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NCLC Brief (Hyperlinks)
NCLC Brief (Hyperlinks)
AMICUS BRIEF OF
NATIONAL CONSUMER LAW CENTER
NATIONAL ASSOCIATION OF CONSUMER ADVOCATES
JEROME FRANK LEGAL SERVICES CORPORATION, AND
MAINE ATTORNEYS SAVING HOMES
L. Scott Gould – Bar No. 8798 Thomas A. Cox – Bar No. 1248
25 Hunts Point Road P.O. Box 1314
Cape Elizabeth, Maine 04107 Portland, Maine 04104
(207) 799-9799 sgould@maine.rr.com (207) 749-6671 tac@gwi.net
STATEMENT OF FACTS………………………………………................. 2
ARGUMENT ……………………………………………………................ 6
i
C. Securitization changed the mortgage market and
generated incentives for careless foreclosure
practices. ........................................................................ 25
ii
TABLE OF AUTHORITIES
CASES
Blance v. Alley,
1997 ME 124, 697 A.2d 828 ............................................................. 9
iii
Connecticut National Bank v. Kendall,
617 A.2d 544 ................................................................................ 9, 11
Foss v. Whitehouse,
94 Me. 491, 48 A. 109 ....................................................................... 8
Heiser v. Woodruff,
327 U.S. 726, 66 S.Ct. 853, 90 L.Ed. 970 ......................................... 8
iv
Mottram v. State,
263 A.2d 715, 720 ............................................................................. 9
Snyder v. Exum,
315 S.E.2d 216 ................................................................................. 15
U. S. Bank v. Gullotta,
2008 Ohio 6268, 399 N.E. 2d 987 ................................................... 18
v
U.S. Bank Nat’l Assn. v. Sawyer,
2014 ME 81, 95 A. 3d 608 ............................................................... 24
RULES
STATUTES
vi
TREATISES
OTHER AUTHORITIES
Adam J. Levitin,
The Paper Chase: Securitization, Foreclosure, and the
Uncertainty of Mortgage Title, 63 Duke L.J. 637 ............................ 25
Beckman,
Guess How Many Americans Struggle to Come Up with $400,
The Motley Fool, June 5, 2016 ........................................................ 20
Campbell,
Can We Trust Trustees? Proposals for Reducing Wrongful
Foreclosures, Cath. U. L. Rev. 103, n. 213 (2013) ............................. 5
vii
CoreLogic,
Mortgage Servicing: Foundation for a Sound Housing Market,
October 2014 ..................................................................................... 5
Fannie Mae,
Allowable Foreclosure Attorney Fee Exhibit, 2016 ....................... 26
Kroll,
Fannie and Freddie’s Foreclosure Barons; How fishy
foreclosures earned millions for lawyers like David J. Stern—
and made the housing crisis even worse. Mother Jones,
August 4, 2010 ................................................................................. 29
M. Wachpress, et al.,
Comment, In Defense of “Free Houses, 125 Yale L.J. 1115,
(Feb. 2016) ........................................................................... 13, 22, 31
Thompson,
Foreclosing Modifications: How Servicer Incentives Discourage
Loan Modifications, 86 Washington Law Review 755 .................... 25
Weintraub,
Learn Why Many Short Sales Fail, the balance, Aug. 9, 2016 ........ 20
viii
STATEMENT OF THE ISSUE
with prejudice.
1
STATEMENT OF FACTS
This appeal arises out of the second of two foreclosure actions involving the
same note and mortgage. In the first action, commenced in December 2011,
complaint that the Deschaine’s default began with their failure to make the
monthly payment due on January 1, 2011 and continued with their failure to make
any payments coming due thereafter. (App.143-145, ¶ 9). FNMA then alleged it
had accelerated their loan and that the entire outstanding balance was due. (App.
143, ¶ 11). The District Court issued a scheduling order in February, 2012
requiring the filing of witness and exhibit lists (App. 149). When FNMA failed to
comply, the court issued an order on June 12, 2012 warning that continuing failure
by FNMA to comply by June 29, 2012 could result in dismissal of its complaint
with prejudice. (App. 152). FNMA still did not take action. Consequently, on July
11, 2012, the court ordered the dismissal of the first foreclosure action with
prejudice. (App. 154). FNMA did not utilize M.R. Civ. P. 59(e) to seek
2
FNMA’s second complaint alleged that the Deschaine’s default began with
their failure to make the payment due on February 1, 2011 and continued with their
failure to make any payments coming due thereafter. (App. 167-168, ¶ 9). As it had
in the first complaint, FNMA declared the entire outstanding balance of the loan to
attempting to assert additional facts and asserting two additional causes of action—
a claim for “foreclosure of equitable mortgage,” and a claim for unjust enrichment.
(App. 24-29).
judicata grounds. (App. 52). FNMA objected and cross-moved for summary
judgment for foreclosure. (App. 63). By order dated June 13, 2016, the Superior
Court denied FNMA’s cross motion and granted the Deschaine’s summary
judgment on res judicata grounds, holding that FNMA’s two added causes of
action were likewise barred on res judicata grounds. This appeal ensued.
