Kansas Landmark Decision Annotated 1
Posted 2 days ago by livinglies on Livinglies’s Weblog
1st Annotation of Landmark v. Kesler:
IN THE SUPREME COURT OF THE STATE OF KANSAS
LANDMARK NATIONAL BANK,
BOYD A. KESLER Appellee/Cross-appellant MILLENNIA MORTGAGE CORPORATION, Defendant, (MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. AND SOVEREIGN BANK), Appellants/Cross-appellees, and DENNIS BRISTOW AND TONY WOYDZIAK, Intervenors/Appellees.
filed August 28, 2009
“The second mortgage lies at the core of this appeal. That mortgage document stated that the mortgage was made between Kesler–the “Mortgagor” and “Borrower”–and MERS, which was acting “solely as nominee for Lender, as hereinafter defined, and Lender’s successors and assigns.” The document then identified Millennia as the “Lender.” At some subsequent time, the mortgage may have been assigned to Sovereign and Sovereign may have taken physical possession of the note, but that assignment was not registered in Ford County.”
Editor’s Note: At the very start, the Court correctly sets the stage pointing out that the lender was Millenia but MERS was named on the mortgage, thus splitting the note from the mortgage. The Court later points out:
“What meaning is this court to attach to MERS’s designation as nominee for Millennia? The parties appear to have defined the word in much the same way that the blind men of Indian legend described an elephant–their description depended on which part they were touching at any given time…A nominee of the owner of a note and mortgage may not effectively assign the note and mortgage to another for want of an ownership interest in said note and mortgage by the nominee….
“The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. [Citation omitted.] Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. [Citation omitted.] The mortgage loan becomes ineffectual when the note holder did not also hold the deed of trust.” Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619, 623 (Mo. App. 2009).
“it was incumbent on the trial court, when ruling on the motion to set aside default judgment, to consider whether MERS would have had a meritorious defense if it had been named as a defendant and whether there was some reasonable possibility MERS would have enjoyed a different outcome from the trial if its participation had precluded default judgment….A person is contingently necessary if (1) complete relief cannot be accorded in his absence among those already parties, or (2) he claims an interest relating to the property or transaction which is the subject of the action and he is so situated that the disposition of the action in his absence may (i) as a practical matter substantially impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest…..MERS is a private corporation that administers the MERS System, a national electronic registry that tracks the transfer of ownership interests and servicing rights in mortgage loans. Through the MERS System, MERS becomes the mortgagee of record for participating members through assignment of the members’ interests to MERS. MERS is listed as the grantee in the official records maintained at county register of deeds offices. The lenders retain the promissory notes, as well as the servicing rights to the mortgages. The lenders can then sell these interests to investors without having to record the transaction in the public record. MERS is compensated for its services through fees charged to participating MERS members.” Mortgage Elec. Reg. Sys., Inc. v. Nebraska Depart. of Banking, 270 Neb. 529, 530, 704 N.W.2d 784 (2005)….”
A Sacramento area court ruling against the plaintiff came in an unlawful detainer hearing last Friday. Lenders and servicers are taking notice of the “sale” by trustee that was set aside in favor of a loan modification. Submitted by Steve Shafer
February 5, 2009 / Sacramento California – The Bay Area Superior Court decision and judgment against the plaintiff allows the “sale” by the trustee to be set aside in favor of a loan modification.
Lenders nationwide who originate and service loans know California offers them a “safe haven” from homeowner’s who dispute a recent foreclosure. That means overwhelming odds for anyone in foreclosure who loses their home to a lender in a foreclosure. The borrower becomes a holdover and must respond to an unlawful detainer after their home is lost.
That was not the case for an El Dorado area resident at a recent hearing for an unlawful detainer matter heard in a Placerville County superior court room. The recent victory in court was in an unlawful detainer matter for the defendant Ms. Stella Onyeu and mortgage lender and securities sponsor – AURORA LOAN SERVICES v. STELLA D. ONYEU (case number PCU2008032).
AURORA LOAN SERVICES like so many other lender servicing agents has come under greater scrutiny as of late for questionable business practices. According to its web site Aurora Loan Services is operating as usual. The company is a subsidiary of Lehman Brothers Bank, and not part of the Lehman Brothers Holding Inc. bankruptcy filing.
