Posted on Wednesday, December 1, 2010
I am torn between my sympathy for those who are about to lose their homes through foreclosure and the injury I see to the rule of rule and the economy itself in the way foreclosure proceedings are being challenged and processed. People are angry with the banks and for good reason, but it is important to distinguish the granting of mortgages from what was done with them once granted. The banks may have been complicit in approving bad loans, but the borrowers must accept some responsibility.
In all fairness, besides discovering that they could not meet the payments, defaults have occurred for a number of other reasons: the value of real estate has dropped; homeowners have lost their jobs or their income has been reduced; balloon payments could not be met; or other unanticipated circumstances have occurred. I watch with some misgivings the army of lawyers lining up to defend foreclosure proceedings, some by taking large fees or second mortgages on the very houses being foreclosed. (NY Times 11/62010 -Taking on a Second Mortgage to Pay the Foreclosure Lawyer)
The media is full of revelations about the robo-signing of documents supporting foreclosures, and the practice is subject to numerous investigations and hearings. I have watched the video-taped depositions of bank employees admitting to verifying defaults with absolutely no personal knowledge of the facts. Of course, sworn testimony before a court must be truthful, but we have to be careful in deciding what renders it untruthful. It would be virtually impossible in any bank (even in those in which the mortgage remained with the issuing bank) for one person to know how much was loaned and precisely when and how much was paid on account. In this day and age, all of that information comes via computer printouts -- not personal knowledge. So verifying that a mortgage is in default and the amount due is never based upon personal knowledge, but rather a search of the records and reliance on those records kept in the ordinary course of business.
Foreclosure proceedings are not criminal in nature, in which a defendant can sit back, do nothing, and require the government to prove its case. These are civil proceedings and the borrowers and hopefully their lawyers know whether or not the mortgage is in default. To oppose the foreclosure, when both the borrower and lawyer know the mortgage is in substantial default, to my mind borders on the unethical. If indeed there are valid defenses to foreclosure -- mortgages not in default, wrong property designated, etc. instances which I suspect are very rare, they should be pursued with diligence.
On the other hand, the holder of the mortgage must prove ownership, and that information is solely in the hands of the banks and their assignees. That is not information a borrower would have, and the borrower (defendant) has an absolute right to know that a suit for foreclosure is being conducted by the current holder of the mortgage. That is a defense made in good faith and worthy of pursuit. I have reservations about the good faith of challenging the existence of a default with full knowledge that it exists, but none about insisting on proof of current ownership and the right to foreclose.
Despite my sympathy for all those who may lose or have lost their homes, I am concerned with the stability of contracts, the rule of law, if they are abandoned at this fragile time in our economy. Any and all assistance possible, such as modifications, should be afforded borrowers so that they can remain in their homes, but failing that, our legal system and, in turn, our economy, cannot be jeopardized by excusing persons from performing under their written agreements when they know that they are in default. The person who buys a TV on time, but is aware that she or he is in default, should not be able to keep the TV and not make any further payments just because evidence of the debt and default comes from a computer rather than personal knowledge.
Even defending foreclosure proceedings for the purpose of delay might seem like a laudable and noble goal, but the reality is that by doing so we are not retaliating against those mean banks that got us into this, but the shareholders, some of whom are homeowners themselves, who invested in these gift-wrapped mortgage packages only to find when opened -- that they were worthless junk. Let us do everything we can to aid those in danger of losing their homes through foreclosure, but let us not sacrifice the rule of law and the sanctity of contracts in the process.Judge H. Lee Sarokin, Retired in 1996 after 17 years on the federal bench