“Produce the Note!” – Rallying Cry to Fight Foreclosure

December 12, 2008

Trial Magazine’s December issue reports on the “Produce the Note” strategy to save your home.  Associate Editor Carmel Sileo profiles this grassroots effort launched by the Consumer Warning Network to help homeowners fight foreclosure.  Here’s an excerpt:

The “produce the note” approach has become a rallying cry for a growing number of lawyers who say homeowners can fight foreclosure-and win.

Chris Hoyer, a lawyer in Tampa, runs the Consumer Warning Network, a Web site filled with free information and tools for homeowners facing foreclosure, including templates for letters they can send their lenders demanding that the lender produce the original note. In a series of videos, clips from media interviews, and articles, Hoyer exhorts homeowners to fight for their rights-and their homes. The motto of his grassroots campaign: “Produce the Note.”

“Chris’s message is, ‘Don’t take it lying down; fight back,’” said Angie Moreschi, an investigative producer on Hoyer’s media team. “We are simply telling people that the banks must produce the note to have a case in court.”

Moreschi said fighting foreclosures is the only way to make sure that consumers-especially those who were tricked into loans they couldn’t afford-are treated fairly, because the banks aren’t doing it on their own.

“The banks and loan servicers have an obligation to work with these borrowers and instead they are turning their backs,” she said. “It seems that everyone gets a bailout except homeowners. The devastation caused by rampant foreclosure, the empty houses, the empty neighborhoods-it’s bad for society, bad for the economy, and bad for our future. There is a win-win solution here, and the solution is to keep people in their homes.”   The full article is below:

TRIAL MAGAZINE

December, 2008

Homeowners bank on new ways to fight foreclosures

Early this year, homeowners in Cleveland filed a class action against financial titan Deutsche Bank, saying the bank’s attempts to foreclose on them were illegal because it can’t prove it holds the mortgage notes entitling it to payment.

The complaint charges that Deutsche Bank filed the foreclosure motions under false pretenses, lacks standing, and has evinced “a pattern of corrupt and illegal activity” that flies in the face of state law and the federal Fair Debt Collection Practices Act. The defendants include the three law firms that Deutsche Bank used to process the foreclosure filings. (Whittiker v. Deutsche Bank Natl. Trust Co., No. 1:2008cv0030 (N.D. Ohio filed Feb. 7, 2008).)

The lawsuit is part of a new approach to foreclosure defense. Because of lenders’ bundling and reselling of mortgages, notes are often lost, misplaced, or corrupted. As a result, many lenders can’t prove that they are owed payments and entitled to foreclose.

“It’s a result of the securitization process,” said Jim Rosenthal, a lawyer in Cleveland who represents the Whittiker plaintiffs. “By the time you get to foreclosure, the mortgage is so split up from the bundling and unbundling that often you can’t find the original note. Some people insist that you will even find the same mortgage sold in several different pools. In some cases, the original lender has gone out of business.”

“Losing a note is like losing cash,” said Mitchell Roth, a lawyer in Sherman Oaks, California. “The right to payment depends, with limited exceptions, upon the actual possession of the note. To defend against a foreclosure, the first line of defense is, ‘Show me the note.’ And show me how you have the right to payment under the note by proper endorsement or assignment.”

The “produce the note” approach has become a rallying cry for a growing number of lawyers who say homeowners can fight foreclosure-and win.

Chris Hoyer, a lawyer in Tampa, runs the Consumer Warning Network, a Web site filled with free information and tools for homeowners facing foreclosure, including templates for letters they can send their lenders demanding that the lender produce the original note. In a series of videos, clips from media interviews, and articles, Hoyer exhorts homeowners to fight for their rights-and their homes. The motto of his grassroots campaign: “Produce the Note.”

“Chris’s message is, ‘Don’t take it lying down; fight back,’” said Angie Moreschi, an investigative producer on Hoyer’s media team. “We are simply telling people that the banks must produce the note to have a case in court.”

Most lawyers who practice foreclosure defense stress that the goal is not to help homeowners stay in a house without paying for it or to defraud the banks, but rather to force banks to renegotiate the terms of the loan. This is especially true when the original loan was predatory.

“It’s not a way to get a house for free, and we want to really emphasize that,” Moreschi said. “It’s a way to force the banks to restructure the loan, and often the only way.”

She said some homeowners have attempted to pay their mortgages-including back payments-but have had their payments returned by banks because the bank no longer held the note. Others have been shuffled around from lender to lender trying to figure out whom they should send payments to. Some clients don’t even want to keep their homes but also don’t want to go through a wrenching foreclosure. Yet many of them might suddenly find themselves sued by a bank they’ve never talked to or even heard of.

Rosenthal said he’s heard from some clients who found themselves in the foreclosure crosshairs despite their efforts to work out a financial arrangement.

“I’ve heard from people over and over,” he said. “They make a new payment arrangement with whoever gave them the mortgage-say, Countrywide-they start the new payments, and the next thing they know they’re getting sued by Deutsche Bank.”

Moreschi recounted the story of one woman who went through a foreclosure and moved to another state, only to receive a notice of foreclosure on the same house from another lender. “It’s time to stop the insanity,” she said.