3
SUMMARY OF ARGUMENT
mortgages, in particular when the initial actions do not reach trial, but are
misconduct. This amicus brief argues that Samson should remain the law in
Maine, that this widely-respected decision should apply to the instant litigation,
Historically, Maine lenders who service and foreclose on loans which they
circumstance was evident during the Savings & Loan Crisis of the late 1980s and
early 1990s, and has been evident during the foreclosure crisis of the past few
years. Even when Maine banks sell loans that they originate and act as servicers
for their buyers such as Fannie Mae and Freddie Mac, they invariably succeed in
The concerns raised in this brief do not arise from the practices of Maine
banks or their attorneys. Rather the concerns arise from practices in the national
ownership residential mortgage debt.1 These trusts and GSE’s employ a mortgage
servicing model that relies heavily upon mortgage servicers who do not own or
have a financial stake in the mortgages they service. When the volume of defaults
and foreclosures exploded in 2007 and 2008, the servicing industry was
unequipped to meet the crisis.2 Loan owners and their servicers turned to law
The consequence, which continues to this day, has been frequent and repeated
adjudications adverse to the mortgage owners. Yet these owners have been willing
to tolerate occasional adverse judgments because they win the vast majority of
their cases on the cheap: most homeowners don’t have counsel and therefore don’t
realize they should object to the admission of deficient evidence offered by the
plaintiffs’ firms.4 Decisions of the Law Court and Maine’s lower courts since the
1
See Board of Governors of the Federal Reserve System, Mortgage Debt Outstanding, March 2017 at
https://www.federalreserve.gov/econresdata/releases/mortoutstand/current.htm (last visited March 27,
2017)
2
CoreLogic, Mortgage Servicing: Foundation for a Sound Housing Market, October 2014
3
“The term ‘foreclosure mill’ describes large firms that handle foreclosures in bulk and that regularly file
or produce inaccurate or incomplete documentation to support the foreclosures.” Campbell, Can We Trust
Trustees? Proposals for Reducing Wrongful Foreclosures, 63 Cath. U. L. Rev. 103, n. 213 (2013).
4
Several attorneys for national servicers have sought continuances for want of qualified
witnesses when one of your amici authors, a volunteer with Maine Attorneys Saving Homes, has
entered an appearance on the day of trial. See Bank of America, N.A. v. Reynolds, RE-15-088
5
mortgage crisis demonstrate with almost clocklike regularity that the GSEs and
trusts are unwilling to conform their business models to Maine’s foreclosure rules
and laws. FNMA now asks the Court to permit a manifold expansion of lenders’
foreclosure cases that have been dismissed with prejudice. Such a sea-change in
the doctrine of res judicata would not only invite still more abuses by the lenders’
servicers and foreclosure mill attorneys, it could radically expand the volume of
foreclosure litigation, while at the same time bringing ruin not only to homeowners
but to Maine communities. The Court should reject this invitation. Rather than
allow the doctrine of res judicata to continue operating as intended. Lenders and
their mortgage servicers who are aggrieved can reform their practices and also seek
(Me. Super. Ct. York, Dec. 28, 2016) (plaintiff’s lawyer appeared at time scheduled for trial with
trial witness, but when confronted by defense counsel, admitted that he was not prepared to
prove his case; court entered judgment for the defendant); Wilmington Savings Fund Society,
FSB v. Joyce, RE-15-041 (Me. Super. Ct. Aug. 1, 2016) (when confronted at trial by defense
counsel, the plaintiff’s lawyer abandoned efforts to continue trial presentation and moved for
dismissal without prejudice; court dismissed with prejudice).
6
ARGUMENT
Maine claim preclusion law has remained consistent for decades and is
essentially the same as that adhered to in the federal courts. In 1983, Chief Justice
But what we said with respect to this doctrine [of res judicata] more
than eighty years ago is still true today; it ensures “the very object for
which civil courts have been established, which is to secure the peace
and repose of society by the settlement of matters capable of judicial
determination. Its enforcement is essential to the maintenance of social
order; for, the aid of judicial tribunals would not be invoked for the
vindication of rights of person and property, if ... conclusiveness did
not attend the judgments of such tribunals.
Nevada v. United States, 463 U.S. 110, 129, 103 S.Ct. 2906, 2917-2918, 77
L.Ed.2d 509 (1983), citing Southern Pacific Railroad v. United States, 168 U.S. 1,
exceptions. Accordingly, in Federated Dep’t Stores, Inc. v. Moitie, 452 U.S. 394,
101 S.Ct. 2424, 69 L.Ed.2d 103 (1981), the Supreme Court rejected an effort by
the 9th Circuit Court of Appeals to engraft a “simple justice” exception onto the
established rule for a party who failed to appeal an adverse outcome where other
7
plaintiffs in similar actions against common defendants did successfully appeal.
The Supreme Court stated that “‘[s]imple justice’ is achieved when a complex
body of law developed over a period of years is evenhandedly applied.” Id. at 401.
The Court went on to state that “[t]here is simply ‘no principle of law or equity
which sanctions the rejection by a federal court of the salutary principle of res
judicata.’” Id. (quoting Heiser v. Woodruff, 327 U.S. 726, 733, 66 S.Ct. 853, 90
L.Ed. 970 (1946)). The Supreme Court’s rejection of the 9th Circuit’s effort to
create a “simple justice” exception lead one commentator to note that Federated
Dep’t Stores “virtually extinguishes the prospect that a general fairness exception
Federated Dep’t Stores and other federal decisions. This Court has stated that “[i]t
is against public policy that controversies should not have an end; the public
should not be called on to bear the expense of two trials where one will suffice.
