Law Blog

This is certain to end well (also reported here).

A group of people calling themselves “sovereign citizens” have decided that banks and governments cannot legally own property. They just…decided that that’s the case, and boy howdy are they sticking to it.

They’ve begun moving into unoccupied, bank-owned homes, changing the locks, and putting up “no trespassing” signs around the property. I probably shouldn’t have to tell you that these actions have no legal basis, and anyone who persists in illegally occupying a bank-owned home (yes, Virginia, banks can own property) will be forcefully evicted, and possibly arrested for trespassing.

Now, there have been other stories of homeless or otherwise destitute individuals and families moving into foreclosed homes temporarily. While I don’t condone such conduct, this isn’t comparable. Someone who temporarily occupies a foreclosed home to keep from freezing to death, knowing that what they’re doing is illegal, and presumably willing to accept the legal consequences, is very different from somebody who deliberately concocts a crackpot legal argument, then sanctimoniously occupies someone else’s property (having the gall to put up “no trespassing” signs, for example).

Crackpot groups like “sovereign citizens,” “freemen on the land,” and others have been around for a while. However, it seems like these groups have become more common in recent years. Or maybe they’re simply becoming more vocal, and getting more attention. We did, after all, see a brief spike in the activities of far-right militias during the Clinton years. Perhaps there’s just a certain group of people who get really riled up whenever we have a Democrat for a president, and who bristle at even the smallest expansion of federal power (real or imagined).

While these groups differ in their exact ideologies, they do share a common element: they firmly believe in bizarre legal theories, and base their actions on these theories, even though they have never been successfully used in court, and have no basis in constitutional, statutory, or case law.

While someone who has studied the law can usually recognize these legal arguments as ridiculous on their face, laypersons are sometimes taken in by them, because sometimes they seem intuitively reasonable, and if they’re correct (which they’re not), they would relieve individuals of a great deal of accountability to the law. And who hasn’t craved that every once in a while?

These “arguments” are numerous, but I’m going to discuss a few of the more common ones, and explain why they’re wrong.

Myth: An indictment/court summons/tax bill/parking ticket has my name in ALL CAPS. I don’t spell my name in all caps. Therefore, the legal document doesn’t actually address me, and I don’t have to respond to it.

Fact: I honestly can’t believe people still buy this one. The basic argument is that, because all the relevant court documents wrote your name in all caps, it actually addresses someone else, and you can’t be forced to obey the court order without violating your right to due process (which requires, among other things, that defendants be given notice of the crimes they’re charged with). Every court that has been presented with this argument has dismissed it out of hand, as patently frivolous. Sometimes, they’ll impose sanctions on parties who employ these frivolous arguments, if the court believes they should have known better. Honestly, do you think that, if this argument had any legal merit whatsoever, court documents would still list names of parties in all caps?

Myth: Banks and the government cannot own property.

Fact: Yes, they can. Honestly, I don’t know how to put it more simply than this. Even if you believe with absolute certainty that there’s some secret code in the constitution, the bible, or whatever, which proves beyond a shadow of a doubt that the Founding Fathers/God/The Flying Spaghetti Monster never intended for banks to be able to own property, everyone else disagrees with you. So, like it or not, banks do have a legal property interest in the properties they foreclose, and the courts and police are going to enforce those rights.

Myth: I don’t have to pay taxes.

Fact: Yes, you do. If you think you’ve come up with some bombproof, ironclad, original legal argument that you think will get you off the hook come tax time, chances are someone else has already thought it up, and it’s failed. Just so you know, the income tax is constitutional, and all arguments to the contrary have been rejected as frivolous.

Myth: I can enjoy all the benefits of being a U.S. citizen, and squirm my way out of most of the responsibilities.

Fact: Really, that’s what all of these phony legal arguments are about – a desire to get something for nothing. Whether it involves getting a free house, or enjoying government services without paying taxes, these arguments are not rooted in some principled desire to protect individual liberty. It should go without saying that there’s no such thing as a free lunch.

These are just a few of the baseless legal positions that fringe groups cling to. There are plenty of others, most of them equally ridiculous. If you really need legal advice, you should seek the assistance of a lawyer, not somebody wearing a sandwich board on the street.

