Tag Archives: robo-signing

6th Circuit Upholds Foreclosure by Lender Under Michigan Law

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The 6th Circuit upheld a foreclosure under Michigan law in Conlin v. MERS et al., (Case No. 12-2021, April 10, 2013).  Plaintiff Conlin sought to have the foreclosure sale of his property “set aside based on alleged defects in the assignment of the mortgage on the property from Defendant Mortgage Electronic Registration Systems to Defendant U.S. Bank.” (2) The Court noted that “Michigan courts have held that once the statutory redemption period lapses [as had occurred in this case], they can only entertain the setting aside of a foreclosure sale where the mortgagor has made ‘a clear showing of fraud, or irregularity.'” (5, citation omitted) Furthermore, the fraud “‘must relate to the foreclosure procedure itself.'” (6, citation omitted)

Conlin claimed that the assignment from MERS to U.S. Bank “was forged or ‘robo-signed.'” (7)  He also claimed that “MERS had no capacity to assign the Mortgage to U.S. Bank.” (7) The Court noted that third parties typically do not have standing to challenge an assignment unless the challenge would render “the assignment absolutely invalid or ineffective, or void.'” (7, citation omitted) The Court determined that the Michigan Supreme Court held that ‘”defects or irregularities in a foreclosure proceeding result in a foreclosure that is voidable, not void ab initio‘” and that borrowers must be prejudiced by lender’s failure to comply with the foreclosure statute’s requirements. (8, citation omitted)

The court concluded:

Even were the assignment from MERS to U.S. Bank invalid, thereby creating a defect in the foreclosure process under § 600.3204(1)(d), Plaintiff has not shown that he was prejudiced. He has not shown that he will be subject to liability from anyone other than U.S. Bank; he has not shown that he would have been in any better position to keep the property absent the defect; and he has not shown that he has been prejudiced in any other way. Additionally, he has also failed to make the clear showing of fraud in the foreclosure process required to challenge the foreclosure after the expiration of the six-month redemption period. (9)

Careful When Putting Shoe on Other Foot

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Nestor Davidson has posted a very useful article to SSRN, New Formalism in the Aftermath of the Housing Crisis.  The article notes that as “borrower advocates have responded to [the] surge in mortgage distress, they have found success raising a series of largely procedural defenses to foreclosure and mortgage-related claims asserted in bankruptcy.” (391)

Davidson points out that this “renewed formalization in the mortgage distress system is a curious turn in the jurisprudence” because from “the earliest history of mortgage law, lenders have had a tendency to invoke the hard edges of law’s formal clarity, while borrowers have often resorted to equity to obtain a measure of substantive fairness in the face of such strictures.” (392)

What I particularly like about this article is that it takes the broad view on downstream (homeowner foreclosure and bankruptcy) litigation.  Instead of painting a pointillistic portrait of all of this “mortgage distress” litigation (a standing case here, a chain-of-assignment case there), Davidson identifies a pattern of formalistic defenses being raised by homeowners and puts it into historical context.

Davidson warns of the potential unintended consequences of this development: “The borrower push to emphasize formalism in mortgage practice, however understandable, may thus give primacy to the set of judicial tools least amenable to claims of individual substantive justice.” (430)

I don’t think that I agree that this new formalism will bite homeowners in the end.  As Davidson himself acknowledges, “formalism need not be equivalent on both sides  . . ..” (430) But I do agree with his conclusion:

For those concerned about the long-term structural balance between procedural regularity and substantive fairness embodied in the traditional realms of law and equity, the brittleness that the new formalism may be ushering in is worth considering and, perhaps, cause for redoubling efforts to find structural solutions to a crisis that even now continues. (440)

 

 

Reiss on Pino Robo-Signing Case

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I had blogged about the case here.  Law360 interviewed me about the broader significance of the case:

Despite its application to just Florida, real estate and foreclosure attorneys around the country have been keeping tabs on the case, according to Brooklyn Law School professor David Reiss. The ruling highlights a trend around the country of foreclosure mills and debt collection firms “making thousands of filings and paying very little attention to whether the filings are accurate,” he said.

