Lawsuit accuses mortgage cos. of using false docs in foreclosure

Cliffside Park widow switches to federal court to challenge debt-collecting claims

Debt collector accused of relying on false and illegal paperwork to press their case.

MARCH 3, 2015    LAST UPDATED: TUESDAY, MARCH 3, 2015, 1:21 AM

Consumer Finance Protection Bureau

Independent Inspector General for CFPB

Bipartisan Legislation Introduced to Create Independent Inspector General for CFPB


One of the major complaints of the Consumer Financial Protection Bureau (CFPB)’s critics is a lack of Congressional oversight for the Bureau. Lawmakers have re-introduced a bipartisan bill in the U.S. House of Representatives in an attempt to change that.

Author: Brian Honea February 19, 2015

U.S. Representative Steve Stivers (R-Ohio), along with U.S. Representative Tim Walz (D-Minnesota) re-introduced the Bureau of Consumer Financial Protection Act of 2015, a bill that would create the position of an independent Inspector General for the CFPB.

“Government accountability is important now, more than ever,” Stivers said. “This legislation will allow for increased oversight of an agency that has been given broad authority. It is important that we take the necessary steps to ensure the CFPB is accountable to the American people.”

The CFPB was created in 2011 as part of the Dodd-Frank Wall Street Reform Act with a mission to “make markets for consumer financial products and services work for Americans — whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products,” according to the Bureau’s website. The Bureau’s actions in carrying out this mission have resulted in several multimillion dollar fines and penalties against financial institutions, notably a $2 billion action levied against non-bank mortgage service Ocwen Financial in 2013 for servicing violations.

“The CFPB is an important agency that works to ensure that you, the consumer, are protected from things like predatory payday lenders, shoddy mortgage bankers and defective products. Their work is important, but that doesn’t mean that they don’t need oversight,” Walz said. “I fully support their cause, to stand up for you and believe the appointment of an independent Inspector General will only increase their ability to fulfill their important mission.”

The CFPB’s critics, such as Representative Jeb Hensarling (R-Texas), have questioned why the Bureau is not accountable to Congress despite being funded by the Federal Reserve, and also why the Bureau is led by a single director when other government agencies such as the FDIC, the Federal Reserve, and the SEC are all led by boards.

Currently, the CFPB shares an Inspector General with the Fed, and that position is appointed by the Fed chair and not subject to U.S. Senate approval. The bill introduced by Stivers and Walz will create the position of independent Inspector General for the CFPB that is appointed by the President and confirmed by the Senate. More than 30 federal government agencies or departments have an independent Inspector General, according to Stivers’ website.

A spokesperson from the CFPB declined to comment on the bill.

Stivers originally introduced the bill in the House in December 2013, but it has gained little to no ground since then. The CFPB’s backers, primarily Democrats, have stated they are vehemently opposed to any type of CFPB reform and have vowed to protect the Bureau from any type of legislation that would make changes to the status quo.


CFPB to hold field hearing on arbitration in Newark NJ on March 10, 2015

The CFPB has announced that on Tuesday, March 10, 2015, it will hold a field hearing in Newark, N.J. on arbitration. The hearing will feature remarks from Director Cordray, as well as testimony from consumer groups, industry representatives, and members of the public.

Our expectation that the CFPB would issue its arbitration study in early 2015 coupled with the agency’s history of using field hearings as the venue for announcing new developments makes it seem highly likely that the field hearing will coincide with the CFPB’s release of the arbitration study. The CFPB is conducting the study under Section 1028 of Dodd-Frank. In April 2012, it published a request for information about the scope, methodology and data sources for the study. In December 2013, it published preliminary study results.

CFPB Proves Its Critics Right

Car dealers sometimes make discounts, at their discretion, on loans they help to arrange with financial companies. That’s a pretty fundamental aspect of how they do business. Yet the federal government is trying to put a stop to it.


29 Feb 25, 2015 4:05 PM EST

The Consumer Financial Protection Bureau, an independent agency established by the Dodd-Frank financial-regulation law in 2010, says that letting the dealers exercise discretion opens the door to discrimination based on race and sex (whether or not that discrimination is intentional). So it’s leaning on lenders to eliminate or at least limit that discretion and come up with “a different mechanism” for compensating dealers.

The CFPB’s position runs into three difficulties that invalidate its approach to this issue — and suggest how prone to abuse this new agency may become.

First, evidence of widespread harm in this intensely competitive market is thin. Auto lenders aren’t allowed to gather data on customers’ race. So the bureau has resorted to the dubious proxies of surnames and geography to assign races to customers, and then to assess discrimination. It has dragged its feet about revealing its methods, which are open to serious question. A study by Charles River Associates, a consulting company, found that differences in the way customers are treated “can be largely explained by objective factors other than race and ethnicity. In addition, the use of race and ethnicity proxies creates significant measurement errors, overestimates minority population counts, and results in overstated disparities.”