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Real estate agents who take on listings for a short sale or foreclosure should remember several points to protect themselves against potential legal action.  Below are the top 5 tips:

1. When taking on a short sale listing, the homeowner is known to be in financial distress. At this point, your primary responsibility is to the homeowner, even at the expense of your commission. To proceed with any other intention breaches your fiduciary responsibility, a phrase used again and again in lawsuits that basically amounts to a breach of trust.
2. In taking a short sale listing, you will have obtained access to privileged financial information about the homeowner. Attempting to leverage this information for your own benefit leaves you vulnerable to fraud charges.
3. Not closing a deal due to a lack of commission, then simply informing your client that the lender wouldn’t accept the offer leaves you open to a host of lawsuits for one reason: Lenders record all negotiating phone calls. Should your client investigate the matter, their attorney will almost certainly subpoena these recordings. Additionally, the attorney will likely subpoena your notes and the preliminary HUD-1 Statement, which will contain your commission.
4. Filing “creative” paperwork with the title agent (who often might well be a friend) with the intent to close the deal and still land a commission is risky. When dealing with short sales, the paperwork should always be handled by an attorney.
5. Many self-proclaimed “short-sale experts” have taken only a short course on the subject and may have never actually closed a short sale. Jumping into this arena shouldn’t be taken lightly—not being completely familiar with the process can leave the door open for clients to cry foul should the sale not go through, and ignorance is seldom a successful defense. Speak with experts, learn the finer points of short sales, then proceed with you best efforts to help the client. Above all else, if you’re unsure about the process, refer your client to an agent with the knowledge to properly conduct the sale.

Short sales are not like regular listings. Timing, pricing, the desperation of the client and the lender moving toward foreclosure all create many issues not usually dealt with in normal home sales. The best thing a real estate agent can do when dealing with a short sale is to get educated on the process; if you do not have experience with short sales, find an agent that does and work closely with them instead of tackling the sale solo, or turn the sale over to them altogether. Working with a real estate attorney can also help reduce liability, especially in situations where conflicts and moral dilemmas may already be present. These tips can help ward away many of the pitfalls from short sales.

Guest blog courtesy of Show Appeal Realty, an Arizona real estate brokerage selling Scottsdale Homes and helping homeowners with Phoenix short sales.

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During the economic crisis of 2008 and 2009, foreclosures and debt defaults skyrocketed – they happened in the millions.

While the immediate crisis has passed, foreclosures and debt defaults are still happening at a higher-than-usual rate, and many of the ones that happened during the crisis a few years ago are still making their way through the court system.

These cases have brought to light some practices by the foreclosure and debt collection industries which are, to be frank, appalling. Now, before I get into the details of some of these cases, I should make clear that I recognize the moral and legal obligation to pay one’s lawful debts. And if paying off a debt becomes truly impossible, we have the bankruptcy process to deal with such situations.

However, a debtor’s obligation to pay his lawful debts is not a blank check for creditors or collection agents to collect those debts by any and all means, and some tactics that debt collectors have employed are disturbing when they involve corner-cutting, and despicable when they involve actual fraud.

In one of the most egregious cases I’ve ever read about, a debt collection company rented some office space, and set up a fake courtroom in it. They would then send someone to the homes of debtors, wearing what looked like the uniform of a sheriff’s deputy. He would then create some official-looking documents which “ordered” the debtors to appear at the debt collection agency’s “courthouse.” There would usually be a thinly-veiled threat that failure to show up would result in a trip to debtors’ prison. Never mind the fact that debtors’ prisons haven’t existed in the U.S. since around 1850.

Once the debtor showed up to “court,” a person dressed as a judge would “rule” against them. This was sometimes enough to scare a debtor into paying a sum of money, giving the collector access to their bank account, or surrendering valuable property.

In another case, a large debt collection company used the name and signature of a person who died in 1995 on supporting affidavits that they attached to thousands of lawsuits which they filed against debtors. This is seen by many as a symptom of sloppy and defective paperwork used in by debt collectors. Often, large debt-collection companies will buy debts from original creditors – essentially buying the right to collect the debt. These purchases are usually in bundles made up of thousands of different debts, which might not be represented by anything more than a name, and an amount allegedly owed, in a line on a spreadsheet. Because this is rarely sufficient evidence to hold up in a lawsuit, it’s not entirely surprising that an unscrupulous debt collector would resort to manufacturing evidence when needed.

Of course, it’s not just debt collectors who have engaged in unscrupulous or sloppy practices. Some law firms that specialize in suing debtors on behalf of creditors (or collection agencies, as the case may be) are coming under fairly intense scrutiny for some questionable practices. One of the most common causes for concern is so-called “robo-signing” of legal documents. Because debt collection is a volume business, law firms that represent large creditors or debt collectors often file huge numbers of lawsuits in relatively short periods of time – sometimes thousands per month.

