Posted on Thursday, November 11, 2010
Last October, attorney Josh Bleil was being threatened with fines by a Miami-Dade circuit judge for presenting general defense motions on behalf of a client going through foreclosure.
Judge Ronald Friedman struck all defense motions, handed the house back to the lender and told Bleil, "Tell your client the free ride is over."
Bleil’s firm, Ticktin Law Group, raised issues on appeal, mostly regarding a lack of due process. Homeowner Martha Y. Gonzalez claimed legitimate defenses were ignored, and her foreclosed house was sold last December.
On appeal, Jessica Ticktin found that the 3rd District Court of Appeal’s unsigned decision, simply stating "affirmed," was especially troubling.
"The trial judge agreed we had not had time to take depositions," Ticktin said. "He said you can have 30 days; the very next week, he entered summary judgment anyway. The 3rd DCA turned our appeal down without explaining how that was OK."
The appellate court denial without explanation gives the defense no way to appeal to the Florida Supreme Court, she said.
One year later, a national foreclosure controversy has exposed shoddy and allegedly illegal practices by lenders, services and their law firms, and has also raised questions about the role of the judiciary and Bar groups.
There are signs that consumer defenses are holding ground:
? Two October opinions from the 4th District Court of Appeal reversed trial judges, insisting affirmative defenses must be considered and a copy of the mortgage note must be produced by the lender. The appellate opinions permitted access to documents and testimony needed to refine homeowner’s defenses.
? The American Civil Liberties Union requested records from Florida courts to see if procedures for so-called "rocket dockets" violate due process.
? Lawsuits filed against three major lenders seek class action status, demanding titles be returned to ousted homeowners on properties taken by wrongful foreclosure.
? The 50 state attorneys general have stepped in to exercise their roles as consumer advocates and investigate foreclosure processing in response to claims of doctored and backdated documents.
Lawyers with the Ticktin firm in Deerfield Beach see this as a significant shift on the issue of due process for borrowers that had been moving at a glacier-like pace. At the same time, individual foreclosure cases were gaining speed with judges under pressure to clear backlogs.
A year ago, Florida judges in general favored sentiments Friedman expressed — homeowners should not get away with living in houses where they weren’t making payments, said senior managing partner Peter Ticktin.
Most judges don’t believe institutions like JPMorgan Chase and Wells Fargo commit fraud or use underhanded practices. "At this point, I think the judiciary is now realizing the truth," Peter Ticktin said. "There are viable defenses to mortgage foreclosure. Some judges took a little bit longer, but they seem to be catching on."
Foreclosure defense attorneys have been crying over a lack of due process as their defenses were repeatedly ignored.
But the Gonzalez case perhaps exemplifies why.
Miami attorney Gaspar Forteza, advocating for Eastern Financial Federal Credit Union, noted in exasperating detail how defense delaying tactics kept Gonzalez in a house even though she had not made a payment in more than two years.
Demands for depositions might have been relevant had the note been assigned to a pool in the secondary market, the Blaxberg Grayson & Kukoff attorney said. A huge population of the homeowner defenses question the ownership of notes that migrated into mortgage-backed securities. But Eastern Financial never sold the note to another institution.
"Clearly, Gonzalez did not read the complaint, the two motions for summary judgment or the affidavit … all of which establish that Eastern Financial originated the loan, still owned the loan," Forteza told the appeals court.
The Gonzalez case, however, was about more than just the ownership of the note; in addition, her attorneys raised issues about the lender’s practices.
Eastern Financial still owned the loan, Peter Ticktin said, because the terms were so onerous that Gonzalez stopped paying within three months.
On appeal, Jessica Ticktin accused the lender of violating lending laws. Her brief said the appraisal was ordered and certified by the lender, not a third party. The loan officer falsified facts to avoid the 55 percent debt-to-income ratio; Gonzalez’s ratio was 61 percent. The subprime loan increased her monthly payments by $479.
When she was asked to come to the closing with $969, she told the lender all she had in her bank account was $155. The lender knew the loan was risky and predatory, but cared only about collecting its fee, he said.
Other lender practices have come to light involving questionable and allegedly false documentation filed in foreclosure cases.
If lender arguments always persuaded judges, Ticktin said, the public would not know today that robo-signers processed thousands of affidavits monthly without reading them.
"Unless we actually dig in and see how this transpired … we’re not able to defend our client," he said.
Critics of Florida’s judicial system question whether extra funding for foreclosure courts starting in July hurt or preserved consumer rights. Senior judges were recruited to clear a backlog of cases choking the courts.
On Oct. 19, the ACLU of Florida teamed up with the national office to request records from all judicial circuits, and the Office of State Court Administrator advocating on behalf of minority homeowners it contends have been disproportionately affected by the foreclosure crisis.
"We have not filed records requests in any other state," said Larry Schwartztol, staff attorney with the ACLU Racial Justice Program in New York. "Florida caught our attention because of its auxiliary court system. We’re concerned that the procedures in place in Florida are less rigorous than in a regular court proceeding."
The ACLU is seeking all documents that would shed light on how Florida judges set up procedures to clear away the foreclosure pileup.
