As litigators who are in Court just about every day to keep the roof over our clients heads and prevent our clients homes from being sold out from under them, I wanted to share the view from the front lines from our battles with the banks in courtrooms The banks and lawyers they hire would like the homeowners to believe that bank’s case is easy. Many of our clients have asked:
Q: If I borrowed money and I have not made all of the payments … what is there for you to do?
A: We make the bank prove its case. We search for legal violations by the mortgage broker, original lender, appraiser, loan servicer, and law firm representing the bank. We make the party bringing the lawsuit (which is often a trustee for various institutions who purchased securities representing claims on a pool of securitized mortgages) prove that they actually own the mortgage and note, have legal standing to file lawsuit, and have the evidence to prove the loan was properly transferred between each of the entities that owned the mortgage at various times. We assert all affirmative defenses and counterclaims that we know of and conduct discovery to support any claims our client may have against the bank or any other entity involved in the lending process.
In short there is plenty of things for a lawyer to do when defending a homeowner in foreclosure. Some homeowners decide to file a simple answer denying the allegations in the lenders complaint. Filing a simple answer will avoid a default but foreclosure defense litigation is much, much more then filing an answer. Sadly some “foreclosure defense” lawyers do little more filing a simple answer with lawyers bar number on it.
Twenty years ago it was very easy for the banks lawyers. Twenty years ago all the banks lawyer had to do was fill out forms. In days of old a homeowner had to put 20% down to purchase a home. If a home owner put 20% on a $200,000 house they would have to put $40,000.00 of their own money down at the time of the sale. Over the next few years the house might appreciate to $215,000 and the homeowner might pay off $5,000 to $10,000 of the debt. As such three to four years after buying the home the homeowner would have $60,000 to $65,000.00 in equity. Let us consider what would happen if this homeowner lost their job or was hospitalized and missed four mortgage payments. If the bank brought a foreclosure action, the homeowner with substantial equity would do one of the following:
- Borrow money from a family member, credit cards, or a loan shark to pay the four missed payments, interest, late fees, attorney’s fees & costs, and obtain a dismissal by bringing the account current.
- Sell the house at a significant profit (around $215,000) and use the sales proceeds to payoff the full loan balance.
- Refinance the house, and payoff the original mortgage with the loan proceeds.
Whether the homeowner brought the account current, sold the house, or refinanced the bank got paid in full. After the bank and the bank’s lawyer received their principal, interest, late fees, attorney’s fees and costs, the case was dismissed. The bank’s lawyer only needed to fill out the forms and every homeowner with equity would capitulate and pay whatever the bank says was due.
Since the law firms representing the banks mostly just filled out forms at many of these firms paralegals were hired to fill out most of the forms. The lawyers at many of these firms did not have to litigate very often and thus while they were very good at filling out forms many of them rarely got a chance to develop litigation skills in evidence and civil procedure.
Today most homeowners facing foreclosure never hire a lawyer. CNN did a story about what happens to in Ft. Myers to homeowners who go to court without a lawyer. Here is a link to a video segment about this on CNN.
A judge who will hear summary judgment hearings on 300 unrepresented foreclosure cases in an afternoon. The hearings last as little as 45 seconds. In these cases, since the homeowner has not filed the proper written legal defenses, the judge would merely ask:
Q: Are you current on the mortgage?
A: NO …and
Q: Are you living in the house
The judge would then grant summary judgment for the bank and ordering a sale in sixty days. For a homeowner going to Court without a lawyer is like bringing a knife to a gunfight. Most unrepresented homeowners get slaughtered.
There is a great misconception among members of the public that if they come to Court and tell the judge they lost their job or are trying to obtain loan modification that the judge will be lenient and will not grant summary judgment. We know that this belief is common because during the foreclosure docket the case before our case or after case is often a pro-se unrepresented homeowner who come to Court to tell the judge of their financial misfortunes. While the judge might fee sympathy for the homeowner the judge is REQUIRED to follow the law and the rules of civil procedure. There are only two circumstances under which the judge can deny the lenders motion for summary judgment which are (1) then lender has not come forward with admissible evidence that (usually an affidavit with supporting authenticated documents) to prove each element of their case; or (2) the banks evidence is properly opposed by a properly filed affidavit that cerates a genuine issue of material fact. Of the Sixty’s lawyers in our firm, only one has witnessed an unrepresented homeowner defeat a lenders motion for summary judgment and we have only seen this happen once. While many homeowners who represent themselves can file their own answer defending a summary judgment against the banks lawyer is beyond the ability of almost every homeowner without legal training. We have clients that are practicing and non-practicing attorneys who realize that this job is best left to experienced litigators with strong understanding of foreclosure law.
When the bank’s lawyers have to battle real litigators the battle is very, very different. Many times the bank has lost the original note that is usually a prerequisite to foreclose. In other cases the mortgage has been transferred from a mortgage broker to a large bank who sold the mortgage to Fannie Mae or Freddie Mac, which in turn bundled and sold the loans on Wall Street (often to Bear Sterns) where they loans were securitized. The trustee for the pool of securitized mortgages often lacks documentation that each of the prior holders of the note and mortgage complied with all necessary formalities when transferring the note. If the bank bringing the foreclosure action needs evidence or documents from the prior owners of the note many of these companies have closed, been taken over by the government, or have merged with other banks. It is often very difficult or in some cases impossible for the banks to prove their case.
The bank’s lawyers are often overwhelmed There have been times when over three thousand cases were filed in a single month. When bank lawyers have more work than they can handle they are often inclined to work on the easier cases first. For the banks’ lawyers the easiest cases are against homeowners who just give up. Unrepresented homeowners almost always loose, usually lose quickly, and may lose more then once. For many homeowners the first time they lost was when the failed to shop for the best loan. Many homeowners with good credit who could have qualified for a prime mortgage were put in higher rate interest loans with variable rates that just kept adjusting upwards after the teaser rate was over. The second time these homeowners lose is when they lose their home in foreclosure. If the bank gets a judgment for the full amount of the loan and later sells the home for less the homeowner may end up losing a third time. The bank may seek a deficiency judgment for the difference between the amount of the note and the amount the bank received for the home. Years later the bank may sell this judgment to a bill collector, who will attempt to collect from the former homeowner by garnishing their bank accounts or garnishing their wages. This third and final loss will add insult to injury and cause further damage to the homeowner’s credit.
If the bank is faced with an aggressive defense from an experienced litigator they often face a real risk of losing the case entirely or spending years in an expensive fight where they could win some of the issues and lose others. Banks are corporations that exist to make profits for their shareholders. Banks operate out of self-interest. Banks modify mortgages when making interest rate concessions with increase the likelihood that a borrow continues to pay, or in order to convince the borrower to restart making payments. When a mortgage file gets transferred from the loss mitigation department to the legal department the concessions banks will make when they are at risk of losing are much, much greater. We have had clients that begged for loan modifications and have had clients that sent the bank full mortgage payments that were post due only to see the bank return the payments and pursue foreclosure. After the bank loses a summary judgment the calls from the banks lawyers often sound something like this: “What will it take to make this go away?” These homeowners in exchange for a written agreement to “Re-establish the note” may see the amount of their loan cut by 40% and their rates lowered below 5%.
In the trenches we have found that banks are overwhelmed, unprepared, and often unable to prove their case. In their rush to close loans many banks cut corners and did not comply with all applicable rules. Many homeowners have legitimate claims against the banks that they will never discover on their own. In the trenches we are finding that with proper representation homeowners stay in their homes longer (in some cases indefinitely) and can work out settlements that are rarely if ever offered to unrepresented homeowners.