The agency’s legal authority is also shaky. The Dodd-Frank law included an amendment specifically exempting car dealers from the CFPB’s jurisdiction. The agency thinks it can get around that limitation by regulating dealers at one remove — that is, by using regulation of financial companies to change their behavior. Whether that narrow reading of the law is a plausible one will be up to the courts if the CFPB keeps up its effort.

And finally, there’s an alternative way to reduce the risk of discrimination. The National Automobile Dealers Association, a trade group that opposes the CFPB’s action, is promoting a program modeled on a consent agreement the Justice Department entered into with two car dealers to resolve accusations of unintentional discrimination. Dealers would develop policies for offering discounts and keep records of why they were offered. That seems like an approach worth trying before ham-handedly forcing changes to car dealers’ business model.

Representatives Marlin Stutzman and Ed Perlmutter introduced a bill in the last Congress to stop the CFPB from regulating the car dealers. It drew 149 co-sponsors, including many liberal Democrats who cannot be said to be soft on discrimination. The bill is expected to be re-introduced this year.

When Dodd-Frank was being debated in Congress, critics warned that the CFPB would have little accountability and would therefore be inclined to overreach. On this issue, the agency seems determined to prove that fear right.

Finance: Warren Joining Obama for Retirement Security Push

President Barack Obama will be making a public push to strengthen the regulation of financial advisers who provide advice about finance and saving for retirement.
By Niels Lesniewski Posted at 6 a.m. on Feb. 23

The two Senate Democrats with perhaps the most star power, Cory Booker of New Jersey and Elizabeth Warren of Massachusetts, will join the president for the rollout of the proposal at an event hosted by the AARP. Monday’s event also will feature Richard Cordray of the Consumer Financial Protection Bureau that Warren advocated for creating, along with Rep. John Delaney, D-Md.

Secretary of Labor Thomas E. Perez stressed in a conference call Sunday that he has been working on the issue since he first arrived at the department in 2013, with significant outreach already having taken place.

“The input that we have received to-date has been invaluable. Jeff and I have personally participated in many of the meetings with industry stakeholders, consumer advocates and others. Once we publish the proposal rule, we look forward to receiving additional comments, and we’ll hold a public hearing to discuss the proposal,” Perez said.

Perez declined to get into some of the specifics, citing “regulatory constraints” connected to the rule-making process. He did say, however, “We expect that the proposed rule will not ban commissions or any common compensation practices, and it will allow financial advisers to continue providing general education on retirement savings.”

Opponents warn that an increased regulatory burden could drive financial planners away from advising those at lower income levels, and the industry has vehemently opposed the proposed rule throughout the process. Securities Industry and Financial Markets Association President and CEO Kenneth E. Bentsen, Jr., for instance, already was expressing skepticism Sunday.

“We have ongoing concerns that the DOL and the White House have completely ignored the existence of the robust regulatory regime under SEC and FINRA, and this re-proposal could make it harder to save for retirement by cutting access to affordable advice and limiting options for savers. The DOL re-proposal could ultimately raise the cost of saving and hurt all Americans trying to save for retirement, particularly middle-class workers,” Bentsen said in a statement.

National Economic Council Director Jeffrey Zients told reporters Sunday that AARP is among “a coalition of consumer and civil rights organizations who support the president’s call to update and strengthen the rules for retirement advice,” and called the new push “the next chapter” in the president’s “historic push for stronger consumer protections.” He highlighted past efforts by the Consumer Financial Protection Bureau, which Warren led after its creation, and which has been despised by many Republicans and the financial services industry.

The campaign is coming fairly early in the process, with the proposed rule being sent over to the Office of Management and Budget for review on Monday.

The public announcement and the transmittal to OMB come in conjunction with a new Council of Economic Advisers report that looks at peer-reviewed research about conflicts of interest and investment advice.

“The economic theory in this area is very clear. When you have a broker who has their compensation directly tied to the advice that they’re giving to a person, often with that person not even knowing that that’s the case, they’re going to systematically very often have a big incentive to steer people towards products that aren’t necessarily the best interests of their client, but instead offer them the greatest compensation, ” CEA Chairman Jason Furman told reporters.

“If you have a serious illness, you don’t want your doctor telling you what’s suitable for you, you want that doctor to tell you what’s best for you, and what will maximize the chances of saving your lives,” Perez said. “Similarly, as consumers make critical decisions on how best to invest their hard-earned savings, they deserve to know that their financial advisers are looking out for their best interests. The corrosive power of fine print, hidden fees and conflicted advice can eat away like a chronic illness at people’s hard-earned retirement savings.”

Furman highlighted in particular what happens when retirement plans offered through employers are transitioned into individual retirement accounts.

“Every year, there’s $300 billion of rollovers to IRAs,” Furman said. “If you roll over, you’re often rolling over from a 401(k) where you are advised under a fiduciary standard to, all of a sudden, getting conflicted advice, and potentially paying a significant amount, you know, as a result of that advice.”