"We know that the foreclosure system is permeated with disarray and fraud," Schwartztol said. "We think this is a situation where the need for rigorous procedures is more important than usual."
The concern is that rather than ramp up oversight, the Florida courts went in the other direction, he said.
‘Minimal Due Process’
Expedited dockets are not necessarily a bad thing, said Greenberg Traurig shareholder Arthur England Jr., former chief justice of the Florida Supreme Court. Municipal traffic courts typically dispose of a case every few minutes, he said.
"One wouldn’t argue there was no due process even though disposition was quick," he said. "People don’t generally question the honesty of the traffic officer. But from what I read in the papers, something in the foreclosure process is different from that."
Different enough that Bank of America, Deutsche Bank and U.S. Bank were sued Oct. 28 in Miami federal court by three law firms representing homeowners seeking class certification. They accuse the banks of abuse of process and are demanding the return of property titles on wrongfully foreclosed homes.
Due process violations in the 23 states with judicial review raise a red flag that points to a fundamental defect in foreclosure courts, said Geoffrey Walsh, a foreclosure defense attorney at Boston’s National Consumer Law Center.
"There’s a problem with the dependency of courts in trusting foreclosure mills," he said.
These law firms are designed to expedite foreclosures with utmost speed. Judges realized courts would break down completely if they had to scrutinize every mortgage, given the volume of documents in each case.
Walsh suggested the fix the courts needed may be something completely out of their hands — a revamp of foreclosure mill operations.
"It’s completely wrong for servicers to say we’ll just continue these foreclosures as we did before," he said.
To the extent these pressures affect homeowners’ due process right, Walsh concluded, "Florida probably meets some very minimal due process standard. Keep in mind in other states you don’t even go to court."
Seven states have some limited judicial access, but 20 states — including California and Texas — have nonjudicial foreclosures.
Since a lender in California need not enter a courtroom to enforce a foreclosure, homeowners challenging foreclosure must hire a lawyer, prepare a case and file a lawsuit to overcome state laws on nonjudicial foreclosures, said Aidan Butler, a Los Angeles foreclosure defense attorney.
"I’m envious of lawyers who get to practice in states where you have judicial foreclosure," he said. "I’m meeting a lot of judicial resistance. … Virtually every judge is a former (state prosecutor), and they tend to be conservative. It’s such an uphill battle. Judges have the misconception that if the consumer is here making these arguments, they must have defaulted and therefore are not worthy of help."
California judges will insist owners get current on their mortgages to halt a foreclosure, disregarding arguments that the amount owed is in dispute or that the lender may have committed fraud on the original loan, during servicing or in court filings, Butler said.
Judges looking for an easy out may dispose of cases by ruling that the statute of limitations has expired, Butler said. The great majority of consumers don’t have the resources to fight back, he added. They give up at the start, even if they have meritorious claims.
A few national banks adopted self-imposed foreclosure moratoriums in states with judicial review but have resumed their cases.
Homeowners in all states got an assist last month when the 50 state attorneys general aligned to get equitable treatment for homeowners. Ohio Attorney General Richard Cordray, who has taken a lead role, demanded banks vacate any court orders or motions based on improper paperwork and advised them to modify loans and work out payments.
But banks threatened with new costs from homeowner lawsuits and buyouts in the secondary mortgage-backed securities market have said they will vigorously defend their foreclosure rights. Risks to bank solvency are real, with estimates of refunds to investors reaching a potential $200 billion.
The Obama administration sees no systemic problem with bank practices, but contradictory testimony before the Congressional Oversight Panel on the TARP foreclosure mitigation program has been compelling.
"Robo-signing is only one of a number of alleged deficiencies," explained Katherine Porter, a Harvard Law School professor who testified before the panel Oct. 27.
Other common occurrences reported by defense attorneys around the nation include collection of improper fees, a lack of standing to foreclose, pursuit of foreclosure without rights in the note, mortgage origination fraud, liability to investors for poor underwriting and improper servicing.
"The key point is the vast majority of the alleged problems cannot accurately be described as ‘technicalities.’ The flaws in foreclosure systems go well beyond improper affidavits," Porter said.
In the year since attorney Bleil was scolded by Judge Friedman, consumers have dented the bankers’ armor. But given where they started, the proper allegory might be Indians in canoes flinging arrows at battleships.
When Bleil met Friedman on Oct. 7, 2009, he was fighting for the right to put up general defenses such as unclean hands and usury because he couldn’t get the evidence he needed to be more specific. This is a standard procedure lawyers use to protect their right to discovery. Friedman saw it all as frivolous delay tactics.
On the motion on unclean hands, Friedman said: "It’s not going to happen again, is it? Because I’m hitting you with $1,000 on that one alone."
Friedman then looked at a defense barring the lender because of usury and said: "Guess what? That’s no good, either. I’m not going to deal with crap like this, and that is what it is. That’s $1,000."
Maybe it was just theater on Friedman’s part, but at the end of the day, the judge did not issue a sanctions order. For whatever reason, Bleil said the judge didn’t force him to pay.
One year later, Friedman is preparing to leave the bench, in part he told the Daily Business Review due to job dissatisfaction based on foreclosures. DBR