The Consequences of Fast-Tracking Foreclosure Lawsuits

Recent media exposure of fraud and other illegal practices pervading the residential mortgage industry has forced some banks to suspend temporarily their pending foreclosure lawsuits while they try to sort out their paperwork. Unfortunately, the situation is likely to worsen before it improves. The revelations about bank “robo-signers” (people who signed thousands of affidavits without reviewing or having any knowledge about their accuracy), along with foreclosure law firms that forged assignments of promissory notes from one lender to another, are only the tip of the iceberg. It is likely that every step of the process – even before the homeowner signed on the dotted line – is mired with procedural potholes. In their haste to securitize residential mortgage loans and sell them to investors for juicy profits, lenders far and wide routinely ignored fundamental legal procedures, triggering a chain reaction that has transformed the American Dream into a nightmare and has nearly crippled the global economy.

For years, foreclosure defense attorneys such as PERENICH The Law Firm’s Tim Perenich have tried to draw attention to the widespread corruption throughout the mortgage industry, but in many jurisdictions, including Pinellas and Pasco Counties, this did not preclude many judges from granting the lenders’ motions for summary judgment liberally. In fact, in 2010, the Sixth Judicial Circuit used federal stimulus money to hire retired judges to expedite the summary judgment process and set quotas for closing out pending residential foreclosure actions.

While this may be an effective way to clear the backlog of cases created by the throng of foreclosure lawsuits and ease the strain on the judiciary, the banks could have easily prevented this bottleneck by waiting to file suit until their paperwork was in order and until they had complied with all conditions and procedures under federal and Florida law. Moreover, the federal government’s bailout of the banks to the tune of billions of dollars in TARP funds carried its own restrictions, including requiring banks to modify loans for qualified borrowers who had any income under President Obama’s Making Homes Affordable Program (“HAMP”). In most pre-foreclosure modification attempts, however, the banks have ignored or refused to comply with these requirements and have instead proceeded directly to court to file foreclosure actions.

As a result, a rapid ruling in the bank’s favor on summary judgment, despite valid affirmative defenses calling into question the bank’s ownership of the note, lack of assignment prior to the filing of the lawsuit, or failure to file the original note, creates significant issues when the bank attempts to sell the property at auction. If there is any ambiguity as to the bank’s actual ownership of the property, the bank cannot legally convey marketable title. This means that the bank cannot sell the property, and the new prospective buyers cannot obtain title insurance.

Therefore, the fast-track summary judgment process may ultimately be more detrimental than it is helpful. Any procedural defects or oversights at the inception of the foreclosure action – or perhaps even at the closing itself – do not disappear once the bank prevails on summary judgment or at trial. Instead, they impede future prospective buyers from purchasing foreclosed properties, thereby prolonging the stalemate in the current housing crisis.