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Feature Article

October 12, 2009

For more information contact:

Richard F. Kessler
Documentary Clearing House LLC.

Foreclosure Defense Strategy: Clients in Search of a New Paradigm

Documentary Clearing House and Associates (“DCH”) has pioneered a new strategy
for attorneys who defend foreclosure cases. To date, DCH has produced three
motions to assist attorneys implement the new strategy.

Viewed from afar, the short, unpleasant history of foreclosure during the last three
years presents a sorry spectacle. Far too many judges in foreclosure proceedings
have stopped behaving like judges and instead become advocates for the
foreclosure mills. The parties that foreclose continue to ignore and avoid alternate
dispute resolutions. The government’s efforts to stem the tide of foreclosure and
encourage alternate dispute resolutions have been feckless and dissipated. Most
people being foreclosed have not discharged their legal obligation to defend
themselves. Instead, many if not most foreclosure cases go to summary judgment
uncontested. The resulting assault upon American homeownership has been
systemic and overwhelming.

Many homeowners in foreclosure believe that legal representation is unaffordable.

Unable to make monthly mortgage payments, they conclude that they have no
means to hire a lawyer. The public sector which defends people who cannot afford a
lawyer has been unable to mount an effective counter- response to foreclosure.

Too much time has been spent on tactics; too little time has been spent on strategy.
Foreclosure defense is preoccupied with finding omissions, defects and deficiencies.
The tactics tend to show that a rule has been violated. Too many courts are inclined
to forgive and forget. The courts dream up notions such as finding the non-
compliance merely “technical” or that the foreclosure is within the “four corners of
the loan agreement”.

DCH is calling for a change in strategy. What is needed is a new strategy which is
effective and affordable. DCH’s new motion addresses both these requirements.

1. Employ generic defenses to make defense against foreclosure affordable to

most of those facing foreclosure.

Instead of a case specific defense custom designed to meet the unique questions of
fact and law unique to each case, a defense which most clients confronted by
foreclosure can ill afford, DCH is providing pleadings and discovery where one size
fits all. DCH is creating generic defenses. The foreclosure mills have declared war
on defaulting mortgagors. The cost effective response to litigation filed by the
foreclosure mills is counter-measures from a defense mill. DCH provides the bullets
for attorneys to fire. By putting foreclosure one the assembly line, every client can
afford to retain his or her own hired gun in a foreclosure battle..

There is a conundrum caused by the litigation protocol used in defense litigation to

represent clients in foreclosure: It is effective and counterproductive at the same
time. Lawyers are taught to approach each case as unique and upon its own merits.
We are also taught to employ tactics to complicate the other side’s case and
discover damaging information. Lawyers also try to use discovery to find errors and
omissions in the other side’s case. A proficient litigator wages war upon the other
side with motions, depositions, production of documents, interrogatories and
requests for admissions and stipulations. Attorneys are taught that litigation cases
are won and lost in pretrial preparation. Many believe that a successful outcome is
predicated upon pre-trial strategy. Such tactics are p[art of the litigation protocol
and have over time proven themselves to be effective and productive.

The problem lies neither with the tactics nor the strategy. Lawyers approach a
litigation case like a tailor making a custom suit. Each case is entitled to receive its
unique defense to custom fit the facts and law applicable to the case. The problem
when it comes to foreclosure cases is the client. A client who cannot make
mortgage payment can ill afford a custom suit. One reason so many cases go to
uncontested adjudication is that the client has no way to pay for a custom tailored
defense. Three of the four major areas for defense- a defective or fraudulent note,
the provenance of the note and consumer protection and consumer fraud statutes
and regulations- require an extensive proof of facts. No matter how meritorious the
defense, it is not serviceable if a client cannot financially afford it.

Too many foreclosure defendants find themselves between a rock and a hard place.
They lack the money required for a custom tailored defense; they cannot obtain
legal services pro bono publico; and there are no neighborhood services available
for which the defendants qualify financially. Many of these defendants wind up
having to appear pro se and lack the ability to do so. A trained attorney litigating
against a lay person is an unfair contest for which the lay person is ill equipped to
succeed. For every individual who can manage competently to defend against
foreclosure, there are countless scores who cannot. Compelled by foreclosure to
defend themselves and unable to do so, these homeowners are buried by the
judicial system without having a day in court before they lose their homes.

