Foreclosure Defense Strategy 10-4-09

Feature Article October 12, 2009

For more information contact: Richard F. Kessler Documentary Clearing House LLC. 941-924-5608, [email protected]

Foreclosure Defense Strategy: Clients in Search of a New Paradigm Documentary Clearing House and Associates (“DCH”) has pioneered a new strategy for attorneys who defend foreclosure cases. To date, DCH has produced three motions to assist attorneys implement the new strategy. Viewed from afar, the short, unpleasant history of foreclosure during the last three years presents a sorry spectacle. Far too many judges in foreclosure proceedings have stopped behaving like judges and instead become advocates for the foreclosure mills. The parties that foreclose continue to ignore and avoid alternate dispute resolutions. The government’s efforts to stem the tide of foreclosure and encourage alternate dispute resolutions have been feckless and dissipated. Most people being foreclosed have not discharged their legal obligation to defend themselves. Instead, many if not most foreclosure cases go to summary judgment uncontested. The resulting assault upon American homeownership has been systemic and overwhelming. Many homeowners in foreclosure believe that legal representation is unaffordable. Unable to make monthly mortgage payments, they conclude that they have no means to hire a lawyer. The public sector which defends people who cannot afford a lawyer has been unable to mount an effective counter- response to foreclosure. Too much time has been spent on tactics; too little time has been spent on strategy. Foreclosure defense is preoccupied with finding omissions, defects and deficiencies. The tactics tend to show that a rule has been violated. Too many courts are inclined to forgive and forget. The courts dream up notions such as finding the noncompliance merely “technical” or that the foreclosure is within the “four corners of the loan agreement”. DCH is calling for a change in strategy. What is needed is a new strategy which is effective and affordable. DCH’s new motion addresses both these requirements.

1. Employ generic defenses to make defense against foreclosure affordable to most of those facing foreclosure. 1

Instead of a case specific defense custom designed to meet the unique questions of fact and law unique to each case, a defense which most clients confronted by foreclosure can ill afford, DCH is providing pleadings and discovery where one size fits all. DCH is creating generic defenses. The foreclosure mills have declared war on defaulting mortgagors. The cost effective response to litigation filed by the foreclosure mills is counter-measures from a defense mill. DCH provides the bullets for attorneys to fire. By putting foreclosure one the assembly line, every client can afford to retain his or her own hired gun in a foreclosure battle.. There is a conundrum caused by the litigation protocol used in defense litigation to represent clients in foreclosure: It is effective and counterproductive at the same time. Lawyers are taught to approach each case as unique and upon its own merits. We are also taught to employ tactics to complicate the other side’s case and discover damaging information. Lawyers also try to use discovery to find errors and omissions in the other side’s case. A proficient litigator wages war upon the other side with motions, depositions, production of documents, interrogatories and requests for admissions and stipulations. Attorneys are taught that litigation cases are won and lost in pretrial preparation. Many believe that a successful outcome is predicated upon pre-trial strategy. Such tactics are p[art of the litigation protocol and have over time proven themselves to be effective and productive. The problem lies neither with the tactics nor the strategy. Lawyers approach a litigation case like a tailor making a custom suit. Each case is entitled to receive its unique defense to custom fit the facts and law applicable to the case. The problem when it comes to foreclosure cases is the client. A client who cannot make mortgage payment can ill afford a custom suit. One reason so many cases go to uncontested adjudication is that the client has no way to pay for a custom tailored defense. Three of the four major areas for defense- a defective or fraudulent note, the provenance of the note and consumer protection and consumer fraud statutes and regulations- require an extensive proof of facts. No matter how meritorious the defense, it is not serviceable if a client cannot financially afford it. Too many foreclosure defendants find themselves between a rock and a hard place. They lack the money required for a custom tailored defense; they cannot obtain legal services pro bono publico; and there are no neighborhood services available for which the defendants qualify financially. Many of these defendants wind up having to appear pro se and lack the ability to do so. A trained attorney litigating against a lay person is an unfair contest for which the lay person is ill equipped to succeed. For every individual who can manage competently to defend against foreclosure, there are countless scores who cannot. Compelled by foreclosure to defend themselves and unable to do so, these homeowners are buried by the judicial system without having a day in court before they lose their homes. Under these circumstances, lawyers must begin to consider a different strategy. Maybe if a client cannot afford a custom suit, it behooves counsel to take a suit off 2

