It is getting increasingly obvious to the courts that there is something inherently wrong with foreclosures. The substitutions without leave of court and the repeated filing for foreclosure on the same default are coming back to bite the ‘securitization fail” scheme of the banks.
If you start with the premise that the trusts were never funded and therefore never existed, everything starts to make sense. In ordinary circumstances with ordinary loans the pronouncement of every bank foreclosure attorney rings hollow: “Judge this is a standard foreclosure.” If that were true they wouldn’t be losing cases procedurally, allowing them to linger sometimes for a decade or more, and they wouldn’t be trying to slip in a “substitution of Plaintiff” without leave of court. And they probably would not be foreclosing on so many dead people.
This case, decided today, gives us an example of how things can go wrong for the banks, servicers and trustees. But first I would remind the reader that virtually all foreclosures over the past 10 years have been allowed without admissible evidence or pleading. They have succeeded in foreclosing based upon two elements: (1) fabricated paper and (2) getting a judge to apply legal presumptions that are contrary to the true facts. The banks have been helped by the judicial aversion to the “free house” myth, and the corollary myth that if the foreclosure is allowed to proceed, nobody is getting a free house. Neither myth is true.
So in this case there are two points made. First that New York like many states operates under the rule that if the case has been “discontinued” (i.e., dismissed twice) the third attempt should be dismissed because the two prior dismissals operate, as a matter of law, as an adjudication on the merits, meaning that res judicata applies. This is narrowly applied to those cases where the allegations are essentially the same as the two prior cases.
In prior decades I represented lenders and homeowner associations enforcing their liens by foreclosure. It was a rare occurrence that we ever had to go into court more than once to prove our case, and rarer still that we had our case dismissed because of inaction or refusal to answer discovery. Now it is practically the rule that the foreclosure cases are vetted on whether they are contested or not. Those cases that are contested are pushed to the back of the line because that is where the foreclosing parties, strangers to the transaction, are vulnerable to losing their spurious claims.
Since most foreclosures are uncontested, these banks, servicers and trustees are free to get their foreclosure judgments and forced sales without objection from anyone by a factor of roughly 25:1. So the banks are playing the odds. For every case that is contested it is best for banks to delay it while they get 25 others through without objection. But the Courts are catching up with this strategy and it won’t be long before some very strong orders are entered demanding explanations of what is really going on. The time is coming when we return to the days when judges scrutinized the foreclosures and asked pointed questions even in uncontested cases.
In prior times the lender or association would always show its records if it was demanded by the homeowner or property owner. Now despite a new Federal rule preventing blanket objections, banks routinely object to all or nearly all of the requests in discovery, frequently resulting in an order to compel discovery which is often ignored resulting in dismissal.
The other point raised by the Court was the practice of simply changing the style of the case by inserting a new or “corrected” name of the Plaintiff or foreclosing party. The principle is simple: if you want to substitute parties you need leave of court. In order to get permission you need to recite the facts under which the original lawsuit was correctly filed but now, as the result of intervening events, it needs to be prosecuted in favor of a new party. Often this requires an amendment to the complaint in a judicial state. This general rule is now universally rejected by the banks who have convinced judges to ignore the rules and allow the change in the name of the case — instead of demanding an explanation of the change.
The Banks don’t want to explain it because they have no reasonable explanation for changing the parties around. It is often done for strategic reasons rather than substantive reasons — neither of the Plaintiffs — old or new — having any interest in the loan, debt, note or mortgage.