About Me 0088: bank foreclosure

Blame Dishonest Banks, Not Ethical Lawyers Exposing Foreclosure Frauds

Monday, 11/29/2010 - 1:12 pm by Thomas A. Cox | 10 Comments

Thomas A. Cox, a volunteer lawyer from Maine who outed the first robo-signer, wrote a letter in response to attacks against those who are defending homeowners facing foreclosure. He demands that the blame be placed on the banks, where it belongs — not on the lawyers working to expose fraud.

Dear Judge Sarokin:

I take issue with your Huffington Post article of November 22, 2010, in which you criticize lawyers defending homeowners in foreclosure cases. You assert, “To oppose the foreclosure, when both the borrower and lawyer know the mortgage is in substantial default, to my mind borders on the unethical.” Not only is this assertion grossly unfair to these overworked, dedicated and ethical lawyers, it is based upon a fundamentally false premise as to the mechanics of the foreclosure summary judgment process. Inexplicably, you fail to offer the slightest criticism of the foreclosure industry and the ethics of its lawyers, who have presented thousands of false (and literally perjurious) affidavits in foreclosure summary judgment motions all across the county.

You have had a long career as judge in both the United States District Court (N.J.) and the Third Circuit Court of Appeals. I have had the privilege of practicing law for many years, in both the Maine State and Federal Courts as well as before the First Circuit Court of Appeals before my retirement. The arc of our respective careers encompassed the (quite different) bank crisis of the late 1980s and early 1990s in which there was also a great deal of foreclosure activity, although at nothing near the extraordinary levels of these times.

During that banking crisis, much of my legal work was devoted to representing banks and the FDIC in the same Federal Court system in which you worked, using the same Federal Rules of Procedure that you used. For the past two and a half years, I have been engaged as a full-time volunteer to represent homeowners in foreclosure cases in these same courts. The rules relating to the handling of summary judgment motions in foreclosure cases have not changed in any substantial way since you were on the bench, yet inexplicably you misstate their requirements. In doing so, you excuse loan servicers and their lawyers for presenting of false affidavits in thousands of cases. I cannot believe that you would ever have tolerated the presentation of false or perjured testimony in your courtroom, and I cannot understand why you are willing to excuse it now.

You excuse the perjurious affidavits by implying that attacks on those documents, based upon the lack of personal knowledge of the affiants, are unfounded. You state:

It would be virtually impossible in any bank (even in those in which the mortgage remained with the issuing bank) for one person to know how much was loaned and precisely when and how much was paid on account. In this day and age, all of that information comes via computer printouts — not personal knowledge.

In making this statement, you display an apparent failure to recall what the Federal Rules of Civil Procedure say regarding summary judgment affidavits. Rule 56(e) explicitly requires that all such affidavits must be made upon personal knowledge. There is no exception in that rule for foreclosures or for mortgage loan servicers, yet you imply that they should not have to respect this requirement.

You fail to recognize that the required personal knowledge is not of the details of the loan and the balances due. Rather, what is required is knowledge of the requisite facts to authenticate and establish the accuracy of their employers’ business records and computerized accounting systems. I filed many summary judgment motions on behalf of my FDIC and bank clients, and in not one instance did the affiant have knowledge of any of the details of the loan or of the balances due. In every instance, however, my witnesses did have direct personal knowledge of the facts relating to the keeping of the records for these loans and for the systems used to calculate loan balances. I never lost one of those motions for summary judgment, and I would have been greatly embarrassed if I had.

Today, I have yet to see a single affidavit from a loan servicer witness that adequately meets this personal knowledge requirement. As a consequence, I estimate that I, and the lawyers with whom I consult, win about 75% of the time by opposing these summary judgment motions based upon false affidavits. Yet the lawyers presenting these dishonest affidavits show no sense of shame when they lose, because in the 90% of the cases where they are unopposed, they win by default, collect their fees and go home happy. This failure to present honest and competent evidence arises not out of an inability to meet the requirements, but out of their stubborn refusal to devote the necessary resources to honestly comply with the rule.

