In the January issue of DS NEWS, we have included an article regarding the ability of the judiciary to sanction mortgage foreclosure defense attorneys for delay tactics

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BEst PraCtiCEs
When it comes to contested
residential foreclosures, justice is
commonly deferred.
By Michael J. Barker, Frank G. Cosmen,
and David L. Ward
F
amed 19th century British statesman Common Methods of Delay the course of a single lawsuit. When a
William Ewart Gladstone once Perhaps the most common delay tactic defaulting borrower who is a defendant in a
stated, “Justice delayed is justice is claiming frivolous and/or inapplicable foreclosure action files for bankruptcy, the
denied.” This axiom is as widely affirmative defenses. Often, these affirmative underlying foreclosure action is subject to
accepted as true today as it was nearly 200 defenses include alleged violations of the an automatic stay. The lender plaintiff must
years ago. However, in the contentious and Truth in Lending Act (TILA), the Real move the bankruptcy court to have the stay
messy world of contested residential mortgage Estate Settlement Procedures Act (RESPA), lifted and/or move to dismiss the petition
foreclosures, delays are an increasing obstacle for and Home Ownership and Equity Protection for bad faith. Typically, this tactic will delay
bank attorneys. The improper use of delay tactics Act (HOEPA). In many cases, foreclosure the underlying foreclosure action for a few
unnecessarily complicates cases that are, in defense attorneys are successful in using these months or more.
essence, basic breaches of contract. Excess delays complex federal statutes to delay proceedings Some foreclosure defense attorneys
burden lender plaintiffs with higher litigation and thwart summary judgment, thereby routinely respond to a foreclosure complaint
costs and attorneys’ fees, waste court resources, forcing the suit to trial. Even in cases where by filing groundless motions to dismiss or
clog already overburdened court dockets, and, as creditors’ rights attorneys are successful in motions to strike instead of answering the
Gladstone would say, deny justice. eliminating a debtor’s frivolous affirmative complaint. In many cases, these motions
Already suspect in the minds of many defenses, often a great amount of time and contain baseless boilerplate arguments such
Americans, the reputation of the banking effort is expended doing so, further wasting as claiming the lender lacks standing or has
industry was tarnished by the housing court resources and increasing litigation costs. failed to state a cause of action. No matter
crisis and current economic recession. Another common delay tactic is to file how baseless the argument, the lender must
Most critics attributed the lion’s share a motion with the court seeking leave to eliminate the motion to dismiss before the
of the blame for the bursting of the amend the defaulting borrower’s affirmative foreclosure action can move forward. This
housing market bubble and the subsequent defenses on the eve of summary judgment. In means setting the motion for hearing and
recession squarely on the shoulders of the most jurisdictions, a plaintiff may move for raising oral arguments before the court. In
banking industry. However, objectively summary judgment only when the pleadings jurisdictions where the courts are already
speaking, given the enormous complexity are “closed” (i.e., there are no outstanding clogged with foreclosure cases, getting
and variables involved, it is impossible to motions directed at a party’s last pleading). hearing time can be difficult, resulting in
ascertain with any degree of accuracy a Many states have a liberal policy regarding the further delays.
singular cause or even group of causes for amendment of pleadings, which is commonly Another delay tactic involves inundating
the current foreclosure crisis and economic abused. For example, seeking leave of court the lender plaintiff with burdensome and
downturn. Like the collapse of the stock to amend a defendant’s answer is often a sure unnecessary discovery requests and/or seeking
market in 1929 and the subsequent Great way to push off a summary judgment. Some unnecessary depositions. Some debtors, at the
Depression, historians and academics foreclosure defense attorneys will utilize this behest of their attorneys, will avoid service
will debate and promulgate various and tactic multiple times in a single case. of process for as long as possible. In some
divergent interpretations of the current In recent years, filing for bankruptcy instances, debtors were reported intentionally
economic recession for decades to come. In protection for the sole purpose of stalling defaulting when served with a foreclosure
the meantime, some feel justified employing summary judgment or stopping a foreclosure complaint. Then, just before the hearing, they
dilatory tactics in straightforward sale has become increasingly popular. Some moved the court to have the clerk’s default set
foreclosure cases simply because of the defendants are serial filers and file multiple aside. Others agree to hearing or mediation
stigma against banks. petitions with the bankruptcy court during dates and then cancel at the last minute,
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filing frivolous “emergency” motions just Of course, the foreclosure defense attorney the offensive motion or frivolous affirmative
before a property is scheduled to be sold at receives a monthly fee for his or her services. defense. If the opposing party fails to
foreclosure sale. Some file baseless objections This is particularly frustrating when the withdraw the motion or affirmative defense,
to sale after a foreclosure sale in order to stall property in litigation is a rental property. In the motion for sanctions may then be filed
transfer of title to the lender. In a few cases, Florida, a vacation destination where rental with the court. More often than not, sending
some foreclosure defense attorneys even filed property is commonplace, some defaulting a safe harbor letter is enough to convince
groundless appeals simply to stall a foreclosure borrowers pocket rental payments for years an adversary to stop improperly delaying
sale or delay issuance of the certificate of title. while not making their monthly mortgage litigation.
