It has been the biggest -- and perhaps murkiest -- legal story of the last two weeks: At least four major lenders have halted foreclosures, citing the need to review whether their mortgage documentation is in order and in compliance with court rules in the 23 states that require court approval before a foreclosure can take place. Bank of America, the largest U.S. bank, announced Friday that it was halting foreclosures on homes in all 50 states.
The decisions by the lenders -- JPMorgan Chase, BofA, Ally Financial Inc. and PNC Financial Services -- have spotlighted tiny law firms that act as so-called "foreclosure mills" and the practice among lenders of hiring "robo-signers," people who sign tens of thousands of documents per month, according to The Wall Street Journal and The Washington Post.
But a review of state and federal cases filed in the last few weeks shows lenders are turning away from the "foreclosure mills" and to large law firms when homeowners fight foreclosure and challenge banks to prove their documents are legit. In Florida alone, the following law firms have popped in contentious foreclosure cases in which judges have ruled homeowners might be onto something: Morgan, Lewis & Bockius, Greenberg Traurig, Akerman Senterfitt and Gray Robinson.
The case of Parnell Peace serves as a good example. A subsidiary of Bank of America moved to foreclose on Peace's home in Florida, citing delinquent payments on Peace's mortgage. To support their case, the bank submitted an affidavit from Dana Heisel, a vice president of EMC Mortgage Corporation, a mortgage servicer controlled by Bear Stearns. In the affidavit, Heisel wrote that he had "personal knowledge" that BofA and its subsidiary, LaSalle Bank National Association, owned Peace's mortgage note. Simple enough.
But Peace and his lawyers at Ice Legal didn't buy it, according to court records and Christopher Immel of Ice Legal. They challenged Heisel and BofA/LaSalle to prove they actually owned the note and to provide the documentation tracing the note from its origins to LaSalle. As a mortgage changes hands during the labyrinthine securitization process, there is supposed to be a paper trail indicating each time the mortgage moves from one owner to another, Immel says. In Peace's case, that process should have stopped in 2006, when LaSalle took control of a trust that included Peace's mortgage. But Immel says the bank turned over documents dated as late as 2008, Immel says.
It was around this time that the lender did two things. First: It hired a team from Gray Robinson to start working on the case. Second: They moved to withdraw Heisel's original affidavit in which he attested to personal knowledge about Peace's note. That of course made Peace's legal team interested in knowing why, exactly, the lawyers withdrew Heisel's original affidavit. The Ice Legal team moved for more discovery, including the deposition of Heisel.
The Gray Robinson team then filed for a protective order to prevent Ice Legal from deposing Heisel, or at least to make them travel to Heisel's residence in Ohio to depose him, court records show. (Roland Schwartz, a Gray Robinson shareholder who has appeared in the late stages of several foreclosure cases, including the Peace matter, did not return calls.) The deposition still hasn't happened.
Banks caught in similar situations have turned in recent weeks to Greenberg, Akermann and Morgan Lewis, court records show. William Heller, chair of Akerman's consumer finance litigation practice, did not return several messages. Nor did Robert Brochin, a Miami-based partner at Morgan Lewis who has popped up on several similar cases.
One other quick note: In Texas, JPMorgan and its local counsel at Quilling, Selander, Cummiskey & Lownds, have started trying another tactic as foreclosure challenges have mounted this week. In about a half-dozen cases, the bank has filed to have the matters removed to federal court, filings show. Lance Lewis, a Quilling partner listed on all the cases JPMorgan has moved to have transferred to federal court, did not return messages seeking comment.
Obviously, these cases bear watching. And the thornier they get, the more work there will be for Am Law 200 firms ready to do it.
This article first appeared on The Am Law Daily blog on AmericanLawyer.com.
Information from the Associated Press contributed to the Law.com posting of this Am Law Daily story.
Improper Foreclosures Could Put Banks on the Hook in California (from The Recorder)
Brokers Fretting Over Foreclosure Freeze (from Daily Business Review)