Thomas A. Cox

 

Recent Posts by Thomas A. Cox

  • The Destruction of a Foreclosure Lawyer’s Faith in the Justice System

    Dec 8, 2011Thomas A. Cox

    home-foreclosure-documentIf the courts can't address clear instances of fraud and injustice, how can they protect our citizens?

    home-foreclosure-documentIf the courts can't address clear instances of fraud and injustice, how can they protect our citizens?

    It has been exactly 18 months since I deposed GMAC Mortgage's prolific document signer, Jeffrey Stephan, in a case where I was defending a Maine homeowner in foreclosure. Stephan admitted to signing 8,000 to 10,000 foreclosure documents a month (that is about one a minute, if you do the arithmetic), including summary judgment affidavits used by courts as the basis for entering forclosure judgments. Stephan's affidavits were sent by GMAC to courts all over the country. Obviously, and as Stephan admitted, he did not bother to read those affidavits. He also admitted that he had no idea as to whether the foreclosure affidavits that he signed were true. He didn't even trouble himself to appear before a notary to be sworn, even though his affidavits said that he had done so. While Stephan admitted that he understood that judges were relying upon his affidavits to take away the homes of homeowners all over the country, he seemed serene and untroubled by his dishonesty in signing these false affidavits. (Conduct like this has since been awarded the slang term "robo-signing," but I never use it because it fails to adequately describe the dishonesty and deception involved.)

    Subsequently, we developed the proof that GMAC Mortgage had been sanctioned in Florida for exactly this same kind of dishonesty four years earlier, in 2006, for an affidavit similarly signed in 2004. This was three years before the foreclosure crisis bloomed in 2007, so it was clear that GMAC's dishonest conduct was not some sort of harried response to the burgeoning workload of the foreclosure crisis. Rather, it was corporate policy crafted in normal times, and apparently borne of its intention to conduct foreclosures swiftly and on the cheap, without regard to standards of honesty and justice.

    GMAC's unwillingness to change this fraudulent corporate policy after it was exposed in 2006 was evidenced by the fact that its employee, whose conduct caused GMAC to be sanctioned in Florida, was apparently not herself reprimanded or sanctioned by GMAC. To the contrary, and astonishingly, she was promoted, appointed to head GMAC's mortgage foreclosure department. She became Stephan's boss as he continued from 2008 well into 2010 exactly the same dishonest and fraudulent conduct that she had pioneered back in 2004.

    Coincidentally, it was on December 6, 2011, only one day short of the 18-month anniversary of Stephan's June 7, 2010 deposition in a foreclosure case brought by GMAC Mortgage on behalf of Fannie Mae in the State of Maine, that the Maine Supreme Court ruled on an appeal in that case. See FNMA v. Bradbury, 2011 ME 120, __A.3d __. This is how the Justices of the Maine Supreme Court described the conduct of GMAC Mortgage, LLC:

    The affidavit in this case is a disturbing example of a reprehensible practice. That such fraudulent evidentiary filings are being submitted to courts is both violative of the rules of court and ethically indefensible. The conduct through which this affidavit was created and submitted displays a serious and alarming lack of respect for the nation's judiciaries.

    So, what did the Maine Supreme Court do about this outrageous assault on the justice system? Nothing.

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    Before we took the appeal to the Maine Supreme Court, the trial court had already ordered GMAC to pay my counsel fees incurred in taking Stephan's deposition and in bringing the motion that exposed the fraudulent conduct GMAC and Stephan to the court. But that trial court refused our request to use the power, expressly granted to it by Maine's rules of court, to hold GMAC in contempt and to impose penalties proportionate to its multiyear and multistate rampage of ethically indefensible misconduct. As the dissenting judge in the Maine Supreme Court decision stated:

    Because Stephan admitted that he signed thousands of such affidavits and related documents each month and GMAC was previously sanctioned for similar conduct, there was good cause to believe that such misconduct was not limited to this case and that the management of GMAC and Fannie Mae, and their attorneys, knew or should have known of the wrongful manner in which the affidavit presented in this case was produced.

    A Maine Supreme Court justice found that GMAC management knew of the fraud. Yet, because this expressly granted contempt power had never been used before, the Maine Supreme Court refused to order its application in this case.

