STRATEGY: FORECLOSURE BY PRETENDER LENDER FOLLOWED BY BORROWER’S ACTION FOR DAMAGES

OCC: 13 Questions to Answer Before Foreclosure and Eviction

13 Questions Before You Can Foreclose

foreclosure_standards_42013 — this one works for sure

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The selection of an attorney is an important decision  and should only be made after you have interviewed licensed attorneys familiar with investment banking, securities, property law, consumer law, mortgages, foreclosures, and collection procedures. This site is dedicated to providing those services directly or indirectly through attorneys seeking guidance or assistance in representing consumers and homeowners. We are available TO PROVIDE ACTIVE LITIGATION SUPPORT to any lawyer seeking assistance anywhere in the country, U.S. possessions and territories. Neil Garfield is a licensed member of the Florida Bar and is qualified to appear as an expert witness or litigator in in several states including the district of Columbia. The information on this blog is general information and should NEVER be considered to be advice on one specific case. Consultation with a licensed attorney is required in this highly complex field.

EDITOR’S ANALYSIS AND PRACTICE TIPS FOR LAWYERS: One of the things that I noticed about the cases which I have followed or which have been reported to me anecdotally is that the borrower or borrower’s attorney invokes defenses and counterclaims that makes the case far more complex than the judge is willing to hear.

If you really want to win on the trial court level or make a good record for a successful appeal, the legal and factual argument needs to be simplified. I have previously made a big point about how a judge has very little choice but to allow the foreclosure to proceed once the elements of a foreclosure have been admitted by the borrower or borrower’s attorney. All the other issues are really the basis of a lawsuit in which the causes of action seek the remedy of monetary damages.

Foreclosure is an equitable remedy which calls for less judgment on the part of the judge that it does for him or her to perform a ministerial act. The mistake that is being made by most attorneys (and perhaps I added to the confusion unintentionally) is that  they have failed to distinguish between the equitable and legal remedies. This calls for some careful action by the lawyer or else he or she will be open to a later argument of collateral estoppel or res judicata.

In the nonjudicial states the equitable remedy of foreclosure is made even more ministerial and less subject to challenge based upon the merits of the claim of the pretender lender to collect payments from the borrower and to foreclose when the borrower ceases to make payments. The fact that the system was not set up by the legislature to accommodate or regulate wrongful foreclosures by non-creditors is not a basis for asking a judge to rewrite the law.

In Massachusetts this issue was highlighted in the Eaton case. Before that case Massachusetts specifically allowed the equitable remedy of foreclosure merely upon allegation and proof that the foreclosing party possessed the mortgage document under circumstances where there was at least probable cause to believe that the foreclosing party had the right to enforce it and use it.

In the Eaton case the court was careful to state that the ruling applied only prospectively and not retroactively. In that case they attempted to deal with the issue of whether an actual debt existed,  whether a creditor debtor relationship existed between the foreclosing party and the homeowner, whether the note and mortgage were valid, and whether a foreclosure could go forward without any showing that the foreclosing party was a creditor or even had possession of the note. The court decided that ownership of the note was essential to allowing the foreclosure to proceed.

Based upon the huge volume of statistical and anecdotal evidence there can be little doubt that most of the foreclosures and foreclosure sales have been illegally conducted and wrongful. That doesn’t mean they are void. The purpose of the statutes as they are written is to enhance  liquidity and certainty in the marketplace; thus they allow almost every type of foreclosure to proceed through the conclusion of those proceedings as set forth in the statutes, with the added presumption that if malfeasance lay at the core of the foreclosure proceeding, the borrower would have an adequate remedy at law, to wit: a lawsuit for compensatory damages, punitive damages and exemplary damages.

Of course we all know that an action for damages is not an adequate remedy for somebody who has been evicted from their own home. But the problem is that before the securitization scam, the idea that anyone would attempt to foreclose on a mortgage without being a creditor and having no relationship to a creditor and without having a single cent invested in either the origination or acquisition of the loan would have been regarded as pure fantasy. From that standpoint the legislation makes sense. If you feel you are fighting an uphill battle, look at it from the point of view of the legislature and the banks that were making conventional loans and you can easily see why the law facilitated the mortgage foreclosure process.

When I was first interviewing law professors and judges back in 2007 and 2008 the unanimous opinion was that it would be very difficult to stop the foreclosures from proceeding but very easy to win an action after the foreclosure seeking monetary damages. The interesting thing here is that these people instantly understood that the lawsuit would have alternative counts. Either the pretender lender had an actual interest in the loan as evidenced by the note and mortgage or they didn’t.

