Court rebuffs two lenders that foreclosed same loan

Mortgages

Court rebuffs two lenders that foreclosed same loan
June 21, 2010 By: Paola Iuspa-Abbott


By the time Glazy and Jose Ruscalleda realized that two different  lenders were foreclosing on their condo mortgage, they were almost out of time.

While their lawyer fought a foreclosure action by American Home Mortgage Servicing, the couple was unaware that HSBC Bank USA was about to ask a judge to sell their home at a public auction.

DBR TV: Attorneys John H. Ruiz and Karen Barnet-Backer “I had no idea what was going on with the lenders,” said Glazy Ruscalleda, 31. “I didn’t think that anything like this could happen.”

Their story illustrates the unintended consequences of the intricate world of mortgage-based securities and the many hurdles homeowners and their attorneys are encountering during the foreclosure crisis.

The Ruscalledas got a break this month when a state appeals court said a bank should start over with its foreclosure action.

“It is not uncommon for two lenders to be suing the same person on the same note,” said Fort Lauderdale foreclosure defense attorney Carol Asbury. “What happens is the loans are sold and sold — sometimes even
before the ink is dry — two to three times.”

That inevitably creates confusion, said Asbury, who is not involved in this case. During the housing boom that ended in 2007, lenders made loans that were later sold multiple times to investors led by trusts, like the
one administered by HSBC. But lenders didn’t always pass along the proper documentation, including notes and mortgages. Now, trying to prove who owns what can be difficult, increasing the risk of homeowners losing their homes to the wrong lender.

The confusion for the Ruscalledas began in October 2008 when HSBC sent the couple a letter alerting them of its lawsuit. They ignored the notice because days earlier they had received a similar letter from American Home Mortgage.

“We don’t know anything about the court system so we assumed it was the same lawsuit,” Ruscalleda said.

The couple did not show the HSBC letter to the lawyer they hired to fight American Home Mortgage.
Uncontested, the HSBC case moved forward. Weeks before Miami-Dade Circuit Court Judge Mark King Leban was to rule on giving HSBC permission to sell the couple’s condo at a public auction, the Ruscalledas learned of the hearing. Their lawyer, Karen Barnet-Backer, had learned about the hearing during a search of public records.

She soon learned that American Home Mortgage had sold and assigned the couple’s $159,920 mortgage to HSBC, as trustee to a pool of investors, in December 2008. It is not clear why HSBC sued the Ruscalledas in October 2008, before the assignment of mortgage and days after American Home Mortgage sued the couple over the delinquent loan. American Home Mortgage now services the loan for HSBC.

An HSBC spokeswoman declined to comment on the Ruscalleda suit but said the role of HSBC as trustee for loan securitization trusts is “nominal” when it comes to the trust’s assets.
“Under the agreements that establish the trusts, other companies are designated as servicers to handle matters such as mortgage foreclosures, loan modifications, evictions and sales of foreclosed trust properties,” said HSBC spokeswoman Juanita Gutierrez.

Boca Raton attorney Heidi Weinzetl with Shapiro & Fishman, who represented HSBC, didn’t return a phone call. Christine Sullivan, a spokeswoman for American Home Mortgage, said in an e-mail the confusion began when an unnamed law firm incorrectly named her company, not HSBC, in the initial foreclosure suit, Sullivan
said the firm took nine months to seek a dismissal after the problem arose. Meanwhile, another law firm was given the case and correctly named HSBC when it refiled the action.

Barnet-Backer, of the Law Offices of La Ley con John H. Ruiz in Miami, unsuccessfully tried to halt the HSBC foreclosure last year. The attorney said she pleaded with Leban to transfer the case to the judge
handling the American Home Mortgage case. She also argued that HSBC didn’t own the mortgage on the Ruscalledas’ condo when it filed the foreclosure suit so it didn’t have the right to take the couple’s
home.

“My goal is not to cause a delay in the litigation process,” she said. “It is to protect my clients’ rights, to make sure that if the bank is going to foreclose on them, that they do it the right way, that they have the right to enforce the note and the mortgage.”

On March 24, 2009 — the day after American Home Mortgage dismissed its foreclosure suit — Leban granted HSBC’s request to sell the condo and scheduled a public auction for July 22, 2009. The company did not explain its reason for seeking the dismissal.

In April 2009, the couple appealed the ruling to the 3rd District Court of Appeal on the grounds that the twin foreclosure suits hurt their defense.

The Ruscalledas were able to postpone the public sale by filing for bankruptcy protection, an action that temporarily places foreclosure suits on hold. U.S. Bankruptcy Judge Robert Mark discharged their
bankruptcy case in December and authorized the bank to sell the condo. A new auction date has yet to be set, Barnet-Backer said.

“We don’t want the condo for free,” said Glazy Ruscalleda, an office manager for a company that services ATM machines in Miami. “We want lower mortgage payments … We want a loan modification.”

Her husband, Jose, 33, is unemployed and her salary can’t cover their $1,500 mortgage payment, she said.

The Ruscalledas bought the two-bedroom condo in Hialeah in 2006. They paid $199,900 for the 1,000-square-foot unit now appraised by Miami-Dade County at $96,000 for tax purposes. The couple stopped
paying their mortgage in early 2008.

The couple scored a victory earlier this month when the appellate court reversed the final judgment granted by Judge Legan.

The 3rd DCA ordered the trial court to start the HSBC suit over and allow the Ruscalledas to respond to the complaint and defend themselves.

“We go back to square one, as if they had just been served with the new lawsuit,” said Barnet-Backer, who represented the couple with attorney John Ruiz.

The appellate court ruled “the trial court abused its discretion by denying” the couple’s requests to postpone the final summary judgment hearing and transfer the case.

Now, the Ruscalledas have a new opportunity to fight for their home. Barnet-Backer is already preparing her clients’ defense. She will argue HSBC has no right to foreclose on the loan for two reasons:

■ It didn’t own the loan at the time it filed for foreclosure.

■ American Home Mortgage, the first to file the foreclosure action,
was the only one with jurisdiction to seek a judgment against the
homeowners.

HSBC could move to dismiss the case and re-file it now that it owns the mortgage.


While the 3rd DCA sided with the Ruscalledas, the ruling fell short of addressing one of the biggest issues in the foreclosure defense front: a lender’s legal standing.

Barnet-Backer said the 3rd DCA likely feared a statewide legal backlash if it had addressed the issue of standing.

“I think they were concerned … that an opinion of such magnitude, as to the standing issue, would resonate across the state [and] would have a significant impact,” she said.

Foreclosure defense lawyers frequently demand lenders prove they own the note and the assignment of mortgage before they file a foreclosure lawsuit. If they don’t provide proof, they are not entitled to
foreclose on the property.

Miami-Dade Circuit Judge Jennifer Bailey, who was not involved in the Ruscalledas’ case, said some clarification on the issue is needed.

“There isn’t an appellate opinion that I am aware of that says point blank you need a note and an assignment of mortgage or you need a note or an assignment,” said Bailey, who since last year has headed a
Florida Supreme Court task force on residential mortgage foreclosures.

For now, Judge Bailey said she follows case law that says “the mortgage is collateral to the note; so, if you have the original note, you have the right to foreclose and it is not essential to have an assignment of mortgage.”





The decision is a 2004 opinion from the 4th District Court of Appeal in WM Specialty Mortgage V. Alan F. Salomon.





Paola Iuspa-Abbott can be reached at (305) 347-6657.