Legal News

Foreclosure Mess: Two Different Plaintiffs Claim to Own Same Mortgage

By Amir Efrati

It’s been a while since we revisited the foreclosure crisis, which has obviously gotten worse. Foreclosure numbers are skyrocketing, while numerous states, the federal government and financial institutions are tackling the issue in various ways.

For the legal beagles at so-called foreclosure “mills,” which do assembly-line lawyering for lenders and other mortgage owners, the crisis has meant lots of work but also woes, including sanctions and stern lectures from judges (examples here, here and here). Why are judges so frustrated? The increased volume is leading to mistakes and irregularities, which we’ve chronicled before.

Now comes the foreclosure case of Joanne Fredenburg, a widowed homeowner in Lehigh Acres, Fla., where real estate prices have plummeted. Last month Ms. Fredenburg was served with not one but two foreclosure lawsuits from two different plaintiffs that both claimed to own her promissory note and mortgage and said she owed them each more than $276,000. That, of course, is impossible. (Click here and here for the two complaints.)

One lawsuit seems to make sense. The plaintiff is a unit of Deutsche Bank that acts as a guardian or “trustee” for investors of mortgage-backed securities. Those investors collectively own loans such as Fredenburg’s. But the other lawsuit was filed by a mortgage-servicing company that collects borrower payments on behalf of investors. Surely that is a mistake, as servicers don’t typically own loans.

Indeed, following an inquiry by the Law Blog, we’re told that the servicer, American Home Mortgage Servicing, will withdraw its lawsuit, which was filed by Miami-based Adorno and Yoss LLP.

But Ms. Fredenburg’s lawyer is none too happy. Even after American Home withdraws its suit, J. Rex Powell of Cape Coral says he will ask for discovery to find out what payments his client made, whether they were paid to the right entity and whether she was given the proper credit. Given that most people don’t defend against foreclosure lawsuits and the plaintiffs are awarded default judgments, Powell says the case raises an interesting question: Are entities wrongly filing foreclosure suits and collecting on notes they don’t own?

Perhaps Florida Circuit Judges Jay Rosman or Michael McHugh, whose dockets include the Fredenburg foreclosure suits, will be able to shed some light.

UPDATE: American Home said in a statement that the case was initially referred to Adorno and Yoss but then transferred to another law firm, which filed the second lawsuit, and Adorno was told to dismiss the original case. Alan Rosenthal, a partner at American Home’s law firm, said the firm was told to dismiss the case a couple of days ago (following the Law Blog’s inquiry).

Rosenthal added: “Given the explosion in volume of delinquent mortgages, an errant keystroke by a junior employee at a law firm, mortgage company or regulator can lead to this type of problem. As unfortunate as it is for the people affected, for the most part the system provides safeguards,” including protections against two entities collection for the same loan.

Full post as published by Law Blog - WSJ.com on November 14, 2008 (boomark / email).