Nor should parties be called on to pay the bills for two suits where only one is
necessary.” Pillsbury v. Kesslen Shoe Co., 136 Me. 235, 238 (1939). See also
Emerson v. Lewiston, Augusta & Waterville St. Ry., 116 Me. 61, 66 (1917),
quoting Foss v. Whitehouse, 94 Me. 491, 497 (1901) (“The [res judicata] doctrine
is based on the legal maxims that, ‘A man should not be twice vexed for the same
8
cause’ and that ‘[i]t is for the public good that there should be an end of
identical issues.’” Blance v. Alley, 1997 ME 125 ¶ 4, 697 A.2d 828, quoting
Mottram v. State, 263 A.2d 715, 720 (Me. 1970). Instead, application of the
doctrine ”is justified by concerns for judicial economy, fairness to litigants, and the
stability of final judgments.” Connecticut National Bank v. Kendall, 617 A.2d 544,
litigation, Maine courts must find that the same parties or their privies were
involved in both actions, that a valid prior judgment was entered in the prior
action, and that matters presented in the second action were or might have been
81 A. 3d 371. If these conditions have been met, res judicata must bar the second
action. Amici Curiae discover no exception to this bar, regardless of the nature of
the litigation.
In the matter now before the Court there is no dispute that the parties were
and are the same. FNMA instead challenges the other factors bearing on res
judicata by contending (1) that the District Court dismissal of the initial suit could
not have been with prejudice, and therefore did not constitute a valid final
judgment, because FNMA did not have standing to bring the litigation, (2) that
9
different events of default characterized the second suit, and, (3) that in any event
beyond the scope of this brief.5 But directly in issue is whether res judicata bars a
second foreclosure suit after the dismissal of the first suit with prejudice. In
uncured default. When Johnson failed to file a report required by the trial court,
that court dismissed the suit with prejudice. Eight months later, Johnson sued
again, contending that res judicata applied only to defaults in payment occurring
prior to the filing of his first complaint. Writing for a unanimous court, Justice
“‘[a] prior judgment bars a later suit arising out [of] the same operative
facts even though the second suit relies on a legal theory not advanced
in the first case, seeks different relief than that sought in the first case,
and involves evidence different from the evidence relevant to the first
case.’”
5
The Superior Court rejected FNMA’s contention because the initial litigation was brought prior to the
Court’s decision in Bank of America v. Greenleaf, 2014 ME 89, 96 A.3d. 700, in which the Court decided
that when acting solely as a nominee for the lender for purposes of recording mortgages, MERS lacks
authority to assign them. Id. at ¶ 12. (App. at 18, n.1). The Superior Court also applied its understanding
that 33 M.R.S. § 508, enacted after Greenleaf, cured any defect in the powers MERS possessed to transfer
mortgages. (App, at 18, n. 2).
10
Samson, ¶ 6, quoting Connecticut Nat’l Bank v Kendall, 617 A.2d 544, 547 (Me.
Accordingly, all payments became due in the first foreclosure suit, whether they
had accrued or not. Further, citing 1 Field, McKusick & Wroth, Maine Civil
Practice § 41.5 at 576 (2d ed. 1970), the Court observed that the dismissal with
prejudice of the initial suit, although flowing from Johnson’s procedural default
rather than from a loss at trial, was nonetheless an adjudication on the merits. Id.
Therefore, because the parties were the same in both actions, and because the claim
was indivisible, the principles of res judicata barred Johnson’s second suit.
FNMA contends that Samson should not apply to it because the Deschaine
reinstatement (Appellant’s Brief at 24, n. 9 and 26, n. 10), and because a Florida
11). Amici Curiae submit for reasons set forth below that none of FNMA’s
cases.
11
B. The right to accelerate a debt differs fundamentally from the
power of the state to permit acceleration as a remedy.
The maxim, ubi ius ibi remedium, expresses the idea that for every legal
right there should be a legal remedy. The maxim also serves to remind that rights
and remedies are different. A creditor has the right to a debtor’s payment of a
debt, but the state determines whether the debt can be collected through judicial
remedy, even though the debt continues to be owed. In the context of foreclosures,
an acceleration clause in the parties’ mortgage note expresses the lender’s right to
et seq. is a statutory remedy. The state can prevent or control how the remedy is
duty, it cannot alter or interdict the parties’ rights to accelerate as expressed in their
agreement.
accelerates a debt evidenced by a note, the state may prevent foreclosure of the
6
The Deschaine “Uniform Instrument” note provides in Section 7(c):
If I am in default, the Note Holder may send me a written notice telling me that if I do not
pay the overdue amount by a certain date, the Note Holder may require me to pay
immediately the full amount of Principal that has not been paid and all the interest that I
owe on that amount.
(App. at 95).