    The Justices of the Maine Supreme Court cited this lack of legal precedent as a basis for refusing to take decisive action against the misconduct of GMAC Mortgage. They refused to acknowledge the fact that no court had ever before been presented with such an extreme, outrageous, and widespread pattern of "reprehensible practice" and "ethically indefensible" conduct that evidenced such an unprecedented "serious and alarming lack of respect for the nation's judiciaries." The outrageous facts of this case cried out for a precedent setting ruling that such conduct must expose the perpetrator to serious and heavy contempt of court sanctions. A ruling fining GMAC Mortgage an amount of money proportionate to the hundreds of thousands of dollars it had saved by cutting corners in its affidavit signing practices was called for. The Maine Supreme Court didn't see it that way, and missed an exceptional opportunity to send a message to the mortgage servicing industry that its fraudulent and unethical conduct will not be tolerated.

    This case was a perfect opportunity to have the Maine justice system speak out loudly and clearly in favor of the rule of law, to demonstrate its willingness and ability to protect the little guy against corporate bullies, and to take decisive action to protect the integrity of our judicial system. Such a decision could have been a beacon of justice to homeowners everywhere and a precedent to be relied upon by courts all over the country in sanctioning the similar conduct that has been perpetrated in their courts. Yet our effort to achieve this has failed and my devotion to exposing this injustice has for the most part been for naught.

    My faith in our courts' willingness to protect individuals against what the Maine Supreme Court itself called the "fraudulent" and "unethical" conduct of the nation's fifth largest mortgage loan servicer (which is also largely owned by the American people -- Ally Financial, the parent of GMAC Mortgage, is 76 percent owned by taxpayers) is broken. Two days after this unfortunate decision, and exactly one and a half years after exposing this fraudulent and unethical conduct, I, as a lawyer who spent his entire career believing in our justice system, am left with a deep sense of despair and a lot of questions. If we could not succeed in obtaining justice in this case, what more can we possibly do? What will it take to cause courts to stand up to and halt this "serious and alarming lack of respect for the nation's judiciaries" by America's largest financial institutions?  Is my continuing effort to try to help homeowners in foreclosure really worthwhile? How can I possibly tell clients to believe that our justice system will protect them against the depredations of America's financial industry? Why should I continue my volunteer efforts to expose injustice when the courts will not take decisive measures to sanction it and bring it to a halt when we provide such clear and convincing proof of such fraudulent conduct?

    I have devoted my career to the legal system and to seeking justice for my clients. I believed in the integrity of the judicial system and its capacity to prevent fraud and injustice. It is sad to be nearing the end my career with that belief so deeply shaken.

    Thomas 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.

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  • Detours, Diversions and Delays: Servicers Obstruct Foreclosure Cases

    Jan 24, 2011Thomas A. Cox

    foreclosure-gavel-150Homeowners and their lawyers waste resources while the banks and their lawyers bide their time. **This is the final part of a three-part series.

    foreclosure-gavel-150Homeowners and their lawyers waste resources while the banks and their lawyers bide their time. **This is the final part of a three-part series. Read part 1 here and part 2 here.

    As we pursue pre-trial discovery efforts, the servicers' lawyers' hide the ball tactics come into full play. In addition to throwing up unjustifiable objections, they stonewall for months on end in producing documents to which homeowners are undeniably entitled. We recently won a $2,500 sanction award against JPMorgan Chase after the bank stalled for almost a year in producing documents that it was obligated to produce within 30 days of our request.

    While the lawyers for servicers are usually graded and paid for how fast they can rush a foreclosure case through the legal system, the rules change in that very small percentage of cases where lawyers show up to represent homeowners. At that point, the servicer is likely to remove the case from the grading system. The servicer's lawyer is also likely to start billing the servicer at an hourly rate. When a case finally gets to a trial list, there are repeated requests from the servicer's lawyer for continuances and delays so that the servicer can put off sending a witness to testify at trial.

    Cut and Run

    When we confront a servicer with clear proof that it cannot prove its right to a foreclosure, it will seldom pull back and take action to correct the problem. In one recent case where HSBC Bank was the foreclosing plaintiff, we developed clear proof that the note endorsement it was relying upon was signed by a person who had utterly no authority to endorse on behalf of the party from whom HSBC claimed to have acquired the note. Thus there was no proof that HSBC had any right to foreclose. Nevertheless, it convinced an unknowledgeable trial judge to give it summary judgment. We appealed the case to the Maine Supreme Court and fully briefed it. While I was working as a volunteer lawyer on that case, the value of the work that I put into that appeal would have been well in excess of $20,000. On the day that its opposing brief was due, HSBC filed consent to the granting of the appeal, finally conceding at that late stage that it could not prove its entitlement to a foreclosure. It did not much care that it had forced that kind of legal effort on behalf of the homeowner because it does not have to pay the homeowner's fees when it mismanages its cases.

