'Angel' of foreclosure defense bedevils lenders
Florida attorney trains hundreds of others to help troubled borrowers
By Mike Stuckey
Senior news editor
updated 6:39 a.m. ET, Fri., Dec. 19, 2008
JACKSONVILLE, Fla. - Talking about what she sees as one of America’s darkest hours, attorney April Charney uses some pretty colorful language.
“You ever look into a place where snakes hang out?” she asks in the middle of a conversation about the loan officers, appraisers, investment bankers, attorneys and others that she believes are responsible for the nation’s worsening financial crisis. “That’s what I see here. They’re writhing and oozing and morphing into creepy stuff with slime all over it.”
Then in her quiet, gentle drawl — the kind of voice that could get you invited to afternoon drinks on the finest porches in South Florida, where she grew up — she leans forward and says quite earnestly, “Not to discredit snakes or anything.”
Charney, a lawyer with the Jacksonville Area Legal Aid agency, is quickly developing a national reputation as a champion of homeowners facing foreclosure and a serious adversary for those attempting to take possession of those homes. Her encyclopedic knowledge of contract law, debt-collection practice, securitized mortgages, the trusts that hold them and the agreements that govern the trusts have put her at the forefront of the rapidly expanding specialty of foreclosure defense.
While carrying her own load of 70 to 100 foreclosure cases as a legal aid attorney, Charney, 51, also has become one of the nation’s top trainers of other lawyers eager to learn how to serve the growing clientele spawned by America’s mortgage meltdown.
About 1,500 lawyers have attended her daylong classes on foreclosure law so far, 80 to 200 at a time. She has taught in Ohio, California, Minnesota, South Carolina, Missouri and throughout Florida. She offers the classes at cost with the help of local bar associations and aid groups and requires that all students perform 20 hours of pro bono legal work in their communities.
A trail of trouble
Charney said her crusade was born out of experience. Over and over again, she said, in her cases and those of other attorneys she met, she found sloppiness, fraud and outright criminality in the nation’s mortgage lending industry. Regardless of why her clients have been unable to pay their mortgages, she maintains that nobody deserves to lose a home to the unethical and illegal foreclosure procedures that she claims are now being used by many banks and loan servicers.
Her work has earned her the enmity of many a lender and high praise from consumer advocates. “She is definitely a woman who walks the talk and carries a big stick that will crush those who defy consumer laws,” wrote Moe Bedard, president of Loan Safe Solutions, a company that tries to help homeowners prevent foreclosure.
The Mortgage Bankers Association, the trade group that represents 2,400 companies from all sectors of real estate finance, did not respond to msnbc.com’s invitation to comment about Charney and her sweeping indictment of the industry and its business practices. And the American Bankers Association, unfamiliar with her work, had no comment.
But clients like Vickie Lewis of Jacksonville, for whom Charney has staved off foreclosure for more than four years, adore her. “She’s an angel,” said Lewis. “Without Miss Charney, I would have been out a long time ago.”
Long days, even on 'vacation'
Charney pursues her calling with energy and enthusiasm. On a recent “vacation day,” she met for hours with a reporter, then saw clients until 8:30 p.m. in her downtown Jacksonville office, which is so crammed with case files, law books and other materials she hasn’t been able to shut the door or hold a meeting there for quite some time.
She has no sacred cows, and is currently taking on the Jacksonville area Habitat for Humanity, a darling of many liberal social activists, over construction quality and other issues.
Charney, separated from her husband, is often at her desk preparing briefs after midnight but manages to maintain close contact with a daughter, 25, a third-year law student, and a son, 23, who received a degree in anthropology last year and is now interning with the U.S. Park Service. She prefers sweaters and jeans to suits, and dreams about being able to spend more time running rivers and hiking wilderness trails.
A University of Miami law school graduate who spent years in private practice in Arkansas and worked in other legal aid offices before coming to Jacksonville four years ago, Charney said she became an expert on lending law when her caseload of foreclosures increased and she began to notice a number of disturbing trends that have yielded her key defense strategies.
