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Defending Your Company Against Individual Cases: Lawsuits Arising Out of Foreclosure MBA s Legal Issues and Regulatory

Lawsuits Arising Out of Foreclosure: Overview. 1) Statistics on the Current Foreclosure Environment in the United States2) Developing a strategy to handle Foreclosure Related Litigation3) Identifying the areas involved in Foreclosure Related Litigation4) Going on the Offensive/Motion to Escrow

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Defending Your Company Against Individual Cases: Lawsuits Arising Out of Foreclosure MBA s Legal Issues and Regulatory

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    1. Defending Your Company Against Individual Cases: Lawsuits Arising Out of Foreclosure MBA’s Legal Issues and Regulatory Compliance Conference 2009 May 5, 2009 Robert R. Maddox Bradley Arant Boult Cummings LLP

    2. Lawsuits Arising Out of Foreclosure: Overview 1) Statistics on the Current Foreclosure Environment in the United States 2) Developing a strategy to handle Foreclosure Related Litigation 3) Identifying the areas involved in Foreclosure Related Litigation 4) Going on the Offensive/Motion to Escrow Funds 5) Examples of Motion Practice in various states

    3. Statistics on the Current Foreclosure Environment Three Statistics on the Current Foreclosure Environment in the United States: Every 13 seconds a foreclosure is filed against another American family. Center for Responsible Lending

    4. Statistics on the Current Foreclosure Environment Three Statistics on the Current Foreclosure Environment in the United States: 2) Projected 2,400,000 new foreclosures will take place in calendar year 2009. Based upon 3Q 2008 MBA National Delinquency Survey

    5. Statistics on the Current Foreclosure Environment Three Statistics on the Current Foreclosure Environment in the United States: 3) Number of foreclosures in March 2009 was estimated between 290,000 and 341,000. New York Times May 3, 2009 citing to the Obama Administration

    6. Servicers Need to Develop a Strategy for Handling Foreclosure Related Litigation Given the unprecedented volume of foreclosures and the current and anticipated increased levels of litigation flowing from foreclosures, servicers can and need to develop a strategy for defending and defeating foreclosure related litigation.

    7. Breaking Down Foreclosure Litigation Though we can never definitively determine the path of any litigation – foreclosure litigation usually falls with 2 main categories and 3 specific areas: Foreclosures are a creature of state law and they fall into 2 dominant categories: Judicial foreclosure Power of Sale/Non-Judicial Foreclosure Within the dominant categories, we can break it down again into 3 main areas of focus: Origination Servicing Foreclosure

    8. Litigation Philosophy Litigation Philosophy: Anytime real property is involved in litigation it is a non-functioning asset that is costing money rather than producing money and the goal is to return the property to whatever condition, status or process it was in immediately before the Borrower filed suit or a counterclaim.

    9. Litigation Arising From Foreclosure: Genesis Litigation arises from either: 1) Counterclaim filed by the borrower in Judicial Foreclosure states Or 2) Offensive Litigation filed by the borrower in Power of Sale states In either event the litigation will likely lead to delay of the foreclosure, which in turn the servicer likely does two things: 1) Put the foreclosure on hold to defend the Borrower’s claims 2) Continues to receive no money from the Borrower

    10. Litigation Arising From Foreclosure: Identify the Area which Forms the Basis of the Borrower’s claims 3 Areas: Origination, Servicing and Foreclosure Origination Disclosures Origination Fraud Improper Product Servicing Escrow Payment Misapplication Foreclosure Failure to follow state statute Notice

    11. Litigation Arising From Foreclosure: Identify the Area: Origination Origination Disclosures Provide Disclosures Provide Analysis/Case Law Supporting Position File Motion Establishing Rescission Procedures Origination Fraud Analysis of Information Provided Borrower Did not sue any other parties involved in the Origination Focus on benefit provided to Borrower from transaction Purchase Money Mortgage Refinance – Cash Out, pay off unsecured creditors Counterclaim for fraud against Borrower Put them on the defensive, we can file a fraud claim as well Improper Product Derivation of Fraud Focus on benefit provided to Borrower from transaction ARM or Interest Only – months or years with reduced payments No Complaint until inability to pay and default Focus the Court that this is a default and they Borrower is trying to back into a defense

