Recently I had a discussion with a California attorney named David who defends homeowners against foreclosures. David also allowed that he had once worked for a law firm that defended banks, so the combination of those two sides of David’s experience were of course completely tantalizing to me. He agreed to be interviewed and I sent him some questions via email. What follows are David’s unedited answers to my 6 questions, along with an introduction by David himself.
Make sure you check out the whole thing, as David comments on Glaski and the granting of certiorari by the California Supreme Court to the Yvanova case (which held essentially the opposite of Glaski), as well as efforts to convert California from a non-judicial foreclosure state to a judicial one.
PREFACE: I have to preface my answers here by pointing out that I am a practicing lawyer here in California. As such, that is going to color my beliefs and my answers to these questions. I actively represent homeowners in foreclosure matters in California courts. If one wants to know what a lawyer thinks of this subject, my answers will be useful. If one believes that all lawyers are evil then what I say will not be of interest. I am just going to go ahead and answer things from my perspective and if one has or is contemplating legal action over a bad foreclosure, hopefully I will provide some useful information.
LRM: You remarked that you were used to case law that says “the banks win.” Can you elaborate on that?
Regarding case law that says “banks win” in California – In California there seems to be much case law that has developed over a long time, which effectively rules out many of the legal issues which can be successful in other states.
“Show me the note” defenses, for example don’t work in California.
Securitization arguments, with the narrow exception of the Glaski decision, which is currently being reviewed by the California Supreme Court, don’t work. There is even case law that an oral agreement or promise to delay a foreclosure sale is not enforceable by the homeowner, due to the fact that it is not in writing and should be considered an “oral modification to a written contract.” There is law that says once a Trustee’s Deed Upon Sale (the document that is created when title transfers at the foreclosure sale auction) is recorded, there is a legal presumption that the sale was conducted fairly. There is case law that says a homeowner doesn’t have “standing” to object to defects in the securitization process. It all adds up.
The net effect is that it limits the ways in which one can challenge a foreclosure. Even so, the only real chance one has of saving the home (as opposed to merely suing for damages post-foreclosure) is to get to court somehow before the foreclosure sale takes place, because once that TDUS is issued, it is all downhill for the banks. After that point, one can sue for money damages, but to get the house back you would usually need to prove fraud, which is proven to a higher burden of proof.
This is all in addition to the fact that non-judicial foreclosures are used 90-plus percent of the time here (as opposed to judicial foreclosures, which are in essence a lawsuit to obtain foreclosure and are the sole remedy foreclosing in some states), and when paired with a subsequent UD decision, it sometimes seems there is no due process to the homeowner. I could go on and on.
As lawyers practicing in this area in California, we’re often regaled by examples of how lawyers from other states “do it”, sometimes even by those lawyers. Anyone who has practiced can tell you however, that in California we have some of the most aggressive litigators there are. It is just that we are faced with a set of laws here which make it a very different playing field from, say, Florida. That being said, if you have a good case, pursue it timely, and hire a good attorney, there are still things that can be done to help you.
LRM: Do other attorneys (no names necessary, of course) that you have talked to feel that way?
The quick answer is yes. Well, good ones do. The quick buck artists, and those who are just too uninformed to know better don’t.
There are a lot of people who are well-meaning, but are inadequately informed.
But lawyers who are involved and knowledgeable about litigating these cases are aware of the challenges that we face here in California.
LRM: You mentioned you had done work defending loan servicers–how did you get into and then out of that?
Since law school I have always been very adept at contractual law issues, earning top scores in several contractual-related courses. In part that was due to the fact that I studied economics as an undergrad and necessarily had some knowledge of banking and financial systems. Contractual law is something that I always have always found very second-nature.
Due to the glut of lawyers, most of the jobs that were available were for tort lawyers, and for the first few years of my experience I worked at some of the well-established local insurance defense firms. I worked for a very well-regarded local trial lawyer for several years, where I got invaluable experience. So, I received great training as a litigator, learned a lot about courtroom strategy, but I wanted to try something new. In the late 90s I was offered a job in the litigation department of a local firm that defended banks in wrongful foreclosure actions. It turned out that foreclosures were at a 22-year low at that point, but this firm had received a few wrongful foreclosure cases. I and other lawyers there worked hard and resolved those cases, some with trial and others without, and the work dried up.
I stayed there long enough to learn mortgage and foreclosure law well. I then put that to use years later in handling mortgage cases, including wrongful foreclosure cases for homeowners, and suits against loan modification law firms. (One of the things I do for my clients is I try to get their funds back from any loan modification or forensic audit or other foreclosure prevention scams).