    Just a few weeks ago, we saw a similar development from the same servicer law firm, this time representing a Deutsche Bank securitized trust on a loan serviced by JPMorgan Chase. The trial court granted summary judgment to Deutsche Bank, even though it was clear that JPMorgan had failed to send the homeowner a proper notice of default and right to cure. Again, we appealed the case to the Maine Supreme Court, and again the foreclosure plaintiff capitulated only after its lawyers realized that we were not giving up and that it was about to lose.

    In the now notorious FNMA v. Bradbury case, in which I exposed the dishonest affidavit practices of GMAC Mortgage's Jeffrey Stephan when I deposed him this past June, GMAC recently moved to dismiss the case after two failed motions for summary judgment, a failed motion to prevent any sharing of Stephan's deposition with other lawyers, and an imposition of sanctions upon it for its bad faith conduct. In moving to dismiss, GMAC admitted that it could not prevail in the action. This admission came after we invested legal work that, if a private lawyer had been billing, would have cost well in excess of $40,000.

    In the "hide the ball variation 2" case described in my previous post, where GMAC filed a dishonest mortgagee certification signed by Jeffrey Stephan, it moved to dismiss that case only after we named that client as a plaintiff in the class action that we have brought against it.

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    The pattern that emerges from these and similar cases shows the practice of foreclosure industry lawyers to litigate right to the point where they are about to lose and to then cut and run. In this process, they are usually getting themselves off the flat fee charged in unopposed cases and onto an hourly fee arrangement that they like, and they are content to see homeowner's lawyers' time diverted from representing other homeowners.

    Wear Down the Opposition

    Working with homeowners to obtain modifications can be some of the most rewarding, and yet most frustrating, work that we do as foreclosure defense lawyers. Until Maine's new foreclosure mediation program began on January 1, 2010, we were almost never able to obtain loan modifications for our clients. We couldn't even get employees of servicers to talk to us. With the program now fully operational, we are able to negotiate loan modifications in many cases. It is very satisfying to see a homeowner walk away with a loan payment that he or she can afford, experiencing the relief from a terminated foreclosure action.

    The flip side of this picture is the outrageous abuses of the loan modification process that we constantly see. The servicer leagues ahead of all others in this misconduct is Bank of America. We often have Bank of America customers come to us before foreclosures begin. These homeowners are desperate. They have suffered diminished or lost incomes for one reason or another and have been attempting to work out loan modifications before their reserves are totally gone and they are forced to default. Bank of America often ignores these homeowners or puts them through endless cycles of financial disclosures (repeated time after time because it routinely loses these papers), or it simply tells homeowners that they must default before it will even talk to them.

    It gets worse. Even in the rare cases where a homeowner has obtained  entry into the HAMP modification process from Bank of America, which is supposed to involve a three-month trial payment period, it strings them along in the temporary payment for nine or 12 months or longer, only to finally, and without any justification, deny a permanent modification. By the time these homeowners get to us, they are angry, discouraged, depressed and exhausted. They are often ready to just give up and to walk away from their homes to bring an end to the tortuous process. I suspect that this is exactly the result that Bank of America wants.

    Even when we come into these cases as lawyers, the same exhausting process continues. Agreements that we reach in mediation are not kept. Our efforts to obtain conversions of temporary payment plans to permanent modifications become an effort of guerilla legal warfare. Over the past few months, there have been abundant reports of the perverse incentives that motivate loan servicers to pursue foreclosures and avoid loan modifications. In the line of foreclosure defense on a daily basis, we see directly the suffering inflicted on homeowners who hope for nothing more than a fair chance to stay in their homes.

    Where is the outrage?

