Sonya Robison was surprised to receive foreclosure notification for her 40-acre property in Yoder last year. She had been behind on her mortgage but was making payments to the lender as per their agreement.
Robison also was confused. The lender that wanted to foreclose on her home was Deutsche Bank National Trust Co. — and that name did not appear on any of her loan documents. It wasn’t on the note, the deed of trust or any other documentation. So she hired an attorney, Steven Brunette, to fight her case.
Brunette secured a court injunction halting the foreclosure, and after a year of legal wrangling, he’s now seeking a partial summary judgment to end the entire process. His argument: Deutsche Bank was never the lender on Robison’s loan, and it has no proof that it holds the loan.
The case illustrates one of the biggest differences between foreclosure laws in Colorado and the rest of the nation. It’s a difference that some say leaves homeowners here more vulnerable to the sort of potential abuses that have come to light since late last month, triggering moratoriums on foreclosure procedures. This week, attorneys general in Colorado and 48 other states said they were investigating lenders’ practices.
Deutsche Banks claims it doesn’t matter that its name does not appear anywhere on the note or the deed of trust. In its argument, it says Colorado law doesn’t require lenders to provide such paperwork to the courts. It only requires certification by their attorney that they hold the debt.
“Basically, they’re allowed to say, ‘Don’t worry. We actually hold this loan,’ without actually proving it,” Brunette said. “It took a year — a year of discoveries, of interrogatories — before we could get that information. (Unlike Robison), so many people can’t afford to do that.”
Brunette’s not leaving the matter to the courts to sort out. He wants the legislature to roll back 2008 amendments to the state’s foreclosure law that made it easier for lenders to foreclose and don’t require they prove that they actually have the right to do so.
“This is about the integrity of real property records,” he said. “As it stands, the entire system is thrown into question: legitimate buyers, homeowners wrongfully foreclosed on, the title companies.”
Brunette’s solution isn’t complicated
“It’s just a rollback to the old-fashioned way of doing foreclosures, the way it’s been done for years,” he said. “Before these (2008) amendments, lenders had to show a certified copy of the deed of trust or the original loan documents.”
Brunette plans to take his concerns to both the El Paso County Bar Association and the Colorado Bar Association, in hopes of getting legislators’ attention before the opening of the General Assembly.
It could be a hard sell.
“Quite frankly, I’m not ready to condemn the banks,” said Rep. Larry Liston, a member of the House business committee. “They’ve been overrun with foreclosures; they’ve been reviewing their policies. They’ve been trying to work with homeowners.”
El Paso County Public Trustee Tom Mowle expects challenges to the law. “We’re completely unique (in the nation),” Mowle said. “The burden of proof is lower on the banks here — considerably lower.”
Indeed, Colorado is the only state in the nation where the public trustee has authority over foreclosures proceedings and checks for errors. Judges do that job in the rest of the country.
“Our job is to make sure (the banks) comply with state law,” Mowle said. “(But) if that law isn’t broad enough, there’s not much we can do.”
Jefferson County Public Trustee Margaret Chapman noted another big problem in Colorado’s approach:
“I’m confident that the paperwork is right when it reaches the public trustee,” she said. “What we can’t be sure of is what goes on at the attorney’s office — if they’ve reviewed the paperwork. We just check for the certification from the attorney.”
Mowle said homeowners caught up in the foreclosure crisis might not have much recourse, given the way Colorado law is written.
“We probably won’t see the same number of (foreclosure challenges) that they will in other states,” he said. “Lenders will argue that they met Colorado legal requirements.”
That’s exactly what Deutsche Bank is saying — that it met the requirements of the law.
Paul Murphy, another real estate attorney, said the problems cropping up in the rest of the nation are likely occurring in Colorado, too, though with a few differences.
Primarily, instead of using servicing companies to prepare foreclosure paperwork, lenders doing business in Colorado turn to law firms that rely on armies of paralegals. The so-called “robo-signers” here could well be paralegals.
“When you consider 75 percent of the foreclosures in Colorado are done by five firms, and 90 percent of those are done by two firms, you can see they use paralegals often,” he said. “One firm is rumored to have 200 paralegals. It’s doubtful an attorney actually even looks at the paperwork.”
Murphy sees other problems with Colorado’s system. What’s known as a Rule 120 proceeding, in which a judge or magistrate certifies the foreclosure sale, is too limited, he said.
“It’s only a hearing; it’s non-judicial,” he said. “If a homeowner has an issue, they have to file a separate suit. It comes down to, ‘How much justice can you afford?’ The average homeowner is living month to month; they don’t have thousands of dollars to file completely separate suits.”
Murphy said the law relies too much on attorneys’ certification.
“You’re relying on the ethics and professionalism of the attorneys and their staff, not actual paperwork,” he said. “There’s no physical way for a (homeowner’s) attorney to carefully review the documents. It’s the nature of the business. It’s an assembly line. They’re adhering to the absolute minimal standard.”
Lawsuits against lenders are frustrating, lengthy and frequently contentious, he said.
“They put up one hell of a fight,” he said. “If you get into anything in the discovery process that questions what they gave their attorney, it’s a question of a $50,000 lawsuit.”
Even if a majority of foreclosures are legitimate, Murphy sees a bigger issue.
“If there’s even a single person, one out of 1,000, wrongfully foreclosed on, that’s a problem,” he said. “Doing 999 right doesn’t make it right for that one person. Our legal system is (supposed) to protect the individual.”
Which is why, he said, the law needs to be changed.
“If you can’t trust the certifications, if you can’t trust the notarizations — the basic stuff — then the concern is, ‘Are they being sloppy in other aspects of the law?’” he said. “If that trust breaks down, the whole system breaks down.”