The case was originally filed in October of last year and shortly thereafter was dismissed when the Plaintiff failed to show at a scheduled hearing. Subsequent motions were filed to vacate the dismissal in favor of a motion to dismiss by the plaintiffs. The matter was heard recently heard again by the same court and earlier mentioned presiding judge. Mark Terbeek is the attorney for the Defendant and Maher Soliman a Juris Pro witness provided case development and court expert testimony.
This judgment for the defendant is monumental given the courts limited jurisdiction related to the lenders sole focus to have the borrower removed from the home. The issues at hand are the legal procedural limitations and high attrition rate for defendants and their attorney’s. The problem is the defendant’s lack of standing for pleading a wrongful foreclosure due to jurisdiction of the court.
So what does this all mean? Many homeowners can find some hope, for the moment, in knowing the otherwise unfriendly California UD courts will now hold some promise for hearing arguments as to the foreclosure and the plaintiffs standing. According to foreclosure and REO sales analyst Brenda Michelson of Nationwide Loan Services “It’s hit or miss at this level of the law and the courts willingness to step outside of its jurisdiction.” The smaller outlying courts seem to me to be more willing to entertain defense arguments that the plaintiff may not be the holder in due course and lacks capacity throughout the foreclosure” Terbeek’s response is that if the plaintiff cannot demonstrate a logical and properly conveyed transfer of the beneficial interest – it is not entitled to possession.
After the foreclosure and conveyance back to the trustee, the homeowner is considered unlawfully occupying the dwelling as a holdover. However, the court ruled that AURORA had in fact violated its duty to show good faith and comply accordingly under the recent California statutes and amendments Power of Sale provision. The presiding judge who heard the matter ordered a judgment against the company allowed for Terbeek to enter a request for all legal fees due.
According to legal expert Soliman, “there are more attorneys willing to now jump into the wrongful foreclosure business and fight the court on the jurisdiction issue. However, it is nearly impossible to rely on the judge and courts at this level”. Soliman is an examiner with Nationwide Loan Services and has engagements in multiple cases throughout California through attorneys such as Terbeek who represented the defendant.
Jurisdiction: An Overview
The term jurisdiction is really synonymous with the word “power” and the sovereignty on behalf of which it functions. Any court possesses jurisdiction over matters only to the extent granted to it by the Constitution, or legislation of a paramount fundamental question for lawyers is whether a given court has jurisdiction to preside over a given case. A jurisdictional question may be broken down into various components including whether there is jurisdiction over the person (in personam), the subject matter, or res (in rem), and to render the particular judgment sought.
An unlawful detainer lawsuit is a “summary” court procedure. This means that the court action moves forward very quickly, and that the time given the tenant to respond during the lawsuit is very short. For example, in most cases, the tenant has only five days to file a written response to the lawsuit after being served with a copy of the landlord’s complaint. Normally, a judge will hear and decide the case within 20 days after the borrower now tenant files an answer.
The question of whether a given court has the power to determine a jurisdictional question is itself a jurisdictional question. Such a legal question is referred to as “jurisdiction to determine jurisdiction.” In order to evict the tenant, the landlord must file an unlawful detainer lawsuit in superior court. In an eviction lawsuit, the lender is the “plaintiff” and the prior borrower and homeowners become an occupant holdover and the “defendant.” Immediately after the trustee sale of the home the conveyance by the trustee is entered in favor of the lender. Until recently in most cases the lender is with in its right foreclose if a borrower has missed a number of payments, failed to make the insurance premiums or not paid the property taxes. “But sometimes a lender is wrong and you can fight foreclosure by challenging the foreclosure process and related documents” said Soliman.
As the new owner of record AURORA HOME LOAN SERVICES must follow procedures no different than that of a landlord in a tenant occupancy dispute. The next step is to remove the homeowner from the subject dwelling. If the tenant doesn’t voluntarily move out after the landlord has properly given the required notice to the tenant, the landlord can evict the tenant. If the lender makes a mistake in its filing of the foreclosure documents a court my throw out the whole foreclosure case. In the case of a wrongful foreclosure the borrower’s claims are limited to affirmative defenses.