You assert, “I am concerned with the stability of contracts, the rule of law, if they are abandoned at this fragile time in our economy.” But you imply that it is foreclosure defense lawyers who are jeopardizing the prized concept of “the rule of law” when they attack these improper foreclosure filings. These lawyers are performing the highest calling of our profession as they expose the blatant dishonesty of the nation’s largest financial institutions. None of our present knowledge about this outrageous and widespread phenomenon would have been revealed but for the efforts of the hardworking and ethical lawyers representing homeowners.

So much do these institutions try to hide this dishonesty that GMAC Mortgage, LLC attacked me personally for exposing the abusive affidavit signing practices of its Limited Signing Officer, Jeffery Stephan. One of his many affidavits had been filed in a case in which I was representing a Maine homeowner, and the local judge accepted it as true. Thereafter, I deposed Stephan and revealed that he did not bother to read any of the affidavits that he signed, did not know whether they were true, and did not know they contained major errors. He even readily admitted that he did not appear before the notaries he supervised when they signed statements that he had personally appeared before them to be sworn. Stephan signed between 8,000 to 10,000 documents a month (not all were affidavits), and his affidavits were sent to courts all over the country. When I discovered this outrageous fraud, I shared the transcript of my deposition on a listserv with other lawyers from around the country who represent homeowners so that they could protect their clients from being victimized by his false affidavits.

GMAC Mortgage wanted to keep Stephan’s testimony under wraps so badly that it tried to obtain a court order to stop me from sharing it with other foreclosure defense lawyers, and it asked the court to fine me personally for what it called my “malicious dissemination” of the transcript. I was outraged by these efforts to intimidate and gag me, having never experienced such offensive conduct in my forty years as a lawyer. I fear that many younger or less experienced lawyers might have been cowed into silence by any similar efforts. Our judge did not hesitate to deny the GMAC Mortgage motion to gag and fine me and in one case imposed lawyers’ fees sanctions of over $27,000 against it for its bad faith filing of the affidavit from Stephan.

In the situation that I have just described, it is the “rule of law”, for which you express concern, which worked exactly as it should in revealing misconduct by one of our major financial institutions. Our judge here in Maine had no problem with finding the conduct of GMAC Mortgage to have been carried out in “bad faith”. When we showed the judge that GMAC had been caught in exactly the same conduct in Florida four years earlier, he stated, “despite the Florida Court’s order, GMAC’s flagrant disregard [of the law] apparently persists. It is well past time for such practices to end.” What I find so troubling about your article is that you fail to condemn either the loan servicers or their lawyers for their clearly unethical conduct in presenting false evidence to the courts. In your failure to condemn such conduct, you also fail to use the stature of the office that you once held to inspire other judges to confront and root out misconduct.

You minimize the now indisputable fact that the nation’s largest financial institutions have lied to courts in thousands of foreclosure cases. You raise no concern for the fact that our citizens’ trust in the judicial system has been deeply shaken by the revelation that our financial institutions have foreclosed upon hundreds of thousands of homes by the presentation of false evidence in courts all over the country. In the plea at the end of your article, “let us not sacrifice the rule of law and the sanctity of contracts in the process,” you imply that lawyers for homeowners are the ones at fault. But it so clearly is the banks, the trusts and their loan servicers who want to sacrifice the rule of law and who refuse to respect the sanctity of their contracts. They appear to have succeeded in far too many courts in obtaining special exceptions to our rule of law requirements. As a result, American citizens have been left to wonder whether they can receive fair treatment by our courts when confronted by large corporate adversaries.

Your expression of concern for our fragile economy suggests that you believe that the rule of law is a relative concept. You seem to suggest that it should be set aside when it comes to protecting homeowners in foreclosures in order to protect our recovery. One of the fundamental precepts of our Constitution is that the individual rights guaranteed by our laws must never be sacrificed. Due process of law is not a relative concept, it is an absolute. Our failure to preserve that concept is what led to the unconstitutional internment of thousands of Japanese Americans during World War II and must not be repeated here. There are no exceptions in the due process clause of the United States Constitution.

Finally, I must answer the implication in your article that there is a widespread practice among foreclosure defense lawyers of denying the existence of loan defaults when they are found. While you have been retired for many years, I have been working with many lawyers in actual foreclosure defense for almost three years. In addition, I am in constant communication with foreclosure defense lawyers all over the country. I have seen no evidence at all to support your assertion. While there will always be exceptions, I do not believe that there are widespread denials of defaults where they actually exist. What you seem to overlook is the fact that, even when defaults do exist, it is not only appropriate, but a matter of professional responsibility for a homeowner’s lawyer to challenge the standing of any party asserting that default when that party clearly lacks standing to seek a foreclosure, when it is unable to prove that it owns the loan that it is trying to foreclose upon, or when it is unable to prove that it has provided the homeowner with the contractually created right to a proper notice of default and the right to cure it.