12
mortgage interest which secures that debt, but it cannot “un-exercise” the creditor’s
acceleration is a contractual right, courts err when they treat the right as if it were a
remedy.
clauses of the kind in the Deschaine’s mortgage note are inchoate until entry of a
foreclosure judgment, because until such time, mortgagors have the power to
(Appellant’s Brief at 23-24.) On this basis, FNMA reasons that the District
Court’s dismissal of the initial suit with prejudice had the effect of invalidating its
acceleration because the “acceleration never ripened into a legal obligation to pay
argument is that the state’s exercise of its remedial power to dismiss the
foreclosure suit undid FNMA’s exercise of its acceleration rights arising under the
note. But consider the implications of this conflated approach to rights and
default, such as occurred in this case and in Samson, the creditor would be at
liberty to sue repeatedly until a final judgment entered in its favor. Each loss until
that time would only bar the creditor from re-litigating prior defaults. Moreover,
because FNMA contends that acceleration would always remain inchoate until
13
entry of a “final judgment ruling that FNMA established the default,” (Appellant’s
Brief at 23-24, n. 9, and 26, n. 10), the logical conclusion of its argument is that
even a plenary trial in which judgment entered for the homeowner would not
prevent FNMA from re-litigating. Res judicata would only preclude it from
bringing suit for past-due payments sought in prior litigation. There is no Maine
acceleration clause in that case was mandatory, while acceleration of the Deschaine
mortgage was optional. (Appellant’s Brief, p 23-24, n. 9 and 26, n. 10, referring to
Section 22 of the FNMA Uniform Instrument with MERS, App. at 116). From this
confer a benefit upon a mortgagor, just as the payee of an instrument can forgive
the debt. But when FNMA contends that Section 22 of the mortgage permits it to
and sue repeatedly until it wins a judgment. The Court should not be wooed by
FNMA into accepting its proposed construction of the clause. In each of its three
pleadings, FNMA alleged that full acceleration of the Deschaine’s debt had
occurred. (App. at 26, ¶ 22; 143, ¶ 11; 167 ¶ 11). Once triggered, the optional
14
acceleration clause differed not a whit from the mandatory clause in Samson, save
that the Deschaines had the contractual ability to reinstate their mortgage as a
condition subsequent.
Florida decision Samson cites approvingly has since been overturned. In Stadler v.
Cherry Hill Developers, Inc., 150 So. 2d 468 (Fla. Dist. Ct. App. 1963), Florida’s
Second District held that an election to accelerate an installment contract “puts all
future payments in issue and forecloses successive suits.” Id. at 472. Samson
that res judicata barred Johnson’s second suit because the mortgage’s acceleration
clause, once triggered, merged each installment into a single debt, whether or not
Greymar Assoc., 882 So. 2d 1004 (Fla. 2004), rather than grappling with the effect
7
Snyder v. Exum, 315 S.E.2d 216 (Va. 1984). Snyder, which has not been overturned, determined that a
landlord was barred from repetitive suits for past-due rent because a mandatory acceleration clause
required a single action. Hence when the landlord failed to sue for un-accrued rents in his initial suit, the
clause prevented him from seeking them in a succeeding suit. The Snyder reasoning applies equally well
to optional acceleration clauses. Once invoked, such a clause requires that all of the creditor’s claims be
litigated in a single action or they will be barred.
15
of an exercised acceleration clause upon a divisible contract, the Florida Supreme
Court simply ignored the clause. Following the state’s Fourth District, which
decided that res judicata does not apply when alleged dates of default differ from
one suit to the next (because it thought each default required different proof), the
Florida Supreme Court held that successive foreclosure suits can be maintained
“whether or not the mortgagee [seeks] to accelerate.” Id. at 1008. Missing in the
court’s analysis is the simple fact that separate dates of default do not exist if a
mortgagee accelerates. All past and future payments merge and immediately come
acceleration clause, but with no better insight than it used in ignoring the clause in
2016) (rehearing denied Mar. 16, 2017, 2017 WL 1020467) the court decided that
the effect of an involuntary dismissal, even with prejudice, does not bar the
Not surprisingly, the position FNMA urges the Law Court to embrace is
case. If it wins by default or at trial, the mortgagee takes the property. If it loses,
even for reasons egregious enough to be dismissed with prejudice, the mortgagee
The Vermont Supreme Court has also had occasion recently to consider
the doctrine of res judicata in the context of residential mortgages. In Cenlar FSB
v. Malenfant, 2016 VT 93, 151 A.3d 778 (2106), the court upheld a dismissal with
prejudice by the trial court when the mortgagee failed to appear at a status
conference. But in so doing, the Malenfant majority applied res judicata to bar a
second action only because the lender did not take steps to reinstate the
mortgagor’s obligation after acceleration of the note. Id. at ¶ 2. The majority, that
fashioning a remedy. It seemed to the court that in cases such as Samson, where
8
As this brief is being written, a Law Court decision is pending in the matter of Pushard v. Bank of
America, Law Docket BCD-16-247. One issue in that case involves the question whether the
mortgagee’s acceleration of the mortgage failed because of a defect in its notice of default. Somewhat
inartfully, 14 M.R.S. § 6111(1) provides that a "mortgagee may not accelerate maturity of the unpaid
balance of the obligation or otherwise enforce the mortgage” without a compliant notice of default. The
intendment of the legislation is to bar an action for foreclosure until the mortgagor has been adequately
apprised of his or her rights. But as written, the legislation confuses the right to acceleration with the
remedy by which the right is vindicated. Bank of America seeks to take advantage of this confusion by
claiming acceleration did not occur, such that res judicata would not bar a second action. Yet it is self-
evident from the Pushard pleadings that the bank did exercise its right. The Court should hold the bank
to its election, barring some other reason to allow re-trials when default notices are defective.