The law remained largely unchanged for the next few years, until the National Mortgage Settlement and the Homeowners Bill of Rights legislation. When the HBOR was passed, a friend of mine extended me an offer to work on a contract basis full time for a local firm that represented servicers. My workload wasn’t what it could be so I took the assignment. That particular firm was counting on the HBOR having the result of turning California into a de facto “judicial foreclosure state” where non-judicial foreclosures were an option but where banks and lenders preferred to use the judicial foreclosure remedy. That business model didn’t take off and in retrospect seems rather foolish – banks and servicers love non-judicial foreclosures, they are cheaper, quicker, and the lack of due process to the homeowner means that there is a greater chance of succeeding. So, that is how I got out of working on the banking end.
But the good thing is that I got a very close inside view of what the banking industry, and the foreclosure law firm industry, thinks about the HBOR and its various issues. Many of the issues with the HBOR and the National Mortgage Settlement will take years to develop, as caselaw develops slowly (take Glaski for instance).
Since then, I have further engaged on the consumer side and have continued to get training and attend classes, participate in lawyers’ list serves, and to network with other attorneys to remain knowledgeable about the cutting edge of wrongful foreclosure litigation in California.
LRM: Did you learn anything useful regarding foreclosure defense while behind enemy lines (i.e., defending servicers)?
Yes, very much so. There is no substitute for being employed at a firm that does one thing all day long, learning from others who have done the same. And I have to say that many of the issues I see foreclosure lawyers pursuing or inquiring about are complete non-starters here in California. My training allows me to be more selective and more accurate in my case evaluation. I know what works, what causes one to lose credibility with the Court, and how to deal with banking lawyers.
Many of the banking lawyers are fundamentally decent people, and if one starts accusing them of being in collusion with the banks and servicers to “steal the house,” suing the lawyers, etc. – which all might make for great grandstanding to non-lawyers – but without proof to support those claims it never goes anywhere (without proof) and it guts any respect the court or opposing counsel has for the case or the attorney. While most people tend to think of lawyers as powerful, equating an associate at a law firm who represents banks to a high level “bankster” would be like accusing the teller at your local branch of getting rich on the TARP bailouts. During the time, both times actually, that I worked on the “other side” of things, I was never asked to do anything unethical.
One thing I did learn from working on that side is that the quality of work by the plaintiff bar is usually substandard. For example, we would often see pleadings submitted by attorneys that contained very little in the way of supporting factual allegations. And we would frequently see Complaints which attempted to plead theories of liability that are not valid under California law. And I am talking about work coming from lawyers, not the work of pro per litigants and legal aid services (which usually have some of the same problems, in addition to the absence of an attorney). Quite often the Complaints and legal work would seem as if there were no underlying legal issue of merit, because if there had been, it certainly wasn’t being advanced in the papers that were filed. So, after awhile, one begins to get the feel for what one has to do to build credibility to the case.
I also learned that there are so many meritless (or at least poorly litigated) foreclosure cases, that if you can be the one who makes your case stand out and appear to have some merit, you can get a favorable resolution working with bank lawyers. Often the goal of wrongful foreclosure litigation is to encourage the bank to either stop a foreclosure proceeding, or to enter into a monetary settlement with the Plaintiff. Sometimes the bank will offer new loan terms, and forego the foreclosure, as a part of a settlement. One must litigate in a manner that builds credibility if this is to happen.
If one appears to be merely engaging in delay tactics, or pursuing litigation to see if the bare fact of a lawsuit – any lawsuit – is going to cause a bank to change its approach, in my experience the days of success for those strategies are few. Unfortunately, the majority of the cases I saw when I was on the “other side” were of that nature. And often, the eventual result of such approaches is that the client is left in a financially worse position – after paying attorneys fees, court costs, and any additional fees to the other side – from pursuing questionable cases.
So, what I try to do is to handle a case in such a way that the banks and the courts and the decision makers will take it seriously. And that includes having a professional relationship with, and respect for the other counsel.
I feel like what I‘ve learned has value, and is a fairly rare commodity in the plaintiff’s bar. I’m not going to risk my credibility in the legal field by engaging in a liar’s contest with the lawyers and non-lawyers who are not as qualified.
Of course, I’ve learned things on the plaintiff’s side as well. I’ve learned how emotional people get over losing a home, and how attached they are to their houses. I am humbled to have as a friend a former client who told me that his mortgage case, which involved a wrongful foreclosure, was the most difficult thing he’s ever gone through in his life. I enjoy the camaraderie that one gets from dealing with a “real” person (as opposed to someone working in the loss mitigation department of a corporation) and especially like achieving good results for real people.
LRM: Do you think judges are naive about the foreclosure fraud or do you think they’re somehow in on it, even if being “in on it” means not “opening the floodgates”? What I’m really trying to get at is, why are judges letting this go on?