I greatly respect the office that you held as a judge in our Federal court system. But I can neither agree with the discredit that you lay upon the foreclosure defense bar, nor can I understand your unwillingness, as one having extensive judicial experience, to explicitly condemn the conduct of loan servicers and their lawyers. I sincerely urge you to reconsider your remarks, to retract them, and to make a public apology to all of the private bar and legal servicer lawyers who are struggling so hard, often for low pay, to preserve the integrity of our judicial system against the rampant dishonesty of the foreclosure industry and its exceedingly well-paid lawyers.

Respectfully submitted,

Thomas A. Cox

Portland, Maine

November 26, 2010

Thomas A. Cox is a retired bank lawyer in Portland, Maine who serves as the Volunteer Program Coordinator for the Maine Attorney’s Saving Homes (MASH) program. He represents homeowners in foreclosure, and assists and consults with other volunteer lawyers in providing pro bono legal services to these Maine homeowners.

A rather nauseating statement from a Government Accountability Office report on foreclosures:

Because they generally focus on the areas with greatest risk to the institutions they supervise, federal banking regulators had not generally examined servicers’ foreclosure practices, such as whether foreclosures are completed; however, given the ongoing mortgage crisis, they have recently placed greater emphasis on these areas.

You read that right. Bank regulators in the United States were not even looking at foreclosure practices before the media latched onto the foreclosure fraud outbreak. The Office of the Comptroller of the Currency and the Federal Reserve acknowledged this in hearings two weeks ago, but it's still harrowing to see the degree to which mortgage banking remains totally free of oversight, even after it drove the global economy off a cliff.

The rest of the report is about banks abandoning properties instead of proceeding with a foreclosure sale. Kind of sick-- throw a family out, then just abandon the house altogether, don't even bother to sell it. The GAO says it's not happening too much, but any sane businessperson would make sure that it never happens. A simple loan modification would cut everybody's losses here, but the banks can't be bothered with that. And nobody is bothering the banks about it.

You may recall that there was a tremendous legislative battle earlier this year over the creation of a new Consumer Financial Protection Agency. The bank lobby and regulators at the Fed, the OCC and yes, even the FDIC, all argued that we didn't need it, while essentially everybody else said we did. But the existing regulatory chiefs all made essentially the same argument against the CFPA: We have several regulators who oversee consumer protection, and they're all just great at it. Creating a new agency that focused only on consumer protection would be end up destabilizing the financial system, because regulating consumer protection without looking at bank safety and soundness would jeopardize bank capital levels.

This argument was absurd at the time, most obviously because the existing regulators were simply awful. They totally failed to restrain predatory mortgage lending for nearly a full decade precisely because they considered "safety and soundess" regulation to be their only job. Safety and soundness was construed as "bank profitability"—if a bank had lots of money, it was less likely to fail. In practice, that meant regulators would allow consumer protection violations so long as they made money for the bank. With the mortgage crisis, this consumer protection failure ultimately lead to a safety and soundness catastrophe, but that's not actually very common. Usually predatory lending is very profitable, which is why banks do it.

So what happened after all the top regulators went out in public and repeatedly screamed that we absolutely can't allow them to lose their consumer protection authority? They totally ignored consumer protection regulation. Look at the excuse that bank regulators fed to the GAO (emphasis mine):

Because they generally focus on the areas with greatest risk to the institutions they supervise, federal banking regulators had not generally examined servicers’ foreclosure practices.

Translation: Even after consumer protection violations wrecked the largest banks in the country, we still don't look at consumer protection unless it actually hurts a bank's bottom line, right away, right now.

The amazing thing here is that the legal liabilities from these foreclosure abuses once again could be putting bank solvency on the line. Global economy to Elizabeth Warren: Help!

Also, the link above is to a summary of the GAO report. The full report is here.

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Blame Dishonest Banks, Not Ethical Lawyers Exposing Foreclosure Frauds

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