Will Deutsche Bank's Mistake mean Independence Day for Borrowers?
(Spoiler warning) There's a scene toward the end of the movie Independence Day, that President Bill Pullman and his gang find a way to defeat the massive alien ships that are attacking them. They defeat the ship that is hovering over Area 51, and spread the word so that air units all over the globe can defeat alien ships worldwide. In the past couple weeks, consumer crusaders and courageous judges in Ohio have made some significant headway that could, in the long term result in fewer home foreclosures and a rationalization of the secondary mortgage market.
I always liked Federal Court. Partially it's because I never liked the "good old boy" feeling in state court, and partly it's because federal judges don't tolerate sloppy lawyering. The fact of the matter is, a lot of mortgage foreclosure law firms, work almost exclusively within the "good old boy" state court network, and they get sloppy. Now there are so many foreclosures in some areas that some mortgage firms are starting to file their foreclosures in federal court. That could be their undoing.
On October 31, 2007, Halloween, Ohio Federal District Court Judge Christopher A. Boyko must have worn his scary mask as far as lenders are concerned because he dismissed numerous foreclosure cases filed by Deutsche Bank on the grounds that the bank did not prove that they were proper assignees of the mortgage at the time the suit was filed. It's not so much what Judge Boyko did that was newsworthy, other judges have dismissed mortgages for the same reason in the past, it's the language that the judge used in dismissing the cases. One of the plaintiff's lawyers must have really pissed off the judge, because Honorable Judge Boyko pulled no punches in dressing down the lender's attorneys. Here's the text of the Judge's footnote 3, a footnote which might go down in judicial history as one of the classics of all time. Heck, it even made front page of the New York Times.
3 Plaintiff’s, “Judge, you just don’t understand how things work,” argument reveals a condescending mindset and quasi-monopolistic system where financial institutions have traditionally controlled, and still control, the foreclosure process. Typically, the homeowner who finds himself/herself in financial straits, fails to make the required mortgage payments and faces a foreclosure suit, is not interested in testing state or federal jurisdictional requirements, either pro se or through counsel. Their focus is either, “how do I save my home,” or “if I have to give it up, I’ll simply leave and find somewhere else to live.”
In the meantime, the financial institutions or successors/assignees rush to foreclose, obtain a default judgment and then sit on the deed, avoiding responsibility for maintaining the property while reaping the financial benefits of interest running on a judgment. The financial institutions know the law charges the one with title (still the homeowner) with maintaining the property.
There is no doubt every decision made by a financial institution in the foreclosure process is driven by money. And the legal work which flows from winning the financial institution’s favor is highly lucrative. There is nothing improper or wrong with financial institutions or law firms making a profit — to the contrary , they should be rewarded for sound business and legal practices. However, unchallenged by underfinanced opponents, the institutions worry less about jurisdictional requirements and more about maximizing returns. Unlike the focus of financial institutions, the federal courts must act as gatekeepers, assuring that only those who meet diversity and standing requirements are allowed to pass through.
Counsel for the institutions are not without legal argument to support their position, but their arguments fall woefully short of justifying their premature filings, and utterly fail to satisfy their standing and jurisdictional burdens. The institutions seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance. Finally put to the test, their weak legal arguments compel the Court to stop them at the gate.
The Court will illustrate in simple terms its decision: “Fluidity of the market” — “X” dollars, “contractual arrangements between institutions and counsel” — “X” dollars, “purchasing mortgages in bulk and securitizing” — “X” dollars, “rush to file, slow to record after judgment” — “X” dollars, “the jurisdictional integrity of United States District Court” —“Priceless.”
In re
Foreclosure Cases, No. 1:07CV2282, et al., slip op. (N.D. Ohio Oct. 31, 2007) (Boyko, J.)
In one fell swoop, Judge Boyko didn't just dismiss cases for failure to comply with the rule that you show you are a holder of a note or a real party at interest, he attacked the good old boy network for their acquiescence in allowing such pleadings and condoning sloppy filing by foreclosure attorneys. already there are some signs that other courts are picking up on this and taking this further. Just yesterday, in the Western District of Ohio,Dayton Division, In Re Foreclosure Cases, 3:07-cv-00286, Judge Thomas Rose, citing Judge Boyko's decision, looked at the 27 mortgage foreclosure cases filed in his district, and determined that 26 of them were facially deficient in alleging standing (based upon the plaintiff not owning the obligation upon filing.) Judge Rose gave the plaintiffs 30 days to show proof of standing at the time the case was filed. The judge also broadly threatened sanctions if the attorneys could not prove the oversight was not willful.
If you are a consumer attorney defending a foreclosure case, you should acquaint your self with your state laws regarding assignments of mortgage and demand strict compliance by the lender.
What I've been seeing in the non-foreclosure context that most of my cases are in is that lenders heretofore have been unwilling to do workouts on delinquent mortgages (usually subprime and predatory) because the ownership of the loan and the servicing are split. The servicer has no ability to negotiate the loan. The owner often can't even be determined. The mortgage securitization business may change dramatically hereafter. Hopefully, we'll be able to identify an entity who actually owns the loan and has a willingness to work something out.
For companies that buy home mortgage loans that are already in default and demand payment and bring foreclosure actions without proof of ownership, these companies may be setting themselves up to Fair Debt Collection Practices Act and Abuse of Process lawsuits, often on a class action basis.
DRAFT
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