Some of these firms employ computer software which automatically generates court documents from a huge database of debtors – it just inserts the appropriate names, contact information, amount of debt owed, etc. in the appropriate fields. These documents are then printed out, and an attorney simply signs his or her name on all of them, since legal documents have to have the signature of the person who prepared them, and, conversely, the person who signs the documents must have had a significant hand in preparing them.

This has already led to many foreclosure cases being dismissed, which goes to show that when it comes to legal work, it pays off in the long run to favor quality over quantity.

This type of spotty recordkeeping has caused some pretty serious mistakes, including a bank breaking into a house (which they foreclosed on by mistake) and taking all of the owner’s possessions, including the cremated ashes of her husband.

So, what can be done about this? This might sound cliché, but in cases like this, it’s apt: knowledge is power. Consumers have significant legal protections available to them when it comes to dealing with debt collectors, and one simply has to know how to employ them.

First of all, if you’re presented with something that looks like a legal document, it might not be. If you get anything that purports to be a court summons, a subpoena, an order to appear, or anything similar, you should show it to an attorney. They should be able to quickly determine if it’s a legitimate notice or not. If it is legitimate, they can then advise you about your options to defend yourself. If it turns out to be a fake, you might actually have legal recourse against whoever sent it to you.

Furthermore, if your house is being foreclosed upon, a good foreclosure defense lawyer can, at the very least, make the lawyers for the bank do their job: prove that they actually have a legal right to foreclose. In an era where debts are being bought and sold by the millions, and zipping between owners with the blink of an eye, this is sometimes harder than it sounds.

Also, if you’re receiving harassing phone calls or letters from debt collectors and you tell them to stop contacting you, they’re legally bound to do so. Of course, this doesn’t make the debt go away, but it does leave the debt collector with only 3 options: cut their losses and sell your debt to another debt collector, give up on trying to collect, or sue you for the amount you allegedly owe.

Of course, if you do legitimately owe the debt that’s being pursued, and you know it, it’s best to be honest about this fact.

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By now, you’ve probably heard about the foreclosure crisis; namely, about all the questionable paperwork and procedures banks have been using to initiate foreclosures. To be honest, the foreclosure crisis wasn’t something I necessarily could have predicted, but I wasn’t all that surprised to hear about either. Whenever you have transactions that involve lots of details, and that happen at lightening speed, it’s bound to get messy.

Is it any further surprise then, to hear about the same thing happening with debt collection practices? A recent article in the New York Times reports about the questionable practices that debt collection agencies have been using. These practices involve many of the same flaws of the foreclosure crisis: flawed paperwork, flawed procedures, and basically the debt being transferred between parties too quickly without attention to details. Except, this problem looks to be more prominent than the foreclosure crisis: while not everyone may have a mortgage, almost everyone has debt and loans of some sort.

Basically, debt collection involves debt from a variety of sources. It can come from credit cards, car loans, utility bills, and so forth. Often times, finance companies and banks whom the debt is owed to will sell the debt to secondary companies for very cheap. These debt buyers will then hire collectors to collect on the debt by writing letters, making phone calls, or even suing.

The problem with all this, as you can see, is that the debt is constantly changing hands. However, the transactions are happening too quickly and not being handled with the proper amount of care that is necessary in order to ensure compliance with the law. For example, it’s not certain how many debt-collection affidavits are signed each year. But one employee of a debt buyer in New Jersey testified that in 2007, she signed 2,000 affidavits a day (that’s about one affidavit every 13 seconds). At that kind of rate, it’s impossible to verify the accuracy of anything you’re signing.

In turn, this practice results in debt collectors often going after people will no lawful basis. Debt collectors may go after the wrong person, have the incorrect address listed, or even go after people who have already won judgments against the bank. Sometimes, the secondary companies simply don’t get the required data from the primary creditor when the account is sold, since the data often makes the account more expensive.

What’s interesting though, is to note how sparingly people respond to debt collection cases against them. This results in default judgments being entered against them, and creditors have remedies of garnishing their wages or taking away money from other sources.

However, consumer lawyers argue that if people actually took legal action against debt collectors, they would be successful a large majority of the time. So what exactly can a consumer lawyer do for you in these cases?

1. First, realize that a debt collection agency is just a business (and a very aggressive one at that). They are not the IRS, not the police, or anything like that. Additionally, there are a host of laws in place that protect consumers from unfair and overly aggressive debt collection practices, such as the Fair Debt Collection Practices Act. A lawyer can help you if you believe your rights have been violated under these laws.

