Malpractice Lawyers Take Aim at Their Colleagues on Foreclosure and Title Issues

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Lately I have been receiving calls and emails from people investigating the possibility of suing a lawyer who was involved in either their foreclosure defense, bankruptcy, or even the closing on a resale, short-sale or modification. Some big names are looking at this area as the next big area for malpractice. The stakes are pretty high, since the starting point in damages is the amount of the loan — and may involve several loans.

Most lawyers have been telling clients that they borrowed the money and that the only real defensive actions they can offer are modifications, delay and potentially help with short-sales. But the real liability comes with people who are NOT in foreclosure. If the title includes “securitized” loan transactions there is a pretty good chance that title is corrupted. And THAT means some court action down the road. It is a ticking time bomb.

Lawyers who fail to advise their clients of possible defenses, statutes of limitations on TILA rescission, common law rescission, and lawsuits for breach of contract and fraud, are now in a position where the facts are so widely known that their ignorance may be their undoing. Those transactional lawyers dealing in sales of residential real estate are particularly at risk because the negotiations regarding the content of the title policy and the failure to advise clients that even with the title policy the new buyer could end up in court, might be actionable.

It is obvious that the question of title is a live issue now. Whether it will be settled by some legislative “reset” button or it is resolved on a case by case basis, clients are not likely to be very forgiving when they learn they had defenses, their bankruptcy schedules were filed incorrectly and their closings were incomplete. When the time comes that people end up in court long after they thought the matter was concluded by foreclosure, short-sale or modification, they are going to be unhappy — and they are going to look for someone other themselves to pay for the defense in litigation and any damage award.

A client who has been threatened with foreclosure should be told that there are cases and theories in which homes have been saved by raising issues relating to the authority of the party making the demand, the amount demanded, and that there are grounds for filing causes of action for appraisal fraud, violations of TILA and other factors. Lawyers whoa re unfamiliar with securitization and who have never read a pooling and servicing agreement will be caught broad-sided upon learning that the loan may never have been transferred, the lien may never have been perfected, and the loan is not even in default because the servicer agreed to make the payments regardless of receipt from the borrower.

Lawyers should contact their malpractice carriers and ask about protective language to insert in their retainer agreements, which, as every bar association will tell you, should be in writing.

A legal malpractice case consists of two cases in every instance. First there is the “mistake” that is alleged to have been committed by the offending lawyer. But then comes the hard part — proving damages. In order to prove damages you must prove that but for the error of the attorney you would have had a result that was far more favorable than the one you you got. At the very least you must show that there was a very high likelihood that you could have saved your house, received damages, or otherwise obtained relief.

And there is the rub. It seems that only those lawyers specializing in malpractice are actually mastering the details of securitized loans and the corrupting effect on title. Most lawyers are steering clear of the issues and still filing, for example, bankruptcy schedules that show the home as being secured by a perfected lien and admitting it is in default. In the world of securitized loans it is highly likely that their assumption is true, but that the admission produces the inevitable result of an order lifting the automatic stay which in turn is treated by state courts (improperly) as res judicata (the matter has already been litigated, and can’t be re-litigated under the Rooker-Feldman doctrine). The foreclosure goes through smoothly with the lawyer basically admitting the key issues that COULD be put at issue and require a trial on the merits and facts. But this example is not enough to make the case.

After proving the liability part by showing the error, the malpractice lawyer must then show that the borrower would have won or was likely to win. It is here that an interesting anomaly arises. The malpractice lawyers are scrutinizing each scrap of paper in evaluating these cases and finding that the the players don’t add up and in fact the record itself often proves that the wrong party foreclosed on a mortgage that probably was never perfected into a lien against the property. So far so good. That means the foreclosure was wrongful and the title and possession must be returned to the homeowner(s) who were foreclosed and evicted. That might be enough to complete the case, but the malpractice carrier for the lawyer who committed the error will probably raise an additional issue: would the homeowner have been able to keep the home in the long run?

Here again, it is only the meticulous work of a malpractice lawyer that reveals the answer, which in many cases, is YES, they would have — but that is only because they performed the work that was really necessary to analyze each of the four corners of every document. The obligation might exist, but there is no accounting from the creditor nor is the creditor identified. The fact that the obligation is not secured is in itself good evidence that the homeowner would have ended up with the home, free and clear of encumbrance and the ability to even wipe out the obligation in bankruptcy as being unsecured or otherwise negotiate it down to realistic levels after credits for lending violations, appraisal fraud etc.

With widely publicized fraud, forgery, fabrication and misrepresentation (by banks who have inserted themselves into the collection process) being heralded by main stream media, lawyers who take a brief history from the client and browse the paperwork are going to come to the wrong conclusion, give the wrong advice, take the wrong action and potentially end up with malpractice liability that could wipe them out financially.

Tags: bankruptcy, borrower, countrywide, disclosure, foreclosure, foreclosure defense, foreclosure offense, foreclosures, fraud, legal malpractice, LOAN MODIFICATION, modification, quiet title, rescission, RESPA, securitization, TILA audit, title, trustee, WEISBAND
Posted in bubble, Corruption, Eviction, securities fraud |