First, because of the way mortgages have been securitized, it’s often unclear who actually owns the debt, she said. “What we see is that systematically, the originating lenders only pledged these loans and didn’t actually transfer them” to the trusts that are supposed to hold them and issue the securities, she explained.
But only the true debt owner has the legal standing to be a plaintiff in a foreclosure, she continued. “That’s first-year law school stuff. If you’re Joe and the debt doesn’t belong to you, it belongs to Marjorie, then Marjorie better be in court, not Joe. Don’t come in as Joe and tell me you have the right to be there when you know full well you don’t.”
Yet, time and again, loan servicers and others have sought plaintiff status, often by using affidavits stating that the actual notes had been lost, she said. “I’ve seen paperwork filed by lawyers saying, ‘We anticipate assignment’” of the debt, she said with a scoff.
And the loan originators can’t appear in court and claim the right to foreclose because they would be in violation of securities laws for not transferring the loan to the trust when they were supposed to, she said.
Making an issue out of the actual ownership of the securitized title might strike some as a shameless stalling tactic aimed at abetting a debtor who, after all, owes the money. But Charney said that if such basic legalities aren’t adhered to, a homeowner could pay his or her way out of a foreclosure jam only to wind up in another when a new plaintiff emerges claiming to own the debt. She described cases in which homeowners have been sued for foreclosure by two different trusts, each claiming they owned their house, and cases where trusts have been sent documents on the same case by two different servicers.
Charney has a number of other defenses that focus on other sloppy and illegal practices by lenders and mortgage servicers. Some homeowners in foreclosure, such as those with FHA-insured loans like her client Vickie Lewis, were “entitled to very special default case management, and they didn’t get it,” she said. These people might not be in foreclosure if they had, she said.
Trouble is in the stock
The FHA loan program exists to enable low- and moderate-income Americans, including many with poor credit, to buy homes. FHA anticipates that borrowers in its programs will have more difficulty staying current on their loans than so-called prime borrowers, and therefore requires lenders to offer a range of options to troubled clients.
“I think that they are entitled to relief" because they didn't get the help they were supposed to, Charney said.
Still other clients wind up in foreclosure because they were the victims of predatory lending practices and outright fraud when they got their loans, Charney said. If that can be shown in court, the foreclosure may be tossed out.
Charney prefers to settle cases, often using the flaws she exposes in debt ownership and loan servicing to gain reworked, more manageable mortgages for her clients.
“Where we were settling cases at 7 percent interest, I’m now wanting to settle them at 4 percent interest or 3 percent interest,” she said. “I’m now settling for tenants where the lender, in lieu of rent, has them maintain the property. You have to adjust to the circumstances.”
Charney said that in a number of her cases, once there is no longer an ability for the loan servicer to profit, the foreclosure “just goes to sleep, and unless I’m going to pursue it, nobody’s setting hearings, nobody’s pursuing anything to get it to trial.”
After five years, which is the statute of limitations to enforce a contract in Florida, she can try to help her clients own their homes mortgage-free, Charney said. The first opportunity for her to help clients do that may arise next year.
Most cases remain in limbo
And that legal limbo is where the lion’s share of her cases stand now, Charney said. So far this year, she has achieved two “workouts” and lost two cases. “Many, many, many” of the rest are in sleep mode or getting a single filing each year by plaintiffs’ attorneys just to keep them alive.
Bert Ely, a longtime analyst of the financial services industry and a scholar at the conservative Cato Institute who was among the first to predict the S&L scandal of the 1980s, said lenders may detest tactics like the ones Charney employs, but “this is well-established in bankruptcy practice, that you have to properly perfect the security interest, and if you haven’t, you’re screwed. … Debtors’ lawyers immediately start looking for flaws in how the debt is protected. Creditor attorneys always worry about this.”
“It kind of boggles my mind that this is even an issue” in the nation’s current mortgage mess, he said. “I don’t understand how lawyers let this happen in the first place.” Mortgage-lending and servicing is “a matter of dotting the I’s and crossing the T’s. … That’s what puts the discipline in the process.”
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