17
the first suit is dismissed, the lender’s acceleration is effectively invalidated.9 Id. at
¶ 24. By the very act of dismissing the case, the lower court “unaccelerates” the
note. Id. at ¶ 31. Thus, to Vermont’s majority, the bell could be unrung,
lender to accelerate again and sue again for any future default. Id. at ¶ 11.
Malenfant argues cogently that it should not be. Observing that the persistently
sloppy practices of the law firm handling the plaintiff’s litigation in Malenfant are
“inconsistent with every one of the policy reasons that underlie the doctrine of
claim preclusion,” the dissent urges the majority to “send a clear message to
counsel and its clients that . . . they [cannot] file foreclosure action after
mortgages. For example, in U. S. Bank v. Gullotta, 2008 Ohio 6268, 399 N.E. 2d
987, the Ohio Supreme Court reasoned that when a lender accelerates the
payment are precluded. Id. at ¶¶ 29-31. The question left begging is why cases
9
“In other words, the adjudication against the lender with prejudice, or ‘on the merits,’ requires us to
treat the first judgment as essentially determining that the lender did not establish a default on the note by
borrowers as of the date alleged.” Id. at ¶ 26.
18
such as Singleton, Bartram and Malenfant struggle so mightily to bend the
ordinarily rules of claim preclusion? If the courts’ analyses are sound, then why
not forego res judicata when plaintiffs accelerate any kind of installment debt?
Why treat chattel paper differently, or a promissory note payable on demand (the
is scarcely concealed in the decisions themselves, and that is discernible dread that
The practical downside to res judicata, muses the Malenfant majority, is that
the lender will lose repayment of a significant loan, “while yielding the borrowers
“seeming variance with traditional law” is justified because of the “unique nature
mortgages for as much as they can possibly afford. They do this to put down roots
19
in a community, to have room for hoped-for children, to locate near good schools,
to own a home in retirement. They are not scoff-laws or they would not have
qualified for mortgages. But because they’re stretched, a job loss, an illness,
divorce, or the death of a co-mortgagee can quickly lead to financial ruin.10 When
that happens, efforts homeowners make to free themselves from debt through
devices such as short sales will often fail because of roadblocks put up by lenders
and their servicers.11 Even abandoning a home will not improve their credit if their
mortgagees fail to act.12 If they stay in residence, they may feel ashamed and
10
Beckman, Guess How Many Americans Struggle to Come Up with $400, The Motley Fool, June 5,
2016.
11
Weintraub, Learn Why Many Short Sales Fail, The Balance, Aug. 9, 2016. at
https://www.thebalance.com/top-reasons-why-short-sales-fail-1799204 (last visited Mar. 26, 2017).
12
National servicers often allow non-performing Maine mortgages to lie dormant for years because of
Maine’s long statute of limitations. See 24 M.R.S. § 741 and Fleet National Bank v. Liberty, 2004 ME
36, 845 A.2d 1183
13
M. Wachpress, et al., Comment, In Defense of “Free Houses, 125 Yale L.J. 1115, 1125-1126. And
n. 45 & 46 (Feb. 2016).
14
Id. at p. 1125 and n. 44.
20
little benefit to a homeowner who would not have defaulted in the first place if the
payments were affordable. Mounting legal fees and accumulating interest charges
would soon place any chance of preserving ownership though a loan modification
beyond reach. Meanwhile the lender could sue repeatedly, or, as sometimes
happens now, do nothing while the debt accumulates, the property deteriorates and
the homeowner’s credit is destroyed. In Maine, as distinct from almost every other
state, a lender can wait an astonishing twenty years to bring suit after a cause of
homeowners but also on communities.16 Dispensing with res judicata will only
aggravate the problem, because interminable litigation will lead to still more blight
than now, making it difficult for communities to recover. Meanwhile courts will
be swinging doors for lenders trying do-overs. Maine dockets are already
crowded, recently requiring Law Court justices to conduct trials.17 But if Samson
15
See 24 M.R.S. § 741 and Fleet National Bank v. Liberty, 2004 ME 36, 845 A.2d 1183.
16
See, e.g., M. Wachpress, In Defense of “Free Houses, supra n. 14 at 1125 (observing that prolonged
foreclosure proceedings create negative social externalities, depressing surrounding homes’ resale value,
reducing local governments’ tax revenues, and increasing criminal activity (citing Geoffrey Walsh, Nat’l
Consumer Law Ctr., State and Local Foreclosure Mediation Programs: Can They Save Homes? (2009)).
