Lawyer Goes to Jail Because he was not Strategic-Just Stupid

When I was at the University of Florida, one of the preeminent professors there was often heard to say, "If someone has to go to jail, make sure its the client."  I guess those sage words of advice never graced the ears of California lawyer, Michael J. Pines.  In a Housingwire article which details Mr. Pines contempt charges for helping his clients break back into a foreclosed home, the lawyer is made out to look like a bit of a Thoreau or Ghandi type figure for his civil disobedience.  My take, is that the lawyer in question is just stupid because he wasn't strategic.

I don't make that claim lightly, because I have great respect for anyone that can endure three brutal years of law school and then pass a bar, especially a difficult bar like California's.  The problem that I read in the article came from the following paragraph:"In January 2010, Canejo Capital Partners, an investment firm based in California, purchased the home through a foreclosure auction court documents show, but the Earls remained in the property and delayed eviction through bankruptcy filings."

To the average person, there doesn't seem to be any issue with this, but from my Washington perspective there are huge issues.  Mr. Pines was trying to create a forum where he could air his client's grievances with robo-signing, produce the note, and I am sure, a whole smattering of other claims that could discredit the bank's legal right to foreclose the home.  The huge issue that first comes to mind is that nonjudicial foreclosure is designed to ensure continuity of title, thus once the sale takes place, you have very little legal standing to challenge the sale.  Here in Washington, we saw the Albice case back at the end of the third quarter of last year where the Court of Appeals did overturn a sale, but that is incredibly rare. So strike one is that Mr. Pines didn't challenge the legality of foreclosure prior to the sale, he was too late to implement a valid strategy.

The second big issue that I saw was that Mr. Pines didn't strategically place his bankruptcy.  Bankruptcy is a tool, and in my opinion, shouldn't even be the mainstay of any attorney's practice.  Bankruptcy mills in my opinion are a disservice to the client because the attorney has a conflict of interest with his client.  He only gets paid for doing bankruptcy and if he lets his client walk out the door without a bankruptcy he doesn't get paid.  As my MBA professor would say, bankruptcy attorneys, when they open their tool box, have a big shiny hammer and the whole world looks like a nail.  The bankruptcy should have been placed prior to the sale, which would have had the same effect of keeping the client in the home for a longer period of time and then would have provided a proper venue to challenge the foreclosure.

See, the bank, upon receiving notice of the bankruptcy would be subjected to the automatic stay.  The automatic stay is the provision that is so powerful in bankruptcy because it stops all collection activities, including foreclosure.  The bank would have been forced to either wait for the bankruptcy proceedings to conclude or request relief from the stay.  In requesting relief, a well informed attorney would have the proper venue to challenge the legality of the foreclosure in the first place.  Mr. Pines instead waited too long and then had essentially no legal standing for the challenge.

The third issue is that the lawyer made the case about him, instead of about his client.  Self agrandizment during your client's proceedings is in bad taste.  Mr. Pines had spent too many nights reading Civil Disobedience and dreaming of changing the world through sit-ins instead of looking out for the best interests of his clients.  He helped his client's break into the house, after the foreclosure, and then spouted off to the court saying, "Well then I think you should hold a contempt hearing, and I welcome that..."  He was proud that he would bring attention to the plight of his client's case by getting sent to jail.  Idiot.

If you want to bring attention to the plight of your client, win the case.  Have a better argument!  Implement a strategy!  Don't get sent to the jail because you're too stupid to come up with a better plan.  The only thing that he can hope for now is that his complexion won't clash with his orange jumpsuit.

When strategically defaulting and forcing a foreclosure, sometimes it becomes obvious the bank is not following the rules, or maybe doesn't have legal rights to do what it claims to be doing.  At that point in time, you have to have a plan, a strategy, and if you are the attorney, it better not end with you going to jail...it really should be the client.  Wink, wink, nudge, nudge.

Its a bird, its a plane,...its a flying horse with some help?

Growing up, I enjoyed Greek mythology.  The monsters, the gods, the heros, it was all very exciting and when it came to pegasus, who didn't want a horse that could fly so you could get away from the nightmare we all called puberty?  Well, Pegasus may be making a new landing soon for lenders and carrying them away from the nightmare life of robosigning.  I said this blog would be of practical use, and this time I am including this as a practical use item for the lenders and their attorneys that will be reading this because I am suing them.  Happy Holidays.

