M.A.S.H. –Maine’s Foreclosure Defense Force: Part 2
By Peter Clifford
The world, she’s a turnin’ quick. Unfortunately, the real estate market is still stuck in the muck, spinning its shoddy wheels.
It’s time for Maine attorneys to push the proverbial ox cart out of the proverbial mud. Its time for us to buck up, start leading, and stop with the whining. The Legislature and the SJC have given us a wide arsenal of new tools to help our clients through the latter stages of the foreclosure crisis, “so let’s start usin’ ‘em.”
Before we go there, consider the sage (if depressing) advice of these wise leaders:
“If you are going through hell, keep going.” – Sir Winston Churchill
”Even the longest journey begins with the first step” –Chinese Proverb.
”What doesn’t kill me makes me stronger” –Camus, Albert
Ok- are you empowered yet? As the readership will recall from last
time, a group of volunteer attorneys, known as “Maine Attorneys Saving Homes,” (“MASH”) is training Maine attorneys how to fight “the foreclosure man.” The last article, summarizing points raised by Pine Tree Legal’s Chet Randall, addressed acceleration letters, faulty templates, affirmative defenses, and the real party in interest.
We are now ready for the red meat of foreclosure defense: tactics. This topic was addressed by attorney Jim Levis from the York County bar. One of Jim’s themes was that a few “bad apple” mortgage brokers behave as scam artists; some do unethical and illegal things at closings, frequently with bait and switch schemes. Don’t be surprised if your clients discovers the forms he or she submitted have been altered, so that the broker could earn a quick fee at the closing from an unqualified borrower.
Another central player in the drama is the servicer, essentially a bookkeeper for the lender. These folks frequently use harassing or even unlawful techniques as they try to collect from desperate borrowers.
Mortgage foreclosure lawyers are not paid very much money. They sometimes try to do things on the cheap, or a cookie cutter basis, as efficiently and cheaply as possible. There has been an epidemic of sloppiness both in closing documentation, as well as in foreclosure documentation. For example: Why is the bank’s lawyer doing an affidavit to support the acceleration clause? Does he or she actually have access to the records? Does he or she actually have proper authority to speak for the company?
1. Objectives. Jim Levis focused on the lawyer’s objectives. Winning is not the only or even primary goal frequently. Now, with mandatory foreclosure mediation, there are a host of opportunities for lawyers handling foreclosure defenses.
Loan modifications are frequently the goal for both parties. Foreclosure mediations will frequently focus on this goal. Go online to find out how to properly file the federal modification forms. Find out which lenders have gone into bankruptcy and/or have receivers.
If modification is impossible, don’t give up. Delay itself can be a goal. Delay can allow: a) a period time for the borrower to continue to reside in the house, rent free to get their feet back underneath them; b) to provide time for a sale or short sale.
Sometimes, foreclosure defenses should be deferred, and raised at “an optimal date and time.” In other words, talk settlement right after the lender’s summary judgment motion is denied. Don’t try this right after the attorney has spent a long time answering your three dozen summary judgment defenses.
2. Summary Judgment Practice. Your summary judgment arguments should usually assert that the record keeper hearsay exception had not been complied with. Arguably, the affiant may not have access to all of the necessary records, and/or may not have a basis to reliably calculate the amount due.
It is critical to review the record keeping evidence rules. The lender must produce admissible evidence, and the records must be available in the regular course of business.
Sometimes it makes sense to do cross motions for summary judgment. That way, if there is a fatal problem with the lender’s summary judgment materials, judgment for the borrower can be entered. That will stay any attempt to collect interest while the lender gets its house in order and attempts to refile the complaint.
The acceleration letter typically does not indicate what is owed. Again, there are frequently hearsay problems with this letter, including with the calculations of the correct amount due.
Frequently a power of attorney must be shown on the record. If the person giving the affidavit is not the authorized agent of the record keeper, there is a problem. Does the servicing agent have the right to speak for the lender? Don’t make that assumption. It must be proven. Another issue is who has access to the servicing agreement? It is usually not in the lender’s file.
Jim also discussed potential strategies. One is to ask the bank to waive interest. If interest is waived, it won’t go into the loan pool. It will be managed by the servicer for the trust. However, the principal will remain intact, avoiding a big write off.
3. Focus on Ambiguities. Look at the language in the acceleration letter. It sometimes leaves things ambiguous. If you do not do such and such within 30 days, we may accelerate vs. we shall accelerate. Compare the language in the acceleration letter to its counterpart, Paragraph 22 of the federal standard mortgage form. There are six things that the lender is required to say in order to properly accelerate in accord with the Fannie Mae mortgage. Acceleration defenses can’t be waived because that would violate Fannie Mae guidelines.
4. “Nigeria defense”. How do we know that the person attempting to collect is not a scam artist like the Nigerian e-mail scammers? Under the RESPA Statute, you don’t need to deal with the loan servicer until properly notified by the lender. When the attorney for the servicer does the servicer’s work, that is a red flag: the servicer does not have their paperwork in order.
Under the Rules of Procedure, the real party in interest must commence the lawsuit. If that is not the case, it is grounds for dismissal. One way to efficiently discover the case is to simply depose the record keeper. Put the burden on the bank to produce all the documents via a 30(b)(6).
5. Use Negotiable Instruments Law. Another point that Jim raised is that the mortgage and note are entirely separate entities. Every time a note is transferred, it should be properly recorded and endorsed in accord with UCC principles. Negotiable instruments law controls the note, including endorsements. As far as the mortgage goes, look to the statutes in terms of the mortgage itself, as well as local real estate and title law.
6. Who Has the Note? Usually the servicer doesn’t have the note. The note is like gold. It is sitting in a vault somewhere in New York. The servicer may not know where the note is. Generally, the holder of the note, if it is paid to the order of e.g. Wells Fargo, must endorse on the back of the note and have possession of the note. Without those two requirements, the lender may have a foundation problem. If the note is to the bearer, the bearer must be in possession of the note.
Jim reviewed a bad assignment. The stamped endorsement simply says “pay to the order of ….” If there is a blank endorsement, the bank needs possession.
7. Timing of Assignment. Another big question about assignments is, when was it done? Was it done after the acceleration letter? If so, it is likely invalid. What if the lender is in bankruptcy? Is a trustee needed? It may be that stamping after the foreclosure takes place is illegal because the allegations were untrue when made.
8. MERS. We then discussed an entity known as MERS, which is a “nominee” found in most mortgages approved by Fannie Mae. MERS stands for the “Mortgage Electronic Registry System.” First of all, the term “nominee” is legally meaningless and has never really been challenged. MERS does not have a legal interest in the note. It is in essence a “straw man.” In order to get meaning, one must look at the agreement between the entities, including MERS. Until the chain of authority with MERS is adequately established, it is still essential for the lender to prove possession of the note, etc.
To paraphrase Winston, if you are walking on hot coals, don’t stop to have a smoke. Keep on truckin’. Next time, we’ll finish with a variety of state remedies for bad behavior, when lenders cross the line.