A Florida state-court judge, in a rare ruling, said a major national bank perpetrated a “fraud” in a foreclosure lawsuit, raising questions about how banks are attempting to claim homes from borrowers in default.
The ruling, made last month in Pasco County, Fla., comes amid increased scrutiny of foreclosures by the prosecutors and judges in regions hurt by the recession. Judges have said in hearings they are increasingly concerned that banks are attempting to seize properties they don’t own.
Since the housing crisis began several years ago, judges across the U.S. have found that documents submitted by banks to support foreclosure claims were wrong. Mistakes by banks and their representatives have also led to an ongoing federal criminal probe in Florida.
Some of the problems stem from the difficulty banks face in proving they own the loans, thanks to the complexity of the mortgage market.
The Florida ruling against U.S. Bank was also a critique of law firms that handle foreclosure cases on behalf of banks, dubbed “foreclosure mills.”
Lawyers operating foreclosure mills often are paid based on the volume of cases they complete. Some receive $1,000 per case, court records show. Firms compete for business in part based on how quickly they can foreclose. The David Stern firm had about 900 employees as of last year, court records show.[emphasis added]
“The pure volume of foreclosures has a tendency perhaps to encourage sloppiness, boilerplate paperwork or a lack of thoroughness” by attorneys for banks, said Judge Tepper of Florida, in an interview. The deluge of foreclosures makes the process “fraught with potential for fraud,” she said.
Forrest McSurdy, a lawyer at the David Stern firm that handled the U.S. Bank case, said the mistake was due to “carelessness.” The mortgage document was initially prepared and signed in 2007 but wasn’t notarized until months later, he said. After discovering similar problems in other foreclosure cases, he said, the firm voluntarily withdrew the suits and later re-filed them using appropriate documents.
“Judges get in a whirl about technicalities because the courts are overwhelmed,” he said. “The merits of the cases are the same: people aren’t paying their mortgages.”