Asked about the likely return of legislation by Rep. Ann Wagner, R-Mo., that’s previously passed the House to put the brakes on a Labor Department fiduciary rule update until after a Securities and Exchange Commission rule-making, Perez emphasized the Labor Department’s actions still have a long way to go.

“I am confident that people who have a shared interest in ensuring that people approaching retirement — and there are those in every district in the country — are able to take their hard-earned money and ensure that they can have a stable retirement,” Perez said. “This, again I would underscore, is an announcement that there will be a proposed rule that will have ample opportunity for an additional round of input from the public, including but not limited to members of Congress.”

“There are no final decisions that have been made … other than that we will have a proposal out there for public comment in the future,” he added.


Friday, February 27, 2015 10:59 AM
Mortgage Servicing

Servicing’s Dubious Distinction: Most Mortgage Complaints to CFPB

Problems related to loan servicing dominate the consumer complaints about mortgage companies made to the Consumer Financial Protection Bureau, but an agency official expressed optimism about the industry’s response to these grievances. 

FEB 26, 2015 10:25am ET

Since its launch in June 2012, mortgage-related complaints account for nearly one-third of the more than 538,000 grievances published in the CFPB’s public database.

Among the roughly 162,000 mortgage-related complaints, 55% were related to problems when consumers are unable to pay, and 29% of complaints involved consumer issues with making a payment (consumers self-identify the nature of their complaints). Meanwhile, consumer issues with applying for a mortgage accounted for 8% of complaints, and 4% are issues with loan closings.

FDCPA Lawsuits Up in January and TCPA Claims Down, Reversing 2014 Trends

The number of lawsuits filed by consumers under the Fair Debt Collection Practices Act (FDCPA) increased in January compared to the same period in 2014. Lawsuits citing violations of the Telephone Consumer Protection Act (TCPA) were down in year-over-year comparison. It reverses a trend from the past three years, but 2015 is still young.

Patrick Lunsford February 26, 2015

There were 765 FDCPA suits filed in federal courts in January 2015, an increase of 5.4 percent from January 2014, according to data provided by WebRecon LLC. The total represented a nine percent increase from the previous month, however.

TCPA suits came in at 142 in January 2015, down more than 33 percent from January 2014 and down almost 18 percent from December 2014.

Although just the first month of the year, the filings represent a sharp turnaround in both FDCPA and TCPA lawsuit trends of the past several years.

Total TCPA lawsuits set a record in 2014 after years of double-digit growth. FDCPA suits, meanwhile, fell for the third straight year.

The steady decline in FDCPA lawsuits has been at least partially offset by a meteoric rise in cases claiming violations of the Telephone Consumer Protect Act (TCPA). In 2014, the total number of TCPA cases filed increased 25 percent.

Five years ago, the TCPA was a minor blip on the radar of ARM compliance professionals. A dramatic increase in the usage of mobile phone usage in the U.S., combined with several other factors, has made the TCPA a much more enticing statute for aggrieved consumers and their legal representation.

In January 2015, repeat filers continued to account for a significant portion of lawsuits filed under the FDCPA and TCPA, with 36 percent of suits filed by consumers who had previously filed such actions. Class actions represented about 15 percent of FDCPA suits and roughly four percent of TCPA suits.

NJ mortgage distress easing, but still higher than U.S. rate
March 2, 2015    Last updated: Monday, March 2, 2015, 6:35 AM
The Record

Mortgage misery is starting to ease in New Jersey, but the state still has one of the nation’s highest rates of home loans that are late or in foreclosure, according to the latest report from the Mortgage Bankers Association.

In the fourth quarter of 2014, 14.8 percent of New Jersey mortgages were either delinquent or in foreclosure, the MBA said last week. That’s down slightly from a year earlier, but still well above national levels. The state has been slower than the nation as a whole to work through the foreclosure crisis, in part because New Jersey is one of about two-dozen states where foreclosures go through the courts, which slows down the process.

In addition, distressed properties piled up when foreclosure activity in New Jersey slowed to a trickle in 2011, after questions were raised about whether the mortgage industry was running roughshod over borrowers’ rights. Lenders in the state are still dealing with that backlog of troubled loans.

New Jersey ranked 13th in delinquencies and second in foreclosures started among the 50 states and the District of Columbia, the MBA said.

Nationally, about 8 percent of mortgages were in trouble — with 5.7 percent delinquent on payments and 2.3 percent in foreclosure. Those were levels that haven’t been seen since before the 2007-09 recession and the 2008 financial crisis.

“Delinquency rates and the percentage of loans in foreclosure decreased for another quarter, and were at their lowest levels since 2007,” Marina Walsh, an MBA analyst, said in a statement. “We are now back to pre-crisis levels for most measures.”

About three-quarters of the U.S. loans in trouble were originated in 2007 or earlier, Walsh said. Loose lending standards and a housing bubble in those days allowed less qualified borrowers to get loans, but many homeowners were unable to keep up with the payments, especially when the recession led to widespread job cuts.

