By Gary Blankenship
As Florida courts struggle to whittle down a backlog of property foreclosure cases, some judges and lawyers involved in the process say shoddy paperwork filed on behalf of lenders is handicapping the effort.
While there are ample anecdotal examples and the Florida Attorney General has launched an investigation to determine if some foreclosure documents were deliberately falsified or misrepresented (see AG looks into claims of fabricated document), there aren’t a lot of hard numbers yet on the size of the problem.
But the 12th Circuit compiled some numbers from three weeks of its “rocket docket” for foreclosures in Manatee and Sarasota counties and found that 20 percent or more of the cases set for summary judgment had some procedural or paperwork problems.
“What’s irritating to me is frankly that the impression is from the Legislature is that the courts are not processing these quickly. Well, the courts can only process them as people comply with the rules,” said 12th Circuit Chief Judge Lee Haworth.
And not only could the paperwork problems delay sorting out the state’s foreclosure mess, they could also give the courts future headaches if problems are found with foreclosures, even those that are uncontested.
Ft. Lauderdale attorney Roy Oppenheim said he’s got a client who bought a foreclosed house and then had a bank the client never heard of file a foreclosure suit, claiming it had an unpaid mortgage in the chain of title that was left out in the original foreclosure proceeding. Oppenheim blamed the rush to process foreclosures and faulty paperwork, and predicted there will be many more such cases. (His client has title insurance, and so those legal problems are being handled.)
“If you put one rotten apple in a barrel...they all rot,” he said. “The taint can expand beyond the cases that are bad. That’s just human nature.”
“It [faulty paperwork] appears quite often and we require that they correct the bad paperwork,” said Thomas Gallen, a senior judge who is handling foreclosure hearings in Manatee County, in the 12th Circuit. “If a motion to dismiss is filed and it’s brought to our attention, then we grant the motion and make them correct the deficiencies.”
Haworth said the 12th Circuit set out specific procedures for filing foreclosure cases in December 2008, to include requiring a checklist that all necessary documents had been attached and all necessary notices had been sent. Since then, seminars have been held for the filing attorneys, blast e-mails sent out, and the relevant administrative orders and rules posted online.
“It’s really frustrating that they don’t comply with this. Apparently, the problem is there’s a high turnover with the lawyers and with the paralegals. As soon as you get a lawyer or paralegal who’s perfect, they leave and it goes to someone else,” Haworth said. “This is not anything new. This is something they [plaintiff law firms] have been repeatedly informed that they’ve been noncompliant. We keep hearing, ‘We’re going to fix it; we’re going to fix it,’ and there’s no improvement.”
He paused, and then added, “Well, there’s gradual improvement.”
To streamline the process, the 12th Circuit has set up an automated calendaring system, but sometimes that doesn’t help, Haworth said.
“All the lawyer has to do to get a hearing is call up, find the time, give the case number, and then send out a notice,” he said. “A law firm will come in and book 20 hearings and then not file motions. We will come up on the date of the hearing and there will be a no-show of the plaintiff’s counsel. We were wasting large blocks of time on a case that never occurred.”
Haworth pointed to statistics from the 12th Circuit’s foreclosure rocket docket, which covered hearings in late August and early September. Sarasota had a total of 534 cases scheduled for those three weeks, but 116 had some form of paperwork or procedural problem. Those ranged from failing to fill out the required checklist to not attaching the original note to failing to provide notice to the homeowner. The plaintiff’s lawyer failed to show in a handful of cases.
For the same period, Manatee County had 496 cases scheduled and 104 were deficient in some manner.
Unlike most other circuits, Haworth said the 12th has case managers reviewing the files trying to identify those with problems. He also said a volunteer attorney, Michael Belle, is reviewing filings in Sarasota County to see if they have the required form and $400 fee for the mediation required for residential foreclosures. About an additional 10 cases a week are found to lack the form or the fee.
“There’s been better compliance there than with the rocket docket,” Haworth said.
Gallen said there are implications beyond just handling the backlog of foreclosure cases because an improperly done foreclosure could cause title problems.
“They may be unable to get title insurance. We may see them come back with suits to quiet title,” he said. “It really behooves the plaintiffs’ banks to pay a little bit more and get it done correctly.”
Gallen and Haworth also expressed concern that despite the screening, paperwork errors could go undetected in uncontested cases. And both said judges are losing patience with improperly filed cases and poor paperwork and may start dismissing cases, forcing the banks to refile and pay another filing fee, which can exceed $1,900 on some properties.
Gallen and Haworth said there are other issues besides paperwork and absent plaintiff’s attorneys to cause delays. They noted an increasing number of foreclosure defendants are hiring attorneys to contest foreclosures, which increases handling time. And some defendants contest the foreclosure merely to gain more time before they have to move out of their defaulted house.
Gallen said a common misconception among defendants is that the foreclosure action must include an assignment of the mortgage as well as the promissory note.
“There are a lot of Florida cases that say all they have to do is own the promissory note and the mortgage follows the note,” he said. “A lot of defendants don’t quite grasp that. They think there has to be an assignment of the mortgage.”
