A New York appeals court reversed a Brooklyn judge’s 2011 decision throwing out a foreclosure and ordering $15,000 in sanctions against lender HSBC, saying the judge had abused his discretion by consulting the Internet and newspapers for evidence of “robosigning.”
It was the second time Kings County Judge Arthur Schack had his hand slapped for taking the politically popular, but legally questionable move of dismissing foreclosure proceedings against borrowers who had clearly defaulted on their loans. The judge was also reversed in a similar case in 2011, and in its March 20 decision the Appellate Division of the New York State Supreme Court chided Schack for failing to follow the law.
“We take this opportunity to remind the Justice of his obligation to remain abreast of and be guided by binding precedent,” the five-judge panel said. The case was remanded to be heard by a different judge.
The decision undermines a popular strategy promoted by lawyers around the country of challenging foreclosures by claiming the lender doesn’t have legal right to the collateral. The theory often involves claims that the chain of ownership was broken through “robosigning” or the use of the central registry known as MERS, leaving the property in legal limbo which, conveniently enough for the borrower prevents the home from being foreclosed.
These lawyers sometimes charge thousands of dollars in fees and throw around impressive-sounding terms like “quiet title,” but have had little success in proving that lenders have forfeited their claims on collateral. Last November, the Idaho Dept. of Finance filed a cease and desist order against one such firm, Residential Litigation Group, for putting out advertisements in the form of fake “litigation notices” designed to lure borrowers into paying a $6,000 fee for assistance challenging foreclosures. No one at Residential Finance was immediately available to comment.
According to the New York appellate decision, Eileen N. Taher defaulted on her home loan and HSBC initiated foreclosure proceedings in 2009. As is common in foreclosure proceedings, Taher never appeared in the case.
Judge Schack, after performing his own investigation including reading newspaper articles and the Internet, decided that HSBC lacked standing to foreclose because the bank had engaged in robosigning, or submitting court documents that were signed by low-level employees without direct personal knowledge of their contents. He also determined that the original lender, not HSBC, was the only party with the right to foreclose because the transaction transferring the note to HSBC was invalid.
The judge also criticized HSBC for allowing Ocwen, the mortgage servicer, to handle the foreclosure, and ordered $15,000 in sanctions against the bank and its lawyers for that and various other transgressions.
But the appeals court threw out the sanctions and ordered the foreclosure proceedings reinstated, strongly criticizing Schack in the process. First, the appeals court noted, Schack had no power to use lack of standing as a reason for dismissing the foreclosure since the borrower had waived that argument by failing to show up in court. The judge also abused his discretion by holding a hearing on sanctions.
Since Judge Schack was reversed approximately two months before he dismissed this complaint, the appeals court said:
We take this opportunity to remind the Justice of his obligation to remain abreast of and be guided by binding precedent. We also caution the Justice that his independent internet investigation of the plaintiff’s standing that included newspaper articles and other materials that fall short of what may be judicially noticed, and which was conducted without providing notice or an opportunity to be heard by any party, was improper and should not be repeated.
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