By Nick Timiraos
The Maine Supreme Judicial Court overturned the foreclosure of a Maine homeowner after concluding that the supporting documentation filed by the foreclosing bank was “inherently untrustworthy.”
The decision, handed down Friday, underscores the potential for more delays in foreclosures as banks are unable to foreclose on borrowers after being challenged in court for using questionable paperwork. (Read the decision.)
The issues raised in the case are separate from the robo-signing scandal that first erupted last fall, where bank employees were accused of signing paperwork without reviewing their contents. Instead, Dana and Robin Murphy challenged irregularities in the foreclosure documents that suggested potential fabrications or other shortcuts.
HSBC says that they took out a $149,000 loan in March 2005 on an Auburn, Maine, residence and that they stopped making payments nearly 15 months later. Maine is one of 23 states that require banks to foreclose on borrowers through the court system.
The case turned on several affidavits filed by HSBC Mortgage Services Inc. that were designed to establish the facts of the case. The court ruled that affidavits used by HSBC were not “of a quality that would be admissible at trial.”
A trial court had initially ruled that HSBC failed to demonstrate standing to foreclose and that it improperly notified the Murphys about the foreclosure. HSBC then filed a new affidavit, and the trial court blessed the foreclosure.
But the Murphys appealed and spotlighted “serious irregularities” in those affidavits that, the Supreme Court said, made them “inherently untrustworthy.” For example, the initial affidavit in the case was dated and notarized on Sept. 10, 2008, even though it included the balance and late fees as of Jan. 29, 2009—or for four months that hadn’t yet happened.
The court said it didn’t have enough information to conclude that a fraud had been committed on the court, as the Murphys had implied, but it did rule that the loan paperwork submitted in the cases was unsatisfactory. It returned the case back to the trial court and HSBC won’t be able to foreclose until the issues raised on the appeal are addressed.
“It is a really clear statement by the Maine Supreme Court about the quality” of foreclosure affidavits “that is going to be required,” said Thomas Cox, one of their attorneys. “That quality has been singularly absent in Maine and throughout the country.”
An HSBC spokesman declined to comment on pending litigation.
It’s not clear how the trial court will rule when it takes up the case. When a court deems that business records aren’t trustworthy, it can require future testimony to come from witnesses who were intimately involved in business operations and that have first-hand knowledge of the records, says Cox.
If that becomes the new standard for certain foreclosures in Maine, foreclosures could become even more time-consuming and expensive for any institution that has to meet them. That’s precisely why the case “has the potential to have a really significant impact,” says Cox.
Cox, a retired lawyer who volunteers at Pine Tree Legal Assistance, a nonprofit group, is well known within foreclosure legal-defense circles because he took one of the depositions of the GMAC employee who was dubbed a “robo-signer” for approving foreclosure paperwork without verifying their contents. That testimony prompted much more scrutiny of banks’ foreclosure practices last September.
Cox says the ruling is also noteworthy because the Maine Supreme Court appeared to tell the borrowers to seek sanctions, including the payment of legal expenses. “They’re telling us to pursue those motions. It’s the first time I’ve seen a high court do so,” says Cox.