Five years later, the scourge of the foreclosure crisis still affects thousands of homeowners across the state of Florida. Illegal foreclosures have been especially problematic, as banks raced through the legal process and ejected people from their homes. After reports surfaced of thousands of foreclosure affidavits being signed by people who did not have actual knowledge of what they were signing, many foreclosure suits were withdrawn or dismissed. Ultimately, homeowners were able to avoid foreclosure and forge repayment plans with lenders.
However, as the housing market improves many lenders are seeking to take back delinquent properties where they previously initiated foreclosure proceedings with improper documents.
Such was the case in Pino v. Bank of New York Mellon, where the lender sought to foreclose on a Palm Beach home after Mr. Pino fell behind on his mortgage payments. Pino’s attorneys found that several documents had been backdated and signed by an employee (instead of an executive). They confronted the bank with the faulty documents, and it dropped the foreclosure case. However, the bank later re-filed its lawsuit with the appropriate documents.
Pino’s attorneys argued before the trial court in Palm Beach County that the second lawsuit should be dropped as a sanction for producing fraudulent documents in the first trial. The trial court rejected their argument, largely because Pino had reached a settlement with the bank and his home was no longer in foreclosure; thus making the legal argument moot. The Fourth Circuit Court of Appeals agreed with the trial court, but it certified the question with the Florida Supreme Court, because “robo-signing” was such a pervasive problem with Florida foreclosures. In its certification request, the appeals court judges indicated that “many, many foreclosures appear tainted with suspect documents.”
The high court accepted the case, and will decide whether a bank can avoid sanctions for filing fraudulent documents in a case simply by voluntarily dismissing it. Under Florida law, a voluntary dismissal allows a plaintiff to refile their case at a later date. Consumer groups and homeowners’ advocates argue that trial courts should have the authority to overturn such dismissals when a homeowner shows that the lender initially committed fraud upon the court. They believe that the integrity of the judicial system is at stake, and a favorable verdict will put banks on notice that fraudulent foreclosures may not be remedied simply by waiting for another opportunity to file a lawsuit.
Lenders believe that an adverse ruling could have a “potentially devastating” economic effect in Florida. In a brief filed with the court, The Mortgage Bankers Association and the Florida Bankers Association argued that lenders would ultimately give fewer home loans and be discouraged from filing legitimate claims if they are precluded from voluntarily dismissing a case and re-filing after correcting paperwork errors.
The court will issue an opinion early in 2013.