Under these circumstances, lawyers must begin to consider a different strategy.

Maybe if a client cannot afford a custom suit, it behooves counsel to take a suit off

the rack. To accommodate a wider base of foreclosure defense cases, it is
necessary to develop and implement generic strategies where one size fits all. Such
strategies would not be dependent upon the facts, circumstances and laws unique
to each case. Instead, such a strategy would be dependent upon facts,
circumstances and laws which a large number of foreclosure cases have in

In this connection, DCH has concluded that the fourth area of defense,
securitization, provides a uniquely fruitful field for generic defenses. Factors
common to and endemic in all securitizations of mortgages are vulnerable to attack
in cases after case where a mortgage has been securitized. A one size fits all
defense tactic which is replicable in case after case becomes exponentially more
cost effective than a client specific, one time use defense.

The foreclosure mills have stolen a march on the mortgage defense bar. The client
base of the foreclosure mill is determined to foreclose at the lowest possible
expense. Accordingly they have provided a large number of cases at a fixed rate of
compensation per case. This has caused the foreclosure mills to put foreclosure on
the assembly line. The tendency to file the same pleadings in case after case
irrespective of the facts of the case has led to untold abuses of foreclosure.
Nonetheless, by treating foreclosure pleadings as scalable, the foreclosure mills
achieve the economies of scale. This serves to reduce the average cost per case.

Defense counsel can succeed by following the example of the foreclosure mills.
Instead of custom designed defense, counsel must substitute off the rack, scalable
defenses. Such a change in strategy opens up a new and different set of tactics. To
date, DCH has produced two motions attacking securitization. One argues that the
mortgage is unenforceable. The second argue that the mortgage note is
unenforceable. Both apply to any mortgage which has been securitized. DCH has
developed a third motion to use in Florida which asserts that the trust is
unregistered and therefore unenforceable. All three motions are generic and are not
unique to a specific case.

2. Proactively anticipate and address the concern of most judges regarding

unjust enrichment if the debtor prevails in a foreclosure defense.

What the courts are saying is that foreclosure defenses as presented defend the
indefensible. That a creditor should forfeit the loan because of a technical defect is
an inequitable outcome. The debtor is not entitled to an unearned windfall which is
precisely the result for which the defense consistently argues. So long as
nullification of the debt is the outcome if defendant wins, defendants will continue
to lose. Defendants will not succeed in overturning foreclosures unless and until
defendants explicitly seek a remedy other than cancellation of the debt.

To succeed, a defense against foreclosure cannot be a one way ticket to a free

lunch for the debtor. Most judges will not render a judgment they deem to have an

inequitable outcome. Unjust enrichment of the debtor from an undeserved windfall
often is used as a rationale which justifies disregarding defects in the foreclosure
proceedings. Most judges believe that the debtor borrowed and received the money
and should be obligated to repay the loan.

DCH’s most recent motion explicitly states that if the motion is granted, the court
should use its equitable authority to declare a constructive trust or constructive
mortgage and afford defendant a viable opportunity to effect an alternate dispute
resolution. In short, instead of leaving the decision concerning modification at the
sole discretion of the parties controlling the securitization, the court would now
makes its own determination and more equitably protect the rights of all parties
concerned. This affords the defense the proactive opportunity to address the issue
of unjust enrichment. It also allows the court order an alternate dispute resolution
where the outcome would reduce the loss inflicted upon the creditor

The judicial choice is not limited to either conferring a windfall upon a defaulted
“deadbeat” or allowing large financial institutions to flout existing laws. There is no
reason that the note does not properly evidence a debt which has not been paid-
even if the note holder is not evident.

Even if the note is legally unenforceable, the court may declare a constructive trust.
The court can declare a constructive trust or constructive mortgage and assure
payment of the trust and certificate holders. As a constructive trust or mortgage,
the court may impose conditions. For example:

(a) Review foreclosure fees and charges.

