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Servicing

Dealing with a Rambo-type foreclosure litigator

February 20, 2013

You know the type: the borrower's lawyer contests foreclosures by challenging every aspect of your Complaint; he raises MERS as an issue when MERS is not even named in the mortgage; he serves boilerplate discovery requests (likely downloaded from the Internet) seeking documents about securitization when the loan was never even pooled or securitized; he requests the depositions of everyone involved with the loan; he sends nasty letters every other week making baseless threats and/or threatening to contact the media; he appeals adverse decisions whether or not there is any merit; he claims that documents have been robosigned - a term he likely stumbled upon unwittingly while browsing the Internet for ways to defend foreclosures.

He does this to create delay; to run up your costs in order to leverage a favorable resolution such as a loan modification, short payoff, or principal forgiveness; and/or out of pure spite.

This person will cost you time and money.  He will not allow you to proceed through foreclosure at the usual pace so delays and delay tactics should be anticipated.

It may seem like a wise business decision to settle early, particularly if the value of the collateral is low.

Any settlement with this person should be memorialized by a settlement agreement containing a release by the borrower of any/all past/present/future claims (known or unknown), non-disparagement and confidentiality clauses ("shut-up clauses"), and a damages provision for breach of the shut-up clauses. 

Shut-up clauses can serve as a deterrence to, but are not an absolute guarantee against, defamatory statements and/or negative articles about you in newspapers (which he may have previously threatened). If settlement involves a forbearance or loan modification, it is advisable not to use a HAMP or another template but, rather, to consult with local counsel as there may be waivers advantageous to lenders/servicers (e.g., waiver of right to contest a foreclosure restart; waiver of appellate rights; waiver of right to participate in a foreclosure diversion or mediation program; waiver of right to contest appointment of receiver; waiver of right to file motions to postpone, stay, or set aside sheriff's sale) that could be made part of the agreement.

This person may attempt to engage you in a letter-writing campaign by inundating you with threatening letters. Maybe he has too much free time. 

In actuality, he may be inciting you to send an equally nasty letter so that he can use it as an exhibit in court filings in which he will likely claim that the "big bad bank" is bullying and harassing him, but will likely make no mention of his own threats or misconduct. 

Do not get caught in this trap. There is no reason to engage in a letter-writing campaign. Local counsel may recommend short reply letters refuting any spurious claims made by the borrower(s) and to otherwise ensure that lenders/servicers have not tacitly admitted any adverse facts. Also, consider including in any reply letters a simple sentence advising the borrower(s) that loss mitigation programs are available. This establishes a paper trail showing that loss mitigation has been offered in case the issue as to whether the lender/servicer made any reasonable efforts to settle ever arises at a settlement or pre-trial conference (some jurisdictions may have rules of procedure requiring parties to make some reasonable effort to settle before trial).

This individual will likely challenge your motion for summary judgment. Therefore, to minimize time waiting for a judge to render a decision, it may be advisable to circumvent the motion and proceed right to trial as soon as possible. However, when served with any form of notice or letter indicating that the lender/servicer is requesting trial be scheduled, this individual may quickly serve your counsel with discovery requests and then oppose your request for trial scheduling on the basis that discovery has not been completed.

Do not be afraid of discovery. There are some in the default servicing industry who believe that discovery is a nuisance and, therefore, responses to discovery requests appear rushed and haphazard. The Rambo litigator will likely exploit this. It is advisable to complete discovery quickly and properly so you can move forward. Otherwise, the Rambo litigator may file motions to compel discovery — adding to your timelines and attorneys' fees.

If you take a chance with a motion for summary judgment, care should be taken to anticipate and pre-emptively address potential counter-arguments, as the Rambo litigator will likely file opposition. Use a simple, easy-to-read payment history (if it is too complex and convoluted, a judge will not take the time to decipher it and may just deny a motion for summary judgment). Also, it would be beneficial to include separate itemizations of escrow and corporate advances as exhibits.  Line-items on payoffs or judgment figures labeled as "miscellaneous" or "other" should be avoided (judges may question them too).

Once sheriff's sale is scheduled, this individual may file one or more motions to postpone or stay the sale.  Many times, courts rubber-stamp these to give borrowers more time. Under certain circumstances, it may be advisable to vehemently contest those motions.  Under others, it may be advisable to concede to a brief continuance in exchange for a provision in the court order that no further continuances be permitted (however, some judges may not observe these bars to continuances).

Also, he may use bankruptcy as a sword — to create delay — or as a shield in the case of a Chapter 7 filing to discharge his personal liability and prevent a deficiency judgment action. In the event of repeat filings, it is advisable to file the appropriate motions to confirm that the automatic stay is not in effect ("comfort order") and to dismiss a case for bad faith (in which case, a re-filing bar and in rem provision should be explored).

In the event of appeal and you prevail, you may have the right to file a motion for reimbursement of attorneys' fees and court cost associated with the appeal. Local counsel should be able to advise you on the availability of such motion (reimbursement of attorneys' may depend on the appellate court making a specific finding in the appellate decision that the appeal lacked merit).

In addition, it is advisable to take the high road with this individual. The Fair Debt Collection Practices Act applies and it is a violation thereunder to engage in harassing conduct in the collection of a debt. Under that Act, debt collectors cannot harass borrowers, yet borrowers are allowed to harass them (in the event of threats against personal safety or repeated harassing conduct, you may wish to explore filing a police report, which is not prohibited by the FDCPA. Unfortunately, the law is replete with double standards. In fact, it is commonly known that courts generally hold creditors to higher standards than borrowers.

Assuming loan origination was compliant with all applicable laws and the lender/servicer is similarly compliant in its pursuit of foreclosure, it should eventually prevail; however, this will require time, money, patience, developing and implementing appropriate strategies (which may change during the course of litigation), legal posturing and one-upmanship, as well as working closely with local counsel.

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