payments, paying insurance, or paying taxes Recently, an appellate decision in Florida
Delaying the Inevitable on the property. Although courts in some caused a bit of a stir for attorneys playing the
There appear to be two major reasons for jurisdictions permit lenders to collect such delay game. In the matter, Korte v. U.S. Bank
contesting and delaying a foreclosure action. rents, many of the firms handling such cases Nat. Ass’n, the Florida 4th District Court
The first is to force the lender to negotiate are simply overwhelmed and fail to pursue of Appeal upheld the lower court’s decision
with the defaulting borrower. Unlike this remedy. to sanction foreclosure defense counsel for
the common stereotype, the majority of raising frivolous affirmative defenses for
defaulting borrowers are not unsophisticated Combating Dilatory Tactics– purposes of delay. In Korte, defense counsel
people tricked into agreeing to the onerous Seeking Sanctions raised several defenses for failure to comply
terms of subprime mortgages by the predatory During the course of litigation, bank with the disclosure requirements required
lending practices of morally corrupt bankers. attorneys must attempt to explain to their by TILA. Plaintiff’s counsel filed a motion
Instead, many defaulting borrowers possess frustrated clients why the remedy they for sanctions claiming that the borrowers’
fixed-rate mortgages that were obtained seek from the courts takes years to obtain defenses were “knowingly false and frivolous.”
during the housing boom between 2001 and at great expense. Increasingly, many bank Defense counsel admitted that he did not
2007 when values in the housing market attorneys are beginning to use what is really verify the validity of the affirmative defenses
were inflated. Now the bubble has burst, and their only effective weapon for combating with his clients. Moreover, one of the
many borrowers are upside down on their dilatory tactics: seeking sanctions against borrowers testified during deposition that
mortgages. In many foreclosure actions, the opposing counsel. Once a rarely used remedy defense counsel never discussed the defense
defaulting borrowers can still afford to pay of last resort, motions for sanctions are with her and that she had never seen them.
their mortgages. However, they simply do not becoming more commonplace. Sometimes The trial court sanctioned defense counsel by
want to pay for a home that today is worth less just threatening sanctions is enough to striking the affirmative defenses and awarding
(in some cases, significantly less) than what persuade an unscrupulous foreclosure attorneys’ fees in the amount of $39,246.58.
they originally paid for it. defense attorney to withdraw a What is striking about the Korte
Usually, these borrowers first attempt frivolous affirmative defense or decision is that in addition to awarding
to get their lender to agree to refinance baseless motion. This increased the plaintiff attorneys’ fees in the amount
or modify the mortgage but to no avail. readiness to seek sanctions is of $20,563.59, the Florida 4th District
Frustrated, sometimes with the advice of an already beginning to bear Court of Appeal also upheld the
attorney, these borrowers intentionally default fruit in Florida, a state where lower court’s decision to award
on the loan in an attempt to force the lender the foreclosure crisis is the plaintiff $18,682.99 in
to agree to a loan modification or, in some particularly acute. so-called “delay damages.”
cases, to agree to a deed-in-lieu of foreclosure In Florida, a party is These delay damages were
or short sale. Some of these borrowers may permitted to seek sanctions, calculated summing up the
hire a foreclosure defense attorney simply to including attorneys’ fees interest that accumulated on
delay the foreclosure proceedings, thereby and costs, against a party the note for 357 days. The
increasing the costs. If all goes as planned, who asserts a claim or trial court ordered that these
under the pressure of mounting losses on the defense not supported by funds be deposited in the
property, the lender will agree to negotiate a the material facts and/ court’s registry pending
loan modification that is more favorable to the or files baseless motions, the outcome of the
borrowers. discovery, claims, or case. For bank
The second major reason to delay defenses for purposes of attorneys playing
foreclosure is simply to allow the defaulting “unreasonable delay.” This the delay game in a
borrower to remain in possession of the statute requires the party seeking state saturated with
property for as long as possible. This enables sanctions to provide opposing foreclosure actions,
the borrower to pocket as much money as counsel 21 days’ notice of his the Korte decision
he or she can instead of paying mortgage or her intent to seek sanctions. was a much welcomed
payments, insurance, HOA fees, condo dues/ Commonly referred to as a “safe victory and vindication
assessments, and/or taxes. By not making harbor letter,” the motion for for years of frustrating
these payments, sometimes for years, some sanctions is usually attached to delays. The concept of “delay
defaulting borrowers are able to amass large a letter, thereby permitting the damages” as a sanction is
sums of cash at the expense of the lender. other side 21 days to withdraw particularly important.