    12. Litigation Arising From Foreclosure: Identify the Area: Servicing Servicing Escrow Taxes and Insurance Servicer does not set these amounts Provide escrow history Illustrate failure by Borrower leads to action by Servicer to protect interest and payment of T/I. Payment Misapplication Suspense Accounts – if insufficient payment made by Borrower, it is held in suspense until full payment can be made Provide Mortgage Instrument – Mortgage/Deed of Trust clearly provides payment priority – Interest first, then earliest principal, then move to next payment Transfer Problems – Provide Hello and Goodbye Letters Forced Placed Insurance Failure by Borrower to provide proof of insurance allows servicer to force place insurance to protect interest in collateral (If you don’t then it is a loser argument but they will certainly sue you for it) Forced Placed Insurance is for benefit of servicer and only protects the improvement not personal property

    13. Litigation Arising From Foreclosure: Identify the Area: Foreclosure Foreclosure Notice Provide the Mortgage Mortgage clearly provides notice is proper at the property address unless the Borrower provides prior written direction that notice is to be sent elsewhere Failure to follow applicable state statute Obtain a copy of the foreclosure file and analyze for compliance Affidavit of foreclosure attorney or trustee stating followed statute and procedure Provide relevant documents attached to Affidavit Notice of Default Acceleration of Debt Notice documents, publication or Foreclosure Complaint, which will already have documentation and relevant timing events Foreclosure/Loan Modification Scams Illustrate above plus Borrower’s participation with scheme, even if they were duped, victim was servicer

    14. Litigation Arising From Foreclosure: Manage and Control the Litigation Manage and Control the Litigation Once you have identified the area(s), then you can defend the case quickly and efficiently File a responsive pleading: Motion to Dismiss Answer Counterclaim Fraud By Borrower Summary Judgment Now you can go on the offensive

    15. Litigation Arising From Foreclosure: Go on the Offensive Going on the Offensive Focus the Court that the genesis of this litigation is a default by the Borrower and their goal is delay and a desire to stay in the house without payment. Argue assuming the Borrower’s claims are correct, the Borrower will fall further behind in mortgage payments and will be at a severe disadvantage in trying to become current. If the Servicer is correct then the Borrower will receive a windfall if during the pendency of the litigation they are allowed to stay in the house without any payment. The servicer will be forced to pay taxes and insurance during the pendency of the litigation. File Motion to Escrow Funds

    16. Litigation Arising From Foreclosure: Motion to Escrow Funds Motion to Escrow Funds Use Borrower’s pleadings against them – they are arguing it is an Origination, Servicing or Foreclosure issue – THEN they should be able to make their payment. In order to eliminate payment misapplication argument by Borrower, offer not to accept funds but rather allow mortgagor to make payments directly into court on same date that payments would be made to servicer. If there are allegations over payment amount, disputed late fees, incorrect product – then offer to calculate that amount for payment into Court, without waiver of the original amount owed. At a minimum, request Court have escrow amount paid into Court to protect both Borrower and Servicer in the event of loss and payment of taxes.

    17. Litigation Arising From Foreclosure: Motion to Escrow Funds - Goals Goals for Motion to Escrow Funds 1) Focuses Court this is really a default issue. 2) Borrower makes some payments into Court – Prior History is the best indicator of Future Performance – If Borrower could not make payments previously, likely unable to make full payments now. 3) Borrower’s inability to make payments focuses Court not on just past payments but also current Borrower’s financial inability. 4) Borrower’s inability to make payments into Court makes them much more likely to settle on terms you can dictate. 5) If Borrower can make payments, then shows delinquency was temporary issue so possible candidate for loss mitigation options 6) If Borrower can make payments, when you are successful in defending matter – you will have funds to apply to loan. Saved servicer/investor money.

