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Ethical Fallout from the Foreclosure Crisis

By John W. Joyce, Litigation News Associate Editor – October 27, 2010

Florida’s attorney general is investigating allegations that several law firms fabricated documents that were presented to courts to obtain foreclosure judgments. The law firms prosecute extremely high volumes of residential real estate foreclosure cases throughout Florida. At the same time, all 50 state attorneys general have opened an inquiry into allegations that many affidavits used to support foreclosure judgments are signed by persons who lack the required personal knowledge of the underlying facts.


Questioning Evidence Used to Support Foreclosures
In recent months, allegations about the use of inaccurate affidavits and proof of loan ownership to prosecute foreclosure cases have become more widespread. In response to concerns about procedures used to verify information in affidavits supporting foreclosures, several major residential mortgage servicers issued temporary moratoriums that effectively halted many foreclosure proceedings while they studied the issues.


All 50 state attorneys general have joined a “coordinated multistate effort” to investigate “procedural defects” in affidavits or other documents submitted in support of foreclosures. According to a press release, the attorneys general are especially concerned about a process they call “robo-signing” where “affidavits and other documents have been signed by persons who did not have personal knowledge of the facts asserted in the documents.”


The Florida attorney general’s office recently released sworn statements by former employees of two of the law firms targeted in its investigation. One statement describes law firm employees signing hundreds of sworn pleadings a day for use in foreclosure actions allegedly without adequate personal knowledge or proper supervision by attorneys. These sworn statements are part of the Florida attorney general’s “ongoing investigations” into the law firms’ “alleged involvement in presenting fabricated documents to the courts in foreclosure actions to obtain final judgments against homeowners.”


Ethical Traps for the Unprepared
“It’s a challenging time for courts and lawyers who work in this area,” says Robert A. Scott, Baltimore, chair of the Subprime Crisis Subcommittee of the ABA Section of Litigation’s Real Estate Litigation Committee. “Securitization of mortgages makes proof of loan ownership in foreclosures more complicated today than it was 20 years ago when one bank issued, serviced, and held the loan for life,” says Scott.


“The real problem we face in these foreclosure matters goes to the basic issue of competent representation under Model Rule of Professional Conduct 1.1,” says John C. Martin, Chicago, cochair of the Section of Litigation’s Committee on Ethics and Professionalism. “That rule requires a lawyer not merely to have legal knowledge and skill but also to undertake the preparation reasonably necessary for the representation. That means a lawyer has to know the case,” says Martin.


“The fraud cases are at the fringes, and we all know that is wrong,” says Martin. “Keeping up with the sheer volume of cases is the more typical problem, and as difficult as it may be, a firm should only take the amount of business it can competently handle. Also, “to the extent that these proceedings are ex parte, attorneys have a heightened duty of candor to the tribunal under Model Rule of Professional Conduct 3.3,” he says.


A High Volume of Cases Is No Excuse
“The bottom line is borrowers agree to expedited procedures when they take out the loan, and most people in foreclosures do not have viable defenses—they either paid the note or not,” says Scott. “These cases need to be handled quickly without overburdening the judicial system and with appropriate procedural protections for cases where there may be questions,” says Scott.


“This isn’t a matter of the abstract merits of a case—lenders have the right to foreclose when borrowers don’t pay,” says Martin. “But when there is a judicial system for handling cases, attorneys need to follow it, respect it, and act consistent with their professional and ethical obligations. High volume or complications are not excuses for shirking those duties,” he says.


Keywords:

litigation, ethics, evidence, foreclosure


 
  • November 4, 2010 – As a consulting expert in mortgage litigation, I find that in many cases the lenders' files are chaotic and don't even resemble the file copy given to the borrower.
 

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