In answering this question, I have to go back to my preface that not all foreclosures are considered bad or wrong or fraudulent. I would like to change the lack of due process one gets in California with the non-judicial foreclosure followed by quickie UD system, but that is a legislative issue more than anything else. And I am working on proposals to change the legislation in California that relates to foreclosures, including one which proposes to make California a judicial foreclosure state.
First it is important to consider what the role of the judge is. At the Court level where facts are tried – the judge in trial court (which is either Superior Court in California State Courts, or District Court in Federal Courts) is required to follow the law as it exists at the time he or she makes the ruling. That means that the judge has to follow the precedent and statutes that are already there.
If one is bringing a case, knowing that it is contrary to existing law, just know that the trial court judge is not going to change existing law. One would have to be prepared to appeal the case to generate an appellate court opinion, which if published, would be citable case law precedent to do that. And sometimes, one would even need to plan to seek writ to the California Supreme Court to change a law, or to change it statewide.
The question asks about whether judges are naïve about fraud or in on it. In my experience, judges generally are not naïve. But you have to be able to prove the fraud, and especially with fraud, that becomes very case specific.
Sometimes, what certain litigants believe is a bad judge is really a judge who is restrained from considering certain issues because of the state of the law. In those instances, hopefully the homeowner’s attorney has prepared his or her client for the possibility that the judge may not see the great relevance of, for example, the fact that a certain loan servicer was known to employ robosigners. That won’t be because the judge is in on it, it might be because the legal theory that those facts relate to is just a non-starter in California (see above for answer to number 1).
That being said, any system is going to be imperfect and any system with people in it is going to be corruptible. I find that it is not productive for me, or my clients, to go into court believing the system is so corrupt that all the judges have been bought off, and that the only reason I would ever lose a motion is due to corruption. Such things can become self-fulfilling prophecies and most of the time I have a good idea of whether a strategy is going to work or not.
The lawyers I know who feel, or who say they feel, that the corruption is pervasive seem to play off of those beliefs in order to deflect their clients ire at losing. The lawyers I know who think that way also tend to lose a lot. Again, self-fulfilling prophecies. One has to ask, if the system is so pervasively corrupt, then why would anyone bother with an attorney who believes that?
Over any given year of practice, there will be a few times where a judge has made a ruling that is so contrary to the law or facts, or where the judge has seemingly bent over so far to try to help the other side, that I get suspicious. But it’s rarely provable. Ultimately, if you suspect something fishy is going on you have to weigh your options and decide the best approach for your case.
It’s far more likely that a judge (and there is one I am thinking about in particular right now) is frustrated with the glut of foreclosure cases, and due to his past as a member of a certain political group, or involvement with a certain real estate company, might be very one-sided about how he or she approaches foreclosure cases. One simply has to try to avoid such judges (with CCP 170.6 challenges among other things). If the bad judge or judges can’t be avoided, then you have to play the hand you are dealt, which may mean settling as opposed to going to trial.
If one does get a judge that is corrupt or unprofessional, I am a big supporter of one’s right to challenge questionable behavior by a judge, especially if that takes the form of unfair or unbalanced treatment from the bench. There are procedures for reporting a judge to the Judicial Council or to the Presiding Judge. In my career, I’ve reported one judge and have left it up to my clients whether to report judges in some other instances.
But I think the issue underlying the question, is one of why are the laws what they are? That comes from decades if not centuries of lawmaking and legislating in California which favors banking interests. Until the recent foreclosure crisis this was not something the average person cared about. Before that, everyone assumed that only bad people suffer foreclosures, and there was little political capital to make any changes. I think the political capital is there, and the case volume is there as well, to see the problems with the current system. The legislature is there and can be lobbied for these changes, and that is something I am a big believer in. I participated in a recent law day where a consumer lawyer’s group I belong to met with legislators and their aids about certain legal changes they were advocating for. I have started a legal foundation, which will be working towards this issue in the next year.
LRM: As I mentioned to you, some judges refused to follow Glaski back in 2013. But now that the CA Supreme Court has refused to have it de-published, do you think Glaski will help make any difference for the better for homeowners?
Since you’ve provided me these questions to answer, Yvanova was accepted for Certiorari by the California Supreme Court. I imagine that one of the reasons that this happened is that there is currently a split of authority in California with Glaski (and cases following it) and Yvanova (which rejects Glaski) being the law, depending upon one’s jurisdiction. From a due process perspective, I’d like to see it Glaski upheld.
Some who favor Glaski, myself included, feel that the case law that is critical of Glaski is inadequately reasoned. Sometimes the cases critical of the Glaski decision are conclusory in their analysis, merely stating that they find it “unpersuasive.” We can expect that the California Supreme Court will expound on it quite a bit more, but that decision is a few months in the future at least.
