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The New Robosigning

By Adam Levitin

First there was robosigning.  Now there's illegal practice of law.  It seems that one of the major Pennsylvania foreclosure mills, Goldbeck, McCafferty & McKeever, was routinely using non-lawyers to do all the paperwork in foreclosure cases without any review by attorneys.  (See here for Yves Smith's take.)   That works in most small claims courts, but raises real problems in a foreclosure context. 

Perhaps related to the apparent lack of attorney oversight, every Pennsylvania foreclosure filing that I've looked at by Goldbeck, McCafferty, & McKeever appears to be facially defective because of a failure to include the note with the complaint.  

Pennsylvania law requires that an action based on a writing include a copy of the writing.  A foreclosure action is necessarily based on two writings--a note and a security instrument.  This means that a well-pleaded foreclosure case in Pennsylvania should include the note, the mortgage, and any assignments thereof as part of the complaint.  (There's even case law on this, not just statute.)  Many Pennsylvania foreclosure filings properly include all of the required writings, but I have never seen any notes included in Goldbeck, McCafferty & McKeever foreclosure filings. 

Pennsylvania law does allow for incorporation by reference of certain public records, which might permit incorporation of the mortgage by reference (I don't read the statute that way, but it's a debatable point and numerous firms seem to rely on this exception for the mortgage, including Goldbeck, McCafferty & McKeever), but the note is virtually never a public record, so it cannot be incorporated by reference.  The fact that a foreclosure is only seeking title to the property, not a monetary award, doesn't change the requirement for submitting the note.  The mortgage can only be enforced if there is a default on the note and the ability to cure depends on acceleration, which is a right granted in the note.  To my eyes at least (and I note that I am not barred in Pennsylvania, although I don't think that matters a lick here), Goldbeck, McCafferty & McKeever is routinely filing defective foreclosure filings.  

The real scandal, I think, is that courts (or really court clerks) aren't tossing out these filings, irrespective of whether the borrower contests.  Some  judges are often reluctant to ensure proper process, especially if there is no pushback from the borrower.  Indeed, one ex-judge, at least, has expressed a really Philistine view that if there's a default on the mortgage, sanctity of contract demands a foreclosure, procedure be damned.  Somehow insisting on procedural rights is borderline unethical.  Never mind that procedure was part of the contract and litigation risk was priced into it.  

Clearly the driving factor behind robosigning and use of non-attorneys to do legal work is the economics of foreclosure litigation.  Law firms are generally paid low, fixed fees per foreclosure. Therefore, the only way to increase margins is to cut cost. This creates a strong incentive to cut corners.  If a job can be done by a lower-cost non-attorney, then it makes sense to use the non-attorney.  If it's cheaper to create a document than pay the document custodian a fee for obtaining the original, then create the document.  

The bottom line here is that we're witnessing a highly automated foreclosure process that is built on economies of scale and cost reduction. It's a brutally efficient machine, and it's grinding human grist. 

Full post as published by Credit Slips on December 04, 2010 (boomark / email).