Unlike a judicial proceeding, California lenders need to merely wait out the mandatory term for issuing default notices and ensure it has properly served those notices to the borrower. In other words the hearing and trial taken place in the above referenced matter is not subject to arguments brought by the homeowner for wrongful foreclosure versus the question as to lawful possession of the property by the lender.
California lenders are typically limited to only the defenses a landlord will face when opposed and made subject to claims of wrongfully trying to evict a tenant. Claims such as the Plaintiff has breached the warranty to provide habitable premises, plaintiff did not give proper credit before the notice to pay or quit expired or plaintiff waived, changed, or canceled the notice to quit, or filed the complaint to retaliate against defendant are often completely unrelated to the matter at hand. The courts decision to enforce the provisions of an earlier modification in lieu of a foreclosure sends a major wake up call to the lenders who are under siege to avoid foreclose and be done with mortgage mess affecting United States homeowners. Soliman says the decision is unfortunately not likely to be read into as case precedent for future lawyers and wrongful defendants seeking to introduce our case as an example of a lenders wrongful action.
Soliman goes on to say “it’s both interesting and entertaining to see experienced attorneys who jump in and immediately question the issue of the courts authority. Its reality time when they get to their first hearing and see first hand the problematic issues with jurisdiction.”
Servicing agents are never the less on notice they must be ready to defend themselves when the opportunity to argue the plaintiffs standing are allowed in an unlawful detainer motivate by a foreclosure. Therefore, the debate about what the courts hear will remain open and subject to further scrutiny by the lawyers for both sides and judges who preside over the courts at this level.
Nationwide Loan Servicing is an approved Expert Witness who provides court testimoney in matters concerning wrongful foreclosures, Federal Savings Banks regultory violations and SEC filings for private registrations.
CA SB 94 on Lawyers & Loan Modifications Passes Assembly… 62-10
The California Assembly has passed Senate Bill 94, a bill that seeks to protect homeowners from loan modification scammers, but could end up having the unintended consequence of eliminating a homeowner’s ability to retain an attorney to help them save their home from foreclosure.
The bill, which has an “urgency clause” attached to it, now must pass the State Senate, and if passed, could be signed by the Governor on October 11th, and go into effect immediately thereafter.
SB 94’s author is California State Senator Ron Calderon, the Chair of the Senate Banking Committee, which shouldn’t come as much of a surprise to anyone familiar with the bigger picture. Sen. Calderon, while acknowledging that fee-for-service providers can provide valuable services to homeowners at risk of foreclosure, authored SB 94 to ensure that providers of these services are not compensated until the contracted services have been performed.
SB 94 prevents companies, individuals… and even attorneys… from receiving fees or any other form of compensation until after the contracted services have been rendered. The bill will now go to the Democratic controlled Senate where it is expected to pass.
Supporters of the bill say that the state is literally teeming with con artists who take advantage of homeowners desperate to save their homes from foreclosure by charging hefty fees up front and then failing to deliver anything of value in return. They say that by making it illegal to charge up front fees, they will be protecting consumers from being scammed.
While there’s no question that there have been some unscrupulous people that have taken advantage of homeowners in distress, the number of these scammers is unclear. Now that we’ve learned that lenders and servicers have only modified an average of 9% of qualified mortgages under the Obama plan, it’s hard to tell which companies were scamming and which were made to look like scams by the servicers and lenders who failed to live up to their agreement with the federal government.
In fact, ever since it’s come to light that mortgage servicers have been sued hundreds of times, that they continue to violate the HAMP provisions, that they foreclose when they’re not supposed to, charge up front fees for modifications, require homeowners to sign waivers, and so much more, who can be sure who the scammers really are. Bank of America, for example, got the worst grade of any bank on the President’s report card listing, modifying only 4% of the eligible mortgages since the plan began. We’ve given B of A something like $200 billion and they still claim that they’re having a hard time answering the phones over there, so who’s scamming who?
To make matters worse, and in the spirit of Y2K, the media has fanned the flames of irrationality with stories of people losing their homes as a result of someone failing to get their loan modified. The stories go something like this:
We gave them 1,000. They told us to stop making our mortgage payment. They promised us a principal reduction. We didn’t hear from them for months. And then we lost our house.