    Certainly the military families who have been abused by JPMorgan Chase must be outraged. Homeowners all over the country experiencing these abusive tactics are outraged. Overworked and tireless foreclosure defense lawyers are outraged by the abuses that we see on a daily basis. Very few judges, like Judge Arthur Shack in New York, have become outraged. But I do not see the outrage at out largest (and taxpayer bailed-out) financial institutions coming to a boiling point. When I testified in front of the House Judiciary Committee in December, I did not come away with any sense of outrage there. When I saw the report about the abuse of American military families, I thought that would become a tipping point, but I has not even made headlines in the nation's print and television media. What is it going to take?

    Thomas 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.

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  • How Banks and Servicers Play Hide the Ball

    Jan 21, 2011Thomas A. Cox

    home-foreclosure-documentForeclosure industry lawyers use every trick in the bag to block the revelation of important documents.**This is the second part of a three-part series.

    home-foreclosure-documentForeclosure industry lawyers use every trick in the bag to block the revelation of important documents.**This is the second part of a three-part series. Read part 1 here.

    Logic suggests that in foreclosure, the homeowner should be able to know who owns his loan. In the rare circumstance where the homeowner wants to pay off the loan rather than lose his or her house, he needs to know who is entitled to receive that payment so that the wrong party is not paid and so that he is protected against any other party ever claiming a right to payment. Where a homeowner cannot actually pay off his loan, he still has a real interest in knowing who claims ownership of it because only that party can respond to requests to work out a rational loan modification.

    Logic does not control the foreclosure industry's practices.

    Variation Number 1: MERS hides the ball

    In the first variation of this tactic, homeowners must face a massive concealment scheme set up in 1995 by the foreclosure industry in the form of Mortgage Electronic Registration Systems, Inc. ("MERS"). Before MERS came along, every mortgage was recorded in a registry of deeds for the county where a mortgaged home is located. When that mortgage was assigned, it was recorded in the registry. Thus, if a homeowner ever had any doubt as to who owned his mortgage, he had only to check his nearby registry to find that information. MERS unilaterally changed the rules of the game (with no permission sought from state legislatures). Under the new regime, while an original mortgage is still filed in the local registry of deeds, subsequent assignments of that mortgage are not recorded there. Instead, information about them is simply entered into the MERS electronic recording system. Any homeowner can check the records of his local registry of deeds, but no homeowner is permitted to access MERS. Thus, it took away a sure way to identify the owners of mortgage loans.

    After an outcry against MERS over its concealment of the identity of mortgage owners in its inaccessible system, it claims to have met those complaints by setting up a web site where homeowners can look up this information. The problem is, the website will not reveal the name of the owner of any mortgage unless the owner voluntarily allows MERS to disclose that information. My experience with look-ups on the website is that it repeatedly reports that the owner of the mortgage has not voluntarily agreed to disclose its identity.

    Even when a mortgage owner does  allow its identity to be disclosed, there is a high likelihood that the information will be inaccurate. I am working on a case right now involving a Deutsche Bank trust created in 2006. Deutsche Bank claims that it has owned my client's loan since 2006, but until July of 2009 the loan originator, not Deutsche Bank, was shown on the MERS system as the owner.

    Use of the MERS website to look up mortgage ownership information is basically a waste of time for homeowners and their lawyers. I am working on another case right now where there were major errors at the inception of the loan that give our client the right to rescind it under the Truth in Lending Act. We know that the lender is out of business and that some other entity owns the loan, but we do not know who that is. The MERS website does not disclose the identity of the owner of this loan. Under TILA, the rescission letter must be sent to the owner, so we have to file a request with the servicer for that information. Experience tells us that the servicer may or may not respond and that if it does, the response may or may not be accurate. In any event, a lot of lawyer time will be wasted in seeking out information as to the identity of the owner of the loan, information that should be (and in pre-MERS days was) immediately available.

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    Variation Number 2: Fannie and Freddie hide the ball

    Fannie Mae and Freddie Mac are also major players in the concealment game. In their agreements with the major loan servicers, they require that the servicers foreclose in their own names. In judicial foreclosure states, such as Maine, where I work, we see this repeatedly even though Maine law permits only the real owners of to be the foreclosing parties. To further this subterfuge, Fannie and Freddie will actually endorse and deliver mortgage notes to the servicers to hold temporarily while the servicers foreclose under the guise of being the true owners. The same problem arises here as with the MERS concealment game -- if we, as lawyers representing homeowners, do not know who the true owner is, we do not have the ability to properly represent our clients as we try to resolve that loan.