17
Chief Justice Leigh I. Saufley, Maine Judicial Branch: The State of the Judiciary—A Report to the
Joint Convention of the First Regular Session of the 127th Legislature (February 24, 2015)
21
occasional free house will be a small price to pay for the sake of an efficient and
just judicial system and stronger Maine communities.18 As for the cost of a free
house, that should be borne by the servicers and attorneys for the GSE’s and
foreclosure statutes, procedural rules, and decisions of the Law Court causes the
adverse outcomes. Any change in Maine’s res judicata rules that relieves the lender
of the cost of conducting foreclosures on the cheap results in a windfall for the
lenders, because “[t]he risk of losing foreclosures should already have been
established claim preclusion principles because (1) it is not difficult for diligent
defense judgments, and (2) the creation of a foreclosure exception will incentivize
the GSE’s, national banks and servicers to continue, and perhaps even increase,
18
M. Wachpress, et al., Comment, In Defense of “Free Houses,” 125 Yale L.J. 1115 (Feb. 2016).
19
Id. at 1127.
22
In 2009, the Court provided an explicit roadmap for the proper prosecution
of foreclosure cases in Chase Home Finance LLC v. Higgins, 2009 ME 136, 985
A2d 508. That decision did not create new law; rather, it collected from statutory
and common law sources the seven elements of required proof for a Maine
residential foreclosure action, Id. ¶ 13. These seven elements are not difficult to
prove separately or collectively. This is evident from the fact that, since the
beginning of the present foreclosure crisis in 2007, there have not been any
has suffered a defense judgment after trial or a dismissal with prejudice. Nor has
research revealed any such reported decisions at the trial level. Moreover, Maine-
based banks service not only loans they own, but also loans owned by others, such
as Fannie Mae, Freddie Mac and the Maine State Housing authority.20 Yet only the
national loan owners, their national mortgage servicers and their lawyers
20
For example, Camden National Bank serviced mortgages owned by the Maine State Housing Authority
until the end of 2016. Bangor Daily News, MaineHousing switches mortgage servicer to Rhode Island
housing authority, Dec. 12, 2017.
21
See:
• Bank of New York v. Richardson, 2011 ME 38, 15 A.3d 756 (trial court dismissal with prejudice
due to bank’s failure to appear at mediation; appeal dismissed as interlocutory);
• Nationstar Mortgage, LLC v. Stuart, Cum-13-120 (Feb. 27, 2013, Gorman, J.) (trial court
dismissal with prejudice; appeal dismissed as untimely);
23
• Deutsche Bank Nat’l Trust Co. v. Wilk, 2013 ME 79, 76 A.3d 363 (plaintiff failed to prove that it
was the assignee of the mortgage; Law Court vacates judgment for plaintiff, and remands for
order denying judgment of foreclosure);
• Bayview Loan Servicing, LLC v. Bartlett, 2014 ME 37, 87 A.3d 741 (trial court dismissal with
prejudice due to plaintiff’s failure to appear at three mediation sessions; dismissal with prejudice
affirmed);
• U.S. Bank Nat’l Assn. v. Sawyer, 2014 ME 81, 95 A. 3d 608 (trial court dismissal with prejudice
for failure to mediate in good faith and failure to meet its burden at show cause hearing; dismissal
with prejudice affirmed);
• Bank of America, N.A. v. Greenleaf, 2014 ME 89, 96 A.3d 700 (post-trial judgment of foreclosure
vacated due to failure of bank to offer admissible evidence of amount owing and due to plaintiff’s
failure to prove ownership of mortgage);
• Nationstar Mortgage, LLC v. Nelson, Mem-14-118 (Sept. 23, 2014) (affirms trial judgment for
defendant due to plaintiff’s reliance upon witness not qualified to authenticate business records);
• U.S. Bank Nat’l Assn. v. Winne, Mem-14-121 (Sept. 25, 2014) (affirms trial judgment for
defendant due to lack of credibility of plaintiff trial witness and failure to offer evidence required
by M.R. Evid. 803(6));
• NationstarMortgage, LLC v. Anderson, Mem-14-177 (Dec. 16, 2014) (remanded for entry of
judgment for defendant due to plaintiff’s failure to prove standing);
• U.S. Bank Nat’l Assn. v. Craig, Mem-14-166 (Dec. 16, 2014) (affirms trial court judgment for
bank due to inadmissibility of bank business records);
• JPMorgan Chase Bank, N.A. v. Morneault, Mem-14-171 (Dec. 23, 2014) (remanded for entry of
judgment for defendant due to plaintiff’s lack of standing);
• CitiMortgage, Inc. v. Chartier, 2015 ME 17, 111 A.3d 39 (trial judgment for plaintiff vacated due
to plaintiff’s defective default notice; remanded for entry of judgment for defendant);
• Homeward Residential Inc. v. Gregor, 2015 ME 108, 122 A.3d 947 (trial judgment for defendant
due to plaintiff’s failure to prove ownership of mortgage; judgment vacated due to lack of
standing and remanded for dismissal without prejudice);
• Wells Fargo Bank, N.A. v. Girouard, 2015 ME 116, 122 A.3d 216 (case remanded for entry of
judgment for defendant due to plaintiff’s failure to prove delivery of legally sufficient
default/cure notice);
• U.S. Bank, Nat’l Assn.v. Tannenbaum, 2015 ME 141, 126 A.3d 734 (affirms trial judgment for
defendant due to defective default/cure notice and vacates trial court order allowing parties to
relitigate all issues in future action);
• Deutsche Bank National Trust Company v. Meldrum, Mem-16-1 (Jan. 12, 2016) (trial judgment
for defendant in first foreclosure action; second action dismissed with prejudice on res judicata
grounds; Law Court vacates dismissal with prejudice and remands for dismissal without prejudice
due to plaintiff’s lack of standing);
• Bank of New York v. Dyer, 2016 ME 10, 130 A.3d 966 (trial judgment for defendant without
prejudice due to plaintiff’s lack of standing; affirmed); and,
• Nationstar Mortgage, LLC v. Halfacre, 2016 ME 97, 143 A.3d 136 (trial judgment for defendant
in first action on grounds of plaintiff’s unclean hands, summary judgment for defendant in second
action on res judicata grounds; remanded for dismissal in second action due to plaintiff’s lack of
standing, with suggestion that trial court might consider sanctions under M.R. Civ. P. 11(a))
24
C. Securitization changed the mortgage market and generated
incentives for careless foreclosure practices.
