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Homeowners Fight Illegal Foreclosure


Posted: 06/28/2011 04:25:16 PM MDT

If your Summit County home is foreclosed upon by a company that does not hold your loan and has no legal right to operate in Utah, there may be nothing you can do about it.

That's been the experience of hundreds of Utahns foreclosed upon by ReconTrust, a subsidiary of Bank of America. The company has publicly noticed the sale of over 100 homes in Summit County this year alone in The Park Record's legal notices pages.

According to the Summit County Recorder's Office, it has it has begun the foreclosure process on three since the Utah Attorney General's office threatened a lawsuit on May 18.

The problem
The company is illegal because Utah laws the most recent having been in effect for over seven years requires a foreclosing agency to be a member of the Utah State Bar and be located in Utah. ReconTrust, headquartered in Texas, is neither, says the Attorney General's Office.

But there's another problem with ReconTrust's foreclosures. It obtains the "rights" to foreclose through an electronic transfer of deeds performed by the Mortgage Electronic Registry Service (MERS). Another Utah law makes that illegal; a foreclosing entity must be in physical possession of the deed.

Locals fighting back
In March of this year, Jeremy Ranch resident Elizabeth Corey and her attorney Ryan West sued MERS and Corey's lender Countrywide Financial Corporation which no longer exists. Bank of America was substituted in as the defendant.

But neither Countrywide nor Bank of America were her lender, West argues in his complaint. Neither holds her promissory note and neither are hurt by her lack of payment.

That's because the money for her home came from the owners of a mortgage-backed security, to which her mortgage was added. The deed to Corey's home, West argues, belongs to the owners of the mortgage-backed security, not any single bank that served as a vehicle to add it to the security.

Why they fell behind
It is difficult for distressed homeowners to garner sympathy, said St. George attorney and homeowner advocate John Christian Barlow. If they fell behind on their mortgage payments, why should they keep their home regardless of who holds the note?

In Corey's case, she was advised to become delinquent on her mortgage to qualify for a loan modification, West said in court records.

That's true of 80 percent of the foreclosures Salt Lake City attorney and homeowner advocate Walter Keane has seen.
"There's no question in my mind banks are advising clients to not pay in order to obtain a modification," he said.

Utah versus Federal Court
Utah's 3rd District Court will never get the chance to rule on Corey's case, however, because on May 4 it was "removed" to U.S. District Court the federal court for the same reason the bank's activities are illegal: it is not a Utah company.

That happened to Barlow last year.
In May, 2010, he convinced a 5th Circuit Court judge in St. George to order a halt to all Utah forecloses by Bank of America and ReconTrust. In June of that year, federal court judge Clark Waddoups ended the injunction saying it violated national banking laws.

As long as Bank of America is allowed to remove the cases against it to federal court, it will be judged according to the National Banking Act and not Utah's laws protecting homeowners.

According to Keane, who has Summit County clients in foreclosure, Judge Waddoups' former legal firm represented Bank of America.
According to Barlow, some federal judges' bias in favor of banks extends beyond individual affiliations.

"Generally speaking, the judges' retirement funds are tied up in the securities market, specifically mortgage-backed securities," he said. "Their ruling could directly affect their own retirement."
If a judge tells a bank it cannot foreclose because it cannot prove where the loan is, then the mortgage-backed security is no good, Barlow said.

"What a whole lot of judges are trying to do is sweep this under the rug," he added.

Keane said federal court judges never ask a bank to prove its right to a home or its authority to foreclose on it.

"It could be Donald Duck foreclosing on property and it would be good enough," he said. "It's absolutely the Wild West out here with the foreclosure laws."

A new hope
Keane is optimistic, however.

In this year's general session of the Utah Legislature, Sen. Curtis Bramble, R-Provo, sponsored a bill that was passed into law called Senate Bill 261, Third Substitute.

It permits a Utah court to award damages to a current or former homeowner with a minimum of $2,000 against an illegitimate foreclosing entity.

"It's one of the greatest things that ever happened to foreclosure defense in Utah," Keane said.

Since it went into effect in early May, every foreclosure initiated by ReconTrust in Utah makes it liable for a minimum of $2,000.
Unfortunately, it will only work if the cases stay in Utah's circuit courts.

The bill was diluted
Sen. Bramble said he tackled the issue after hearing from concerned citizens and the Attorney General's office. He said S.B. 261 makes "progess, but there may be further legislative action in this arena before we move forward."

That's because the law passed was the third substitute of Bramble's original bill, which looked nothing like what finally passed.
Bramble's original intent was to go after every agency involved in an unlawful foreclosure including the title companies processing the paperwork and the Utah trustees scheduling the foreclosure sales.

In the case of ReconTrust, Utah attorney Stuart Matheson of Matheson, Mortenson, Olsen & Jeppson, has been paying for and scheduling the public notices of the potentially illegal foreclosure sales. Matheson was contacted for comment but did not respond.

But fellow lawmakers in the title insurance and homebuilding industries convinced Bramble to hold harmless the bank's accomplices. One of the last changes to S.B. 261 substituted wording so instead of ordering the fine, the courts may only "award" it to the "prevailing plaintiff." That requires the homeowner to first win the case in circuit court prior to a bank removing it to federal court.

AG pressuring bank
Still, Keane believes the future is bright for homeowners fighting foreclosure. Bank of America is the last entity left fighting Utah's laws. All others are complying.

According to Scott Troxel, spokesman for the Attorney General's Office, Bank of America has entered discussions with them.
"So far, (the warning) has been successful in bringing them to the table. We are confident we will be able to work with them to come into full compliance with the law," he said.

He could not comment on what restitution might be made to people who have already lost their homes.
Barlow would like to see the homes returned to the original owners, regardless of who they've been sold to. Keane said that's unlikely, but the new law could allow for full recovery of damages.

In addition to Keane and Barlow, several Utah attorneys are taking cases for homeowners foreclosed upon by ReconTrust. The National Association of Foreclosure Defense Advocates is seeking names of people who may have been foreclosed upon illegitimately by any entity to offer legal assistance.

ReconTrust was contacted and a spokesperson said the firm had no comment.
Attorney Contact Information:

Walter T Keane
2825 Cottonwood Pkwy
SLC, Utah 84121

Walter T Keane PC
Walter Keane

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