    I have been unable to determine any legal benefit of this subterfuge to Fannie and Freddie. Rather, I suspect that this game relates to political issues. Fannie and Freddie do not want to let the country, our political leadership, and the regulatory agencies see just how tremendous their roles are in the current waive of foreclosures. I suspect that they fear the public and political backlash that might develop if the true scope of their roles in the foreclosure process were revealed.

    The problems created by the concealment game are real. I ran into this problem a couple of months ago in a foreclosure action brought by GMAC Mortgage, LLC. Maine law requires the foreclosing plaintiff to file a certification showing that it owns the loan and including proof of that ownership in the form of note endorsements and mortgage assignments. In this case, there was a "Certification of Mortgagee" signed by none other that GMAC's notorious "limited signing officer" Jeffrey Stephan. He certified directly that GMAC Mortgage owned the loan in issue. I attended a mediation session with my client on this case, devoting about five hours of legal time to the effort, while my client took a day off from his hourly pay job to attend. It turned out that Fannie Mae owns this loan. Thus, my client and I went into the mediation without knowing that only Fannie Mae HAMP loan modification programs would be up for negotiation. Because of GMAC's participation in the concealment game, my time and that of my client were wasted, as was the time of the court appointed mediator.

    The practical effect of all of this obfuscation is that the foreclosure defense process becomes unduly expensive for homeowners paying for representation, and the very limited resources of legal services and volunteer lawyers are wasted on searches for basic loan ownership information that should never have been hidden in the first place. By playing this game on such a massive scale, the foreclosure industry depletes the resources that the opposition might use in productive tasks, such as pursing loan modifications.

    Variation Number 3: obstructing homeowners' discovery efforts

    As foreclosure defense lawyers, we know hide the ball variations 1 and 2 well, so we try to compensate by pursing appropriate pre-trial discovery to dig out the true identity of the owners of the loans. Without fail, every single request for the production of documents that we file is met by massive and frivolous objections by counsel representing foreclosure plaintiffs. Even a simple demand for producing the original note and all endorsements is met by an objection that the request is "overly broad" and "unduly burdensome," even though the original note must be produced at trial if the plaintiff is to prevail.

    When we ask for information as to the existence of endorsements to the note, we are met with an objection stating that the information is "irrelevant." The servicers and their lawyers know that judges hate pre-trial discovery disputes and are not likely to impose sanctions for their abusive conduct. Servicers seem willing to take the few sanctions orders that we do obtain knowing that, it the vast majority of cases, their obstructive tactics will go unpunished.

    When we demand that the servicers produce the pooling and servicing agreements that evidence their claimed right to act on behalf of the loan owners, they refuse to do so, claiming that the agreements are confidential trade secrets. They make this claim even though copies of these agreements appear on the SEC Edgar website as public records. When confronted with this reality, they fall back on their claims that the documents are irrelevant or that it is unduly burdensome to produce them.

    This kind of conduct should be sufficient for a court to simply dismiss the foreclosure outright, but our rules and case law do not allow for such dismissals until the violations become even more egregious. Foreclosure industry lawyers know and take advantage of that fact.

    Thomas 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.

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  • Homeowners Get Screwed, Lawyers Get Played, Banks Make Profit: Where's the Outrage?

    Jan 20, 2011Thomas A. Cox

    house-in-hands-150The foreclosure industry is playing the system while homeowners suffer. **Stay tuned for the rest of this three-part series.

    house-in-hands-150The foreclosure industry is playing the system while homeowners suffer. **Stay tuned for the rest of this three-part series.

    Two recent reports, read together, should spark outrage in the country at large and among our political leadership. But no one seems to care anymore. JPMorgan Chase, the country's third largest mortgage lender, confessed that it has overcharged over 4,000 active duty troops on their mortgages and improperly foreclosed upon 14 military families. Only three days before that, reports came out that JPMorgan had just experienced a 47% jump in profits for the previous quarter and 2010 profits reached a record level of $17.4 billion.

    The story of the violations of the Servicemembers Civil Relief Act was forced into the open by a Marine fighter pilot. He kept all of his payments current, but due solely to the fault of JPMorgan Chase, his mortgage was placed into default status. His wife reports collection calls (sometimes three a day) coming on Saturdays, Sundays, holidays and even at 3:00 in the morning. It took over two years and the hiring of a lawyer to get JPMorgan to back off and finally admit that he had fully paid his mortgage obligations on time. Certainly no member of the military should have to endure this kind of treatment. But, beyond this, no American homeowner should have to endure those kinds of collection tactics from America's second largest bank. Where is the outrage over these kinds of heavy-handed and abusive tactics?

