Assembly Line, "Foreclosure Mill" Law Firms Enjoying Big Profits In Florida; Private Equity Firms Seek To Buy Out Back-Office Operations

In Tampa, Florida, The Tampa Tribune reports:

• Their work can be so repetitive that some are known, disparagingly or not, as "foreclosure mills." But the niche field of foreclosure law is profiting enormously from the boom in Florida home foreclosures and is on a hiring spree. [...] Because many law firms file foreclosures across Florida, the biggest firms' monthly foreclosure caseload can grow to a thousand or more, with each case carrying a potential attorney fee of up to $1,200 - although it's not clear what the firms' profit margin is.

***

• The foreclosure business is so strong that it has caught the eye of private equity investment firms, which buy companies using equity and debt financing. Private equity firms have begun buying the back-office foreclosure-processing operations from big law firms and are offering law firms outsourced foreclosure help. These outsourcing companies are keen on moving into Florida.

For more, see Law Firms Cash In On Foreclosures (A surge in foreclosure filings has Florida law firms scrambling for more staff). ForeclosureMillAttorneysAlpha

Profits, Scrutiny Mount For "The Foreclosure Machine"

According to a column in The New York Times:

• Nobody wins when a home enters foreclosure — neither the borrower, who is evicted, nor the lender, who takes a loss when the home is resold. That’s the conventional wisdom, anyway.

• The reality is very different. Behind the scenes in these dramas, a small army of law firms and default servicing companies, who represent mortgage lenders, have been raking in mounting profits. These little-known firms assess legal fees and a host of other charges, calculate what the borrowers owe and draw up the documents required to remove them from their homes.

• As the subprime mortgage crisis has spread, the volume of the business has soared, and firms that handle loan defaults have been the primary beneficiaries. Law firms, paid by the number of motions filed in foreclosure cases, have sometimes issued a flurry of claims without regard for the requirements of bankruptcy law, several judges say.

***

• Law firms and default servicing operations that process large numbers of cases have made it harder for borrowers to design repayment plans, or workouts, consumer lawyers say. “As I talk to people around the country, they all unanimously state that the foreclosure mills are impediments to loan workouts,” [one consumer advocate] said.

For more, see Foreclosure Machine Thrives on Woes (if no subscription, try here).

Go here , go here , and go here for posts on questionable mortgage servicing practices. questionable mortgage servicing practices tactics xero ForeclosureMillAttorneysAlpha

Countrywide, Law Firms Show Disregard For Professional, Ethical Obligations Of Legal Profession, Judicial System, Says Judge; Declines Sanctions

The New York Times reports:

• The Countrywide Financial Corporation, the largest American mortgage lender, did not show “bad faith” in the handling of a Texas homeowner’s mortgage and will not be sanctioned merely for unprofessional and unethical conduct, a federal judge ruled on Wednesday. Countrywide and two law firms it used showed “a disregard for the professional and ethical obligations of the legal profession and judicial system,” Judge Jeff Bohm of Federal District Court said in ruling on a request by a Justice Department official to consider punishing the company for its conduct. But to impose sanctions, Judge Bohm wrote, he would have had to find “clear and convincing evidence of conduct that is in bad faith, vexatious, wanton or undertaken for oppressive reasons.”

***

• “In Texas, homesteads are sacrosanct,” the judge said in a ruling that traced how Countrywide’s corporate culture led to mistakes including a failure to properly record some payments made by [a Texas homeowner]. [...] The judge also found fault with the law firms, saying their flat-fee rate had led to a “corrosive ‘assembly line’ culture of practicing law.”

For more, see Judge Lectures Countrywide but Decides Not to Punish It in Texas Mortgage Case.

See also, Reuters: US judge won't punish Countrywide for botched case.

To view the court ruling, in which the presiding bankruptcy judge carefully rips apart Countrywide's attorneys (probably "must reading" for anyone who believes they were screwed over by Countrywide or any other loan servicer), see: In re: William Allen Parsley:

• Part I,
• Part II.

Go here, Go here and Go here for more on recent Countrywide problems with consumers. ForeclosureMillAttorneysAlpha SloppyForeclosuresAlpha

Judges Begin To Hammer "Foreclosure Mill" Law Firms For Trampling On Homeowners' Rights

In a recent article that should be "must reading" for any judge (state or Federal) who presides over foreclosure cases, The Wall Street Journal reports:

• Law firms handling thousands of foreclosure cases on behalf of mortgage lenders and servicers are drawing criticism from judges, who say roughshod filing practices are trampling borrowers' rights.

