A Superior Court judge said she will approve more than 3,000 corrected foreclosure notices from Wells Fargo to homeowners, tearing a hole in the procedural dam that has held back a potential flood of legal action.
At a hearing in Paterson where many participants expressed continuing confusion about New Jersey’s foreclosure process, Judge Margaret Mary McVeigh tried to explain the difficulties to a courtroom packed with lawyers and defendants.
“There is no precedent,” she said. “There is not a case that exists anywhere that addresses what we are doing here.”
What New Jersey courts are trying to do is dispose of a backlog estimated at 60,000 or more foreclosure cases from the past five years, even as the number of new cases begins to creep back toward the peaks of the Great Recession.
Last month, McVeigh approved corrected notices from a smaller lender, MidFirst Bank. But that involved only about 230 mortgages. As one of the major mortgage lenders and loan servicers in the nation and state, Wells Fargo is a key player in shaping the process, participants said at yesterday’s hearing.
“We agreed to go first, to leave our chin hanging out there,” said one of the bank’s New Jersey attorneys, Mark Melodia of Reed, Smith. The volume of motions and objections led to the case being delayed behind MidFirst, but Wells Fargo is sharing advice with other banks with similar cases pending, he told McVeigh.
But defense attorneys said even at this point, there still are questions about the accuracy of notices and some other documents. More than 1,100 cases have been pared from the Wells Fargo initial notice list because of errors, they told the judge.
Still, some representatives from all sides agreed with McVeigh that the courts must resolve the situation for the good of defendants, lenders, and New Jersey’s economy.
The backlog began in December 2010 after instances of fraud and misinformation in foreclosure cases, most of which are uncontested, caused state Chief Justice Stuart Rabner to order six major lenders and two dozen others active in New Jersey to demonstrate steps to eliminate the problems.
Naming the Mortgage Holder
After winning court approval of its internal safeguards last year, Wells Fargo brought more than 4,500 of these delayed cases before McVeigh earlier this year. They involved homeowners who previously received notices of intent to foreclosure that improperly named only the company servicing the loan, not the mortgage holder.
The holders had become harder to identify in the lending and borrowing spree that followed the reregulation of American financial markets in 2000. Financial firms packaged mortgages, some issued on unsustainable terms, into investment vehicles that ratings agencies certified as safe despite their inherent risk.
Traded and retraded, chopped and repackaged, those mortgage-backed securities have proven hard to unravel as the housing bubble began its slow-motion burst in 2007.
The problem can be seen in the caption on one of the underlying cases Wells Fargo attorneys brought before McVeigh.
Before Wells Fargo, the named plaintiffs were “U.S. Bank National Association as successor trustee to Bank of America, National Association (successor by merger to LaSalle Bank National Association) as trustee for Mortgage Stanley Mortgage Loan Trust 2006-15XS.” The underlying loan was issued by First Financial Equities.
Those who invested in securities issued under such circumstances may own only a piece of a mortgage that was sliced and diced among several other packages. But studies around the nation show that in some cases, lenders have been able to foreclosure on properties without holding proper title.
Such gyrations are not unique in recent foreclosure cases. But a few of the individuals who objected to notices from Wells Fargo told McVeigh that even their most recent notices name the bank’s subsidiary America’s Servicing Co. as servicer, but do not identify the holder of the mortgage note.
The judge gave Wells Fargo until November 26 to sort out such discrepancies or face dismissal of their current cases. She did allow a Bergen County man, George Tchkadua, who missed her October 18 deadline to file objections, to present his supporting documents.
Like many defendants, Tchkadua was befuddled by the process. In his case, he believed that objecting to the Wells Fargo notice was the same as contesting his foreclosure, while the document is supposed to be used only for uncontested cases.
Afterward, he said this was his first time in court on the matter, and expressed satisfaction with the judge’s explanations.
Similarly, when Marie Baker of Burlington explained that she had paid $2,300 to an out-of-state law firm, which “told me I should come here,” McVeigh checked court records and found no actions have been filed on the woman’s behalf. The judge had Baker stay to talk with the Wells Fargo attorneys and Margaret Jurow of Legal Services of New Jersey.
But others left shaking their heads over her insistence that she would rule only on problems with the notices, not with related matters. One said it was like “taking to a wall.”
Jurow made some headway with an argument that many foreclosure cases have suffered lengthy delays because of bank failures to provide proper documentation, but the lenders continue to add fees, often at high interest rates that do not reflect the current market.
“I have one client with 13.7 percent interest,” she said.
Wells Fargo attorney Diane Bettino said the bank is continuing to pay taxes and other charges on such properties, whether borrowers are making payments or not.
“I would expect Wells Fargo to know who is making payments,” Jurow said.
Issuing a Directive
McVeigh said she will include some directive on the issue in her order, although she did not specify terms.
But she disappointed Jurow and some other defense lawyers who were looking for her to dismiss cases, or give directions to judges hearing cases who issued rulings on notices before the current round.
The judge dressed down defense attorney Adam Deutsch, who represents a number of foreclosure defendants, accusing him of an “attack on fellow counsel.” Deutsch asked the court to appoint a special master after Reed, Smith continued to send notices to his clients after being informed they had legal representation.
But Deutsch said the numerous errors, mainly in determining which homeowners should have received notices, already have reshaped the case. The situation deserves further scrutiny.
“Of 4,277 people previously named, 1,150 were improperly included,” he said, adding, “there are probably more errors.”
Going forward, those people “will be excluded from the orders” in the case, McVeigh said. Even for those who should not have received notices, “where is the harm in giving them a chance to cure their debt?” she asked.
The judge said she and her staff “have been serving as the special master in this case,” going through an enormous workload and contacting individual objectors themselves. The number and extent of foreclosure cases is “depressing, depressing,” the more so because so many of them involve simple bad luck, such as the loss of a job or high medical bills, McVeigh said.
“No one sitting in this courtroom is immune to being involved in a foreclosure,” she said. “It’s something that’s beyond our control.”
Late in the day after Deutsch left, the judge did tell the Wells Fargo attorneys that she was “upset” that the bank has continued to deal directly with some borrowers who are represented by attorneys. Legal Services previously objected to the practice, and in “an attempt to be credible” she imposed fines of $500 per instance.