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    The Foreclosure Game

    The situation described above fits within a pattern of abuse of American homeowners by JPMorgan Chase and the other major loan servicers that I have experienced in my work as a lawyer representing homeowners in foreclosure. They treat the foreclosure process like a game, seeking to win at any cost without regard to the harm inflicted upon homeowners. Strategic decisions are made, odds of specific outcomes are calculated and bets based upon those odds are placed. Ways to skirt the rules are studied and ignored when referees (judges) are not watching, weak opponents are trampled, cheap shots are taken at opposing parties, and major efforts are made to wear out the opposition as the game winds on. Since the foreclosure industry's pockets are deep, it is more than willing to outspend the opposition to gain an upper hand when it will help win the game.

    Lawyers who have the experience and knowledge required to represent homeowners in foreclosure cases are in very short supply. The work does not pay well, if at all, it is very time consuming, and the level of knowledge necessary to do the work well is very high. I have been focusing on this work on a full-time basis for almost three years now. To be competent, I have to be familiar with the Truth in Lending Act ("TILA") and its related Regulation Z, the Homeowner Equity Protection Act ("HOEPA"), the Real Estate Settlement Procedures Act ("RESPA"), the Maine Consumer Credit Code, the Maine Unfair Trade Practices Act, the United States Bankruptcy Code, the Maine Civil Action Foreclosure Statute, the Maine and Federal Rules of Civil Procedure, the constantly changing HAMP loan modification guidelines, and the separate and distinct guidelines of Fannie, Freddie, FHA, VA, and Rural Development, each of which has its own variations on HAMP. In addition, I have to keep current on developing foreclosure case law all over the country on a daily basis. The number of us willing and able do this work is extremely limited when measured against the needs of homeowners for legal assistance -- I hear that fewer than 5% of homeowners looking for legal help are able to obtain it.

    Perhaps the largest frustration for me in this work is to experience on a daily basis the games that the servicers play in the foreclosure process. I am constantly frustrated by how much of my time is spent in dealing with the servicers' antics, thus reducing the number of homeowners that I and my colleagues are able to help. What will follow is a two-part explanation of the game playing that we experience in our dealings with the mortgage loan servicers and their lawyers.

    Thomas 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.

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  • A Foreclosure Lawyer Goes to Washington

    Dec 8, 2010Thomas A. Cox

    white-house-150Foreclosure lawyers may be better off working in the states than getting DC involved.

    white-house-150Foreclosure lawyers may be better off working in the states than getting DC involved.

    A couple of weeks ago, I was invited down to Washington to testify before the House Judiciary Committee hearing, "Foreclosed Justice: Causes and Effects of the Foreclosure Crisis." The panel that I was to be on included two other lawyers who represent homeowners, Professor Christopher Peterson (the University Of Utah law professor who has really got MERS's number), and representatives of three of the large loan servicers. Since one of those loan servicers representatives was to be from GMAC Mortgage, LLC, an outfit that has commanded quite a bit of my time and attention over the past six months, I hoped for the opportunity to make sparks fly with him in the hearing room.

    I worked hard on my written testimony, giving GMAC Mortgage a lot of special attention. I headed down to DC on the day before the hearing just to be sure I made it on time. At 7pm, a call came in from the committee staffer telling me that the servicers were not going to be at the next day's hearing after all. Perhaps I am getting a swelled head, what with all of the recent media attention, but I wondered if the last-minute bailout meant that GMAC's representative did not want to sit before the committee with me as I much as I wanted to be with him.

    Despite the absence of the servicers on our panel, I was still feeling energized the next morning. After all, after two recent hearings conducted by the Senate Banking Committee and one by the Subcommittee on Housing and Community Opportunity of the House Finance Committee, the House Judiciary Committee hearing was to be the first one where real, everyday foreclosure defense lawyers were appearing to explain the foreclosure crisis from a personal perspective. (No disrespect here to Diane Thompson of NCLC, who testified before the Senate Banking Committee -- she surely is a real lawyer, but she sits at the right foot of God as the country's preeminent expert on HAMP.)