***

• Lately, judges are faulting law firms for what has become a common practice: filing a foreclosure suit, in states that require them, without showing proof that the plaintiff actually holds the mortgage and has the right to foreclose. (Such plaintiffs are often banks that act as trustees for investors of securities backed by mortgages.) The situation occurs in part because mortgage documents and the contracts between borrowers and lenders may change hands multiple times and may not be assigned to the plaintiffs at the time the suits are filed.

In addition to the recently reported dismissal of foreclosure actions by Ohio Federal judges for lack of proper paperwork, WSJ reports three separate incidents where law firms were fined $65,000, $75,000, and $125,000 by judges in foreclosure actions for what amounts to "playing fast and loose" with the court system. There's also a fourth incident reported where a judge is currently considering imposing sanctions on the attorney.

For more, see Judges Tackle 'Foreclosure Mills' (High-Volume Firms That Cut Corners Are Rebuked, Fined) (subscription required; if no subscription, try here).

For other posts that reference the failure of some mortgage lenders and their attorneys to file the required loan documents when starting foreclosures, Go Here, Go Here, Go Here and Go Here. missing mortgage foreclosure docs alpha ForeclosureMillAttorneysAlpha

The Secret's Out: Foreclosing Lenders Around The Country Continue To Get Hammered Over Missing, Inconsistent Mortgage Docs

The National Law Journal reports:

• Alarmed by the dramatic rise in housing foreclosures across the nation, judges have taken a variety of actions to slow the pace, ranging from outright dismissals for incomplete work to mandated mediation to threatening attorneys with sanctions.

***

• A number of suits have accused banks of allegedly taking shortcuts to rush foreclosures through, often using so-called "foreclosure mills" — law firms that handle a high volume of foreclosure actions — to handle the cases, according to foreclosure defense lawyers, bankruptcy lawyers and consumer rights groups.

***

• In Ohio, which has been particularly hard hit by foreclosures, a consortium of plaintiffs' attorneys last month filed a class action against Deutsche Bank A.G. on behalf of Ohio homeowners facing foreclosure. The suit alleges that the bank lacks standing to bring foreclosures throughout Ohio and is missing key mortgage documents. Whittiker v. Deutsche Bank National Trust Co., No. 1:08cv00300 (N.D. Ohio).(1)

One Brooklyn, New York trial judge's approach to the apparent sloppy paperwork being filed by foreclosing lenders and their attorneys is described in these excerpts:

• "I deny more foreclosures than I approve," said Justice Arthur Schack(2) of Kings County, N.Y., Supreme Court, in Brooklyn. "I want to see the servicing agent's power of attorney, I want to see all the paperwork before I approve it. If the paperwork is garbage, I deny it. If you're going to take away someone's home, it should be done properly."

***

• In a blistering opinion in June, Schack, the Brooklyn judge, threatened Mary McLoughlin, an attorney at Rosicki, Rosicki & Associates of Carle Place, N.Y., with sanctions for filing a foreclosure on behalf of Wells Fargo. After doing his own research in the [computer-accessible New York City public records], Schack discovered that Wells Fargo never owned the mortgage. Schack denied the foreclosure and further set a hearing for Aug. 1 to afford her a chance to explain why she should not be sanctioned for "frivolous conduct." Wells Fargo Bank v. Reyes, No. 5516/08 (Kings Co., N.Y., Sup. Ct.) [2008 NY Slip Op 51211(U) [20 Misc 3d 1104(A)]; Decided June 19, 2008].(3)

For the whole story, see Judges, attorneys work to stanch foreclosures (As actions surge, so do dismissals, mediation orders) (no subscription required).

For other posts that reference the failure of some mortgage lenders and their attorneys to file the required loan documents when starting foreclosures, Go Here, Go Here, Go Here, and Go Here.

(1) The suit alleges that, because Deutsche Bank lacked standing to bring foreclosure actions, its attempt to do so constituted violations of the Federal Fair Debt Collection Practices Act, as well as Ohio RICO, R.C. 2923.32 Engaging in pattern of corrupt activity, both on its part as well as on the part of its attorneys filing the foreclosure actions. In addition to damages and other relief, the homeowners seek the return of their homes lost to foreclosure, and request that the attorneys representing Deutshce Bank fork over all the fees they collected on the foreclosure actions.

