The Mother of All Foreclosure Mistakes

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According to this recent press release from Realty Trac, during this year’s second quarter, about one home sale in every four was a foreclosure. In former bubble markets like Florida, Nevada, parts of California and Arizona, the numbers are even higher: 56 percent of home sales in Nevada were foreclosures. They also report that the sales price of a foreclosed home is about 26 percent below the average home’s market price, thus depressing the price of all homes in the market.

But while foreclosures have a negative impact on those losing their houses and those living nearby, not everyone is a loser in the foreclosure process. Some of the firms that produce and process the paperwork necessary to kick a homeowner out are making money – a ton of it. Of course, there’s nothing wrong with making money, including profiting from putting people out of their homes. After all, if homeowners can’t pay, they can’t stay – and somebody’s got to do the detail work of legally reclaiming the property for the lender so the house can be sold to offset their loan losses.

But as you read in the first article in this series, some foreclosure defense lawyers are now alleging that some of the law firms that file foreclosures are playing so fast and loose with the rules that people’s rights are being trampled and courts are being defrauded. Defense lawyers – at least, all three that I interviewed – are contending that law firms hired by banks to process foreclosures aren’t properly preparing the paperwork that separates home and homeowner.

For an example of what can happen when a law firm runs roughshod over a homeowner, meet Hugo San Martin. Watch the video below, then meet me on the other side for more.

Keep in mind that you’re not seeing this story simply because a law firm mistakenly sued an innocent homeowner for foreclosure – more on that in a minute. The reason Hugo’s story made the news is that the law firm in question – David Stern’s – not only erroneously filed a foreclosure, they didn’t correct their mistake until Hugo hired a lawyer. They could have answered any of his calls and avoided this bit of bad publicity. Why didn’t they? Perhaps because they were busy – extremely busy. According to their representative, lawyer Jeffrey Tew, David Stern employs more than 1,000 people (or did – since I talked to Tew, the firm is now apparently laying off people) and in 2009 alone processed more than 70,000 foreclosures. If all they earned in legal fees was $1,000 per foreclosure, that’s still $70,000,000.

In a recent deposition of a former Stern employee named Tammie Lou Kapusta, the Florida Attorney General unearthed a reason that may help explain why people working at Stern’s firm didn’t talk to homeowners like Hugo. Here’s some of Tammie’s testimony:

Tammie: “The problem is that the practice was so large that there was never actually — I had actually been yelled at for trying to talk to homeowners on the phone. You’re giving them too much time. Start working.

I worked for hospice for twelve years before I went to David Stern so I just thought that there might be some kind of compassion. I would try to deal with what wasn’t being done proper. We were directed that that was not what our job was to do. Our job was to run the team and type the MSJs (Motions for Summary Judgment), get them out the door. Get the judgments entered. Everything was about getting the judgment entered because we have to report back to the banks. “

So, if this sworn testimony is to be believed, helping homeowners with legitimate mistakes at Stern’s firm took a back seat to churning out the foreclosures.

Now, as to the mistake itself: there are two ways of looking at errors like this. The first is that in any high-volume office, legal or otherwise, mistakes will get made and perhaps not properly addressed in a timely fashion – that’s just the way it is. The second way of looking at it is that mistakes like this should never be made if the responsible parties act responsibly.

The other day I watched two people discuss this exact issue on a cable news channels. The guest took the position that these types of foreclosure mistakes were inexcusable. The conservative commentator countered that mistakes happen, and used as an example the fact that the police sometimes accidentally break down the wrong door and arrest the wrong guy. Oddly enough, I had used the same example with Hugo’s lawyer, Jeff Golant. His response? Well, watch it for yourself:

Was this mistake excusable? Is it just a part of doing business? I’m sorry I can’t include a rebuttal from Stern’s firm to help you decide, but it’s not because I didn’t ask for one: they refused to return multiple calls.

In the final installment: the three foreclosure defense attorneys I talked to for this series worked in – to put it politely – less than luxurious surroundings. In fact, we could barely fit our camera into their offices. In the final part of this series, you’ll see how the attorney on the other side lives.