I am so sure. Can that even happen? I own a house or two. Walk me through how that happened again, because I absolutely guarantee you… no way could those things happen to me and I end up losing my house over it. Not a chance in the world. I’m not saying I couldn’t lose a house, but it sure as heck would take a damn sight more than that to make it happen.
Depending on how you read the language in the bill, it may prevent licensed California attorneys from requiring a retainer in advance of services being rendered, and this could essentially eliminate a homeowner’s ability to hire a lawyer to help save their home.
Supporters, on the other hand, respond that homeowners will still be able to hire attorneys, but that the attorneys will now have to wait until after services have been rendered before being paid for their services. They say that attorneys, just like real estate agents and mortgage brokers, will now only be able to receive compensation after services have been rendered.
But, assuming they’re talking about at the end of the transaction, there are key differences. Real estate agents and mortgage brokers are paid OUT OF ESCROW at the end of a transaction. They don’t send clients a bill for their services after the property is sold.
Homeowners at risk of foreclosure are having trouble paying their bills and for the most part, their credit ratings have suffered as a result. If an attorney were to represent a homeowner seeking a loan modification, and then bill for his or her services after the loan was modified, the attorney would be nothing more than an unsecured creditor of a homeowner who’s only marginally credit worthy at best. If the homeowner didn’t pay the bill, the attorney would have no recourse other than to sue the homeowner in Small Claims Court where they would likely receive small payments over time if lucky.
Extending unsecured credit to homeowners that are already struggling to pay their bills, and then having to sue them in order to collect simply isn’t a business model that attorneys, or anyone else for that matter, are likely to embrace. In fact, the more than 50 California attorneys involved in loan modifications that I contacted to ask about this issue all confirmed that they would not represent homeowners on that basis.
One attorney, who asked not to be identified, said: “Getting a lender or servicer to agree to a loan modification takes months, sometimes six or nine months. If I worked on behalf of homeowners for six or nine months and then didn’t get paid by a number of them, it wouldn’t be very long before I’d have to close my doors. No lawyer is going to do that kind of work without any security and anyone who thinks they will, simply isn’t familiar with what’s involved.”
“I don’t think there’s any question that SB 94 will make it almost impossible for a homeowner to obtain legal representation related to loan modifications,” explained another attorney who also asked not to be identified. ”The banks have fought lawyers helping clients through the loan modification process every step of the way, so I’m not surprised they’ve pushed for this legislation to pass.”
Proponents of the legislation recite the all too familiar mantra about there being so many scammers out there that the state has no choice but to move to shut down any one offering to help homeowners secure loan modifications that charges a fee for the services. They point out that consumers can just call their banks directly, or that there are nonprofit organizations throughout the state that can help homeowners with loan modifications.
While the latter is certainly true, it’s only further evidence that there exists a group of people in positions of influence that are unfamiliar , or at the very least not adequately familiar with obtaining a loan modification through a nonprofit organization, and they’ve certainly never tried calling a bank directly.
The fact that there are nonprofit housing counselors available, and the degree to which they may or may not be able to assist a given homeowner, is irrelevant. Homeowners are well aware of the nonprofit options available. They are also aware that they can call their banks directly. From the President of the United States and and U.S. Attorney General to the community newspapers found in every small town in America, homeowners have heard the fairy tales about about these options, and they’ve tried them… over and over again, often times for many months. When they didn’t get the desired results, they hired a firm to help them.
Yet, even the State Bar of California is supporting SB 94, and even AB 764, a California Assembly variation on the theme, and one even more draconian because of its requirement that attorneys only be allowed to bill a client after a successful loan modification has been obtained. That means that an attorney would have to guarantee a homeowner that he or she would obtain a modification agreement from a lender or servicer or not get paid for trying. Absurd on so many levels. Frankly, if AB 764 passes, would the last one out of California please turn off the lights and bring the flag.
As of late July, the California State Bar said it was investigating 391 complaints against 141 attorneys, as opposed to nine investigations related to loan modifications in 2008. The Bar hasn’t read anywhere all of the complaints its received, but you don’t have to be a statistician to figure out that there’s more to the complaints that meets the eye. So far the State Bar has taken action against three attorneys and the Attorney General another four… so, let’s see… carry the 3… that’s 7 lawyers. Two or three more and they could have a softball team.