Roth said confusion about the note holder is one reason lawyers should counsel their clients to avoid loan workouts or other negotiations offered by their banks or mortgage companies.

“Why should we renegotiate unless we know that we are negotiating with the actual holder of the note?” he said. “In fact, I think lawyers are committing malpractice if they are negotiating with an entity that is not the original holder in due course in possession of the instrument.”

Harsh judgments

This new approach to foreclosure defense was sparked by a groundbreaking ruling issued last year by Christopher Boyko, a U.S. district court judge in Ohio who dismissed 14 foreclosure filings brought by Deutsche Bank on the ground that the bank could not prove it held the notes. In a concise, stinging opinion, Boyko found that “none of the assignments show the named plaintiff to be the owner of the rights, title, and interest under mortgage at issue as of the date of the foreclosure complaint.” (In re Foreclosure Cases, 2007 WL 3232430 (N.D. Ohio 2007) (emphasis in original).)

In a lengthy footnote, Boyko upbraided the financial institutions and their lawyers for their “condescending” arguments that judges can’t understand complicated financial institutions or how they work. He also said it was high time that banks’ rush to foreclose without proper documentation was reined in: “The institutions seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance. Finally put to the test, their weak legal arguments compel the court to stop them at the gate.”

“Judges are tired of being told that they just don’t understand how these banks and financial institutions work,” said Rosenthal. “Some things they happen to know very well are the law and the procedures for filing a claim.”

Other judges have echoed Boyko’s sentiments. In Massachussetts last April, bankruptcy judge Joel Rosenthal issued a harsh decision in an order to show cause why the court should not sanction Ameriquest for misleading the court about who owned the note to a mortgage.

“This court will not countenance creditors and creditors’ attorneys holding themselves to a different and clearly lower standard than what they expect of the debtor,” Rosenthal wrote. “It will not tolerate a lender’s or servicer’s disregard for the rules that govern litigation, including contested matters, in the federal courts. It is the creditor’s responsibility to keep a borrower and the court informed as to who owns the note and mortgage and is servicing the loan, not the borrower’s or the court’s responsibility to ferret out the truth.” (In re Nosek v. Ameriquest Mortg. Co., 386 B.R. 374 (Bankr. D. Mass. 2008) (emphasis in original).)

The judge added, “Unfortunately the parties’ confusion and lack of knowledge, or perhaps sloppiness, as to their roles is not unique in the residential mortgage industry.” He took a swipe at “the bombast this court and others have encountered when calling them on their shortcomings.”

Also last spring, Texas bankruptcy judge Jeff Bohm imposed sanctions on a loan servicing company and its lawyers for actions that “have shown a disregard for the professional and ethical obligations of the legal profession and judicial system.” (In re Parsley, 384 B.R. 138 (Bankr. S.D. Tex. 2008).)

The National Law Journal reported in July that judges across the country were putting the brakes on runaway foreclosure filings by insisting that filers follow the law stringently and slapping sanctions on lawyers who file sloppy claims. Many said they had stopped the formerly routine practice of doing foreclosure hearings over the telephone.

Justice Arthur Shack of Kings County, New York, told the Journal, “I want to see all the paperwork before I approve it. If the paperwork is garbage, I deny it. If you’re going to take away someone’s home, it should be done properly.” (Julie Kay, Judges, Attorneys Work to Stanch Foreclosures, Natl. L.J. (July 14, 2008), http://tinyurl.com/5sypw8).

“Bankruptcy court judges have really led the way on this issue,” said Roth. But he cautioned against relying on these decisions as if they were etched in stone.

“Bankruptcy courts tend to be more debtor-friendly,” he noted, adding that an appeals court has yet to review Boyko’s ruling in the Ohio foreclosures. “We could get a devastating appellate decision, and we need to be ready for that. Right now, [Boyko's ruling] is persuasive-but it’s not binding.”

There is no question that foreclosure defense practice is growing at the same wildfire pace as foreclosures themselves. The Pro Bono Resource Center of Maryland has launched the Foreclosure Prevention Pro Bono Project, offering free training to any interested lawyer.

In March, Valparaiso University School of Law, in Indiana, held a training conference titled “Defending Foreclosures, Saving Homes.” In October, the Practising Law Institute of New York held a similar conference aimed at pro bono lawyers. And a popular speaker at the Florida Bar Association’s convention this year was April Charney, head of foreclosure defense for the Jacksonville Legal Aid Society, who says she has used the “produce the note” approach to persuade judges to toss out hundreds of foreclosure cases.

Moreschi said fighting foreclosures is the only way to make sure that consumers-especially those who were tricked into loans they couldn’t afford-are treated fairly, because the banks aren’t doing it on their own.

“The banks and loan servicers have an obligation to work with these borrowers and instead they are turning their backs,” she said. “It seems that everyone gets a bailout except homeowners. The devastation caused by rampant foreclosure, the empty houses, the empty neighborhoods-it’s bad for society, bad for the economy, and bad for our future. There is a win-win solution here, and the solution is to keep people in their homes.”

Carmel Sileo, Trial Magazine Associate Editor