FORECLOSURE DEFENSE FALLACY

By
Real Estate Attorney with THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY
https://activerain.com/droplet/xrS

If you are a listingRealtor or a person who has just gotten foreclosure notice from your lender(s), no doubt you have heard about a myriad of "Foreclosure Defense" firms that promise to delay or prevent foreclosure or even prevent the enforcement of the mortgage because if irregularities in the loan.  What in fact are foreclosure defenses?

RESPA and TILA

The most popularly cited defenses relate to violations of RESPA (Real Estate Settlement Procedure Act) and TILA (Truth In Lending Act).  Other federal and state laws may also be in violation.  The general remedy to the borrower for violation of these laws by the lender is "putting the parties back into the position they were in prior to them entering into the transaction."  There are also remedies that include refunding all loan fees paid by the borrower, paying for the borrower's legal fees for the lawsuit, and statutory penalty fees that are, relating to the size of the loan, relatively nominal.

For the last two decades the enforcement of these laws was involved but a real problem for lenders and borrowers that were victims had easy access to attorneys that specialized in these prosecutions against the lenders.  Today, these attorneys are watching TV and twiddling their thumbs for lack of business.

What Happened to Foreclosure Defense?

So the question is - why are the consumer attorneys that specialize in RESPA and TILA violations sitting with no business yet there are firms and attorneys out there that seem as busy as bees with foreclosure defense?

The answer is too obvious to the consumer attorneys with no business - the key element to a successful RESPA or TILA defense is no longer available to consumers!  That key element is that the consumer is to be put back in the position they were in before the transaction.  That means that the consumer (borrower) has to give the money borrowed back to the lender!!!  In the 80's and 90's and most of the 2000's this was not a problem as it was easy to refinance or sell the home to pay back the lender.  But today the loan is greater than the value of the home and there is no way to repay the lender!  So even if the consumer wins in court, to get the benefits of the win the money has to be repaid to the lender.  Since this can't be done, everyone just was spinning their wheels. And since the consumer attorneys get paid based on success - if the consumer does not repay the loan then the lender does not have to pay the penalty and attorney fees.   Thus the consumer attorneys are not taking the cases!

Congress Working on the Fix

Congress is already aware that the federal laws that worked well to protect consumers in an "up market" from predatory lending have just stopped working in this "down" market, and they are exploring amendments to address the effective elimination of the RESPA and TILA violation remedy we face today

Defense or Delay?

So what are these "defense" firms doing?  Many of the foreclosure complaints that we see are technically defective from a "pleading" perspective.  These technical issues can almost always be fixed by the lender attorney and thus bringing them to the court's attention usually just delays the eventual finality of the foreclosure.  It is like throwing peanut butter in the gears of the lawsuit - it will slow it down but not stop it.

Slowing down a case can be good if there is a viable reason to slow it down - like working on some modification or short sale or working on reinstatement.  But many homeowners just want to get to live in the house for free as long as possible, and some foreclosure defense firms are happy to oblige - for a fee.

Legitimate defenses

Make no mistake, there are some legitimate defenses for a foreclosure.  One we recently brought is for a usurious promissory note.  In Florida, if the interest charged is over 18% the lender has to return double all of the interest charged and the note is thereafter interest free until its due date.  Another defense we recently brought was where the foreclosure complaint was brought for the non-payment of the interest payment beginning March 1, 2007.  But a careful reading of the loan documents showed that the first payment was not until April 1, 2007. (Here the bank will have to re-file the complaint after they re-default the borrower, but by then the home should be sold).

Another defense has to do with the lost promissory note. However, borrowers should not think that a lost promissory note is a free ticket to a permanently unenforceable mortgage. State statutes are pretty uniform about the re-establishment of a lost promissory note as the note is deemed a commercial instrument, and commercial instruments can be proven and re-established by a set methodology set forth in the statutes. It does take time and proofs to make this occur, so we can call it a delay tactic. However the ability not to prove up the existence of the promissory note for all intents and purposes, happens infallibly.