the rack. To accommodate a wider base of foreclosure defense cases, it is necessary to develop and implement generic strategies where one size fits all. Such strategies would not be dependent upon the facts, circumstances and laws unique to each case. Instead, such a strategy would be dependent upon facts, circumstances and laws which a large number of foreclosure cases have in common. In this connection, DCH has concluded that the fourth area of defense, securitization, provides a uniquely fruitful field for generic defenses. Factors common to and endemic in all securitizations of mortgages are vulnerable to attack in cases after case where a mortgage has been securitized. A one size fits all defense tactic which is replicable in case after case becomes exponentially more cost effective than a client specific, one time use defense. The foreclosure mills have stolen a march on the mortgage defense bar. The client base of the foreclosure mill is determined to foreclose at the lowest possible expense. Accordingly they have provided a large number of cases at a fixed rate of compensation per case. This has caused the foreclosure mills to put foreclosure on the assembly line. The tendency to file the same pleadings in case after case irrespective of the facts of the case has led to untold abuses of foreclosure. Nonetheless, by treating foreclosure pleadings as scalable, the foreclosure mills achieve the economies of scale. This serves to reduce the average cost per case. Defense counsel can succeed by following the example of the foreclosure mills. Instead of custom designed defense, counsel must substitute off the rack, scalable defenses. Such a change in strategy opens up a new and different set of tactics. To date, DCH has produced two motions attacking securitization. One argues that the mortgage is unenforceable. The second argue that the mortgage note is unenforceable. Both apply to any mortgage which has been securitized. DCH has developed a third motion to use in Florida which asserts that the trust is unregistered and therefore unenforceable. All three motions are generic and are not unique to a specific case. 2. Proactively anticipate and address the concern of most judges regarding unjust enrichment if the debtor prevails in a foreclosure defense. What the courts are saying is that foreclosure defenses as presented defend the indefensible. That a creditor should forfeit the loan because of a technical defect is an inequitable outcome. The debtor is not entitled to an unearned windfall which is precisely the result for which the defense consistently argues. So long as nullification of the debt is the outcome if defendant wins, defendants will continue to lose. Defendants will not succeed in overturning foreclosures unless and until defendants explicitly seek a remedy other than cancellation of the debt. To succeed, a defense against foreclosure cannot be a one way ticket to a free lunch for the debtor. Most judges will not render a judgment they deem to have an 3

inequitable outcome. Unjust enrichment of the debtor from an undeserved windfall often is used as a rationale which justifies disregarding defects in the foreclosure proceedings. Most judges believe that the debtor borrowed and received the money and should be obligated to repay the loan. DCH’s most recent motion explicitly states that if the motion is granted, the court should use its equitable authority to declare a constructive trust or constructive mortgage and afford defendant a viable opportunity to effect an alternate dispute resolution. In short, instead of leaving the decision concerning modification at the sole discretion of the parties controlling the securitization, the court would now makes its own determination and more equitably protect the rights of all parties concerned. This affords the defense the proactive opportunity to address the issue of unjust enrichment. It also allows the court order an alternate dispute resolution where the outcome would reduce the loss inflicted upon the creditor The judicial choice is not limited to either conferring a windfall upon a defaulted “deadbeat” or allowing large financial institutions to flout existing laws. There is no reason that the note does not properly evidence a debt which has not been paideven if the note holder is not evident. Even if the note is legally unenforceable, the court may declare a constructive trust. The court can declare a constructive trust or constructive mortgage and assure payment of the trust and certificate holders. As a constructive trust or mortgage, the court may impose conditions. For example: (a) Review foreclosure fees and charges. (b) Consider compliance with consumer protection laws and avoidance of consumer fraud. Where damages have been suffered by the debtor, the court may allow a set-off. (c) The Court may order mandatory mediation or arbitration. (d) The Court may modify in any way deemed equitable and appropriate, the mortgage to enable the debtor to make timely payments and the creditor to recover payment of the debt. The court may consider a wide range of modifications to the note to allow an alternate dispute resolution. This would go a long way to mitigating financial loss to the creditor and moving foreclosure from a first resort to a last recourse. 1. In an adversarial system the person sued is under a legal obligation to defend against the cause of action. Every person in foreclosure requires a competent legal defense; and an affordable legal defense is available. Our adversarial system of justice legally obligates a person who is sued to appear and defend. A defendant who fails to appear and defend loses the case by default. In civil proceedings, the law provides each defendant only with the opportunity to defend, not a defense. Judges preside to hear a case and make judgment. The judge 4

