Reports Of Judges Sticking Banks w/ Tab For Homeowners' Legal Fees In Robosigner Cases Increase With Growth Of 'Foreclosure Defense' Bar

The Wall Street Journal reports:

• The paperwork mess muddying home foreclosures erupted last month. But the legal strategy behind it traces to a lawyer's gambit in 2006 that has helped keep one couple in their home six years beyond their last mortgage payment.

• Lillian and Robert Jackson stopped paying on their home in Jacksonville, Fla., in 2004 when business dropped off at their cleaning company. Eviction might have seemed inevitable when they faced a foreclosure hearing two years later.

• But their lawyer, James Kowalski, had the idea of taking a deposition from the signer of the mortgage papers. When a document processor for GMAC Mortgage admitted she routinely signed such papers without being familiar with details of the loans, she was tagged as one of a species now known as robo-signers.(1)

• It was a first step in the growth of a legal sub-specialty called foreclosure defense that has sown confusion and turmoil in the housing market.(2) Lawyers in the field now commonly use a technique more identified with corporate litigation: probing depositions, designed to uncover any lapses in judgment, flaws in a process or wrongdoing.

• In the 23 states where foreclosures entail a court hearing, the bank may be ordered to pay the homeowner's legal bill if a lawyer can convince a judge that the bank has submitted false documents, such as affidavits saying employees personally reviewed the details of loans when they didn't.(3)

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• The big risk to banks and the housing market, indeed, is that more homeowners and lawyers come to see such cases as attractive to fight. Mr. Kowalski in Jacksonville has already filed a suit seeking class-action status, in circuit court in St. Johns County, Fla., naming Deutsche Bank AG and Citigroup Inc. mortgage unit Citi Residential Lending, accusing them of violating Florida laws and seeking nonmonetary relief. On Tuesday, a New Jersey law firm filed a damage suit in federal court in New Jersey accusing Bank of America of breaching contracts with borrowers at settlement.

For more, see Niche Lawyers Spawned Housing Fracas.

(1) Reportedly, GMAC's case against the Jacksons was thrown out in 2006 by Florida state-court Judge Bernard Nachman, and has never been refiled. The Jacksons, still living there, are reportedly seeking a settlement with GMAC.

(2) It should be noted that a "produce the note" foreclosure case originally filed as far back as 1999 coming out of Palm Beach County, Florida (see State St. Bank & Trust Co. v. Lord, Case No.CL 99-006652 AW) resulted in a big defeat for a foreclosing lender who couldn't produce the note. The lower court ruling, which was subsequently affirmed on appeal, see State St. Bank & Trust Co. v. Lord, 851 So. 2d 790; (Fla. App. Ct. 4th Dist., 2003), led to a change in the applicable statute (section 673.3091, Florida Statutes - Enforcement of lost, destroyed, or stolen instrument) that no doubt was lobbied for by the financial industry to make it easier to foreclose without having the promissory note.

The 1999 version of Sec. 673.3091(1)(a), Florida Statutes (the statute at the time State St. Bank was originally filed in a Palm Beach County Circuit Court) read as follows:

• (1) A person not in possession of an instrument is entitled to enforce the instrument if:
  
  (a) The person was in possession of the instrument and entitled to enforce it when loss of possession occurred;

The 2004 version of Sec. 673.3091(1)(a), Florida Statutes (after the change in the statute), read (and now reads - see current section 673.3091, Florida Statutes) as follows:

• (1) A person not in possession of an instrument is entitled to enforce the instrument if:
  
  (a) The person seeking to enforce the instrument was entitled to enforce the instrument when loss of possession occurred, or has directly or indirectly acquired ownership of the instrument from a person who was entitled to enforce the instrument when loss of possession occurred;

The following two points are worth noting here:

• The Florida Bankers Association appears to tacitly acknowledge their guilt in lobbying for (keen awareness of) the statutory change arising out of the State St. Bank case at page 4 thru 6 of their comments to the Florida Supreme Court made in connection with Emergency Rule and Form Proposals of the Supreme Court Task Force on Residential Mortgage Foreclosure Cases,

• The attorney representing the (thwarted) foreclosing lender who got clobbered by the court for failing to "produce the note" in the State St. Bank case was none other than notorious South Florida foreclosure mill, Law Offices of David J. Stern, P.A., Plantation, Florida, who presumably played some role in setting the wheels in motion for the change in the statute.

(3) Reportedly, Florida state-court Judge Bernard Nachman ordered GMAC Mortgage, a unit of Ally Financial Inc., to pay the $8,000 fee of the Jacksons' attorney after finding GMAC had filed false testimony, an affidavit in which a document signer, Margie Kwiatanowski, said she had personal knowledge of the details of loans such as the Jacksons'.

In another recent case, a Maine state court judge, in ruling that robosigned affidavits had been submitted "in bad faith," ordered GMAC to pay pro bono attorney Thomas Cox a $27,000 legal fee, a sum it said he might have earned for his legal work if he hadn't been working pro bono, the story states.

Washington securities lawyer Andrew L. Sandler, who represents banks and firms that service mortgages, noted for the story: "The class-action lawyers are swarming around this issue right now, because they perceive that it can result in significant fees for them. [...]"

Reportedly, Michael Gaier, an attorney in Philadelphia, who recently switched to foreclosure defense last year after years of representing patients in malpractice suits and consumers who said they had purchased faulty products, said his new legal practice "is academically challenging, and I'm hoping it'll be financially rewarding. I'm hoping the banks rewrite the mortgages, cover my fees. That's my end game," said Mr. Gaier.

See also Florida Judge Sticks Standing-Lacking Lender With $30K Tab For Homeowner's Legal Bill After Booting Case.