    18. Motion to Escrow Funds - Tennessee

    19. Motion to Escrow Funds - Tennessee

    20. Motion to Escrow Funds - Tennessee

    21. Order Escrowing Funds – Tennessee

    22. Order Escrowing Funds - Tennessee

    23. Joint Stipulation Escrowing Funds After Filing Motion to Escrow Funds - Alabama

    24. Joint Stipulation Escrowing Funds After Filing Motion to Escrow Funds - Alabama

    25. Memo of Points and Authorities In Support of Motion to Escrow Funds - California

    26. Memo of Points and Authorities In Support of Motion to Escrow Funds - California

    27. Memo of Points and Authorities In Support of Motion to Escrow Funds - California

    28. Wrongful Foreclosure Complaint - Texas

    29. Wrongful Foreclosure Complaint Based Upon Origination Fraud- Texas

    30. Wrongful Foreclosure Complaint Based Upon Origination Fraud - Texas

    31. Wrongful Foreclosure Complaint Based on Origination Fraud - Texas

    32. Counterclaim for Fraud By Servicer to Wrongful Foreclosure Complaint - Texas

    33. Counterclaim for Fraud By Servicer to Wrongful Foreclosure Complaint - Texas

    34. Counterclaim for Fraud By Servicer to Wrongful Foreclosure Complaint - Texas

    35. Counterclaim for Fraud By Servicer to Wrongful Foreclosure Complaint - Texas

    36. Counterclaim for Fraud By Servicer to Wrongful Foreclosure Complaint - Texas

    37. Motion to Escrow Funds in Response to Wrongful Foreclosure due to Inadequate Disclosures - Illinois

    38. Motion to Escrow Funds in Response to Wrongful Foreclosure due to Inadequate Disclosures - Illinois

    39. Motion to Escrow Funds in Response to Wrongful Foreclosure due to Inadequate Disclosures - Illinois

    40. Motion to Escrow Funds In Response to Wrongful Foreclosure Due to Payment Misapplication - Florida

    41. Motion to Escrow Funds In Response to Wrongful Foreclosure Due to Payment Misapplication - Florida

    42. Motion to Escrow Funds In Response to Wrongful Foreclosure Due to Payment Misapplication - Florida

    43. Motion to Escrow Funds In Response to Wrongful Foreclosure Due to Payment Misapplication - Florida

    44. Memo in Support of Motion to Escrow Funds for Wrongful Foreclosure Due to Payment Misapplication - Florida

    45. Memo in Support of Motion to Escrow Funds for Wrongful Foreclosure Due to Payment Misapplication - Florida

    46. Memo in Support of Motion to Escrow Funds for Wrongful Foreclosure Due to Payment Misapplication - Florida

    47. Memo in Support of Motion to Escrow Funds for Wrongful Foreclosure Due to Payment Misapplication - Florida

    48. Memo in Support of Motion to Escrow Funds for Wrongful Foreclosure Due to Payment Misapplication - Florida

    49. Memo in Support of Motion to Escrow Funds for Wrongful Foreclosure Due to Payment Misapplication - Florida

    50. Consent Order to Deposit Funds in Response to Motion to Escrow Funds Attacking Validity of Foreclosure - Tennessee

    51. Consent Order to Deposit Funds in Response to Motion to Escrow Funds Attacking Validity of Foreclosure - Tennessee

    52. Memo In Support of Motion to Escrow in Wrongful Foreclosure for violations of TILA, UDTPA and Attacking the Foreclosure - Minnesota

    53. Memo In Support of Motion to Escrow in Wrongful Foreclosure for violations of TILA, UDTPA and Attacking the Foreclosure - Minnesota

    54. Memo In Support of Motion to Escrow in Wrongful Foreclosure for violations of TILA, UDTPA and Attacking the Foreclosure - Minnesota

    55. Memo In Support of Motion to Escrow in Wrongful Foreclosure for violations of TILA, UDTPA and Attacking the Foreclosure - Minnesota

    56. Lawsuits Arising Out of Foreclosure: Summary 1) Statistics on the Current Foreclosure Environment in the United States 2) Developing a strategy to handle Foreclosure Related Litigation 3) Identifying the areas involved in Foreclosure Related Litigation 4) Going on the Offensive/Motion to Escrow Funds 5) Examples of Motion Practice in various states

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