2. In some cases, just having a lawyer representing you is enough to have the debt collection agency drop their case. If you think about it, debt collection agencies have thousands of cases to collect upon. Since the majority of people don’t hire lawyers, a debt collection agency likely does not want to go after the case where there is a lawyer involved.

3. Even if you do concede that some debt is owed on your part, a lawyer can act as the liaison between you and the debt collector. In this role, a lawyer can negotiate with the debt collection agency to help reduce your debt, eliminate your debt, lower the payments, lower the interest rates, and so forth. A lawyer can also be the sole communicator with the debt collector on your behalf, which reduces the need for you to communicate with the collector.

There are many reasons why a debt collection agency may be contacting you, some of them valid and some of them not. But remember that collection agencies are just business operations subject to strict laws, and it definitely pays to look into their case against you. And, even if you do end up owing some debt, there are many things you can do, such as filing for the right type of bankruptcy or coming up with an alternative repayment plan.

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The news about banks temporarily stopping home foreclosures has been gaining momentum. Just last week, Bank of America, JPMorgan Chase, and GMAC (a unit of Ally Financial Inc.) all announced that they were halting foreclosure proceedings.

But what would prompt our country’s largest lenders to do such a thing? Basically, banks are now responding to a phenomenon that many homeowners, lawyers and analysts have long known about: that there is a widespread problem of lenders using improper procedures and paperwork to handle home foreclosures.

For example, many employees responsible for initiating foreclosure proceedings have publicly admitted that they did not review the documents before signing off on them. This included not verifying critical information such as the home price or the amount of the loan still owed. These employees, or “robo-signers,” admit they would sign off on as many as 10,000 foreclosures a month, leaving them with little time to actually review the accuracy of what they were signing.

In other cases, lawyers and other transactional agents were sloppy about documenting the transfer and sale of the mortgages. As a result, many banks have claimed ownership on the same mortgage, and in short, no one knows who actually owns the mortgage.

In still other cases, it is highly questionable whether documents were properly notarized. For example, the document may indicate that it was notarized on a date earlier than the date when it was actually prepared. Other documents seem to have suspicious signatures. This issue has come up when multiple documents require signatures from the same person, yet the signatures from document to document vary radically.

But not everyone is on board with slowing down foreclosures as banks try to sort through this mess. The thinking is that slowing down foreclosures will have an adverse effect on the economy. This theory has been verified by recent studies as well. In California, foreclosures are not under court supervision and are allowed to proceed more freely. There, home prices are recovering more quickly than in Florida, where foreclosures are court-supervised and take longer to process.

Additionally, the thinking is that slowing down foreclosures only delays the inevitable. Most of the homes will eventually be foreclosed on anyway, and the argument is that most of these problems cases just involve mere, technical errors.

So is it better to turn a blind eye to these injustices, in order to speed up the recovery of the housing market? On one hand, I understand where these naysayers are coming from. The mortgage system was poorly designed to begin with, and the best thing would be to just restore the housing market as quickly as possible.

However, allowing foreclosures to proceed as they are right now may hurt more than just the individual homeowners. By turning a blind eye to these injustices, there will be legal ramifications that will no doubt impact society as a whole.

For one thing, our legal system, banks, and regulatory agencies will all lose their credibility. While in many cases banks may try to brush off flawed paperwork as a mere technicality, the same mistake committed by homeowners or lawyers elsewhere would not past muster in courts. If a lawyer were to commit these same mistakes in court, the lawyer would be liable for malpractice and/or other sanctions. Additionally, improper procedures are a clear violation of the Due Process Clause, which basically guarantees that rights will not be taken away without the proper procedures.

By allowing banks to forgo the proper procedures, it further perpetuates the idea that “big corporations” win while the little guys lose. More importantly, it also creates uncertainty for the homeowners going forward. If flawed paperwork in home ownership becomes a way of life, then how can homeowners really be sure they own their homes? What’s to convince them to keep making their mortgage payments if they can’t be sure that they will own these homes afterwards?

Right now banks are taking the first step in halting foreclosure procedures in order to remedy mistakes. Courts, legal officials, and other political agents are following suit. I don’t envy the decisions they need to make with regards to how quickly to speed up or slow down the process. Like all matters involving a large segment of society, there is no right or wrong answer. In my opinion the best thing to do would be to find a compromise somewhere down the middle.

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