HB1875 and Attorney Affirmations

Today's Honolulu Star-Advertiser includes a story on HB1875, an update of the mortgage foreclosure law passed last year, which includes a section on attorney affirmations.  The story is about the concerns of local attorneys to this section of the bill.  Rep. Bob Herkes, the introducer of the bill, responds.  You can read the full story here.

Please note that a previous blog post printed the story in its entirety.  The Star-Advertiser requested that we not post the entire story and, instead, provide a summary of the story with a link.  I appreciate their position given that the stories on their website are copyright protected.

So, to complement the story and to give you further background on the issue of the attorney affirmations, here is a copy of Rep. Herkes written comments that were provided to media and were also submitted to the House Journal:

HB1875 CD1 Rep. Herkes' Further Written Comments:

In a recent news release this week from the US Department of the Treasury, the Financial Crimes Enforcement Network found that Hawaii ranks #2 in the nation for Mortgage Loan Fraud.  Speaker, Hawaii’s people are a prime target for predatory lending.  And when they can’t pay, the banks further strip them of their dignity when they foreclose.  Act 48 gives them a shot at mitigating the damages to homeowners, their families, and our communities.  This bill strengthens the ground-breaking work of Act 48.

I also want to elaborate further on the Attorney Affirmation that is in this bill.

In New York State, foreclosures are only allowed judicially.  Based upon the experience the New York Courts have had with the pervasive fraud perpetuated in their system during the foreclosure crisis, the Chief Administrator of their statewide court system determined it was necessary to impose a requirement that is almost verbatim to the language adopted in this CD.

When speaking on the affirmation requirement, the Chief Justice of the New York State Courts explained in article published in the New York Law Journal on October 21, 2010:   

"We feel we have an obligation to make sure the attorneys do their due diligence and come to us with credible papers because the consequences [of wrongful foreclosures] are so great. . . . I think this makes clear to everybody the court system's absolute commitment that we are not going to allow anything to interfere with the integrity of the court process[.] . . . We want to make sure that everyone is focusing like a laser on these particular types of proceedings[.] . . . .It puts them on notice. That's what this is all about. We all have to make doubly sure that we are doing what we should be doing in the first place[.] . . . [W]e cannot allow the courts in New York State to stand by idly and be party to what we now know is a deeply flawed process. "

The article quoted one New York judge, who explained:  "[S]ome lawyers appearing before him have admitted to signing documents at a rate of 'hundreds a week and thousands a month, and the notary wasn't even in the room[.]"

According to the article, unlike the Hawaii State Bar Association, "The New York State Bar Association welcomed the new requirement.  Its president, Stephen P. Younger, said in a statement that 'the chief judge has taken swift steps to address a nationwide problem in foreclosure actions. The New York State Bar Association applauds any effort to preserve and maintain the integrity of the foreclosure process'." 

This approach is not only taken in New York State, but also two major counties in the State of Ohio.  Despite court challenge, these attorney affirmation requirements in New York and Ohio still stand.

By filing all their foreclosures in courts, the banks have essentially clogged up our judiciary with countless fraudulent claims – preventing our courts from swiftly disposing of other more legitimate claims.

The attorney affirmation requirement will limit the use of the judicial process to only those lenders with proper legal standing. 

There is no attorney affirmation requirement in the non-judicial process.  Lawyers uncomfortable signing the affirmation can advise their clients to go the non-judicial route.

As a result, we may see use of the dispute resolution program as the only viable alternative.  Nevertheless, that process requires banks to show their paperwork that would establish standing.  The reaction of the banks should help us determine just how pervasive their problems with legal standing are.

In earlier testimony, the Hawaii Bar Association claimed there was no empirical evidence that would warrant the attorney affirmation.  I beg to differ.  An audit by the San Francisco County Recorder's, as reported in the NY times in mid February 2012, found that 84 % of the foreclosure files they reviewed were done illegally; with two-third's of those with 4 separate instances of fraud or irregularity.

This requirement is necessary to protect homeowners against banks who’ve cheated.  Too often, the banks win on default because the homeowners don’t know what defenses to make. 

We are still in a foreclosure crisis.  A recent article by the Associated Press dated March 14, 2012, noted that RealtyTrac projects foreclosures to rise by twenty-five per cent this year.   Placing a 5 year limit should appease the concerns of the bar association and other legislators while we do what is necessary to protect Hawaii's homeowners from lender fraud during this foreclosure crisis. 

This requirement is not as unorthodox as the opponents suggest.  Hawaii's Rules of Court on Probate has an attorney affirmation requirement, Rule 5(b).

The bar association testifies that there are "existing safeguards to ensure the integrity of the judicial foreclosure process; and that sanctions for misconduct already exist and are effective."  However, a recent order from Judge Seabright in Hawaii's federal district court (March 29, 2012 p. 13 on Civil No. 11-00632 JMS/RLP) determined that the lender did not have legal standing, and admonished the lender's attorney for failing to verify such standing.  The judge said:  “This dismissal does not prevent Plaintiff from performing due diligence (as it should have before filing the instant complaint) to determine whether and how it validly received the Mortgage and Note and bringing a new action seeking foreclosure."  [Emphasis added.]

Clearly, this order - coming out just last month - proves that the problem of standing is alive and well and infecting countless foreclosure files – if detected.

Enacting the attorney affirmation requirement should significantly curb the rate of fraudulent judicial filings by requiring, as Judge Seabright suggests, that lawyers first determine whether their clients have legal standing before seeking foreclosure.

It's clear that "existing safeguards" did not prevent the lender's attorney in this case from filing a foreclosure action – perhaps because they did not expect a homeowner to challenge standing or a court to make the inquiry.

If lenders' attorneys have actually verified legal standing, they should have nothing to fear by signing such an affirmation.

Opponents to the attorney affirmation cite to one NY case that held the affirmation requirement was "invalid."  LaSalle Bank, NA v. Pace, 919 N.Y.S. 2d 794 (N.Y. sup. 2011).  However, this was a ruling by a trial level court so its application is extremely limited to Suffolk County in New York.  The analysis by that court rendered the requirement invalid not for any of the reasons cited by the bar association, but because it felt the Chief Administrator of Courts had overstepped his authority by instituting the requirement.  The case discusses at length how its analysis would have been different if the requirement were a legislative act. 

Nevertheless, the requirement is still in effect in all of the rest of New York; as well as in two counties in Ohio where it has also survived challenge.

It's easy to know when a borrower defaults on his or her mortgage.  And it is happening more and more in this faltering economy – an economy we can lay blame upon the behemoth banks for creating.  But we shouldn't allow the very same banks to foreclose on people's homes because they are stealth about hiding the multiple ways they've cheated. 

We must do what we can to ensure that homeowners at risk of foreclosure face a just resolution.