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Borrowers, Beware: The Robo-signers Aren’t Finished Yet

nytimes.com | November 16, 2014

Remember the robo-signers, those mortgage loan automatons who authenticated thousands of foreclosure documents over the years without verifying the information they were swearing to?

Well, they’re back, in a manner of speaking, at least in Florida. Their dubious documents are being used to hound former borrowers years after their homes went into foreclosure.

Robo-signer redux, as it might be called, has come about because of an aggressive pursuit of former borrowers by debt collectors hired by Fannie Mae, the mortgage finance giant. What Fannie is trying to recoup from these borrowers is the difference between what the borrowers owed on the mortgages when they were foreclosed and the amount Fannie received when it resold the properties.

These monetary amounts — and they can be significant — are known as deficiency judgments. It is legal in most states for lenders to pursue them. (California is one notable exception.) The time limit for debt collectors to go after former borrowers varies from state to state; Florida allows deficiencies to be pursued for 20 years, and borrowers must pay a compounded annual interest rate of 4.5 percent.

The problem, experts say, arises when robo-signed documents enabled banks to foreclose even when they didn’t have legal standing to do so.

“Sending these cases to debt collectors when the underlying foreclosures involved unlawful robo-signing is unfair and potentially even deceptive,” said Kathleen C. Engel, a research professor at Suffolk University Law School in Boston. “Fannie Mae is not entitled to collect on those debts when the foreclosure was unlawful.”

A Fannie Mae spokesman, Andrew J. Wilson, declined to comment on Ms. Engel’s contention. But he said Fannie filed deficiencies “in a minority of cases where there was a foreclosure.” He acknowledged, however, that Fannie was bringing several thousand cases in Florida because of a recent state law requiring that any such borrower suits be filed by July 1 of this year.

“We do so in instances where we determine the borrower had the ability to pay but chose not to,” Mr. Wilson said. When asked how the company determined a person’s ability to pay, he declined to disclose the method.

Fannie Mae is certainly justified in going after deficiencies from former borrowers, especially those who can pay. And given that the company is taxpayer-owned, its attempts to recover this money are to the greater good.

But as Ms. Engel noted, Fannie’s position loses some ground when the deficiencies it’s pursuing are based on documents filed by known robo-signers. And it turns out that there are quite a few of those.

Before a bank can foreclose on a borrower, it must prove that it has the right to do so. The lender must produce documentation, for example, showing that it holds the note underlying the mortgage.

But this paperwork was often missing or inaccurate. Faced with mounting foreclosures in 2009 and onward, law firms representing the banks set up assembly lines to create new documents giving them the right to foreclose.
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Finally, in 2012, these robo-signers got the attention of state attorneys general, who struck a $25 billion settlement with five major banks that had foreclosed, often without proper documentation.

It is true that the deficiencies being pursued by Fannie involve foreclosures that were approved by the Florida courts. But during the height of the foreclosure crisis, those courts were so overwhelmed that they created a new system to speed the process. Staffed with retired judges, it was known as a rocket docket, and lawyers who defended borrowers in these courtrooms said many judges seemed more intent on clearing the backlog than in closely examining the facts of each case.

During the summer of 2010, when Bill McCollum was Florida’s attorney general, he told me he was concerned about the dangers posed by judges who accepted as factual what was put forward in foreclosure documents. “Thousands of final judgments of foreclosure against Florida homeowners may have been the result of the allegedly improper actions of these law firms,” he said.

Four years later, his fears are being realized. Chip Parker, a partner at Parker & DuFresne in Jacksonville, Fla., says he has 60 cases of former borrowers being pursued by Fannie for deficiency judgments involving documents handled by known robo-signers. There are undoubtedly many others, given the several thousand cases being brought by Fannie.

Some of Mr. Parker’s cases involve documents signed by an employee of a defunct Florida law firm and foreclosure mill operated by David J. Stern, who was disbarred this year. That employee, Cheryl Samons, signed over 1,000 foreclosure documents a day, according to a deposition released by the state attorney general in 2010. Ms. Samons could not be reached for comment last week.

Other cases handled by Mr. Parker involve documents signed by lawyers who were disciplined for robo-signing practices in late 2013 by the Florida bar.

Fannie Mae is being represented in these deficiency matters by Dyck-O’Neal, a debt collector in Dallas. Representatives of Dyck-O’Neal did not return a phone call seeking comment.

If Dyck-O’Neal pursues borrowers knowing that robo-signing might have tainted a foreclosure, it could run afoul of state laws barring unfair or deceptive acts or practices, said Ms. Engel, an expert in foreclosure law.

“These entities often go into lower-level trial courts and file brief complaints without adequately documenting the basis for the claims,” Ms. Engel said. “Ninety-five percent of borrowers don’t even show up — they think they don’t have a defense, or they’re scared or can’t afford a lawyer. As long as judges don’t question the claims, the debt collectors win.”

While Fannie contends that it goes after only former borrowers with the resources to repay their debts, it’s not clear that the people being targeted for deficiencies can pay them back.

Ed Lawrence, an electrician in Queens, moved to Brevard County, Fla., to start a new business in 2007 but was not as successful as he had hoped. He fell behind on his mortgage, and his home went into foreclosure. Among the papers is an assignment of mortgage signed by Ms. Samons.
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His deficiency judgment is $92,466. “It is beyond my comprehension how I am supposed to pay this,” Mr. Lawrence said in an interview last week. “I’m 60 and basically living hand-to-mouth.”

Mr. Lawrence is not an anomaly among Mr. Parker’s clients, the lawyer said. Most of the people he represents went into foreclosure as a result of divorce, illness or the shattered economy.

An additional challenge for borrowers facing these suits is that many have left Florida and must defend these cases from a distance. Late last month, Mr. Parker filed a class action against Dyck-O’Neal, contending that its attempts to collect these deficiencies violated the Fair Debt Collection Practices Act, which bars debt collectors from suing consumers in courts that are distant or inconvenient to them.

The lead plaintiff in the class action is a former borrower who was sued in Florida but who lives in St. Louis.

“It’s bad enough that Fannie Mae and their collectors are pursuing consumers many years after they’ve lost their homes,” Mr. Parker said. “But the fact that these lawsuits may be built on a foundation of foreclosure fraud is galling.”

Amazing, isn’t it, how the effects of the foreclosure crisis go on and on?

 

Back to November 2014 Archive

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