The Lender Lawyers’ Nightmare – Schack Attack!

Arthur M. Schack is a no-nonsense New York judge.  Especially when it comes to foreclosure mill attorneys (FMAs) who don’t take him seriously.  Here is a recent example:

HSBC Bank USA, N.A., AS INDENTURE TRUSTEE FOR THE REGISTERED NOTEHOLDERS OF RENAISSANCE HOME EQUITY LOAN TRUST 2007-2, Plaintiff, Index No. 9320/09  vs. Ellen N. Taher, et. al., Defendants. (July 1, 2011) The facts of this particular foreclosure case do not need to be summarized in detail.  They are all too familiar.

However, by way of background, as we know, the New York courts, like Florida – both judicial foreclosure states – have been inundated with foreclosure filings.  But following the robo-signing scandals, including false signatures, false notarizations, and false designations of official capacity that have been detailed throughout the country, the New York courts instituted a rule requiring that FMAs submit a written affirmation certifying that they had taken reasonable steps – including inquiry to their banking and servicing clients – to verify the accuracy of documents filed in support of their residential foreclosures.  [See, New York Rules of Professional Conduct (22 NYCRR Part 1200) and 22 NYCRR Part 130.] Oregon has no such certification requirement specifically for foreclosure cases, but it should.

Here are a few factual snippets from the case that so irritated Justice Schack:

  • The FMA did sign a certification required by the New York rule.
  • But the documents she submitted were signed by known robo-signers, whose signatures varied from foreclosure to foreclosure, and in the case of the MERS assignment of mortgage.
  • The power of attorney relied upon by one of the robo-signers was for a property other than the one being foreclosed.
  • Documents had been signed by persons who were not the person identified by the signature.  HSBC explained this was not “forgery” since the signer had consent from the person whose signature was used.  [Of course, there was no attempt by the signer to clarify next to the signature that it was placed there by one other than the person identified by the signature. – PCQ]
  • Not only the mortgage, but the promissory note, was purportedly “assigned” by MERS to HSBC Bank.  But there was no evidence MERS ever held the note.  In the words of Justice Schack, “MERS cannot transfer something it never proved it possessed.”  [See my recent post, here, for a discussion on the importance of having a right to enforce the promissory note. – PCQ]
  • I could go on, but most people following the foreclosure mess have already seen the contents of the lenders’ bag of tricks.

The Court’s Ruling. After explaining in painful detail, the bank’s shenanigans, here’s what Justice Schack did:

  • Because plaintiff, HSBC, lacked standing in the foreclosure action, he dismissed its foreclosure complaint with prejudice – it could not re-file the foreclosure.
  • He found that the bank’s counsel and firm engaged in “frivolous conduct,” and accordingly, “[a]n award of costs or the imposition of sanctions may be made upon the court’s own initiative, after a reasonable opportunity to be heard.”
  • Before imposing sanctions, he invited HSBC’s President and Chief Executive Officer, and its FMA and firm “a reasonable opportunity to be heard” before the Justice Schack.

It remains to be seen if the President and CEO of HSBC will show up for this hearing.  Dead Man Walking….

Why is this Case Important for Oregonians? Oregon has certain rules governing lawyers’ professional responsibility. I addressed this in a prior post, here.  However, these rules alone are insufficient in the trust deed foreclosures we are seeing today.  In Oregon, trust deeds have historically been foreclosed by non-judicial sale, usually by “trustees” or “successor trustees” who are not attorneys.  It is these people who are acting as the MERS officers, signing the bogus assignments, and then acting simultaneously as bank “officers” to have themselves appointed to conduct the foreclosure.  These documents are invariably robo-signed, many fraudulently.  But since these people are not lawyers, they are not subject to any licensing proscriptions against unethical conduct.  Further, many of the robo-signed documents, though prepared in Oregon, are uploaded to foreclosure services out of other states where the company is located.  Dakota County, Minnesota, a robo-signing epicenter for Lender Processing Service or “LPS,” is just one example.  Thus, although the foreclosure trustee knows full well that the paperwork has been robo-signed by persons of questionable authority, there is no effort to actually authenticate the documents signed.[1]

[1] Hint to FMAs – It is not difficult to find out if you have a robo-signer in your midst.  Since they filed thousands of documents, their handiwork invariably finds its way to the Internet.  Frequently, their signatures vary greatly.  Frequently, they sign in multiple corporate positions.  Frequently, they do not work for the entity who they are signing for, but the foreclosure processing company.  Occasionally, their depositions in other foreclosure cases appear on the Net.  In today’s interconnected world with LinkedIn, Facebook, and other social media, it is not hard to determine if someone is a prolific and proud robo-signer.

Secondly, due to the widespread bank violations of the Oregon statute ORS 86.735(1), which requires the recording of all trust deed assignments as a precondition to foreclosure, and the Oregon courts’ uniform rejection of this illegal conduct, it appears that lenders may be preparing to conduct judicial foreclosures in this state.  This means that FMAs will have to submit their foreclosure documents into court.  In order to prove standing, among other things, these attorneys will be submitting the very same documents that the FMAs in the HSBC case submitted.   Without a certification, “under penalty of perjury,” it is likely that we will see FMAs take the same “don’t ask, don’t tell” approach as their New York and Florida brethren took and (apparently) continue to take – i.e. where there is no real due diligence exercised to determine the validity and reliability of the foreclosure documents filed in court.

I suppose one could say that based on the HSBC case, it appears the mandatory certification has little effect in curing FMA fraud on the court system.  I think not.  Based on the recent ruling by several prominent Oregon federal judges, it appears they fully understand these issues.  While there may be some occasional FMAs who believes the law doesn’t apply to them, one or two well-publicized opinions, ala Justice Schack, and a possible sanction by the Oregon State Bar, should go a long way to stem unethical conduct.