    The next day there were to be two panels before the 40-member committee, which meets in a big, impressive room. The first would include representatives from the OCC, Treasury and the Federal Housing Finance agency and a State Supreme Court (trial court) judge from New York. I was geared for action, but when the hearing started, there were only nine committee members in their seats. Later, the number shrank to three -- one of them distracted by an animated cell phone conversation.

    Between a recess for a House vote and the glacial progress of the hearing, my fellow panel members and I were informed by a staffer mid-afternoon that, while they were thankful for our attendance, our panel would not getting an opportunity to testify that day.

    Despite this unpleasant surprise, I came away with four observations:

    1) I believe that an activist federal intervention into state property laws  to help solve the foreclosure scandal should be avoided. There are some areas where our federal government can handle issues better than the states, but this is not one of them. Example: The recent win that I scored in the Maine Supreme Court in August, where, construing more than 150 years of Maine foreclosure law development, our Court ruled that MERS cannot have standing to conduct foreclosures in Maine. This much-desired result came from local judges on a readily accessible state level court interpreting legal issues presented by local lawyers. We did not need, nor do we want, remote legislators in Washington telling us what the law will be for uniquely local matters.

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    2) During the hearing, one of the Republican committee members argued that if the rule of law was enforced across the board, then perhaps the mortgage servicers would not be behaving as they do. He asked why there is not much more activity at the state level to sanction the lawyers who enable and present the servicers' dishonest claims. He wondered why the state courts are not being much more active in sanctioning misconduct, and why there is no criminal prosecution of misconduct, simple as submitting affidavits filled with perjury. I felt that these were legitimate questions. The dishonest affidavits issue is a simple one and I do not think that there is a good excuse for state boards of bar overseers failing to take action against the offending lawyers. And it puzzles me that no one state Supreme Court has taken any creative action, or undertaken a judicial inquiry to determine what, if any, remedy should exist for homeowners who lost their homes based upon dishonest affidavits. On the other hand, state judiciaries are tremendously overloaded and underfunded and have little to no spare capacity to take these issues on.

    3) I wanted to ask this Republican if Congress should demand that Attorney General Eric Holder bring federal criminal charges against those who broke the law by submitting thousands of dishonest affidavits. I met with our newly appointed U.S. Attorney here in Maine about a month ago to urge him to consider using federal mail fraud and wire fraud statutes to pursue criminal charges against the servicers and perhaps their lawyers. The cryptic response seemed to be that the direction to do so would need to come from Washington. Apparently there is no such direction. Months ago, Holder said he was investigating. What is there to investigate? The crime is simple. We have served the evidence up on a silver platter of thousands of dishonest affidavits filed all over the country. Attorney General Holder should instruct U.S. attorneys in all fifty states to immediately start indicting those responsible for filing the dishonest affidavits, including the affiants and the notaries right on up to senior officers in the servicers who had to know what was going on. A wave of such indictments would surely change the culture in the servicing industry.

    4) Another thing that stuck with me from the hearing is an apparent fundamental misunderstanding on the issue of principal reductions. Those who advocate against a foreclosure moratorium until there can be certainty that servicers will behave are also generally against forcing servicers to provide principal reductions as a part of the loan modification process. What the advocates of the "foreclosures are good" school seem to ignore is the fact that every foreclosure is, in fact, a principal reduction. Each foreclosure of an underwater mortgage reduces the principal recoverable on that loan. The rub is that foreclosures result in larger principal reductions than do loan modifications, which reduce the loan balance to market value, where homeowners can afford to pay. This is so because once a foreclosed property goes into REO inventory, it usually sells at a 20% discount to market value (and it also depresses the value of surrounding properties). Wouldn't it be better to avoid this deep discount and keep a homeowner in his home with a principal reduction to market value, rather than putting that homeowner on the street where his ability to become a consumer again will be delayed so much longer?

    The House Judiciary Committee reconvened this hearing for December 8, 2010. I was about to leave Maine when I was advised at the last minute that the Republicans were now demanding another delay of one week. While I have agreed to return to Washington for this now twice delayed hearing, I wonder how much value I can really bring to that Committee's process. Relatively few committee members are even willing to show up, and the lame duck House of Representatives leaves me doubtful about really being heard and having a meaningful impact.

    I came away feeling that I may be more useful in focusing on solutions up here in Maine in the hope that they may continue to ripple outwards. Because not much is happening in Washington.

    Thomas 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.

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