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Court Systems Wakes up to Loan Securitization | Nov 15, 2012

By Daniel L. McGookey

Four years ago, when the housing market bubble burst,  and I became   involved in securitized mortgage loan defense (not simply  foreclosure   defense), I learned our judicial system was like a sleeping giant – it   was going to take courts time to wake up and understand the brand-new    world of loan securitization, and how that world fit within   long-standing  principles of law. That waking-up process has seemed   painfully slow at times.  However, the story of Daniel presents clear   evidence that judges are heading  down the right path in enforcing rules   of law when it comes to foreclosure  cases.

As has happened to hundreds of thousands, if not  millions, of   homeowners defending their homes against foreclosure, Daniel  suffered an   adverse judgment based upon a vague and generic affidavit which  was   executed by an employee of the loan servicer, rather than the loan owner    or holder. Of course, being prepared by a lawyer, the affidavit   contained all  the appropriate catch phrases meant to mislead the judge   into believing  everything was in order, and there was no reason to   continue to waste  everyone’s time by requiring a trial. Those phrases   included statements  identifying the affiant as an officer of the loan   servicer; that as such, he  had access to the “business records,” and   that those records “were kept in the  course of a regularly-conducted   business.”

Generally in the past, courts would simply take a  cursory look   at these self-serving statements and find that they were  sufficient to   justify foreclosure judgment. After all,  the only real  questions   needing to be answered were whether the homeowner signed the loan  and   whether he or she missed any payments, or so they reasoned. The answer    to both these questions was always “yes”, and the foreclosure gavel   would thus  slam down. This highly simplistic approach demonstrated an   alarming ignorance  of how securitized lending works, no doubt resulting   in many, many homeowners  being denied their day in court. And, because   there is fraud involved in every  securitized loan, the bank never wants   to go to trial. In other words, banks  were used to pushing their   foreclosure cases through the courts without anyone  really looking at   the pleadings to make sure things were in order.

But maybe no more! Fortunately for Daniel, the court of appeals    reversed the trial court’s award of foreclosure judgment prior to trial.   In a  decision which will speak loud and clear to trial courts in many   foreclosure  cases to come, the appellate court rejected the court’s   extremely lax approach  to the protection of Daniel’s rights. On several   critical fronts, it raised  the bar of proof substantially higher than it   was previously set. First, the  court determined that a mere assertion   by the affiant of personal knowledge  does not necessarily end the   inquiry. An examination of how that person has  knowledge must be   conducted to ensure that he or she in fact has it.

Further, when it comes to business records, the court  questioned   what those records were, and whether the affiant could testify as  to   the accuracy of the maintenance and retrieval processes in place. Again,    the court found the affidavit defective. In conclusion, the appellate   court  reversed the trial court’s judgment and restored Daniel’s right to   his day in  court. That fact will make all the difference in Daniel’s   fight to save his  home. The lesson in Daniel’s story is that every   pleading filed by banks in  support of a foreclosure, especially   affidavits, must be put to careful  scrutiny. As a homeowner facing   foreclosure, you must be prepared to point out  with particularity   defects in the pleadings  so that the court will call  a time out before   rushing to judgment.


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