Judges revisiting foreclosure cases may aid homeowners but clog market

Washington Post Staff Writers
Monday, October 4, 2010; 10:59 PM

On Florida’s west coast, where the housing bust has flooded courts with foreclosure filings, the chief judge of the 6th Judicial Circuit has little sympathy for lenders who have routinely submitted flawed and possibly fraudulent foreclosure cases.

J. Thomas McGrady, whose jurisdiction includes two hard-hit counties with more than 1 million people in the Tampa area, said Monday that foreclosures based on improper paperwork should be tossed out.

Judges “are going to have to vacate that judgment and start over again,” he said.

Across the country, judges facing pressure from homeowners and their attorneys are beginning to reexamine old cases and dismiss pending ones. The trend could lead to overturned evictions, and it could stall foreclosure cases for years and scare away buyers of millions of seized properties clogging the real estate market.

“We’ve never been inundated to this extent with this number of cases alleging fraudulent paperwork,” said Peter D. Blanc, chief judge of the 15th Judicial Circuit Court, in West Palm Beach. “We’re in new territory, and we’re struggling to determine what the proper solution is.”

Judges nationwide have broad latitude in deciding whether to accept new paperwork and whether to charge the lenders with fraud for submitting problematic documents in the first place.

Even before three of the nation’s largest lenders – Bank of America, J.P. Morgan Chase and Ally Financial – announced moratoriums on foreclosures in the 23 states that require a court order to evict a borrower from a home, some judges were beginning to push back against banks with sloppy or fraudulent filings.

The lenders have acknowledged that a handful of employees signing off on hundreds of thousands of files may not have read them, but they have insisted that the problem amounts to a technical issue that can be fixed easily by replacing old documents with new ones. They say that the facts proving that borrowers missed their payments are sound and that the procedural errors might delay foreclosures but won’t change the outcome.

As the situation in Florida shows, it’s unlikely to wind up so simple.

Armies of consumer attorneys and homeowners are seizing on the paperwork issues to try to protect individual homes from foreclosure and bring into question the legitimacy of the millions of foreclosures undertaken since the housing crisis began in 2007.

The recent moratoriums have made life easier for people such as Michael Gaier, a Philadelphia lawyer who has taken on 130 clients hoping to fight their foreclosures.

Before, he said, judges churning through foreclosure cases tended “to roll their eyes, because they’ve heard every story in the book,” he said. But now, “I don’t have to convince them on my own. I don’t have to start from scratch,” he said, because the moratoriums show that the banks “know that something is wrong.”

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