Mortgages written more recently have low delinquency rates because they were made to borrowers with stronger credit, the MBA said.

“We expect the improvement in mortgage performance to continue due to the improving economy and a strengthening job market,” Walsh said.

Court Expands FDCPA’s “Least Sophisticated” Standard to Include Attorneys

John Rossman February 25, 2015

The concept that a debt collection communication must be viewed through the lens of the “least sophisticated consumer” is a fairly established tenet of Fair Debt Collection Practices Act (FDCPA law).  While the application of this standard is often the subject of litigation, its premise is that a debt collection communication violates the FDCPA if it would deceive or confuse the least sophisticated consumer.

The obvious exception to the “least sophisticated consumer” standard is collection communications with a consumer’s attorney.  This exception is recognized by a number of Courts – including the 7th Circuit Court of Appeals decision in Evory – which hold that assessing whether collection communications with an attorney for a consumer are deceptive will generally be judged using the “competent attorney” standard.

But the 11th Circuit Court of Appeals recently broke new ground on the assessment of collection communications with attorneys in the Crawford decision, holding that statements in a proof of claim filed in a Chapter 13 Bankruptcy are subject to the least-sophisticated consumer standard.  While the ruling in theCrawford case is most notable and challenging due to its interpretation of the intersection between Bankruptcy law and the FDCPA, the implications regarding  all collection communications with consumer attorneys is also substantial.

In the latest episode of the Debt Collection Drill audio blog, attorney John Rossman hosts a discussion with Moss & Barnett attorney Sarah Doerr about the impact of Crawford decision not only on bankruptcy proofs of claim, but also all collection communications with consumer attorneys.

A judge for the Eastern District of New York had some harsh words for plaintiff attorneys using the FDCPA as a blank check book for themselves and their clients.

Mike Bevel February 17, 2015

The plaintiff, Mr Levi Huebner, brought suit against Midland Credit Management, Inc., for an alleged violation of the FDCPA during a phone conversation. A phone call, District Judge Brian M. Cogan thought important to point out, that was initiated by the plaintiff “for reasons that now seem obvious[:] he chose to record it.”

The plaintiff alleged he was told that “he could not orally dispute the debt” and that “he must have a reason to dispute a debt.”

These statements, per the complaint, were violations of of 15 U.S.C. §§ 1692e(8) and 1692e(10).

Because the plaintiff recorded the call, Judge Cogan refers to it in his write-up:

Moreover, his baiting of the representative is very apparent from the transcript. At one point, he asks her, “I don’t understand, I can’t take it off my credit card, my account without paying it?” The representative declined the bait: “That’s not what I said, sir, I need to know what your dispute is before I can just delete it for you. So you’re saying you want to dispute it, why is it that you want to dispute it?” Plaintiff then reverted to his refrain that the debt is “nonexistent.” For the third time, the representative asked, “Did you ever have Verizon, sir?” And plaintiff would only answer “I don’t understand the question you ask me, this is a non-existent debt.” She responds, “[i]t’s a very straightforward question. Did you ever have Verizon service?” Plaintiff again evaded the question: “Okay, but I told you, you ask me, I told you, if you tell me, you’re not going to take my dispute, that’s fine. I’m just going to try to see if I can get more information.” The substantive discussion in the call ended with the representative saying, “I’m trying to help you with your dispute, sir, but you’re not really helping me help you.”

It is notable that despite the representation in the complaint that plaintiff was told he could only dispute the debt in writing, which was reaffirmed by plaintiff’s counsel at the Initial Status Conference, the word “writing” is never mentioned in the call. Again, it is undisputed that following this call, defendant immediately dispatched a cessation letter and no effort was made at collection.

The Judge’s Comments

“The majority of cases that I see under the statute are brought by a handful[of the same lawyers, based on complaints that read much more like legal briefs than complaints,” Judge Cogan explained in his write-up.

“A cottage industry among limited players — plaintiffs’ lawyers, debtors, and even defendants’ lawyers — appears to be the primary progeny of the statute,” Cogan added. He went on to say that, “Still, a technical violation of the statute is a violation, and although the social utility of this industry may be questioned, this technical use of the statute for economic gain violates no law or ethical precept.”

Regardless, though, in this case, the judge  wrote that he was “inclined to award defendant attorneys’ fees and costs in connection with having to defend this action.”

“[This] case…goes beyond anything that the Court has seen. It represents a deliberate and transparent attempt by a sophisticated debtor to entrap a collection company into a technical violation. Even more problematically, plaintiff chose to bring this action even though there is a tape recording showing that the attempt at entrapment utterly failed. The collection company in this case did everything by the book, and yet has still found itself a defendant in an FDCPA action. There are substantial questions about whether this action should be allowed to proceed and whether defendant is entitled to recover attorneys’ fees for having had to defend it.”