(2) Ina recent case, Deutsche Bank Natl. Trust Co. v Maraj 2008 NY Slip Op 50176 (U); [18 Misc 3d 1123(A)]; January 31, 2008; Justice Schack, in denying a foreclosure, wondered if he was the target of a corporate "Kansas City Shuffle" (a reference to the 2006 film, Lucky Number Slevin, in which the term is explained by a hitman played by Bruce Willis) in that the paperwork filed by the foreclosing mortgage lender raised questions in his mind the answers to which weren't readily apparent to him, and which created the appearance of possible fraudulent activity, according to his written opinion. See earlier post, Brooklyn Judge Presides Over A Corporate "Kansas City Shuffle" In Foreclosure Action?

(3) In other gems by Justice Schack in which he denies foreclosure to other foreclosing mortgage lenders for submitting questionable paperwork, see HSBC Bank USA v Perboo, 2008 NY Slip Op 51385(U); Decided last Friday - July 11, 2008; and also a 2007 decision, Deutsche Bank Natl. Trust Co. v Castellanos, 2007 NY Slip Op 50978(U) [15 Misc 3d 1134(A)]; Decided on May 11, 2007, a foreclosure action in which he subsequently again denied foreclosure in the opinion in Deutsche Bank Natl. Trust Co. v Castellanos, 2008 NY Slip Op 50033(U) [18 Misc 3d 1115(A)]; Decided January 14, 2008. missing mortgage foreclosure docs beta missing mortgage foreclosure docs gamma Arthur M. Schack ForeclosureMillAttorneysAlpha SloppyForeclosuresAlpha

"Assembly Line" Lawyering, Culture Condoning Lying To The Court In Foreclosure Cases Has Bankruptcy Judge Wondering

The Wall Street Journal Law Blog reports:

• Does flat-fee pricing foster assembly-line lawyering? That’s what U.S. bankruptcy judge Jeff Bohm suggested in a decision, entered yesterday, in a consumer bankruptcy case involving Countrywide and a Texas homeowner. While Judge Bohm declined to enter sanctions against Countrywide and its lawyers from two firms — Barrett Burke and McCalla Raymer — he wrote: “This fixed-fee business model appears to have been an overwhelming financial success. . . . Meanwhile, the profession has suffered from the ever decreasing standards that firms like Barrett Burke and McCalla Raymer have heretofore promoted. This demise must stop.”

• The judge called problems at the firms’ culture “disconcerting” and described what he called the firms lack of care for accuracy and failure to communicate with clients. “[W]hat kind of culture condones its lawyers lying to the court and then retreating to the office hoping that the Court will forget about the whole matter.” While “perfection” he said is “too much to demand, preparedness and candor are not.”

For more, see Foreclosure Legal Work: A Shoddy, Assembly-Line Practice?

For an article examining mortgage companies frequent non-compliance with law in consumer bankruptcy cases, see Misbehavior and Mistake in Bankruptcy Mortgage Claims, by Katherine M. Porter University of Iowa - College of Law.

Go here, Go here and Go here for more on recent Countrywide problems with consumers. ForeclosureMillAttorneysAlpha SloppyForeclosuresAlpha

Lenders Lawyers' Failure To Return Phone Calls Forces Already-Strained Florida Court To Impose Formal Conciliation Process In Home Foreclosure Actions

In Sarasota, Florida, the Herald Tribune reports:

• As more and more Florida homeowners slip into foreclosure, the law firms handling the cases for the banks have become harder to reach, those familiar with the system say. Homeowners and their attorneys, and even judges, cannot get a call back, making it impossible to dispute a debt or work out deals other than foreclosure until the case is in front of a judge. "The lenders are just not talking to them," Chief Circuit Judge Lee Haworth said.

• Now, Haworth and other 12th Judicial Circuit court judges are going to force those law firms to meet with the homeowner within 45 days for a frank discussion on alternatives to foreclosure. Those discussions could center around refinancing, forgiving part of the debt or clarifying the amount required to reinstate or pay off the loan.

• The Homestead Foreclosure Conciliation Program will start in December. It aims to keep people in their homes and reduce the strain on the court system from foreclosure cases, which are on pace to double this year compared with 2007. The program applies only to property registered as a primary residence under the homestead exemption. Local bar associations and legal aid organizations agreed to provide some attorneys to assist those homeowners during the meeting at no cost.

• The law firms representing lenders are also required to notify any homeowner of the program, contact them and invite them to participate. The large increase in foreclosures has strained almost every part of the foreclosure process, from serving legal papers to finding courtroom time. Coming to a solution within 45 days would avoid protracted legal battles and reduce the number of cases going through the system.

