The Ethical Challenge to the Legal Profession in the Era of "Securitization"

Securitization, by definition, means the acquisition of an asset through payment for a security (e.g. “certificate”). If that event has not occurred, then there is no securitization. If the asset is a loan account, then nothing has changed. If nothing has changed then claims regarding REMIC trusts, trusts, and holders of certificates are all false. Also, the claims of companies claiming to be servicers are equally false, as are claims of lawyers representing any of those entities. The aversion to the result of a favorable outcome to homeowners is not a valid reason for ignoring the express requirements of law, practice, and common sense.

Securitization is a complex structure. Any lawyer who renders an opinion on any homeowner transaction without doing an adequate amount of research, is committing an ethical violation. For the lawyer without any experience in dealing with legal issues arising from investment banking activities, the proper answer would be that the lawyer lacks sufficient competence to render an opinion. The problem in the marketplace is that lawyers are regularly rendering opinions about this subject without knowing any of the factual or legal predicates.

But it is true that any experienced trial attorney can probably defend against an illegal foreclosure claim. If the case is properly litigated, the defense lawyer can simply test all of the facts that the foreclosure lawyer wants the court to presume. So it is not necessary for the trial attorney to actually have an opinion. All the attorney needs to do is to agree to litigate the case properly. But this is rarely the case.

In most instances (96%), homeowners simply walk away from home is believing that they have committed the sin of nonpayment and therefore they morally should lose their interest in the home. For the few homeowners that attempt to challenge the foreclosure on their own, their unfamiliarity with the rules of court often results in failure. For the remaining few homeowners who retain counsel, in most cases, the attorney neither asks for nor receives enough in payment to litigate the case properly.

For example, many attorneys will simply file an answer, perhaps with affirmative defenses. The presumptions arising from apparently facial documentation (albeit false and fabricated), are usually considered sufficient to steamroll over the rights of the homeowner. In other cases, demands for discovery are improperly drafted, or properly drafted and never pursued. This results in the loss of the home not because the court is biased but because the rules of court require it.

Lawyers who wish to represent homeowners in distress have an obligation to know what they’re talking about. But it is easy to understand how lawyers would get the impression that the defense of Foreclosure is a lost cause. For one thing, nearly every case in which the homeowner has won is wiped from the court record after payment is received by the homeowner in exchange for silence. So the only thing presented to the lawyer are the millions of cases in which Foreclosure has been successful. It is no stretch for them to conclude that opposition is futile.

Without extensive research and consultation with lawyers who have been successful, lawyers who are new to the game will nearly always miss the opportunity to be successful in court, and profitable in their business.

The ethical challenge for lawyers who file documents to initiate foreclosure proceedings is different. As far as I can tell, law firms have been created expressly for the purpose of pursuing Foreclosures, and the money they receive is sufficient to bend every rule imaginable. Since they are protected by the doctrine of litigation immunity they have virtually no risk in advancing the cause.

But the method by which they are retained should be examined by the bar associations of each state. Foreclosure lawyers receive instructions from an unknown source electronically. They don’t know who sent it, but they assume that the instructions were sent by an authorized company that is the servicer for a real creditor. There is considerable debate as to whether or not the lawyer should perform sufficient due diligence on the authority of the servicer.

But there could be no debate as to whether or not a lawyer can present an entity as the plaintiff or beneficiary in a foreclosure action without being retained to represent that plaintiff or beneficiary. In virtually all cases, the Foreclosure law firm has no contractual relationship with the party identified as the claimant in foreclosure. Further, the Foreclosure law firm has no contact with the party identified as the claimant in foreclosure. If one were to come to an agreement in mediation and ask for acknowledgment from the named claimant, the lawyer is instructed to withdraw the agreement.

A lawyer is supposed to advocate for their client. The problem is that the claimant is usually not a client. Further, the “argument” that the law firm has been retained by the Servicer is not based in truth if the conclusion sought by that argument is that the servicer is the authorized representative of the named claimant, who is in fact a bona fide creditor.

Since we now have sufficient information to say that companies claiming to be servicers do not perform servicing functions with respect to receipts of payment or disbursement to creditors, the role of the company claiming to be servicer is reduced to virtually nothing.

Only an experienced litigator who knows how to set up a defensive strategy and then pursue it with all available tactics can pierce through all of this. While a few thousand homeowners have been successful in obtaining a favorable result on their own they are mostly outmaneuvered by the foreclosure attorney who has a playbook and script that has been thoroughly researched and executed.

All of these areas of confusion and doubt could easily be resolved if the lawyer and the named claimant were required to plead and swear that the named claimant is the owner of the underlying obligation as required by Article 9 §203 of the UCC. In addition to removing ethical considerations, it would eliminate most defenses of homeowners as “borrowers” if that is what they are. The fact that it might eliminate most foreclosure proceedings is not a valid reason or an ethical reason to ignore the law, public policy, and common sense.

The current rules in every state include preauthorized “guides” for pleading that sidestep the essence of every foreclosure action. These forms were created when securitization was unknown. Current additional requirements for declarations or affidavits permit virtually anyone to declare that the assertions or allegations supporting foreclosure are true and correct, despite the obvious fact that the declarant or affiant has no direct personal knowledge and has no direct connection, as an authorized officer of the claimant.

The moral hazard and ethical hazards presented by this scenario go far beyond the realm of mortgage loans and foreclosure. The wink and nod from bar associations, has compounded the problems presented when law enforcement and agency investigations revealed the universal use of false fabricated documents to achieve foreclosure.

It is difficult to imagine a scenario in which bar counsel would ignore a settlement with all 50 state Attorneys general provided for a promise from all the major players that they will stop falsifying documents for foreclosure. And it is equally disturbing that the courts, after knowing about such settlements, would apply presumptions of facts from the apparent facial validity of such documents.

Public policy has already been decided by the legislature of every U.S. jurisdiction. Nobody other than the party who pays value for the underlying obligation (if there is one) is allowed to pursue any claim for enforcement of a security instrument. The pretense of assuming or presuming such payment was made and therefore that some financial injury is present should stop. If the condition precedent in 9-203 UCC is satisfied there is no doubt that the foreclosure may proceed. But if it is not, then there is no doubt that it should not proceed and is barred by statute and public policy.

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• But challenging the “servicers” and other claimants before they seek enforcement can delay action by them for as much as 12 years or more.
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