The Lawyer Who Went from Fighting for Guantánamo Bay Inmates to Going After Shady Banks, and Fighting Foreclosures

“Denbeaux moved into the similarly desperate legal realm of foreclosure defense, taking on powerful financial institutions on behalf of victimized homeowners.”

“In state court it’s been years of battling not just the adversary but fighting the court as well,” says [Adam] Deutsch, the staff attorney.  He believes that enough of these cases can really change loan-servicer behavior across a variety of sectors. “This extends beyond mortgages to student-loan debt, credit-card debt, medical debt.  This can bring awareness across the board to your rights as a consumer.”

“The lending industry has tremendous resources at its disposal to bulldoze over consumers.  Only dedicated advocates can nudge the system in a better direction, and even then, they face hardships, particularly the stigma attached to breaking up a good racket for lenders and their attorneys.  In a way, defending debtors is almost more radical than defending Guantanamo detainees.”
“We’re not necessarily requiring the court to decide who’s right and who’s wrong, just to enforce the law,” says [Josh] Denbeaux. “If you have enough cases, then you can control the battlefield and make a difference.”

Leading NJ Foreclosure Defense,  Attorney, Joshua Denbeaux, Esq.

Leading NJ Foreclosure Defense, Attorney, Joshua Denbeaux, Esq.

The Lawyer Who Went from Fighting for Guantánamo Bay Inmates to Going After Shady Banks

February 25, 2015

by David Dayen

On an early weekday morning, I arrive at a hotel-lobby coffee shop in Los Angeles to meet Josh Denbeaux, who’s in town to talk with an expert witness. He has a stack of legal briefs forming a wall around him, as he’s working on at least ten cases at once. He details them all for me, giving background sketches of clients, their plight, and who, exactly, back in New Jersey—where he practices law—has obstructed a fair resolution.

“This judge is either a knave or a fool,” he says casually.

Denbeaux has a self-confidence that belies the cases his firm, Denbeaux & Denbeaux, takes on. He came to prominence representing several detainees at Guantánamo Bay, challenging the relentlessness of the national security state. Later, he moved into the similarly desperate legal realm of foreclosure defense, taking on powerful financial institutions on behalf of victimized homeowners. And now, with a change in legal strategy, he believes he can get good outcomes for his clients and, more important, put a stop to the lending industry’s continued disregard for the law.

There’s no real career advantage to consistently standing up for some of the most alienated, voiceless groups in our society. But Denbeaux has scratched out a role for himself, working on behalf of whatever semblance of justice can be had amid massive institutional resistance.

When I ask Denbeaux what attracts him to cases many attorneys would consider lost causes, he replies, “Well, I don’t lose.”

Denbeaux was destined to join the family business; both his parents are lawyers (his father started the firm, and his mother remains a partner). He graduated from Seton Hall University Law School in 1994, where his father, who participated in marches at Selma and once defended members of the Black Panthers, now teaches. “I didn’t graduate from law school to say, ‘Let’s wait ten years and rep prisoners at Guantánamo,'” Denbeaux tells me. “But I always took weird cases.”

Denbeaux started out in commercial and insurance law, but in 2004 he and his father became two of the handful of attorneys willing to offer pro bono representation for Guantánamo detainees after the Supreme Court ruled that they could challenge their detentions. These lawyers informally describe themselves as the ” Guantánamo Bay Bar Association.” Denbeaux initially represented two Tunisian nationals, Rafiq Alhami and Mohammed Abdul Rahman.

Beginning in 2006, Denbeaux and his father, Mark, jaded by the government’s claims and the conditions at Guantánamo (“It’s a miserable place, it’s the stench of human despair,” Denbeaux told the CBS Evening News at the time), began publishing a series of studies about detainee treatment through the Seton Hall University Law School. Thefirst report used Defense Department data from military tribunals to illustrate that the vast majority of Guantánamo detainees were not part of al Qaeda, but rather bystanders in Afghanistan and Pakistan who had been delivered in exchange for bounties. Both Alhami and Rahman fit this description, they say.

Subsequent studies questioned the evidence justifying continued detention and the self-serving military tribunals process, discovered that all GTMO interrogations were videotaped, analyzed detainee releases and found them more dependent on prisoner nationalities and geopolitical relations than security risk, and dismissed overhyped warnings of widespread recidivism. The reports continue to this day; the last one, depicting Guantanamo as ” America’s Battle Lab,” was released in January.

The most important studies challenged the official story of three alleged suicides at Guantánamo on June 10, 2006. Denbeaux and his father were approached by a whistle-blower, Sergeant Joseph Hickman, a guard on duty that night, who witnessed the supposed suicide victims being led away to a secret site. Hickman believed that the detainees were murdered, suffocated by rags stuffed down their throats. Mark Denbeaux had his law students corroborate the story, Josh became Hickman’s lawyer, and together they issued several studies backing up Hickman’s claims. (The guard subsequently wrote a book on the case.)

