013 under Foreclosure Blog | Comments are off for this article

Over the last two weeks, there have been two unpublished appellate division opinions which tighten the screws on the borrowers in default judgment situations. One case, Walsh, involved Aurora Loan Services, which was the servicing arm of Lehman Brothers. Right off the bat, you know that Aurora probably did not lend the money to the borrower but why quibble over details. Interestingly enough, the panel consisted of only two judges. I guess they knew there would not be a tie. The borrower was pro se but did raise some interesting issues which the undermanned panel swatted away like a mosquito on an August evening. Basically, default judgment was entered and the sheriff sale was put off 11 times. Walsh argued lack of standing. The court said that standing was not jurisdictional and that failure to prove standing does not equal a void judgment under Rule 4:50.

Oddly enough, the second case, Cole, also involved a two judge panel, a default judgment with 11 adjourned sheriff’s sales and a standing argument. (Note that both opinions seem to infer that the mediation was protracted to the detriment of the lender when anyone who has been through the mediation process knows that it is the lender who drags out the process.) In this case, we had a Fremont loan (another notorious predatory lender examined and sanctioned by the feds). The MERS assignment of mortgage (which Judge Todd in Raftogianis said is at best a distraction and does not transfer the mortgage loan) was executed after the complaint was filed. No problem says the panel because no answer was filed, and the process was delayed to the detriment of the lender.

Two points: First, most of the recent default judgment cases have said that standing is not jurisdictional. None of the cases, however, mention two NJ Supreme Court cases (Baby T and Watkins) which both state that if the plaintiff does not prove standing, the court does not have the right to decide the substantive issues of the case. Sure sounds like the NJ Supremes are saying that standing is jurisdictional, or something close to it. I argued this in Polanco and was ignored by that panel. My client did not want to take this issue up to the Supreme Court because of the expense. I could not afford to work pro bono on that appeal so the case died on the appellate level. Why are the courts avoiding the clear language in two Supreme Court cases which appear to say the opposite of what is now a commonplace holding in foreclosure cases? I have my theories, but…

The second point is the more practical point; that is, the standard to vacate a default judgment in a foreclosure case in NJ is now almost insurmountable. I did it in Bagley with a very favorable set of facts. But there have not been many decisions like Bagley that have come down the line in the last couple of years. And those more recent cases have a chilling effect on defense counsel. For an attorney, the days of financially rolling dice on these cases are over. Borrowers are going to have to subsidize this type of litigation. Or better yet, avoid the issue in its entirely by hiring counsel when you get a Notice of Intent.

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.

He Who Hesitates Is Lost

Posted by kevin on March 5, 2013 under Foreclosure Blog | Comments are off for this article

If you receive a notice of intent to foreclose, and do not run to a lawyer, you are a fool. If you get served with a foreclosure complaint but do nothing because you are working with the servicer to get a modification, you are a fool. If you get papers from your adversary saying that they are submitting their final judgment package to the Foreclosure Unit and do nothing, you are a fool. And if you wait until you get notice of a sheriff’s sale before you run to a lawyer (and expect him to pull a rabbit out of his hat for limited fees), you are a fool who will soon be without a house.

The message has been that the majority of chancery judges do not like contested foreclosure cases. The average case does not get to trial for two years. The Administrative Office of the Courts wants foreclosure cases to go to trial within 12 months of the date of the filing of the complaint. If the defendant is not served right away, that could mean that you are going to trial in 6-8 months. Now, some judges are routinely limiting discovery and setting trial dates that are 8 months from trial.

So, do yourself a favor. If you are behind on your mortgage, contact your servicer to see if you can work something out. If not, and you receive a notice of intent to foreclose, at least interview a few attorneys with background in foreclosure defense. Better yet, hire one of those attorneys. If you get served with a complaint, hire counsel immediately and file your answer in a timely manner.

Nowadays, foreclosure cases can be filed electronically through JEFIS. So, that means that the papers can get into the system that much faster. Servicers are regulating the number of foreclosure cases that are filed at any given time so as to not overstress their staffs and, more importantly, not to overstress the Clerk’s office in Trenton. In other words, the process is being speeded up.

If you do not file your answer on time, and the plaintiff enters a default, then you must file a motion to set aside the default in order to file an answer. That means that you have to go before a judge who may not like contested cases. In the old days the policy was that people should have their day in court. Today, I am not so sure if that policy wins the day.

So, remember the old adage, “He who hesitates is lost.”

In future blogs, I will give you examples of recent cases where borrowers took it on the chin for sitting on their hands.