At the federal level they’re still reporting the same numbers they were last spring. Closed 11… sent 71 letters… blah, blah, blah… we’ve got a country of 300 million and at least 5 million are in trouble on their mortgage. The simple fact is, they’re going to have to come up with some serious numbers before I’m going to be scared of bumping into a scammer on every corner.
California’s ALT-A and Option ARM mortgages are just beginning to re-set, causing payments to rise, and with almost half of the mortgages in California already underwater, these homeowners will be unable to refinance and foreclosures will increase as a result. Prime jumbo foreclosure rates are already up a mind blowing 634% as compared with January 2008 levels, according to LPS Applied Analytics.
Clearly, if SB 94 ends up reducing the number of legitimate firms available for homeowners to turn to, everyone involved in its passage is going to be retiring. While many sub-prime borrowers have suffered silently through this horror show of a housing crisis, the ALT-A and Option ARM borrowers are highly unlikely to slip quietly into the night.
There are a couple of things about the latest version of SB 94 that I found interesting:
1. It says that a lawyer can’t collect a fee or any other compensation before serivces have been delivered, but it doesn’t make clear whether attorneys can ask the client to deposit funds in the law firm’s trust account and then bill against thsoe funds as amounts are earned. Funds deposited in a law firm trust account remain the client’s funds, so they’re not a lawyer’s “fees or other compensation”. Those funds are there so that when the fees have been earned, the lawyer doesn’t have to hope his or her bill gets paid. Of course, it also says that an attorney can’t hold any security interest, but money in a trust account a client’s money, the attorney has no lien against it. All of this is a matter of interpretation, of course, so who knows.
2. While there used to be language in both the real estate and lawyer sections that prohibited breaking up services related to a loan modification, in the latest version all of the language related to breaking up services as applied to attorneys has been eliminated. It still applies to real estate licensed firms, but not to attorneys. This may be a good thing, as at least a lawyer could complete sections of the work involved as opposed to having to wait until the very end, which the way the banks have been handling things, could be nine months away.
3. The bill says nothing about the amounts that may be charged for services in connection with a loan modification. So, in the case of an attorney, that would seem to mean that… well, you can put one, two and three together from there.
4. Lawyers are not included in definition of foreclosure consultant. And there is a requirement that new language be inserted in contracts, along the lines of “You don’t have to pay anyone to get a loan modification… blah, blah, blah.” Like that will be news to any homeowner in America. I’ve spoken with hundreds and never ran across one who didn’t try it themselves before calling a lawyer. I realize the Attorney General doesn’t seem to know that, but look… he’s been busy.
Will SB 94 actually stop con artists from taking advantage of homeowners in distress? Or will it end up only stopping reputable lawyers from helping homeowners, while foreclosures increase and our economy continues its deflationary free fall? Will the California State Bar ever finishing reading the complaints being received, and if they ever do, will they understand what they’ve read. Or is our destiny that the masses won’t understand what’s happening around them until it sucks them under as well.
I surely hope not. But for now, I’m just hoping people can still a hire an attorney next week to help save their homes, because if they can’t… the Bar is going to get a lot more letters from unhappy homeowners.
By Walter Hackett, Esq.
The federal government has trumpeted its Home Affordable Modification Program or “HAMP” solution as THE solution to runaway foreclosures – few things could be further from the truth. Under HAMP a homeowner will be offered a “workout” that can result in the homeowner being “worked out” of his or her home. Here’s how it works. A participating lender or servicer will send a distressed homeowner a HAMP workout agreement. The agreement consists of an “offer” pursuant to which the homeowner is permitted to remit partial or half of their regular monthly payments for 3 or more months. The required payments are NOT reduced, instead the partial payments are placed into a suspense account. In many cases once enough is gathered to pay the oldest payment due the funds are removed from the suspense account and applied to the mortgage loan. At the end of the trial period the homeowner will be further behind than when they started the “workout” plan.