Denbeaux’s proudest moment came in 2007. “We had a client (Mohammed Rahman). The State Department said, ‘We will release him to Tunisia,'” he tells me. “I said, ‘I don’t think the guy will survive two steps on the tarmac.'” The State Department refused to change the venue, so Denbeaux appealed to a federal district court in Washington, DC. There, Judge Gladys Kessler ordered the US not to release Rahman because of the high probability of physical harm. “So I successfully kept my client in Guantánamo,” Denbeaux said. “I’m very proud of that.”

Rahman and Denbeaux’s other client, Rafiq Alhami, were eventually released to other host nations, but Denbeaux still represents several clients working through the military commissions process.

“One guy working for me said, ‘Represent homeowners, everyone’s getting screwed.'”

He financed the detainee work out of his own savings, but after the financial crisis, the law firm suffered from lack of income. “One guy working for me said, ‘Represent homeowners, everyone’s getting screwed,'” he says.

At least 10 million homes have been foreclosed on since the housing bubble collapsed in 2006. New Jersey is one of 22 “judicial foreclosure” states, which means a lender must get a court to sign off before they foreclose on a debtor. Most of the cases go unchallenged, as struggling homeowners typically have no money to afford a lawyer, let alone a way to overcome the shame of asking for help.

Denbeaux learned as much as he could about banks and mortgages. He offered free consultations to homeowners and sought to obtain attorney’s fees from the banks if he won the cases. He retained Hickman, the former Guantánamo guard, as a private investigator. And he quickly recognized that mortgage companies and their lawyers repeatedly broke the law.

Banks routinely lied to homeowners seeking loan modifications, pushing them into foreclosure. And courts saw an epidemic of false, forged, and backdated documents manufactured by mortgage companies out of necessity to prove ownership of the loans. Low-level employees “robo-signed” affidavits, verifying information about loan files without any underlying knowledge of them. “I have 3,500 closing files on my servers. There’s nothing I haven’t seen yet,” Denbeaux says.

Many of Denbeaux’s clients had the ability to make modified payments and keep their homes, but the mortgage servicers refused to work with them.

“Here’s the similarity [between foreclosure defense and detainee representation]: The lawyers have no authority,” Denbeaux tells me. “At Guantánamo, I thought I could speak to a lawyer. That’s what we need to do to settle a case. Foreclosures, same thing. The house is worth two hundred and fifty thousand dollars, and the loan is three hundred thousand, so can’t we discuss doing something in the middle? The bank lawyer would say no. Why not? They’re not authorized to discuss anything.”

New Jersey judges initially didn’t want to hear these allegations. “You have to be self-motivated and not shy away from the adversity of what we deal with in the courts,” says Adam Deutsch, an associate attorney at Denbeaux & Denbeaux who specializes in defending consumers.

Eventually, the firm’s aggressive advocacy made judges take notice. Denbeaux’s attorneys started to consistently win cases by arguing that lenders could not prove ownership of the loans. In other cases, Denbeaux & Denbeaux won damages against lenders that violated state consumer protection laws by selling mortgages borrowers couldn’t afford to pay off. The courts would eventually put a hold on new foreclosure filings, and in 2011, the Superior Court of New Jersey appointed a “special master” to oversee foreclosure procedures in the state. As a result, plaintiff lawyers had to personally attest to the truthfulness of their foreclosure cases or face penalties.

But this only held mortgage companies’ illegal activities in check for so long. “There was a 12-month period where enforcement was in favor of the homeowners,” says Deutsch. “Now it’s swung back.” Fatigued New Jersey judges, who sometimes hear 25 cases a day, often give wide latitude to bank plaintiffs.

“The judges don’t care, they’re tired,” Denbeaux says. “I have judges regularly accepting bank certifications to settle disputes between my client and theirs without even consulting me. It’s really embarrassing. They opt in the direction of speed over accuracy.”

“I didn’t graduate from law school to say, ‘Let’s wait ten years and rep prisoners at Guantánamo,'” Denbeaux told me. “But I always took weird cases.”

One of the more egregious examples of how banks gamed courts and government regulators comes from the Wells Fargo “Pick-a-Pay” mortgage case. During the bubble years, Wachovia Bank and its subsidiaries sold half a million of these loans, which had low initial payments that shot upward within a couple years. Homeowners could never afford these deals, but they were enticed into them by the initial low terms and frequently slipped into foreclosure when the payments reset.

Wells Fargo bought Wachovia in 2008, and assumed legal responsibility for the Pick-a-Pay loans. At the end of 2010, nine states reached “assurances” with Wells Fargo, a settlement giving Pick-a-Pay victims cash compensation, a shot at a loan modification, and the right to sue for additional relief.

But Wells Fargo then made a second class-action settlement, which it offered to unwitting Pick-a-Pay customers. If homeowners cashed the $178.04 check representing their settlement compensation, they relinquished their right to sue Wells Fargo in the future. So the second class-action effectively nullified the assurances with the states. “I never met a single person who got a penny from the assurances,” Denbeaux says.

