Legal News

Judge Finds ?Fraud? in Foreclosure Mess

By Amir Efrati

For three years we’ve chronicled the foreclosure madness taking place in our nation’s civil and bankruptcy courts. (Examples here, here and here.)

Recently, the mess has attracted the attention of criminal prosecutors who are searching for fraud by banks and their representatives.

Now one judge in Florida has ruled there was “fraud” by a bank in a foreclosure case, raising questions about how banks — and so-called foreclosure “mill” law firms that work for banks — are attempting to claim homes from borrowers in default. Here’s the WSJ story.

Judges are increasingly running into situations like this or this, in which banks are claiming ownership of properties they actually don’t.

The Florida case, U.S. Bank v Ernest Harpster, was dismissed last month by Judge Lynn Tepper of Pasco County after she found that an “assignment of mortgage” filed in the case, which was meant to show how U.S. Bank obtained ownership of the mortgage, was false. The document (seen at the bottom of this link) was dated 2007 but the judge found it was created in 2008.

Thus the bank couldn’t show it owned the property before the foreclosure suit was filed, the judge found.

The Law Offices of David J. Stern, which represented the bank, prepared the document. The document was “fraudulently backdated, in a purposeful, intentional effort to mislead,” Judge Tepper ruled.

Forrest McSurdy, a lawyer at the David Stern firm, chalked up the mistake to “carelessness.” The document was initially prepared and signed in 2007 but wasn’t notarized until months later, he said.

U.S. Bank referred questions about the case to Wells Fargo, whose job as a mortgage “servicer” was to initiate the foreclosure when Harpster defaulted on the loan. Wells Fargo said in a statement it “does not condone, accept, nor instruct counsel to take actions such as those taken in this case.”

The banks’ law firms are facing increased scrutiny. In this transcript from a hearing in a different Florida foreclosure case, Judge Anthony Rondolino said law-firm employees are filing sworn affidavits that wrongly claim their client owns the mortgage. He suggested the law-firm employees “should be deposed to see whether they ought to be charged with perjury.”

The David Stern law firm, which filed the case before Judge Rondolino on behalf of GMAC Mortgage LLC, declined to comment.

Full post as published by Law Blog - WSJ.com on April 19, 2010 (boomark / email).