Enforcement of Discovery in Foreclosure Defense & Quiet Title Lawsuits

Enforcement of Discovery — Sanctions

Neil Garfield
Nov 23

The heart of foreclosure defense lies in arcane procedures that occur within the context of discovery during litigation in court. The premise is that neither the foreclosure attorney nor any identified claimant can or will answer questions about the core issues of any foreclosure case —- the existence, ownership and right to administer, collect or enforce then alleged debt.

Efforts to hold lawyers responsible for filing cases without standing and without an identifiable claim or claimant have been notoriously unsuccessful but not completely unsuccessful. Some lawyers have been fiend as much as $100,000. But generally they are protected by a very broad application of the doctrine of litigation immunity. But getting the court to apply sanctions against the lawyer is not the goal. If the homeowner wants to defeat the foreclosure the sanctions must be applied against the purported client.

These are my notes regarding sanctions that rise to “severe” levels, which is what you want if you want to successfully challenge the foreclosure. These notes are from some cases that directly address the issue.

The available evidence of their willful and contumacious conduct is far more direct and damning than previously contemplated,” See id. “A deliberate and contumacious disregard of the court’s authority will justify application of this severest of sanctions, as will bad faith, willful disregard or gross indifference to an order of the court, or conduct which evinces deliberate callousness.” Mercer v. Raine, 443 So.2d 944, 946 (Fla. 1983).

“It is well settled that determining sanctions for discovery violations is committed to the discretion of the trial court, and will not be disturbed upon appeal absent an abuse of the sound exercise of that discretion. See Mercer v. Raine, 443 So.2d 944, 946 (Fla.1983) … While sanctions are within a trial court’s discretion, it is also well established that dismissing an action for failure to comply with orders compelling discovery is ‘the most severe of all sanctions which should be employed only in extreme circumstances.’ Mercer, 443 So.2d at 946. In Mercer, this Court held that ‘[a] deliberate and contumacious disregard of the court’s authority will justify application of this severest of sanctions , as will bad faith, willful disregard or gross indifference to an order of the court, or conduct which evinces deliberate callousness.’ ” Ham, 891 So.2d at 495 (citing Mercer, 443 So.2d at 946).

Before a court may dismiss a cause as a sanction , it must first consider the six factors delineated in Kozel v. Ostendorf, 629 So.2d 817 (Fla.1993), and set forth explicit findings of fact in the order that imposes the sanction of dismissal. Buroz–Henriquez v. De Buroz, 19 So.3d 1140, 1141 (Fla. 3d DCA 2009) (citing Alvarado v. Snow White & The Seven Dwarfs, Inc., 8 So.3d 388 (Fla. 3d DCA 2009)). The Florida Supreme Court explained that “[t]he dismissal of an action based on the violation of a discovery order will constitute an abuse of discretion where the trial court fails to make express written findings of fact supporting the conclusion that the failure to obey the court order demonstrated willful or deliberate disregard.” Ham, 891 So.2d at 495. These express findings are required to guarantee that the lower court “consciously determined that the failure was more than a mistake, neglect, or inadvertence, and to assist the reviewing court to the extent the record is susceptible to more than one interpretation.” Id. at 496.

There are no required “magic words,” but the court must find “ ‘that the conduct upon which the order is based was equivalent to willfulness or deliberate disregard.’ ” Id. (quoting Commonwealth Fed. Sav. & Loan Ass’n v. Tubero, 569 So.2d 1271 (Fla.1990)).

Where counsel is “involved in the conduct to be sanctioned, a Kozel analysis is required before dismissal is used as a sanction .” Pixton v. Williams Scotsman, Inc., 924 So.2d 37, 40 (Fla. 5th DCA 2006). Pursuant to Kozel, the trial court must consider the following:

“1) whether the attorney’s disobedience was willful , deliberate, or contumacious , rather than an act of neglect or inexperience; 2) whether the attorney has been previously sanctioned; 3) whether the client was personally involved in the act of disobedience; 4) whether the delay prejudiced the opposing party through undue expense, loss of evidence , or in some other fashion; 5) whether the attorney offered reasonable justification for noncompliance; and 6) whether the delay created significant problems of judicial administration.” Ham, 891 So.2d at 496 (quoting Kozel, 629 So.2d at 818). After considering these factors, if there is a less-severe sanction available than dismissal with prejudice, the court should use it. Id. (citing Kozel, 629 So.2d at 818).

If the malfeasance can be addressed adequately through the use of a contempt citation or a lesser degree of punishment on counsel, the action should not be dismissed. Ham, 891 So.2d at 498. Further, if there is no prejudice to the other party, dismissal is too extreme a sanction . Id. at 499. The lower court must “strike the appropriate balance between the severity of the infraction and the impact of the sanction when exercising their discretion to discipline parties to the action.” Id. Ultimately, the lower court’s “failure to consider the Kozel factors in determining whether dismissal was appropriate is, by itself, a basis for remand for application of the correct standard.” Id. at 500.

Bennett v. Tenet St. Mary’s, Inc., 67 So. 3d 422, 426-27 (Fla. Dist. Ct. App. 2011)

What’s in a Qualified Written Request (QWR) Letter

  •  “Qualified Written Requests” under RESPA put mortgage servicers in a troublesome place. But there’s law on their side to help distinguish legitimate issues from abuse and harassment
  • A bank will receive a letter from a mortgage borrower, or from an attorney or other agent purporting to act on behalf of that borrower. The letter will generally demand that the lender provide the inquirer with a wide-ranging amount of information concerning the borrower’s loan and the transaction in general.
  • The communication may assert that there is a defect or mistake in the borrower’s account, and then demand that immediate action be taken to correct that mistake.
  • Asserting only slight oversights in the borrower’s escrow account calculation.
  • The letters are marked as “Qualified Written Request” under Section 6 of RESPA.
  • The “QWR” label stirs legal consequences that servicers and lenders cannot ignore.