Denbeaux suddenly saw all his Pick-a-Pay cases dismissed because the borrowers, Wells Fargo claimed, had given up their right to challenge foreclosure actions. Wells Fargo also promised loan modifications in the class-action settlement that were never granted; they instead stole the homes with impunity from people already abused by fraudulent loans, according to Denbeaux’s report.

Like he did in the Guantánamo cases, Denbeaux wrote a detailed study of the Pick-a-Pay debacle and distributed it to state attorneys general. But officials ignored all his requests to do anything about it. “I couldn’t get the deputy AG to take my call in New Jersey,” Denbeaux tells me. “It’s a seemingly endless cycle of misleading, deceptive, and exploitative practices, in response to [Wells Fargo’s] misleading, deceptive, and exploitative practices.”

One of Denbeaux’s Pick-a-Pay victims, Michelangelo Malleo of Manasquan, New Jersey, applied four times for a loan modification under the settlement, but never got help. Instead, Wells Fargo told Malleo to stop paying to qualify, then used the default to file for foreclosure and set an eviction date of August 21, 2014.

Weeks before eviction, Malleo received a letter from Home Start Housing Center promising they could get him out of foreclosure. After submitting his information, Home Start sent him an offer—on Wells Fargo stationery—approving him for a loan modification with a lower monthly payment.

Malleo says he sent in his payment, but that day, two sheriffs and a moving truck came to evict him. Wells Fargo claimed to Denbeaux to have never heard of Home Start. After initially insisting that Wells Fargo must accept the terms of the approved modification, days later Home Start returned Malleo’s check and rescinded the offer. Malleo moved out of the house last October. “The web of deceit is overwhelming,” Malleo says. “The embarrassment, the disgrace that has occurred is amazing.”

Denbeaux repeatedly tried to get the courts and Wells Fargo lawyers to reverse the eviction based on the signed agreement. But he chose to end appeals, because he had no hope of a positive ruling. “It has all the elements of embezzlement,” he said.

“If you have enough cases, then you can control the battlefield and make a difference.”

Despite the widespread belief that the foreclosure crisis has ended, Denbeaux & Denbeaux’s caseload continues to grow as homeowners stream into the firm’s office in a converted house in Westwood, New Jersey. While judges still tend to side with banks,recent rulings in New Jersey make it easier to sue for denying approved loan modifications and other consumer protection violations. Denbeaux & Denbeaux now has 16 at attorneys many of them former law students from Mark Denbeaux’s Seton Hall classroom, eager to go to war for their clients.

The firm’s latest strategy is to go around state courts. There are a host of consumer protection laws, from the Truth in Lending Act (TILA) to the Fair Debt Collection Practices Act (FDCPA) to the Real Estate Settlement Procedures Act (RESPA), where regulatory oversight has shifted from the Federal Reserve to the Consumer Financial Protection Bureau, which was created in 2010 with the sole responsibility to safeguard consumers from financial scams. Not only does CFPB have a dedicated staff to go after financial predators, they grant private attorneys a taste of the action as well. “It means there’s a private right of action every time a [loan] servicer screws a homeowner,” Denbeaux says.

In other words, instead of futilely trying to convince state judges who’ve made up their minds about deadbeat homeowners, Denbeaux’s lawyers can raise the stakes.

“Say we’ve got someone who paid on time and the bank says they didn’t,” Denbeaux says. “I ask for the servicing records. If they don’t respond within five days I can file suit in federal court.”

Federal courts have proven more willing to enforce the law; even the Supreme Court (which has lately been pro-business) ruled unanimously against Bank of America subsidiary Countrywide last month, giving homeowners the right to rescind their mortgages if their lenders don’t provide proper disclosures.

Federal consumer protection penalties are relatively modest—between $1,000 and $4,000 per violation—but federal courts can also demand disclosure of whatever documents have been requested, bringing to light facts that state court judges cannot deny. Federal courts could also add on additional damages if the violations led to wrongful foreclosures.

“We’re not necessarily requiring the court to decide who’s right and who’s wrong, just to enforce the law,” says Denbeaux. “If you have enough cases, then you can control the battlefield and make a difference.”

Of course, some experts are skeptical of this approach. “An isolated case here or there won’t change anything,” says Adam Levitin, a law professor at Georgetown University. “It would take nationwide scale or a truly extraordinary decision by a federal court of appeals to see anything happen.”

“We have looked long and hard to removal to federal court,” adds Thomas Ice, a foreclosure defense lawyer in Palm Beach, Florida. “There may be some documents you can get that are valuable. But every time I look at it, I look at how does this help the client?”

But Denbeaux & Denbeaux, believing that a large volume of cases could play a critical role, has already filed around 20 complaints under one consumer-protection law and has 60 more coming under another. “In state court it’s been years of battling not just the adversary but fighting the court as well,” says Deutsch, the staff attorney. He believes that enough of these cases can really change loan-servicer behavior across a variety of sectors. “This extends beyond mortgages to student-loan debt, credit-card debt, medical debt. This can bring awareness across the board to your rights as a consumer.”