In a recent post from Housing Wire, Pegasystems has launched a new product that will help banks not screw up the foreclosure process.  The biggest problem with foreclosure, is that it is a law, and most people like it when you follow the law.  I know its like a total bummer.  The banks have been doing 75 mph down the freeway and its time they realized its a 20mph school zone.

The software is supposedly designed to help the lender through the pre-default stages in identifying defaulting loans and ensure the process is as efficient and trouble free for the bank as possible (read the preceding as cheap and fast).  The principal for the company was quoted as saying, "Pega’s new pre-foreclosure solution vastly improves the visibility, certainty and efficiency of the overall process and provides unmatched quality controls and integrity.  Servicers can sleep better at night knowing that their documentation is error-free."(emphasis added).

That better night sleep is so important, especially when you have attorneys sitting at the edges of your banker dreams with Jason masks and machetes.  I have to say, with the number of mistakes that have walked through my door, and the foreclosures that I have started over because of errors, this process is a nightmare for the bankers.

Last week, one of my clients, who had a Notice of Default that had significant errors in it, received a new Notice of Default after a letter I sent to the bank and trustee caused the trustee to revise and reissue.  The first NOD had Trustee's fees of just over $1000, the new NOD included over $4000 in fees, mostly due to my letter.  If every mistake were to only cost the banks $3000, the losses would be astronomical.  The funny thing is, the newly issued NOD still isn't 100% accurate.  Maybe I will sign the new letter Jason.

So, if the banks would like to escape some of these nightmares, I would recommend them spending some cash  and flying away on Pegasystems if it will help them conform to state law.  Because if they don't get Pegasus to help them, I am more than willing to help them find out what the law says and how they screwed it up!

Home for the Holidays...Protect your Tenants in Foreclosure

Yesterday, Fannie Mae suspended its foreclosure and eviction of homeowners and tenants from foreclosed homes from December 20 to January 6th.  In this spirit of Christmas charity, I thought my readers might like to know how they could protect their tenants from getting evicted from a distressed property.

Under the Deed of Trust Act in Washington, once a Trustee's sale has taken place, the person occupying the property has 20 days to leave.  If the person does not leave, he can be sued for rent and be evicted in a process called unlawful detainer.  This is a process that isn't fun for anyone involved but it can be the only way to get a defaulting homeowner or renter out of a property.

The state legislature noted the housing decline was leading to lots of foreclosures, especially on property that had been purchased on speculation, highly leveraged, and primarily used as investment property with tenants.   These tenants believed that they were safe because they were paying their rent, but with the Trustee's sale, they had to leave.  Washington amended the Deed of Trust Act under SB 5810 to extend new rights to tenants requiring notice of 90 days and replaced the 20 days in the rental property with a new 60 day window after the trustees sale.

Not to be outdone by the individual states, Federal law passed in 2009 called Protecting Tenants at Foreclosure Act.  This Act required the purchaser at the trustee's or sherriff's sale to honor unexpired leases.  So, instead of being able to keep your tenants in the home for just 60 days, they could stay until the end of the lease term.


Now, this is not automatic.  If you have a Trustee's sale scheduled at the end of this week, you cannot go in and sign a lease with your tenant and expect it to be honored.  That said, I would still sign the new lease, because I believe the burden of proof that the lease isn't to be honored rests on the new owner, not the person renting the property.  However, if you can, you should sign a new lease, with market rate rent and terms, prior to getting the Notice of Trustee's sale.  The trigger point in doing this should be the Notice of Default.  Once you receive that document, re-write your lease.

Even if you fail to re-write, the tenant gets an added benefit of being able to stay for 90 days after the sale and really its 90 days after he receives notice from the new buyer which may be even longer than 90 days.  But, if you re-write the lease, and we have been doing these for the bottom rate on the market for 2 year terms.  If the buyer at the trustee's sale is not going to live in the property, he has to honor the lease.  You just gave a very good Christmas gift to your tenant by reducing his monthly rent, and stabalizing his family through the season.

The added bonus is that you got to drop a lump of coal in the bank's stocking.  So Merry Christmas to you too!