In California, the agreements clearly specify the acceptance of partial payments by the lender or servicer does NOT cure any default. Further, the fact a homeowner is in the workout program does NOT require the lender or servicer to suspend or postpone any non-judicial foreclosure activity with the possible exception of an actual trustee’s sale. A homeowner could complete the workout plan and be faced with an imminent trustee’s sale. Worse, if a homeowner performs EXACTLY as required by the workout agreement, they are NOT assured a loan modification. Instead the agreement will include vague statements that the homeowner MAY receive an offer to modify his or her loan however there is NO duty on the part of the servicer or lender to modify a loan regardless of the homeowner’s compliance with the agreement.
A homeowner who fully performs under a HAMP workout is all but guaranteed to have given away thousands of dollars with NO assurance of keeping his or her home or ever seeing anything resembling an offer to modify a mortgage loan.
While it may well be the case the government was making an honest effort to help, the reality is the HAMP program is only guaranteed to help those who need help least – lenders and servicers. If you receive ANY written offer to modify your loan meet with a REAL licensed attorney and ask them to review the agreement to determine what you are REALLY agreeing to, the home you save might be your own.
By Michael Powell – NY Times – 8/30/09
The judge waves you into his chambers in the State Supreme Court building in Brooklyn, past the caveat taped to his wall — “Be sure brain in gear before engaging mouth” — and into his inner office, where foreclosure motions are piled high enough to form a minor Alpine chain.
“I don’t want to put a family on the street unless it’s legitimate,” Justice Arthur M. Schack said.
Every week, the nation’s mightiest banks come to his court seeking to take the homes of New Yorkers who cannot pay their mortgages. And nearly as often, the judge says, they file foreclosure papers speckled with errors.
He plucks out one motion and leafs through: a Deutsche Bank representative signed an affidavit claiming to be the vice president of two different banks. His office was in Kansas City, Mo., but the signature was notarized in Texas. And the bank did not even own the mortgage when it began to foreclose on the homeowner.
The judge’s lips pucker as if he had inhaled a pickle; he rejected this one. “I’m a little guy in Brooklyn who doesn’t belong to their country clubs, what can I tell you?” he says, adding a shrug for punctuation. “I won’t accept their comedy of errors.”
The judge, Arthur M. Schack, 64, fashions himself a judicial Don Quixote, tilting at the phalanxes of bankers, foreclosure facilitators and lawyers who file motions by the bale. While national debate focuses on bank bailouts and federal aid for homeowners that has been slow in coming, the hard reckonings of the foreclosure crisis are being made in courts like his, and Justice Schack’s sympathies are clear. He has tossed out 46 of the 102 foreclosure motions that have come before him in the last two years. And his often scathing decisions, peppered with allusions to the Croesus-like wealth of bank presidents, have attracted the respectful attention of judges and lawyers from Florida to Ohio to California. At recent judicial conferences in Chicago and Arizona, several panelists praised his rulings as a possible national model.
His opinions, too, have been greeted by a cry of affront from a bank official or two, who say this judge stands in the way of what is rightfully theirs. HSBC bank appealed a recent ruling, saying he had set a “dangerous precedent” by acting as “both judge and jury,” throwing out cases even when homeowners had not responded to foreclosure motions. Justice Schack, like a handful of state and federal judges, has taken a magnifying glass to the mortgage industry. In the gilded haste of the past decade, bankers handed out millions of mortgages — with terms good, bad and exotically ugly — then repackaged those loans for sale to investors from Connecticut to Singapore. Sloppiness reigned. So many papers have been lost, signatures misplaced and documents dated inaccurately that it is often not clear which bank owns the mortgage.
Justice Schack’s take is straightforward, and sends a tremor through some bank suites: If a bank cannot prove ownership, it cannot foreclose. “If you are going to take away someone’s house, everything should be legal and correct,” he said. “I’m a strange guy — I don’t want to put a family on the street unless it’s legitimate.”
Justice Schack has small jowls and big black glasses, a thin mustache and not so many hairs combed across his scalp. He has the impish eyes of the high school social studies teacher he once was, aware that something untoward is probably going on at the back of his classroom. He is Brooklyn born and bred, with a master’s degree in history and an office loaded with autographed baseballs and photographs of the Brooklyn Dodgers. His written decisions are a free-associative trip through popular, legal and literary culture, with a sideways glance at the business pages.