the lending industry. Citing Adam J. Levitin, The Paper Chase: Securitization,
Foreclosure, and the Uncertainty of Mortgage Title, 63 Duke L.J. 637, 670, n. 131
(2013), the Law Court recently summarized the essential elements of the
9, 122 A.3d 947. Missing from this summary, however, is recognition of the fact
that national loan owners, such as FNMA, do not service their own loans. They
Significantly, the servicers “stand apart and separate from the original
lenders and from the current owners of the loans—the trusts and their investors.”
payment based upon the outstanding principal balance of loans that they service.
This is generally “25 basis points annually for prime fixed rate loans …and 50
basis points for subprime loans.” Id. at p. 807. With respect to the Deschaine loan,
FNMA claimed in its motion for summary judgment that the outstanding principal
25
balance of the loan was $122,712.93. (App. 87). Thus, the annual payment to
Seterus amounted to no more than $614 for servicing the loan, hardly enough to
induce it to closely monitor the activities of the law firm it hired to foreclose. This
problem is compounded by the fact that FNMA sets a flat fee for lawyers who
foreclose the loans it owns,22 thus incentivizing them to take on large volumes of
similar Vermont case of Bank of America, N.A. v. Pinette, 2016 VT 71, 149 A.3d
479, and here in Maine, as discussed in supra note 21, are a product of this system.
Comments of The National Consumer Law Center and The National Association
22
See Fannie Mae Allowable Foreclosure Attorney Fee Exhibit at
https://www.fanniemae.com/content/guide_exhibit/allowable-attorney-trustee-foreclosure-fees.pdf (last
visited March 26, 2017).
23
Paper found at Federal Housing Finance Authority, Joint Mortgage Servicing Compensation Initiative
at https://www.fhfa.gov/PolicyProgramsResearch/Policy/Documents/Joint-Mortgage-Servicing-
Compensation-Initiative/130_DianeThompson.pdf
26
It is precisely because of servicer compensation strictures and resulting lack
of lender oversight that cases such as the Deschaine’s are brought or prosecuted
with insufficient care and eventually dismissed with prejudice, all while wasting
securitization industry to revise its faulty business model, and not that of the
judicial system to prop up that business model by relaxing claim preclusion rules.
“‘Simple justice’ is achieved when a complex body of law developed over a period
judicata.’” Federated Dept. Stores v. Moitie, 452 U.S. 394, 401, 101 S.Ct. 2424,
argument about the conduct of counsel. Certainly, the oft-cited comment by Judge
Frank Coffin is to be considered gravely, one of his strong “likes” being “a brief
24
Frank N. Coffin, On Appeal, W.W. Norton & Company 1994, p. 120.
27
resolution of an issue on appeal, as it does in this one, discussion of it is
unavoidable. Justice John Dooley of the Vermont Supreme Court, who authored
the dissent in Malenfant, recognized this unfortunate truth. There, he noted that it
was the conduct of the lender’s counsel that led to the court’s decision on the
matter of res judicata. Justice Dooley observed that “the default here was not
Malenfant, ¶ 47.
The fault complained of by Justice Dooley was the same as in the present
controversy; namely, failure of FNMA’s lawyers to comply with a trial court order
to file their witness and exhibit list. The law firm whose conduct the justice chided
was Shechtman Halperin Savage, LLP, based in Pawtucket, Rhode Island. That
firm represents FNMA in this appeal, and also represented FNMA in the initial
foreclosure action against the Deschaines, in which the trial court dismissed its suit
with prejudice. Justice Dooley observed that the Shechtman firm’s failures, which
led to the second foreclosure filing in Malenfant, were similar to the firm’s
repetitive filings and failures in another matter decided by the Vermont Supreme
Court only two months earlier in Bank of America, N.A. v. Pinette, 2016 VT 71,
149 A.3d 479. Despite the firm’s persistent failings, Justice Dooley noted that the
28
New England,25 leading him to characterize the firm as “apparently…a foreclosure
mill.”26 Criticism of the sort leveled by Justice Dooley was by no means new.
Fannie Mae was soundly criticized back in 201027 for its use of law firms called
foreclosure mills.