Another hitch in clearing cases, he said, is sometimes banks put off getting the final judgment so they don’t have to immediately take possession of the property, which makes the banks liable for property taxes and homeowners’ association fees on homes that may take considerable time to resell.
Salome Zikakis, chair of the Real Property, Probate, and Trust Law Section’s Mortgages and Other Encumbrances Committee, said committee members have been discussing the different viewpoints between plaintiff’s attorneys whose clients want quick action on foreclosures and defense attorneys who are trying to protect their clients’ rights. She said the committee has a seminar November 12 in Tampa to present both viewpoints.
“Most foreclosure cases are not defended, so we mainly hear about the ones [with problem paperwork] which are, which begs the question: If more of these cases were defended, would we find more problems? I don’t think anyone knows,” Zikakis said. “To me, the biggest problem is the backlog and this sort of inherent conflict between clearing up the backlog and giving those who want their day in court their due process rights.
“If we had everyone defending their foreclosure, we’d never get through this.”
She said an unappreciated problem is that many foreclosed homeowners don’t realize they are still liable for deficiency judgments, which is the difference between what they owed on the mortgage and what the bank gets in a foreclosure auction or a short sale. Those who do understand may fight or try to delay foreclosures, which doesn’t help the courts with the backlog. But it also means that once the foreclosure crisis is over, courts could be hit with a wave of deficiency actions.
Zikakis said of many of her clients, “If they could be relieved of the deficiency, they would hand in the keys immediately.”
Hurting More Than Helping?
Richard McIver, who represented plaintiffs in foreclosures, said he’s unsure if faulty paperwork is slowing down foreclosures. But he said many of the innovations to try to help the backlog, such as mortgage modification programs and mandatory mediation for homeowners, has actually hurt. Neither mediation nor modifications will help if the homeowner has no income, McIver noted. Plus, he said more people are turning to attorneys to stave off foreclosure.
“I think it would be better for the economy if we were able to move more cases through the system than we are now, if we were able to put the properties back in the hands of owners who are paying taxes and homeowners’ associations dues and would keep the properties occupied,” he said.
He acknowledged there have been high- profile problems, such as banks filing on the wrong property, different banks filing separate foreclosure actions on the same properties, and cases where judges have said paperwork was fabricated.
“Those kinds of cases make great headlines, but they’re extremely rare,” McIver said. “The defense bar likes to make a lot of hay about those kinds of cases, but it’s very rare. Most of the time, the lender has the original note in”
He added, There are going to be mistakes made, with that type of volume, you’ve never going to have it perfect its possession, presents it to the court, and is able to prove it is the owner.
“You’ve got banks that have more volume of foreclosure than they’ve ever seen before. They have to hire people and maybe the training isn’t as good as it should be,” he added.
Like Zikakis, he said once the foreclosure backlog is reduced, courts could find themselves with a mountain of new cases resulting from deficiency judgments.
Unlike McIver, Oppenheim, who represents homeowners in foreclosure cases, said cases that have made the news are indicative of a much broader problem. And he said a system focusing on clearing the backlog instead of due process is abetting the problem, as well as undermining the basic American notion of property rights.
“When we start going down a slippery slope of not protecting property rights in the American tradition and allow the process to be overcome such that the judicial system becomes a private collection agency for the banks, and where the protection that property rights have traditionally been provided are abrogated, then we send a message out that our system can be abrogated by necessities,” he said. “We will go down a slippery slope where property rights could be further eroded. I don’t know why no one gets it. I don’t know why people don’t want to talk about it. . . .
“We have cases where two banks argue that they both own the note. In the name of expediency over justice, a lot of people are being sucked down the drain with the bathwater. We know cases where people lost their home and they had no reason to lose their home.”
Miami attorney Jeffery Tew represents the Law Offices of David J. Stern, P.A., one of the largest firms representing plaintiffs in foreclosure cases. Tew estimated the Stern firm handles about 20 percent of the foreclosures filed in Florida. He said paperwork problems are relatively rare and are essentially harmless errors as the court system copes with an avalanche of foreclosures.
“These mortgages are all in default and the banks are entitled to foreclose. There is nothing improper about that happening,” Tew said. “It’s a very stressful situation for the borrower who can’t pay his mortgage, the judge who has to deal with the tremendous volume, and for the lawyers who have to represent their clients vigorously.
“I see honest lawyers and honest judges trying to cope with the tsunami of foreclosure cases. Mistakes are made and the courts and lawyers try to deal with them. There is no intentional wrongdoing on the part of David Stern’s law firm.”
But Oppenheim, who also does title insurance work, thinks the legal problems stemming from foreclosure will be around for a long time.
“We have on occasion found some glaring problems when we review a foreclosure file for someone who bought a piece of property, and then we refuse to do title insurance on it,” he said.
But, on the other hand, he added, “I’m thrilled to be a real estate lawyer today, because I wake up in the morning and I know I am going to be fully employed for the rest of my career.”