Reiss said the court could have taken broader action by stating clearly that fraudulent filings undercut the rule of law.

“You could easily imagine a court saying that the kind of behavior alleged here does impugn the litigation process and [that] the court can take actions to remedy it,” Reiss said. “I’m not saying they made a mistake, but if you are aware of behavior that is taking advantage of the judicial system, I think I can imagine another set of judges saying, ‘We have the inherent authority to handle that.'”

The rest of the story is here (behind a paywall, alas).

Robo-Signing as Abuse of Process?

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Apparently not.  The Florida Supreme Court issued a narrow ruling in Pino v. Bank of New York that a trial court does not have the authority “to grant relief from a voluntary dismissal where the motion alleges fraud on the court in the proceedings but no affirmative relief on behalf of the plaintiff has been obtained from the court.”  (3)

In Pino,the homeowner defendant had sought to have the trial court strike “a notice of voluntary dismissal of the mortgage foreclosure action” and have “the case reinstated in order for the trial court to then dismiss the action with prejudice as a sanction to the mortgage holder for allegedly filing fraudulent documentation regarding ownership of the mortgage note.” (2)

As the court noted, the question before it was very limited.  It indicates that the “case is not about whether a trial court has the authority in an ongoing civil proceeding to impose sanctions on a party who has filed fraudulent documentation with the court.” (2)  That being said, if the judiciary has an epidemic of fraudulent filings in plain sight — foreclosure filings with facially flawed documentation– could it and should it have done more?  If foreclosure mill law firms (and debt collection law firms) realize that they can file flawed papers and either withdraw or correct them later on, where are  defendants, particularly unrepresented ones, left?

The common law already acknowledges the tort of Abuse of Process which awards damages against a party who maliciously and intentionally perverts judicial process.  And yet, the judiciary has taken very few systemic measures to address what has become a dominant business model for foreclosure and debt collection law firms.  So, the Florida Supreme Court is right that it only addressed a limited question under Florida law.  It could have sought to rule more broadly about the judiciary’s inherent authority to protect the process of litigation. (See 33) But it chose not to.

The Court does acknowledge that there are bigger issues at play, as it asked the Florida Civil Procedure Rules Committee to consider whether additional sanctions should be available to courts to address fraudulent pleadings. (43) But it is also time for the courts to deal with the bigger questions.  How should courts deal in particular with robo-signing practices endemic to the 50 states?  How does the rule of law suffer when officers of the court are not required (i) to do due diligence as to their own filings and (ii) to stand by them when they turn out to be fraudulent or materially flawed?  And how can that state of affairs best be remedied?

$127 Million LPS Robo-Signing Settlement with 47 A.G.s

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The Lender Processing Services, Inc. press release is here.

The $2.5 million Michigan settlement relating to the overall total $127 million settlement can be found here.  In the Michigan settlement, LPS did not admit “any violation of law.” (2)  Nonetheless, there are some interesting admissions, including, that

  • some mortgage loan documents executed by employees of LPS subsidiaries contain “unauthorized signatures, improper notarizations, or attestations of facts not personally known to or verified by the affiant” and some may contain “inaccurate information relating to the identity, location, or legal authority of the signatory, assignee, or beneficiary or to the effective date of the assignment.”  (5)
  • LPS subsidiaries “recorded or caused to be recorded Mortgage Loan Documents with these defects in local land records offices or executed or facilitated execution on behalf of the Servicers knowing some of these Mortgage Loan Documents would be filed in state courts or used to comply with statutory, non-judicial foreclosure processes.”  (5)
  • employees of LPS subsidiaries signed mortgage loan documents in the name of other employees.  (5)

Brad and I discuss the importance of following the letter of the law when dealing with the assignment of mortgage notes in Dirt Lawyers and Dirty REMICs.  It should go without saying that that applies to judicial and non-judicial foreclosure processes as well.  We will be addressing that subject in our forthcoming piece with KeAupini Akina which should be out later this month.

With this latest settlement, only Nevada has an ongoing suit against LPS.