Adverse outcomes, which have resulted from the Shechtman firm’s conduct
in Vermont, have also been in frequent evidence in Maine. For example, in a case
well known to the Court, Homeward Residential, Inc. v. Gregor, 2015 ME 108,
122 A.3d 947, the Shechtman firm admitted before trial that the Fannie Mae owned
that loan and was an assignee of the mortgage, but put forth a trial witness who
falsely claimed otherwise, and failed in the remainder of its proof by offering
Shectman firm’s handling of the February 11, 2014 trial in Gregor was no
and repeated not long after. Less than two months before that trial, in Bank of
America, N.A. v. Da Hem, RE-11-505 (Me. Super. Ct., Cumberland, Dec. 13,
25
See http://www.shslawfirm.com/practice-areas/foreclosure-and-default-servicing/ (last visited March
22, 2017)
26
For definition see fn. 3 above.
27
Kroll, Fannie and Freddie’s Foreclosure Barons; How fishy foreclosures earned millions for lawyers
like David J. Stern—and made the housing crisis even worse. Mother Jones, August 4, 2010
29
2013), the trial court a defense judgment when the Shectman firm attempted to
offer evidence that fit the “wholly inadequate” description. Then, not long after the
Deutsche Bank National Trust Co. v. Batchelor, BRIDC-RE-15-037 (Me. Dist. Ct.
Bridgton, July 29, 2016). In the case now before this Court, the dismissal with
the Shechtman firm, this being its failure to file a witness and exhibit list, even
after being warned that a failure to do so could result in precisely the outcome that
finally occurred.
single firm. The adverse outcomes cited in supra note 21 are spread principally
among four firms, each of which Justice Dooley would likely describe as a
foreclosure mill. What is critical is that Maine’s trial judges should not be
deprived of the power to sanction careless conduct, especially the power to dismiss
Consider the consequence if this Court should rule otherwise. If the Court
were to create a new rule for foreclosure cases similar to the rule adopted by
acceleration” and bring a second suit, or perhaps a third or fourth, despite being
that trial courts should consider the application of M.R. Civ. P. 11 sanctions as a
remedy for foreclosure case abuses. See HSBC Bank v. Murphy, 2011 ME 59, ¶¶
15 & 18, 19 A.3d 815 and Nationstar Mortgage, LLC v. Halfacre, 2016 ME 97, ¶
6, 143 A.3d 136. However, that rule is limited to the improper signing of
pleadings. It is not available to sanction the kind of conduct discussed in this brief.
Moreover, trial courts are reluctant to impose this sanction, just as Maine attorneys
are reluctant to ask for it. What is needed is a full-throated refusal by this Court to
accommodate sloppy legal practices by a Law Court declaration that the claim
If a foreclosure plaintiff believes that a trial judge has abused his or her
motion to reconsider or amend the judgment. If that motion fails, the plaintiff
31
should appeal. Failing on appeal, the plaintiff can seek relief from judgment
relitigate instead of being forced to follow post-dismissal rules that bind every
other civil litigant. Res judicata surely justified the trial court’s decision to bar the
second foreclosure action in Deschaine. By upholding its decision, the Law Court
III. Conclusion.
When the United States was on the verge of economic collapse in 2008,
fueled largely by a mortgage crisis, our government enacted the Troubled Asset
Relief Program (TARP) to rescue the financial system. Over $116 billion of this
$700 billion program was used to bail out FNMA29. Now this GSE is asking for
another bailout, this time by the Law Court, a bailout in which time-honored
28
To the extent FNMA seeks to shift the consequences of a bar to further litigation, it may have
a remedy against trial counsel. But there is reason to believe FNMA and other major lenders
have already discounted the possibility of losses. See, e.g., M. Wachpress, et al., Comment, In
Defense of “Free Houses, 125 Yale L.J. 1115, 1127 (Feb. 2016). Moreover, FNMA recently boasted of
$12.3 billion in profits during 2016, suggesting it can absorb an occasional loss. See
http://www.fanniemae.com/portal/media/financial-news/2017/2016-financial-results-10k-
6520.html (last visited March 23, 2017)
29
Keil & Nguyen, The Bailout Tracker, Pro Publica, updated Mar. 6, 2017
32
principles of claim preclusion are to be cast aside so that FNMA and other major
lenders and servicers can avoid changes to their business models. Those models
high caseload volumes to offset low per-case payments, one result of which has
Supreme Court once rejected an effort by the 9th Circuit Court of Appeals to carve
from the consequences of a decision of its own making,30 so too should this court
of failures of its own making. The decision of the Superior Court should be
and intact.
30
See Section I.A. above discussing Federated Dept. Stores v. Moitie, 452 U.S. 394, 101 S.Ct. 2424, 69
L.Ed.2d 103, in which the Supreme Court declined to find a fairness exception to the doctrine of res
judicata).
33
Respectfully submitted,
__________________________________
L. Scott Gould, Esq., Maine Bar No. 8798
25 Hunts Point Road
Cape Elizabeth, Maine 04017
(207) 799-9799
sgould@maine.rr.com
___________________________________
Jeffrey S. Gentes, Esq. CT Bar No. 101097
Yale Law School
P.O. Box 208215
New Haven, CT 06520
(203) 436-9407
jeffrey.gentes@yale.edu
34
CERTIFICATE OF SERVICE
________________________
Thomas A. Cox