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FORECLOSURE AND BANKRUPTCY

Foreclosure Lawsuits Could Become Big Business

Written By:
November 18, 2010 at 5:03 PM

Trial attorneys nationwide are planning lawsuits and other legal action against mortgage lenders over foreclosure. This legal action could quickly become big business and have a major impact on foreclosures and the mortgage business in general.

Some of the biggest legal action is coming in Florida, one of the states hardest hit by the foreclosure crisis. Bloomberg News reports that some owners of foreclosed homes are planning lawsuits to stop speedy foreclosure rulings in the so-called “rocket docket.” This is a special county court that often hands down foreclosure rulings in less than a minute.

The basis of these lawsuits is not surprisingly claims that some of the foreclosures were based on improper, inaccurate and even illegal documentation. Claims that lenders have not done their homework and have instituted foreclosure proceedings without filing all the documents required by law are driving these lawsuits.

It is only a matter of time before trial attorneys sensing big bucks awarded by sympathetic juries file class action and other big lawsuits against mortgage lenders over the foreclosure issue. The ground work for such major lawsuits is already being prepared by an ad hoc nationwide network of trial attorneys.

Trial Attorneys Mobilizing for Action

Several hundred lawyers from all over the country have traveled to a “foreclosure boot camp” run by a North Carolina lawyer named O. Max Garner III, Businessweek reported. At the camp Garner teaches attorneys how to spot errors in foreclosure documentation that they can use to challenge or block foreclosure proceedings.

Garner claims that the purpose of his “boot camp” is to teach lawyers how to defend people’s property from lenders, the Businessweek article indicates. Yet he charges attorneys $7,775 each to go through his camp. The camp features such courses as “Strategy to Trap Opponents in their Own Mistakes.” Garner also provides the civic minded litigators with unlimited amounts of beer, wine and single malt scotch.

The attorneys who attend the camp become part of a nationwide network dedicated to fighting foreclosure, Garner told Businessweek. He also said that the network will function like a law firm.

It’s easy to see how Garner’s strategies could be used as the basis of major lawsuits against the big mortgage lenders. In particular these tactics cold be used as the basis of class action lawsuits in which one attorney sues on behalf of a class of people. In a class action lawsuit the lawyer would be suing on behalf of all of the persons a lender wrongly foreclosed upon.

Such suits could make lawyers a lot of money but also make foreclosure and the purchase of foreclosed property more difficult. They could also cause the foreclosure process in some parts of the country to grind to a halt.

Lenders Prepare to Fight Back

The big lenders haven’t said how they intend to fight these suits but there are some indications of what their strategies could be.

The Reuters news service speculated that Wells Fargo’s decision to suspend foreclosures in early October was a legal strategy designed to block lawsuits and legal challenges to foreclosures. Halting foreclosures made it appear that the bank was taking action and trying to fix problems.

Wells Fargo could have also been reviewing its processes to see if any of its procedures gave attorneys more room for a legal challenge. Similar actions at other banks such as Ally, Chase and Bank of America could have had similar motivations.

What other actions lenders could take is unknown but they will undoubtedly affect the foreclosure process. The major effect of legal action will probably be to slow the foreclosure process.

Lawsuits Could Cloud Title

The worst affect such lawsuits can have on foreclosures would be to make it harder to get title to a foreclosed property. If a foreclosure is not done properly or legally, then it could be illegal to transfer the title of a property to some else. This means that a lender might not be able to sell a foreclosed home.

If lenders can’t sell foreclosed homes legally there will be no way to get those homes back into the real estate market. It will also be much harder to get a mortgage on a foreclosed home if clear title isn’t available.

This could lead to more foreclosures simply sitting empty without being sold. It could also slow the market for foreclosed properties and make the ongoing slump in real estate sales worse.

Other Lawsuits Possible

The mortgage lenders could be facing other lawsuits over foreclosures as well. News reports indicate that some investors who purchased mortgage-backed securities are already planning lawsuits against mortgage lenders to recover money lost on foreclosed properties.

If that wasn’t bad enough, lenders could also face suits from persons who bought foreclosed properties. Individuals who find out that they may not have clear title to a property they bought because of a foreclosure would certainly have grounds for a lawsuit.

The legal battle over foreclosures is just beginning and it looks like it could drag on for years. The winners will probably be the attorneys who will at least have plenty of work. The losers could be homeowners unable to get clear title to their properties.

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