If they did have an interest in the loan then the causes of action would be based on breach of contract and perhaps unjust enrichment along with statutory violations taken from federal and state law. There could also be an action for wrongful foreclosure that is recognized to exist in the common law and appears to be more of an action in tort than contract.

If they didn’t have an interest in the loan then there would be no action in contract since you would be alleging a lack of privity and defects in the disclosure documents, and closing documents including but not limited to the note and mortgage. It appears to me that this action would be based mostly on intentional interference in the contractual relations of another and both statutory and common law fraud in the inducement and fraud in the execution. Statutory actions brought under the truth in lending act might be sufficient to state a cause of action for treble damages, interest, costs of the action and recovery of attorney’s fees.

The point raised by the law professors and other experts with whom I consulted was that the goalpost would constantly be moved as the borrower attempted to stop the foreclosure and sale from going forward. Once completed, however, the actions of the pretender lender are essentially engraved in stone.

The action for damages should of course be accompanied by a demand for jury trial. The liability portion of the trial should be relatively simple involving simple arithmetic and a logical progression of claimed ownership of the loan. The last defensive strategy of the banks is going to be based on circular logic, to wit: that there is no damage because the foreclosure sale was valid and that the sale must be considered valid because it is already done; and if it is already done the deed issued upon foreclosure sale at the alleged auction is presumptively valid. In other words “what we did was valid because we did it.”

In my opinion there is big money in these lawsuits for damages and lawyers are encouraged to do the research and analysis. My firm is taking these cases on contingency where the right elements are present. So far everyone who has done their own research and analysis has arrived at the same conclusion expressed in this article. But there is a huge trapdoor that litigators must avoid.

Just like a petition for bankruptcy creates an administrative proceeding before a bankruptcy judge which is not the same as a civil litigation proceeding which would be filed in front of the federal district judge, a litigator in a foreclosure action must be careful to narrow the issues such that the foreclosure proceedings do not include allegations and proof directed against the pretender lender for not being the creditor and not having any authority to represent a creditor.

In judicial states this would mean a motion to dismiss or motion to strike any allegation that might lead to a final judgment in which the court finds a debt owed  to the pretender lender from the homeowner.

The point must be made that the preoccupation of the judge with the payments from the borrower should mean that “payments” are at issue. If payments are at issue than the payments made and received by the pretender lender and its predecessors or successors must be given equal time in a court of law — not just payments made and received by the alleged borrower.

Strategically the litigator should point out that the foreclosure process is essentially an administrative process involving ministerial duties by the judge. It should be argued that if the judge wants to allow the foreclosure to proceed and to allow the sale at auction to proceed, that is one issue.

But if the judge wants to enter a judgment based upon a debt, and a note and mortgage which supposedly describe the debt and the repayment terms, and based upon alleged ownership of the debt —  then the party intending to foreclose must allege injury which means that they too are required to produce evidence of payment and evidence of loss. The only acceptable evidence for that would be a canceled check, wire transfer receipt or other actual document generated by a third-party showing the actual movement of money.

Thus the judge should be guided towards a judgment that he or she already wants to enter, to wit: allow the foreclosure to proceed. In the lawsuit filed by the borrower after the foreclosure sale a different judge will probably hear the case. If presented skillfully, the judge may react warmly to the opportunity of getting another case off of their docket.

Critics say Michigan foreclosure bills seek to ‘get people out of their homes quicker’
http://www.mlive.com/politics/index.ssf/2013/05/critics_say_michigan_foreclosu.html

Keeping The ‘Recovery’ Dream Alive; 3 Big Banks Halt Foreclosures In May
http://www.zerohedge.com/news/2013-05-28/keeping-recovery-dream-alive-3-big-banks-halt-foreclosures-may

Banks Snap Up Foreclosure Aid Meant for Borrowers
http://www.hispanicbusiness.com/2013/5/28/banks_snap_up_foreclosure_aid_meant.htm

Activist homeowners take foreclosure fight to the DOJ
http://www.housingwire.com/fastnews/2013/05/28/activist-homeowners-take-foreclosure-fight-doj

Regulators probing banks for faulty debt collection practices
http://www.washingtonpost.com/business/economy/regulators-probing-banks-for-faulty-debt-collection-practices/2013/05/28/9f40bca2-bbd0-11e2-89c9-3be8095fe767_story.html

 

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