Reblogged this on California Freelance Paralegal and commented:
Excellent blog post with a discussion with a California attorney who works on foreclosure defense cases. This blog post is full of incisive insights.
Reblogged this on Sacramento Attorney Blog and commented:
A very interesting interview for any attorney considering foreclosure defense.
“No agent of the holder of the beneficial interest under the mortgage or deed of trust, original trustee or substituted trustee under the deed of trust may record a notice of default or otherwise commence the foreclosure process except when acting within the scope of authority designated by the holder of the beneficial interest.” (CA Civil Code §2924 (a)(D)(6))
These late securitizations legitimately raise the issue of the ‘disappearing’ beneficiary. Who is the beneficiary? The trustee, eg US Bank, Deutchse, et al? Are they not merely the trustee? Can they be both at the same time?
So they argue ‘we act on behalf of the beneficiary’. Fine. So tell us, who is it? Shall we take the trustee’s word for it? Perhaps they should prove it. What proofs? Well, like showing up with the original note with the requisite endorsements to show a proper chain of title. Can’t find the note? The onus then falls to the alleged beneficiary to prove they even had it in their possession in the first place, either by proxy or directly.
What is a beneficiary? Surely, we can rely on the blacks law dictionary definition, right? Wouldn’t it be the entity that has the direct financial interest in the Note, who can demonstrate that on their credit they purchased the note, and are thereby entitled to the rights of the note holder to foreclose to recover this amount?
Does the trustee have this interest? Did they buy the note with their credit? Not likely. Was the note purchased when it was hopelessly in default, where there was only a certainty of a foreclosure? Who would buy a Note like that? Where *did* the money come from, if even any money was tendered at all, so this alleged ‘transfer’ into the ‘trust’ could take place?
The court says:
“It doesn’t matter if it was a fraudulent transfer. The borrower owes somebody ‘money’, and there are no free houses, and even though the trustee has not demonstrated they are the beneficiary, and have not even proven that who they purport to represent as the beneficiary of the note actually *is* the beneficiary (according to the law, and dictates of UCC §9, wherein a Note secured by real estate cannot be held in due course, and thereby requires endorsements to prove up a chain of title), we are just going to look the other way, even though if this case did not involve a big bank, but a small private lender, we would never let them get away with this.”
Ah, but what about CA Civil Code §2924 (a)(D)(6)? If the black and white of the statute says all those who pose as agents in the foreclosure process (including the trustee posing as beneficiary), they must be “acting within the scope of authority designated by the holder of the beneficial interest”. Yet how can they demonstrate they are doing so if they cannot affirmatively (according to the law) prove up who the beneficiary is?
The trustee will *never* be able to show that, because the odds are there *is* no beneficiary. CA statute theoretically should tie the court’s hands on this matter. The borrower has the right to know who is foreclosing on them. Due process, anyone? But we all know the real beneficiary is a ghost. The only visible parties are third parties with some financial interest they contrived in the note, but we never find out exactly what that is. After all, the sham assignments are only for show to placate the foreclosing trustee. The investors of the issuing entity never had any knowledge of a single note associated with the trust, in the first place. And, as a bonus, many of these notes were, in fact, *never* transferred into these trusts. The sellers and promoters of them just represented to the investors they were, but in fact that was not true. And by now, these investors have long since been paid back via some insurance mechanism, which means, again, the likelihood of there being a legitimate beneficiary is practically nil.
And what did a borrower borrow? Does not the Note say “for a loan I have received”? But we all know there is no funding until *after* the note is signed. The note is monetized and converted into debt upon the endorsement, and *then* it is sold for ‘money’. Hence, there is no lender, just facilitators in a financial shell game, using terms that school children understand, but in this bank fraud, double, triple meanings are attached to suit.
In short, the banks ran roughshod over the law and want a pass. Nobody is arguing a client should get a ‘free house’, but if the beneficiary cannot be identified, no foreclosure can take place, and the deed of trust that secures nothing as a matter of fact and the law should be removed as an encumbrance from title. If the real beneficiary wants to show up later on and make a claim, with legitimate proofs, so be it. But the court should not rule against the rule of law for the convenience of the banks. It is not the borrower’s fault the bank has committed a fraud. The law is the law. Nobody should be above the law. And that includes banks, and their phoney loans.
The court has the choice: to rule based upon caprice or the rule of law. I hate to be negative, but let’s face it, we all know which way this one will go.
May I know the full name of this very knowledgeable foreclosure attorney? I know some people who will need his help!
Yes, his name is David Seal. 949-529-1090