Judges Begin to Punish Lenders for Sloppy Paperwork

Residents in the Sacramento metropolitan area are probably aware that, in general, the law provides judges with broad discretion to impose sanctions on the individuals and corporations that appear before them. As such, any resident facing foreclosure or possible Chapter 7 bankruptcy may be interested to know that judges have become increasingly stringent against mortgage lenders in the foreclosure cases being heard in their courtrooms. Today, The Washington Post published a story highlighting the current trend with judges’ behavior against mortgage companies in their courtrooms. While the level of tolerance for mistakes in paperwork depends on the particular judge hearing the case, judges as a whole have an increasing reputation for ruling against mortgage lenders when paperwork issues or problems come up.

One Judge, Jeffrey Spinner, out of New York estimates that he has dismissed up to 50 percent of the foreclosure cases brought before him on the basis of sloppy or fraudulent paperwork filed by lenders. In fact, Judge Spinner recently erased nearly $300,000 in debt and gave a house back to the borrower for free because the lender’s paperwork was so flawed and its behavior in negotiations with the individual was “repugnant.”

Decisions like these strike panic in the mortgage lending industry and foreclosure process. Mortgage companies fear that dismissals like the one seen by Judge Spinner could establish an extraordinary precedent and stir up the country’s foreclosure system. These types of decisions have the banks worried and they plan to appeal what they consider to be drastic remedies from between 20 to 50 percent of foreclosure cases in the New York City area.

Thousands of judges across the country have wide latitude to impose sanctions, erase debts, or allow companies to proceed with flawed foreclosures. Given the differing laws in all 50 states lenders could find themselves dealing with a chaotic situation in foreclosure cases across the nation. Lenders have begun to vigorously appeal foreclosure dismissals since they have so much at stake in these cases. This situation is likely to continue for years.

Some mortgage lenders have even begun to segregate their foreclosure cases to special departments in areas that have seen high levels of foreclosure dismissals by courts. Experts explain that this increase in foreclosure dismissals results from a judge’s lack of trust for the big banks. Typically, a judge is more inclined to dismiss a case when he has encountered numerous inaccurate filings from the lender. Areas affected more significantly by the foreclosure crisis appear to have eroded judge’s trust in the entire sector. Analysts predict that the trend seen in these cases will only increase over time until these mortgage companies shape up.

While CA does not implement the judicial foreclosure system as in New York, one can only surmise that local homeowners caught in the foreclosure crisis will begin to see a very specific reaction by lawyers and lawmakers in an attempt to deter or delay sloppy lenders from foreclosing against their client’s property.

If you or someone you know is facing foreclosure you should contact a Sacramento Bankrupty Attorney familiar with the foreclosure process who may be able to assist you in obtaining an injunction on the foreclosure sale due to questions surrounding the legitimacy of the lenders action against them.