New
rule says banks must prove ownership before foreclosing |
Article Courtesy of The Palm Beach Post By Kimberly Miller Published May 26, 2010 Foreclosure
filings have backed off this year, dropping 36 percent in A new
Florida Supreme Court rule requires lenders to verify they are the actual
owners of a home before making the initial case for foreclosure. Show me
the "note," in other words. The
problem is that the notes - legal promises from borrowers to repay a debt
- have been sold and resold, bundled into securities, scanned into
computers, sealed in unknown vaults and lost in other ways as homes got
caught up in the puzzling markets of the real estate boom. "The
original note is something very significant, and they just seem to have
lost thousands of them," said The new
rule was approved in February with the intention of unclogging the
foreclosure courts, which have an estimated statewide backlog of 500,000
cases. It also gives judges power to sanction plaintiffs who make false
accusations on the ownership of notes or missing notes. "I
believe it has affected the number of new filings," said Palm Beach
County Circuit Judge Meenu Sasser, who handles the county's foreclosures.
"It streamlines the process." Law
firms handling the foreclosure overload, sometimes called foreclosure
mills, have routinely filed a "lost note" claim with the
original default notice, regardless of whether they looked for the note,
said Miami-Dade Circuit Judge Jennifer Bailey. The
legal move gives lenders a statutory out if the original note truly can't
be located. When asked what efforts were made to find the note, however,
such excuses as "searched file cabinet" and "searched fire
proof safe" have appeared on several court records. "It
was very confusing. How can you foreclose on the note if the note is
lost?" Bailey said. "The judges would be trying to track the
note and they're saying they own it, but don't have it and don't know
where it is." But if
a borrower didn't protest the foreclosure, the cases often sailed through. Judges
also were finding, according to a statewide foreclosure task force that
recommended the verification rule, that two lenders would sometimes file
suit on the same note at the same time because it wasn't clear who the
true owner was. Defense
attorneys, too, got keyed in on the lost note strategy, challenging the
veracity of a lender's claim to a home and further stalling the process. "There
was just an abuse of the lost note statute," said Scott Haft, an
attorney with LaBovick & LaBovick, which has offices in Haft
said at least half of his foreclosure defense cases include lender pleas
of lost notes. He almost always asks for evidence of the original
document. "They
can say it's a stalling tactic, but how can I not defend my client and
seek out every route in his defense?" Haft said. "Now
the courts are saying you have to do your due diligence before
filing," he added. Anthony
DiMarco, executive vice president for government affairs for the Florida
Bankers Association, said he doesn't believe the new rule is causing the
slowdown. He
attributes it more to an increase in loan modification workouts between
borrowers and banks, and banks' increased willingness to approve short
sales. It is
another hoop for banks to jump through, he acknowledged, but something
that was supposed to be happening all along. Bailey,
who was on the foreclosure task force, said the rule wasn't needed before
the real estate boom when home loans were more straightforward and
foreclosures fewer. "There's
some weird stuff going on," she said. |