What the law says:

  • QWRs are special and important because they arise under specific consumer protection law contained in Section 6 of the Real Estate Settlement Procedures Act (RESPA). Section 6 was added to RESPA in 1990, and generally imposes standards and requirements regarding the assignment sale or transfer of mortgage loan servicing. (12 U.S.C. Section 2605.) Under Section 6 of RESPA, borrowers are afforded a dispute resolution mechanism that gives rise to specific duties on the part of servicers where certain conditions are met.
  1. They are submitted in writing.
  2. They include, or allow the servicer to identify, the name and account of the borrower.
  3. They include a statement of the reasons for the borrower’s belief that the account is in error or must provide sufficient detail to the servicer about other information the borrower is seeking. (12 U.S.C. Section 2605(e)(1)(B)(ii))
  • Where all such items are included in correspondence to a mortgage loan servicer, the servicer must then provide written acknowledgment to the consumer within 20 business days of receipt of the request. The receipt of a QWR triggers an affirmative duty to investigate the problem identified by the consumer, which must be rectified or explained not later than 60 business days after the receipt of the request.

Unlike other inquiries from consumers, the duties that arise from inquiries that qualify as a QWR have potent legal consequences.

 

  • Under RESPA, borrowers can institute a private lawsuit for a Section 6 violation. They can potentially then recover actual and statutory damages (up to $1,000 per violation), plus attorney’s fees.
  • Furthermore, class-action lawsuits are available in instances of pattern and practices of non-compliance, within three years, of the violation against a loan servicing company who refuses to comply with Section 6.
  • Lawsuits for violations of Section 6 may be brought in any federal district court in the district in which the property is located or where the violation is alleged to have occurred.
  • Finally, either HUD, a state attorney general, or state insurance commissioner may bring an injunctive action to enforce violations of Section 6 within three years.
  • Clearly then, any correspondence received by a bank that is marked as “QWR” should not be ignored.
  • The important question for compliance professionals is, therefore, how should an institution respond to the QWR, and equally important, how should the institution handle requests that are plainly abusive or harassing?

How do you spot a true QWR?

  • As a preliminary matter, a request must specify the particular errors or omissions in the account, along with an explanation from the borrower of why he believes an error exists, in order to qualify as a QWR. A list of unsupported demands for information is not sufficient.
  • Please note that if your institution is not a mortgage loan servicer, these provisions do not apply to you.
  • By coverage and definition, the RESPA provisions under Section 6 apply to only “servicers” as defined by the statute. If you do not service mortgage loans, the requirements described herein are inapplicable to your institution.
  • The QWR provision applies only to mortgages secured by a first lien, thereby excluding subordinate-lien loans and open-end lines of credit.
  • “Servicing” is defined as “receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan, including amounts for escrow accounts described in Section10 [of RESPA], and making the payments of principle and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the loan.”
  • A QWR which requests no information related to servicing is not a valid QWR. In particular, requests related to origination do not qualify as QWRs.
  • A leading case discussing this issue, MorEquity v. Nameem (118 F. Supp. 2d 885 (N.D. Ill. 2000), reached the important conclusion that borrowers fail to state a claim where the borrower’s request merely seeks information concerning the validity of the underlying loan and mortgage documents, but does not seek any information as to the status of the account balance.

Requests made in a QWR must relate to servicing and escrow matters; those requests that relate to extraneous issues dealing with the items relating to the loan’s settlement or secondary market information, for instance, are simply outside the proper scope of the QWR process.

  • As a final, critical, note, if after considering all the elements listed above, a bank discards a request as not qualifying under RESPA’s QWR provisions, most legal experts recommend that the bank’s rationale should be well explained, and that the bank should document the reasons for rejecting the supposed QWR. Such rejections should, where possible, be sent back in writing. Legal counsel should be involved in ensuring that this procedure meets legal standards.

Dealing with the legitimate QWR

  • When a servicer receives and properly identifies a valid QWR, the servicer must, by law, both acknowledge receipt of a QWR and respond to the substance of any claims or requests included in the QWR.
  • In addition, the law directs servicers not to provide information to a consumer reporting agency during the 60 days following receipt of the QWR concerning overdue payments related to that period or to the QWR. (See RESPA Section 2605(e)(3) )
  • In establishing procedures to comply with RESPA’s QWR provisions, banks should keep in mind that, contrary to some claims, the QWR process does not require a lender or servicer to stop foreclosure proceedings or other legal action on the loan.
  • To properly respond to the QWR:
  1. A servicer must, within 20 business days, provide a written response acknowledging receipt of the QWR. (12 U.S.C. Section 2605(e)(1)(A))
  2. Within 60 business days the servicer must investigate the account, make any appropriate corrections, and provide the consumer with a report of their action. (Id. at Section 2605(e)(2)(A))
  3. If the servicer corrects the account, the servicer must provide a written explanation of the corrections. (Id.)
  4. If the servicer does not correct the account, it must provide an explanation or clarification that includes a statement of reasons why the account is correct and the name and telephone number of an employee of the servicer who can be contacted to further assist the borrower.

 

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