(b) Consider compliance with consumer protection laws and avoidance of
consumer fraud. Where damages have been suffered by the debtor, the
court may allow a set-off.
(c) The Court may order mandatory mediation or arbitration.
(d) The Court may modify in any way deemed equitable and appropriate, the
mortgage to enable the debtor to make timely payments and the creditor
to recover payment of the debt.

The court may consider a wide range of modifications to the note to allow an
alternate dispute resolution. This would go a long way to mitigating financial loss to
the creditor and moving foreclosure from a first resort to a last recourse.

1. In an adversarial system the person sued is under a legal obligation to defend

against the cause of action. Every person in foreclosure requires a competent
legal defense; and an affordable legal defense is available.

Our adversarial system of justice legally obligates a person who is sued to appear
and defend. A defendant who fails to appear and defend loses the case by default.
In civil proceedings, the law provides each defendant only with the opportunity to
defend, not a defense. Judges preside to hear a case and make judgment. The judge

does not represent or defend the rights of the party filing suit or the defendant. It is
shocking and saddening to realize how many Adult Americans do not realize and
understand their legal obligation to defend when they are sued. Such ignorance is a
function of an inadequate educational system and an indifferent media.

The avalanche of foreclosures resulting by adjudication in uncontested cases

demonstrates how many homeowners fail to realize that they have an opportunity,
duty and obligation to appear and defend against foreclosure. The message is lot
that effective, affordable and realistic defense of foreclosure has the highest
likelihood of achieving an alternate dispute resolution whose consequences to the
debtor are significantly preferable to foreclosure.

The members of the bar who want to defend clients against foreclosure need to get
out a message. Every person in foreclosure requires a competent legal defense; and
an affordable legal defense is available. Most families in foreclosure believe they are
helpless victims, overwhelmed by forces beyond their control. The foreclosure mills
are posed to exploit this state of mind.

A different message needs to be published and widely disseminated. Most people

today have learned that with the advances in modern medicine it is far better to
treat a disease than succumb to it. The same principal applies to defense against
foreclosure. Most people, however, are unaware that affordable “treatments” for
foreclosure ailments are available.

There are many public spirited people, including members of the bar, who have
selflessly given their times and work product to enable individuals to act pro se and
represent themselves. In many places, people in foreclosure are invited to
participate in symposia which are aimed at educating defaulting debtors regarding
their rights and remedies. To the extent these programs educate the public about
the choices and expectations relating to foreclosure of a home, they perform a
valuable public service. The non-profit mortgage counseling conducted by HUD
affiliated counselors is an excellent example of public education about debtor’s
options and choices in foreclosure. To the extent, these symposia try to empower a
debtor to defend pro se against counsel from a foreclosure mill, the undertaking is
an exercise in futility. The average homeowner is unable to effectively defend
against a foreclosure in a judicial proceeding. Busy, overworked judges have no
patience with quixotic tyros tilting against windmills.

2. Use asymmetric defense tactics to thwart foreclosure mills.

The profitability of foreclosure mill operations is a function of the number of cases

resulting in uncontested foreclosure. For these operations, time is money. The less
time allocated to successful adjudication of a case, given the fact that
compensation is capped, the more profitable. Conversely, the more time required to
prosecute a case, the less profitable it becomes. DCH’s motions to dismiss require

opposing counsel to do extensive, time consuming legal research. A response will
consume substantial legal resources and billable hours which are not billable.

In defending a foreclosure, every attorney should have an off the shelf,

standardized discovery package. Where a mortgage is securitized, DCH is working
on a discovery package of requests for production of documents, requests for
admissions and interrogatories, motions to compel answers and production if
required, document checklists and annotations and notes explaining why a specific
document is required or question needs to be answered.

The ultimate goal is to bring down the cost of legal care, just like health care, to
make it affordable to one and all.


DCH is respectfully calling for a change in foreclosure defense strategy by

implementing the following tactics:

1. Employ generic defenses to make defense against foreclosure affordable to

most of those facing foreclosure.
2. Proactively anticipate and address the concern of most judges regarding
unjust enrichment if the debtor prevails in a foreclosure defense.
3. In an adversarial system the person sued is under a legal obligation to defend
against the cause of action. Every person in foreclosure requires a competent
legal defense; and an affordable legal defense is available.
4. Use asymmetric defense tactics to thwart foreclosure mills.