There are other legitimate defenses and I don't mean to be complete in this analysis, but don't confuse defense with delay.  As a Realtor you need to understand these differences and guide your clients appropriately.

 copyright 2009 Richard P Zaretsky, Esq.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make.  This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660  RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide!  Shortsales@Florida-Counsel.com  New Website www.Florida-Counsel.com

See our easy to understand articles at:

TABLE OF CONTENTS - SHORT SALE AND LOAN MODIFICATION ARTICLES

 

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Gabe Sanders 10/29/2008 11:54 AM
Topic:
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Location:
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Short Sale Specialists & Pre-Foreclosure Education
Short Sale REALTORS®
PALM BEACH COUNTY SHORT SALES
Tags:
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Rainmaker
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Antonio & Alexia Cardenas
Alameda County - San Leandro, CA. - San Leandro, CA
"The Realtors In Motion"

Richard, thank you very much for the information, I must confess that I did not know some of these "defenses" existed" not that I want to discuss that with my client, I rather 'alert' them to those issues and let them take it up with their attorney. But is is good to know. I appreciate your post.

Antonio

Oct 26, 2008 04:50 AM #1
Rainmaker
287,572
Barb Van Stensel
Chicago, IL

Richard thanks for bringing this up because I just blogged about it on Thursday and this is an area that Realtors need to understand that there may be a defense and if they see the signs, get the file to an attorney that understands Regulation Z. 

Great post - keep them going please as people need to understand that they should lay their lifes down on the ground because they may be in over their heads.  They need to consult with an attorney first to see if there were violations with TILA and if so, it allows for good grounds for loan modification even before the default happens.

Thank you!

Oct 26, 2008 05:04 AM #2
Ambassador
1,696,311
Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

Richard,

Thanks for the information. This is a very important issue, brillianlty explained. Thanks for e-mailing me the links to your other blog.

Oct 26, 2008 01:36 PM #3
Rainmaker
244,206
Brien Berard
Remax Professionals Laurel MD - Laurel, MD
Maryland Real Estate Agents - Laurel Real Estate

Very good information.  Thank you.

Feb 20, 2009 06:57 AM #4
Rainmaker
175,807
Maya Thomas LLC, Broker
Key West, Key Haven, Geiger, Sugarloaf, Cudjoe, Summerland - Key West, FL
Key West FL Historic Old Town Estates, Bungalows

If the scammer put 1/2 as much effort into a legitimate business they would be really successful!  It's amazing how creative scammers are.

Mar 15, 2009 09:50 AM #5
Anonymous
Sidney Jimenez
Richard, It seems you believe this issue, as far as the RESPA and TIL are non-issues and their defenses are not going to go any where. I've heard that the defenses are being won and it is due to the sloppy work done during the boom years by the lenders. As far as the difference, it seems the lenders can go after a Defeciency (much like in a Foreclosure or Short Sale). Do you find that is not the case?
Apr 24, 2009 05:26 AM #6
Rainmaker
259,331
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

If someone has a true verified (case law) story of a TILA or RESPA recision case being won AND the borrower getting out of an upside down situation - let us all know!  The primary attorneys in this field here in Florida that I have spoken with at seminars won't spin their wheels unless the borrower can perform the final task - repaying the lender the money that was borrowed (after deduction for the damages and statutory awards).

Apr 26, 2009 12:01 AM #7
Rainer
11,721
Paul Jerome
Seller Helps Buyer - Clearwater, FL

>>If someone has a true verified (case law) story of a TILA or RESPA recision case being won AND the borrower getting out of an upside down situation - let us all know!  The primary attorneys in this field here in Florida that I have spoken with at seminars won't spin their wheels unless the borrower can perform the final task - repaying the lender the money that was borrowed (after deduction for the damages and statutory awards).<<

http://tinyurl.com/cyquvu

http://tinyurl.com/olz38z

Jun 06, 2009 02:58 AM #8
Rainmaker
259,331
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Precisely the problem, Jerome.

Jun 29, 2009 02:44 PM #9
Anonymous
Rock

Mortgage Fraud Examiners exposed what the REAL defenses or should I say "offenses" are in their latest press release:"Pretender Defenders" http://neighbors.denverpost.com/viewtopic.php?f=215&t=123490692

Jan 26, 2012 11:53 PM #10
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Rainmaker
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Richard Zaretsky

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