Within The Law: Defending Foreclosures

The Wall Street Journal has a front-page story about attorneys practicing "foreclosure defense," which the WSJ seems to think is a "new" practice area. I don't know. If someone shows up in your office facing a foreclosure, and you take the case, you're a "foreclosure attorney." Still, it's an interesting look into the other side of foreclosures:

The paperwork mess muddying home foreclosures erupted last month. But the legal strategy behind it traces to a lawyer's gambit in 2006 that has helped keep one couple in their home six years beyond their last mortgage payment.

Lillian and Robert Jackson stopped paying on their home in Jacksonville, Fla., in 2004 when business dropped off at their cleaning company. Eviction might have seemed inevitable when they faced a foreclosure hearing two years later.

But their lawyer, James Kowalski, had the idea of taking a deposition from the signer of the mortgage papers. When a document processor for GMAC Mortgage admitted she routinely signed such papers without being familiar with details of the loans, she was tagged as one of a species now known as robo-signers.

It was a first step in the growth of a legal sub-specialty called foreclosure defense that has sown confusion and turmoil in the housing market. Lawyers in the field now commonly use a technique more identified with corporate litigation: probing depositions, designed to uncover any lapses in judgment, flaws in a process or wrongdoing. In the 23 states where foreclosures entail a court hearing, the bank may be ordered to pay the homeowner's legal bill if a lawyer can convince a judge that the bank has submitted false documents, such as affidavits saying employees personally reviewed the details of loans when they didn't.

What these guys did differently is that they actually deposed the people signing documents on behalf of the banks. Depositions - or any sort of intensive litigation activity - don't often happen on the defense side of foreclosures because the defendants lack the cash to fund an aggressive defense. And that's the thing; often foreclosures go through because the homeowners lack the resources to fight, and even if they did have the resources, it would be economically irrational for them to do do.

Still, I would make an exception for homeowners like the Jacksons and, of course, my clients who may have the wherewithal to refinance their loans and make payments at a reduced monthly rate. Banks haven't just been using robo-signers to sign affidavits en masse. They have also been disregarding any and all efforts by the borrowers to refinance. And, having obtained title to properties, they always go for the eviction, rather than allowing the homeowner to negotiate to repurchase. This doesn't strike me as rational either.

If you are defending a renter being evicted for failing to pay his rent, your job usually involves negotiating either an orderly move-out or some sort of payment plan so the tenant can remain in place. I don't see how a foreclosed homeower is all that different in a conceptual sense. But, the banks don't seem to want to do much for them, HAMP notwithstanding. For the Jacksons, they've been able to stay in their home, rent free, for six years. Six years! Does GMAC honestly think this is a good result? The Jacksons also say they're happy to renegotiate, but GMAC is ignoring them and going for the traditional demand for relief from foreclosure: repayment of the entire amount due, an impossible hurdle. Again, how is this a good result?

The fact is that banks have simultaneously rushed to do these foreclosures and then dragged their feet both in responding to homeowners and in moving people out of their homes. In an environment like that, I don't think there's anything wrong with people hiring an attorney and fighting back even if they have defaulted on their payments. People on the right have been pontificating about the sanctity of contracts and following the law; two positions I heartily endorse. But, it's a bit rich for banks to hold borrowers to the letter of the law, and then brush off their own half-assed document handling as "close enough for jazz."