Before foreclosing, judges must hear out homeowners?

In a ruling likely to create more headaches for lenders, a state appeals court ruled that judges can't give banks the go-ahead to foreclose until they respond to defenses raised by homeowners.

A three-judge panel of the 4th District Court of Appeal said that Broward Circuit Judge Peter Weinstein erred when he granted Deutsche Bank a $337,000 summary judgment against Margate residents Judith Alejandre and Sergio Terron, even though the bank ignored their defenses. His decision allowed Deutsche to take title to the couple's property and evict them in February. The case has been sent back to the trial court.

Like many other homeowners fighting foreclosure, the couple raised several defenses. But in what lawyers say has become customary in South Florida courts, the bank didn't answer the defenses, and Judge Weinstein allowed the bank to take title to the house.

The decision comes amid accusations that lenders, servicers and foreclosure law firms are falsifying affidavits and forging signatures to speed the foreclosure process.

Many of the issues raised by Alejandre and Terron in defense of Deutsche's foreclosure suit are similar to ones other homeowners have asserted against other lenders.

The couple said Deutsche failed to attach the original note and assignment of mortgage to its complaint; that it collected payments but failed to credit the homeowners; that it deceived the couple when they tried to modify their delinquent loans; and that it "participated in a full-scale venture to induce the homeowners to borrow funds at exaggerated rates."

It's the process of the motions for summary judgment that the banks have been using to foreclose en masse, even though there exist file defenses. It's the rocket docket.

There's hope the 4th DCA decision will help reform the process. From now on, according to the law.  If the defendant raises affirmative defenses, and there are factual disputes, the defendant deserves a trial.

The ruling gives Alejandre and Terron hope they may be able to get their home back. They are living in a rental apartment in Margate with their four children.

"I would love to get it back if I could," Terron said. "We can pay the mortgage if they lower our payments," he said. "We tried to work that out before, but the lender wouldn't call us back."

Terron paid $95,000 for the house in 1997. In 2005, he refinanced the home for about $200,000 and was paying about $1,500 per month. Things began to go wrong in 2006 when he took out two mortgages with First NLC Financial Services, a Deerfield Beach subprime wholesale lender.  NLC provided Terron and his wife with a first mortgage of $292,000 and a second mortgage of $73,000. The couple's monthly payment jumped to $2,500.  Terron said he refinanced the house to try to keep his struggling restaurant business afloat. But he had to shut down the restaurant and could no longer afford the payments. In 2008, Deutsche Bank, acting as a trustee for a securitized mortgage trust, filed a foreclosure action.

The couple's home is listed for sale for $129,000 with Altisource.

Terron and Alejandre may be lucky that their house has not sold, but that won't be the case with many foreclosure cases that could end up being appealed and sent back to a trial court.  The 4th DCA has typically refused to put foreclosure sales on hold while a case is being appealed.  That was the case with Terron's foreclosure.

"What we commonly saw is the court would condition a stay upon the payment of a large bond," Bleil said. "If the homeowner had the ability to pay this large bond, they wouldn't be in foreclosure in the first place, so in essence it was a denial of the stay."

The ruling could change how judges look at the cases. While the circuit court judges were thinking they could push these things through without getting reversed, they weren't as worried, but this case is going to change things.

Link to the ruling