does not represent or defend the rights of the party filing suit or the defendant. It is shocking and saddening to realize how many Adult Americans do not realize and understand their legal obligation to defend when they are sued. Such ignorance is a function of an inadequate educational system and an indifferent media. The avalanche of foreclosures resulting by adjudication in uncontested cases demonstrates how many homeowners fail to realize that they have an opportunity, duty and obligation to appear and defend against foreclosure. The message is lot that effective, affordable and realistic defense of foreclosure has the highest likelihood of achieving an alternate dispute resolution whose consequences to the debtor are significantly preferable to foreclosure. The members of the bar who want to defend clients against foreclosure need to get out a message. Every person in foreclosure requires a competent legal defense; and an affordable legal defense is available. Most families in foreclosure believe they are helpless victims, overwhelmed by forces beyond their control. The foreclosure mills are posed to exploit this state of mind. A different message needs to be published and widely disseminated. Most people today have learned that with the advances in modern medicine it is far better to treat a disease than succumb to it. The same principal applies to defense against foreclosure. Most people, however, are unaware that affordable “treatments” for foreclosure ailments are available. There are many public spirited people, including members of the bar, who have selflessly given their times and work product to enable individuals to act pro se and represent themselves. In many places, people in foreclosure are invited to participate in symposia which are aimed at educating defaulting debtors regarding their rights and remedies. To the extent these programs educate the public about the choices and expectations relating to foreclosure of a home, they perform a valuable public service. The non-profit mortgage counseling conducted by HUD affiliated counselors is an excellent example of public education about debtor’s options and choices in foreclosure. To the extent, these symposia try to empower a debtor to defend pro se against counsel from a foreclosure mill, the undertaking is an exercise in futility. The average homeowner is unable to effectively defend against a foreclosure in a judicial proceeding. Busy, overworked judges have no patience with quixotic tyros tilting against windmills. 2. Use asymmetric defense tactics to thwart foreclosure mills. The profitability of foreclosure mill operations is a function of the number of cases resulting in uncontested foreclosure. For these operations, time is money. The less time allocated to successful adjudication of a case, given the fact that compensation is capped, the more profitable. Conversely, the more time required to prosecute a case, the less profitable it becomes. DCH’s motions to dismiss require 5

opposing counsel to do extensive, time consuming legal research. A response will consume substantial legal resources and billable hours which are not billable. In defending a foreclosure, every attorney should have an off the shelf, standardized discovery package. Where a mortgage is securitized, DCH is working on a discovery package of requests for production of documents, requests for admissions and interrogatories, motions to compel answers and production if required, document checklists and annotations and notes explaining why a specific document is required or question needs to be answered. The ultimate goal is to bring down the cost of legal care, just like health care, to make it affordable to one and all. Conclusion DCH is respectfully calling for a change in foreclosure defense strategy by implementing the following tactics: 1. Employ generic defenses to make defense against foreclosure affordable to most of those facing foreclosure. 2. Proactively anticipate and address the concern of most judges regarding unjust enrichment if the debtor prevails in a foreclosure defense. 3. In an adversarial system the person sued is under a legal obligation to defend against the cause of action. Every person in foreclosure requires a competent legal defense; and an affordable legal defense is available. 4. Use asymmetric defense tactics to thwart foreclosure mills.

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