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Traditionally, sanctions imposed by a court court ordered that both defense counsel
usually consist of dismissing a frivolous, and the defaulting borrowers be jointly and
pleading, motion, claim, or defense and/ severally liable for the appellant’s attorneys’
or the award of attorneys’ fees and litigation fees and sanctions. In addition, the appellate
costs. The Korte decision creates an additional court referred defense counsel to the Florida
category of damages. Foreclosure defense Bar to determine whether professional
attorneys who partake in dilatory tactics discipline was warranted.
now risk being held liable for the interest Similar holdings are beginning to
that accrues during the time period that the
emerge in other states as well. For example,
foreclosure proceedings are delayed by their
the Court of Appeals in Georgia recently
frivolous defenses or baseless motions. As
imposed a “frivolous appeal penalty,” where
exemplified by the Korte matter, the amount
of the delay damages can be quite high. In foreclosure defense counsel, in order to delay
addition, not only does the Korte decision the foreclosure proceedings, filed a baseless
provide precedent for the award of “delay appeal “for purposes of delay only.” In Texas,
damages,” but it also provides impetus for the Court of Appeals recently upheld the
bank attorneys to more readily seek sanctions trial court’s decision to impose sanctions
against unscrupulous adversaries. in the amount of $25,000 against defense
In the recent matter JPMorgan Chase counsel who utilized dilatory tactics to delay
Bank v. Hernandez, the Florida 3rd District foreclosure, including filing four petitions for
Court of Appeal imposed sanctions against bankruptcy for purposes of delay, all of which
foreclosure defense counsel and the debtors were dismissed.
for filing fabricated documents with the court It remains to be seen whether decisions
in order to delay a foreclosure sale. The facts such as Korte are a harbinger for a new phase Listen closely to the beat
of this case show the extremes to which some in the delay game where bank attorneys more of the industry.
foreclosure defense attorneys will go to delay aggressively play the sanction card against
foreclosure proceedings. In JPMorgan Chase foreclosure defense attorneys who improperly
Bank v. Hernandez, the defaulting borrowers DS News—keeping you
utilize dilatory tactics. At minimum,
failed to file affirmative defenses, and the
foreclosure defense attorneys should now in sync with success.
trial subsequently entered final judgment of
at least be on notice that they may be held
mortgage foreclosure on behalf of JPMorgan Subscribe today.
Chase (successor in interest to Washington liable for the delays caused by filing frivolous
Mutual Bank). Just prior to the foreclosure defense and baseless motions. Some interpret
sale, defaulting borrowers “inexplicably these recent decisions to indicate more
recorded a new, unilateral promissory note, willingness on the part of the judiciary to
which, by its terms, purported to change impose sanctions on defense counsel whose
Washington Mutual into a borrower and dilatory tactics continue to clog already
the debtors into lenders.” In addition to the overburdened dockets with foreclosure
fraudulent unilateral promissory note, the actions. If this interpretation is true, seeking
defaulting borrowers also filed a Notice sanctions against unscrupulous foreclosure
of Intent to Discharge, which, incredibly, defense attorneys may be one of the keys to
purported to release the bank from its getting the country out of this foreclosure
obligation to the loan under the terms of the mess. Then maybe, as the foreclosure crisis
fabricated unilateral note. Despite blatant continues to unfold, lender plaintiffs will
recording errors, conflicting dates on the have the justice that has been improperly
documents, and the sheer absurdity of the delayed for so long and the foreclosure crisis
terms of the fraudulent unilateral note,
will begin to fade away. Only then will
defense counsel somehow convinced the
the housing market begin to recover and,
trial court that the entire debt had been
perhaps, even finally put an end to the Great
discharged and to vacate the final judgment,
discharge the lis pendens, and dismiss the Recession.
complaint for foreclosure. On appeal, the Michael J. Barker, Esq.; Frank G. Cosmen,
Florida 3rd District Court of Appeal was Esq.; and David L. Ward, Esq., are members
incensed at the “abuse of legal processes, of Quintairos, Prieto, Wood & Boyer, P.A., a
which demands a more detailed review, and full-service business law firm. Barker, Cosmen,
clear message that frivolous appeals will be and Ward focus on real estate litigation, default
Call 214.525.6700 or visit DSNews.com.
sanctioned.” Beacause both defense counsel servicing, debt collections, and foreclosure
and his clients were culpable, the appellate litigation.
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