• Those long legal battles seem to be the only way to get law firms representing banks to return calls, Miami-based foreclosure attorney Rick Neustein said. "Most of the time they don't want to talk to us until they see this thing is being hotly contested," Neustein said. "They don't get serious until we're defending the foreclosure for nine months."

• Haworth said the main issue is only a small number of law firms handle the foreclosure cases for the banks for small legal fees, so they want to put as little time as possible into a case.(1) If the law firms do not comply with the new order, they will face courtroom sanctions that would cost them money, since it would take their attorneys more time to handle the cases.(2)

For the story, see Lenders told they can't hide (if there's a problem with this link, try here).

For more on the new foreclosure procedural rules in Florida's 12th Judicial Circuit, see:

• Administrative Order Establishing Circuit-Wide Homestead Foreclosure Conciliation Program.
• Attorney's Certificate of Compliance With Twelfth Circuit Homestead Foreclosure Conciliation Program.
• Chief Judge's Letter Summarizing New Foreclosure Procedures & Administrative Orders.

Go here for Notice To Attorneys Filing Foreclosure Actions in Florida's 12th Judicial Circuit.

Go here for other posts on the foreclosure mediation program in Florida's 12th Judicial Circuit (Manatee, Sarasota, and Desoto Counties).

(1) Go here for more on so-called Assembly Line, Foreclosure Mill Lawyering in foreclosure actions.

(2) According to the story, the law firms for lenders would not be able to settle the case through a summary judgment, a quick resolution to cases. The lender attorneys would no longer be able to appear at hearings over the telephone. And that lender's cases would be assigned the lowest priority for court hearing times, which may delay the case for an extended period. ForeclosureMillAttorneysAlpha

Bankruptcy Judge Whacks "Assembly Line" Attorneys For $150K In Sanctions For Misrepresenting Ownership Of Promissory Note In Mortgage Foreclosure

The Wall Street Journal Law Blog reports:

• On Friday, two law firms — Buchalter Nemer and Ablitt & Charlton, along with name partner Robert Charlton — got whacked with a combined $150,000 in sanctions. In a decision regarding an order to show cause in the case, called Nosek v. Ameriquest, bankruptcy judge Joel Rosenthal found that, throughout earlier proceedings, lawyers at both firms, in representing Ameriquest, had continually represented that Ameriquest was the holder of Nosek’s mortgage, when in fact it had been assigned, at least twice, to other lenders.

• Judge Rosenthal held: “At a time when mortgages and notes are bought and sold at a pace so swiftly that the assignor and assignee cannot keep up with the paperwork, had the attorneys at the Ablitt firm checked the firm’s file, they would have seen that Norwest was perhaps the real party interest. . . . The firm cannot shield itself from institutional knowledge.” Rosenthal fined the firm $25,000, and attorney Robert Charlton another $25,000. (The Buchalter firm was fined the remainder, or $100,000.)

According to the court order, the lender/servicer and trustee involved, Ameriquest and Wells Fargo, were also clipped for $250,000 each in sanctions. Judge Rosenthal, however, declined to sanction the two associates who assisted Charlton in the case.

For more, see Judge Has Stern Words (But No Fine) for Associates at Sanctioned Firm.

See also, The Wall Street Journal: Wells Fargo Is Sanctioned For Role in Mortgage Woes:

• Joel B. Rosenthal, a Massachusetts federal bankruptcy judge, wrote in a decision that Wells Fargo "turned all responsibilities over" to the servicer but "turn[ed] a blind eye" to the servicer's mistakes. Had the company "shown even a modicum of oversight or review" of the servicer's behavior, "it should have been able to correct the misrepresentations" made to the court. He added: "This court will not allow Wells Fargo or any other [mortgage holder] to shirk responsibility by pointing fingers at their servicers." A Wells Fargo spokeswoman said in a statement: "We believe the judge failed to appreciate Wells Fargo's limited role as trustee in the servicing of the home loan. As a result, Wells Fargo plans to appeal the order."

For the relevant court documents in this case, see:

• Memorandum Of Decision,
• Order Sanctioning Attorneys.

For other posts that reference the failure of some mortgage lenders and their attorneys to file the required loan documents when starting foreclosures, Go Here, Go Here, Go Here and Go Here. missing mortgage foreclosure docs beta ForeclosureMillAttorneysAlpha