Denbeaux has an even bigger plan: He wants to track complaints into his office and use them to build class-action cases. The Consumer Financial Protection Bureau has a similar complaint database, but Denbeaux thinks he can find more violations. When I point out how ambitious that sounds, Denbeaux chuckles. “If you don’t aim high…”

“We’re trying to make the law egalitarian, make access to the courts egalitarian. I think I have ways to get there.”

The lending industry has tremendous resources at its disposal to bulldoze over consumers. Only dedicated advocates can nudge the system in a better direction, and even then, they face hardships, particularly the stigma attached to breaking up a good racket for lenders and their attorneys. In a way, defending debtors is almost more radical than defending Guantánamo detainees. At least prisoners have the constitutionally guaranteed right to an attorney; according to the lenders, homeowners shouldn’t dare to ask for fair treatment until they pay what they owe. Denbeaux is a threat to a financial system that has a dangerous amount of power in this country.

“I’ve got a small office in an old house,” says Denbeaux. “I’ve surrounded myself with smart, dedicated young people. We’re trying to make the law egalitarian, make access to the courts egalitarian. I think I have ways to get there.”

Follow David Dayen on Twitter.


Consumer Finance Protection Bureau

Consumer Finance Protection Bureau

Recent Class Action Settlement Shows that FDCPA Litigation is Kind of a Game

Patrick Lunsford February 19, 2015 

Remember that story from a couple of days ago where a judge famously noted that the FDCPA “is not a game, and its purpose is not to provide a business opportunity” to plaintiff attorneys? It was a great story, and the judge really took issue with the cabal that has arisen that almost openly takes advantage of the strict liability nature of the FDCPA.

But as much as the ARM industry would love to believe the sentiments expressed by that judge were common, anyone who has been through an FDCPA case knows that it’s still a big game. And it’s a game that is nearly impossible for collectors to win.


Adam Deutsch discusses the recent report published by retired New Jersey Supreme Court Judge and court appointed special master for foreclosure irregularities investigations

The Financial Consumer Rights Talk 2-20-2015: Attorney Adam Deutsch discusses the recent report published by retired New Jersey Supreme Court Judge and court appointed special master for foreclosure irregularities investigations, Richard Williams.

Click to Play Podcast

Attorney Adam Deutsch discusses the recent report regarding foreclosure irregularity investigations.

Attorney Adam Deutsch discusses the recent report regarding foreclosure irregularity investigations.

The report highlights concerns that foreclosing banks and law firms representing the banks are not adhering to amended court rules put in place in 2011 to ensure transparency and truthfulness in the foreclosure judicial process.

The February 19, 2015 article about the report referenced in the podcast is available at:

Download the Report by Judge Williams

Special Monitor OKs Procedures Used in Foreclosures by Wells Fargo and One West Bank

Courts approved the document-handling procedures of two of the big banks in NJ foreclosures with “nominal cooperation.”

Supreme Court Judge Williams says banks nominally cooperated on whether the lender’s lawyers verified information

Leading NJ Foreclosure Defense,  Attorney, Joshua Denbeaux, Esq.

Leading NJ Foreclosure Defense, Attorney, Joshua Denbeaux, Esq.

“I don’t have any faith in the Supreme Court rules because they have not been followed,” said Joshua Denbeaux, a leading foreclosure defense attorney.

Wells Fargo “has gotten even more aggressive” about pursuing foreclosures in court, he said. “They never want to settle, they argue over every fact.”


Special Monitor OKs Procedures Used by Two of NJ’s Top Mortgage Lenders

Four years into what has become a protracted state review of foreclosure cases brought by New Jersey’s six largest mortgage lenders, the courts have approved the document-handling procedures of two of the big banks. But even as he accepted the recent foreclosure practices of Wells Fargo and OneWest Bank, the special master in charge of the… Read the rest of this entry

Consumer Protection for Mortgage Seekers

By LISA PREVOST JAN. 23, 2015 The New York Times

Citing survey results showing that almost half of borrowers fail to shop around for a mortgage lender, the Consumer Financial Protection Bureau wants to empower consumers to be more discerning when selecting a home loan.

Consumer Protection for Mortgage Seekers

Consumer Protection for Mortgage Seekers

The bureau has introduced a set of tools on its website to help consumers better navigate the mortgage process. These include a rate-checking tool that, when borrowers plug in their credit score, location and the type of loan they are seeking, allows them to see a range of interest rates local lenders are offering.

But some industry groups are criticizing the rate-checking tool as misleading, noting that there are other costs associated with mortgages. And John Councilman, the president of NAMB, the Association of Mortgage Professionals, has also called into question the bureau’s interpretation of the survey. Just because consumers report that they did not seriously consider more than one lender, he said, does not necessarily mean that they were uninformed.