In the wake of allegations of potentially deficient affidavits being submitted in connection with foreclosure actions in a number of states, there was no doubt that courts would give much closer scrutiny to the documentation submitted by mortgagees in support of their applications for foreclosure judgments. But actions will likely go beyond the courts — with federal legislators and regulators taking their own actions. Criminal liability is also a possibility.
Courts in two states have gone even further, enacting rules in foreclosure cases expressly aimed at the affidavits at issue and placing attorneys who proffer them for their clients at risk for sanctions in the event the affidavits are false or inaccurate.
On Oct. 19, the chief judge of the New York Court of Appeals announced the requirement that the attorney of record for a foreclosure plaintiff must file her own affirmation attesting that (i) she personally communicated with a representative of plaintiff, (ii) the representative advised her of a personal review of the plaintiff’s records relevant to the case and the filings in support of foreclosure, and (iii) the representative confirmed to her both the factual accuracy of those court filings and the technical accuracy of any notarizations.
The attorney must also confirm her own diligent inquiry and inspection of the papers, and certify that the pleadings and other papers in support of foreclosure are complete and accurate.
The next day, the Maryland Court of Appeals approved an emergency amendment to its foreclosure rules, enacting Rule 14-207.1. That Rule allows Maryland courts to adopt procedures, including the appointment of special masters, to screen foreclosure lawsuit papers for deficiencies and demand that deficiencies be cured or compliance demonstrated within 30 days, failing which the court may dismiss the action without prejudice or enter some other appropriate sanction.
It also authorizes the court, in cases where it suspects an affidavit to be false or technically deficient, to specifically order the affiant and its notary to appear before it and testify under oath concerning the affidavit’s contents and execution. All costs and fees associated with these procedures are to be borne by the plaintiff.
The court simultaneously amended Rule 1-311, which governs the conduct of attorneys in signing pleadings or other papers submitted to the court, subjecting the attorney to “appropriate disciplinary action” for participating in the submission of any “paper,” for example, a client affidavit, that is not signed as required or signed with an improper purpose.
Both of these actions by the highest courts of Maryland and New York are designed not just to attempt to halt the practice of submitting deficient affidavits in foreclosure cases, but are an affirmative warning to the lawyers who prosecute foreclosure cases that they will be held accountable in some fashion for any continued abuse. The rules are applicable not only to new foreclosure cases, but to pending lawsuits as well.
As the media continues to focus on the documentation and notarization problems coming to light in the mortgage foreclosure process, numerous federal and state agencies continue to expand their investigations. Many politicians and homeowners groups have called for a Congressional investigation into the “robo-signing” issue. Due to the political appeal, a Congressional investigation is almost a certainty.
As a result of the intense media scrutiny, and the political appeal inherent in being viewed as protecting homeowners, it seems certain that various Congressional committees will proceed with hearings once Congress returns from their recess on Nov. 15 (regardless of the results of the upcoming election, the current members of Congress will be in office until January 2009).
Pursuant to those hearings, the Congressional committees will issue subpoenas for documents and testimony. Chief executives of the largest banks and servicers in the mortgage foreclosure space will likely be called to testify.
It is extremely important for all companies involved in the mortgage foreclosure process to conduct internal reviews in order to understand their potential liabilities. Most, if not all of the companies involved in the foreclosure process, will receive subpoenas or inquiries from various government agencies over the next several months. It will be helpful for companies to understand their liabilities prior to receiving such inquiries.
The Obama administration’s Federal Fraud Enforcement Task Force, led by the Department of Justice, recently announced the opening of a criminal investigation into the submission of mortgage foreclosure-related documents to federal and state courts and federal housing agencies. The investigation will focus on the possibility of bringing federal mail and wire fraud charges against servicers and others who have been involved in submitting allegedly false affidavits and other documents as part of the mortgage foreclosure process.
The task force includes representatives from almost every federal agency, ensuring that any number of different agencies, with varying jurisdictions, will be involved in the investigation. Accordingly, various federal investigators will be issuing subpoenas and conducting interviews. Again, companies need to take precautionary steps to understand the nature and depth of their potential liabilities in this area prior to receiving a subpoena or other form of demand from the government.
The attorneys general of all 50 states have opened what is being described as a joint investigation. In theory, this should mean that there is one coordinated investigation that involves all fifty states, which would save a significant amount of time and expense for companies responding to inquiries from the task force. In reality, as is usually the case, numerous states are proceeding with their own investigations and enforcement actions, notwithstanding their membership on the task force.
For instance, the attorney general of Ohio has brought a civil lawsuit alleging fraud against one major servicer. The attorney general of Florida is in the midst of his own negotiations with some of the largest banks and servicers. Several state attorneys general have sent letters to servicers requesting that they immediately halt any foreclosure proceedings until the “robo-signing” issue is resolved. It seems likely that the state attorneys general will use the threat of lawsuits and investigations as leverage in their negotiations to force servicers to make wholesale modifications of mortgages.
It is extremely important that companies understand the potential criminal liabilities facing the company and its executives as a result of these investigations. Numerous executives have already been allowed to testify under oath to facts which may lead to criminal liability.
For instance, several executives have already admitted under oath that, contrary to their sworn assertions in affidavits submitted to court, they did not: 1) review the affidavits for accuracy before signing; 2) ensure that all of the underlying documents had been collected; 3) review the underlying foreclosure-related documents themselves for accuracy; or 4) sign the affidavit in the presence of a notary.
All of these false assertions under oath could conceivably lead to the filing of perjury, fraud, or contempt of court charges against those executives. It is imperative that companies understand the nature of their documents and the scope of their problem before they allow any of their executives to be deposed or answer questions under oath.