Confronted with a case in which Deutsche Bank and Goldman Sachs passed a defaulted mortgage back and forth and lost track of the documents, the judge made reference to the film classic “It’s a Wonderful Life” and the evil banker played by Lionel Barrymore. “Lenders should not lose sight,” Justice Schack wrote in that 2007 case, “that they are dealing with humanity, not with Mr. Potter’s ‘rabble’ and ‘cattle.’ Multibillion-dollar corporations must follow the same rules in the foreclosure actions as the local banks, savings and loan associations or credit unions, or else they have become the Mr. Potters of the 21st century.”
Last year, he chastised Wells Fargo for filing error-filled papers. “The court,” the judge wrote, “reminds Wells Fargo of Cassius’s advice to Brutus in Act 1, Scene 2 of William Shakespeare’s ‘Julius Caesar’: ‘The fault, dear Brutus, is not in our stars, but in ourselves.’ ”
Then there is a Deutsche Bank case from 2008, the juicy part of which he reads aloud:
“The court wonders if the instant foreclosure action is a corporate ‘Kansas City Shuffle,’ a complex confidence game,” he reads. “In the 2006 film ‘Lucky Number Slevin,’ Mr. Goodkat, a hit man played by Bruce Willis, explains: ‘A Kansas City Shuffle is when everybody looks right, you go left.’ ”The banks’ reaction? Justice Schack shrugs. “They probably curse at me,” he says, “but no one is interested in some little judge.”
Little drama attends the release of his decisions. Beaten-down homeowners rarely show up to contest foreclosure actions, and the judge scrutinizes the banks’ papers in his chambers. But at legal conferences, judges and lawyers have wondered aloud why more judges do not hold banks to tougher standards.
“To the extent that judges examine these papers, they find exactly the same errors that Judge Schack does,” said Katherine M. Porter, a visiting professor at the School of Law at the University of California, Berkeley, and a national expert in consumer credit law. “His rulings are hardly revolutionary; it’s unusual only because we so rarely hold large corporations to the rules.”
Banks and the cottage industry of mortgage service companies and foreclosure lawyers also pay rather close attention. A spokeswoman for OneWest Bank acknowledged that an official, confronted with a ream of foreclosure papers, had mistakenly signed for two different banks — just as the Deutsche Bank official did. Deutsche Bank, which declined to let an attorney speak on the record about any of its cases before Justice Schack, e-mailed a PDF of a three-page pamphlet in which it claimed little responsibility for foreclosures, even though the bank’s name is affixed to tens of thousands of such motions. The bank described itself as simply a trustee for investors.
Justice Schack came to his recent prominence by a circuitous path, having worked for 14 years as public school teacher in Brooklyn. He was a union representative and once walked a picket line with his wife, Dilia, who was a teacher, too. All was well until the fiscal crisis of the 1970s.
“Why’d I go to law school?” he said. “Thank Mayor Abe Beame, who froze teacher salaries.”
He was counsel for the Major League Baseball Players Association in the 1980s and ’90s, when it was on a long winning streak against team owners. “It was the millionaires versus the billionaires,” he says. “After a while, I’m sitting there thinking, ‘He’s making $4 million, he’s making $5 million, and I’m worth about $1.98.’ ”
So he dived into a judicial race. He was elected to the Civil Court in 1998 and to the Supreme Court for Brooklyn and Staten Island in 2003. His wife is a Democratic district leader; their daughter, Elaine, is a lawyer and their son, Douglas, a police officer.Justice Schack’s duels with the banks started in 2007 as foreclosures spiked sharply. He saw a plague falling on Brooklyn, particularly its working-class black precincts. “Banks had given out loans structured to fail,” he said.
The judge burrowed into property record databases. He found banks without clear title, and a giant foreclosure law firm, Steven J. Baum, representing two sides in a dispute. He noted that Wells Fargo’s chief executive, John G. Stumpf, made more than $11 million in 2007 while the company’s total returns fell 12 percent. “Maybe,” he advised the bank, “counsel should wonder, like the court, if Mr. Stumpf was unjustly enriched at the expense of W.F.’s stockholders.”
He was, how to say it, mildly appalled. “I’m a guy from the streets of Brooklyn who happens to become a judge,” he said. “I see a bank giving a $500,000 mortgage on a building worth $300,000 and the interest rate is 20 percent and I ask questions, what can I tell you?”