INTRODUCTION There is a mortgage default crisis underway in the United States and a credit crisis caused by toxic assets

in the secondary mortgage market. Goldman Sachs estimates that, starting at the end of the last quarter of 2008 through 2014, 13 million foreclosures will be started.5 The Center for Responsible Lending, based on industry data, predicts 2.4 million foreclosures in 2009, and a total of 9 million foreclosures between 2009 and 2012.6 At the end of the first quarter of 2009, more than 2 million houses were in foreclosure. Mortgage Bankers Assn, Natl Delinquency Survey Q109 at 4 (2009) (reporting that 3.85% of 44,979,733, or 1.7 million, mortgages serviced were in foreclosure). Roughly half of these were serviced by national banks or federal thrifts. See Office of the Comptroller of the Currency & Office of Thrift Supervision, OCC and OTS Mortgage Metrics Report: Disclosure of National Bank and Federal Thrift Mortgage Loan Data, First Quarter 2009, at 8 (June 2009),available at http://files.ots.treas.gov/482047.pdf (reporting that 884,389 foreclosures were in process by national banks and federal thrifts at the end of the first quarter of 2009). The estimate of more than 2 million homes in foreclosure is achieved by extrapolating from the MBA numbers. The MBA survey only covers approximately 80% of the mortgage market. Thus, (44979733*3.85%)/0.8=2.16 million. Over twelve percent of all mortgages had payments past due or were in foreclosure and over seven percent were seriously delinquenteither in foreclosure or more than three months delinquent. Mortgage Bankers Assn, Natl Delinquency Survey Q109 at 4 (2009). Goldman Sachs Global ECS Research, Home Prices and Credit Losses: Projections and Policy Options (Jan. 13, 2009), at 16; see also Rod Dubitsky, Larry Yang, Stevan Stevanovic & Thomas Suehr, Credit Suisse Fixed Income Research, Foreclosure Update: Over 8 Million Foreclosures Expected 1 (Dec. 4, 2008) (predicting 9 million foreclosures for the period 2009-2012). 6 Center for Responsible Lending, Soaring Spillover 1 (May 2009), available at http://www.responsiblelending.org/mortgage-lending/research-analysis/soaring-spillover-309.pdf. 7 Mortgage Bankers Assn, Natl Delinquency Survey Q109 at 4 (2009) (reporting that 3.85% of 44,979,733, or1.7 million, mortgages serviced were in foreclosure). Roughly half of these were serviced by national banks or federal thrifts. See Office of the Comptroller of the Currency & Office of Thrift Supervision, OCC and OTS Mortgage Metrics Report: Disclosure of National Bank and Federal Thrift Mortgage Loan Data, First Quarter 2009, at 8 (June 2009), available at http://files.ots.treas.gov/482047.pdf (reporting that 884,389 foreclosures were in process by national banks and federal thrifts at the end of the first quarter of 2009). The estimate of more than 2 million homes in foreclosure is achieved by extrapolating from the MBA numbers. The MBA survey only covers approximately 80% of the mortgage market. Thus, (44979733*3.85%)/0.8=2.16 million. 8 Mortgage Bankers Assn, Natl Delinquency Survey Q109 at 4 (2009). Realtytrac recently reported that an additional 300,000 homes go into foreclosure every month.Realtytrac, 1.9 Million Foreclosure Filings Reported On More Than 1.5 Million U.S. Properties in First Half of 2009, available at http://www.realtytrac.com/ContentManagement/PressRelease.aspx? channelid=9&ItemID=680

These spiraling foreclosures weaken the entire economy and devastate the communities in

which they are concentrated. See, e.g., Ben S. Bernanke, Chairman, Bd. of Governors, Fed. Reserve Sys., Address at the Federal Reserve System Conference on Housing and Mortgage Markets (Dec. 4, 2008), available at http://www.federalreserve.gov/newsevents/speech/bernanke20081204a.htm#f12; Ira J. Goldstein, The Reinvestment Fund, Lost Values: A Study of Predatory Lending in Philadelphia, at 62/-/63 (2007), available at www.trfund.com/resource/downloads/policypubs/Lost_Values.pdf (discussing disastrous community impact left behind by failed subprime lenders). Neighbors lose equity; See John P. Harding, Eric Rosenblatt, & Yao Vincent, The Contagion Effect of Foreclosed Properties (July 15,2008), available at http://ssrn.com/abstract=1160354 ; Letter, Senator Dodd to Senator Reid (Jan. 22, 2008) (describing cycle of disinvestment, crime, falling property values and property tax collections resulting from foreclosures), available at http://dodd.senate.gov/multimedia/2008/012308_ReidLetter.pdf; Staff of the J. Economic. Comm., 110th Cong., 1st Sess., The Subprime Lending Crisis: The Economic Impact on Wealth, Property Values and Tax Revenues, and How We Got Here (2007), available at http://jec.senate.gov/index.cfm?FuseAction=Reports.Reports&ContentRecord_id=c6627bb27e9c-9af9-7ac7- 32b94d398d27&Region_id=&Issue_id= (projecting foreclosed home owners will lose $71 billion due to foreclosure crisis, neighbors will lose $32 billion, and state and local governments will lose $917 million in property tax revenue); Dan Immergluck & Geoff Smith, The External Costs of Foreclosure: The Impact of Single-Family Mortgage Foreclosures on Property Values, 17 Housing Poly Debate 57, 69, 75 (2006) (for each additional conventional foreclosure within an eighth of a mile of a house, property value is expected to decrease by 1.136 percent; estimating total impact in Chicago to be between $598 million and $1.39 billion); William C. Apgar, Mark Duda, & Rochelle Nawrocki Gorey, The Municipal Cost of Foreclosures: A Chicago Case Study (Hous. Fin. Policy Research Paper 2005), at 1, available at www.995hope.org/content/pdf/Apgar_Duda_Study_Full_Version.pdf; John P. Harding, Eric Rosenblatt, & Yao Vincent, The Contagion Effect of Foreclosed Properties (July 15, 2008), available at http://ssrn.com/abstract=1160354 ; Letter, Senator Dodd to Senator Reid (Jan. 22, 2008) (describing cycle of disinvestment, crime, falling property values and property tax collections resulting from foreclosures), available at http://dodd.senate.gov/multimedia/2008/012308_ReidLetter.pdf.crime increases; See, e.g., J.W. Elphinstone, After Foreclosure, Crime Moves In, Boston Globe, Nov. 18, 2007 (describing Atlanta neighborhood now plagued by house fires, prostitution, vandalism and burglaries); Dan Immergluck & Geoff Smith, TheImpact of Single-Family Mortgage Foreclosures on Neighborhood Crime, 21 Housing Stud. 851 (2006), available at www.prism.gatech.edu/~di17/housingstudies.doc (calculating that for every 1% increase in the foreclosure rate in a census tract there is a corresponding 2% increase in the violent crime rate). tax revenue shrinks. See, e.g., ., Staff of the J. Economic Comm., 110th Cong., 1st Sess., The Subprime Lending Crisis: The Economic Impact on Wealth, Property Values and Tax Revenues, and How We Got Here (2007), available at http://jec.senate.gov/index.cfm?FuseAction=Reports.Reports&ContentRecord_id=c6627bb27e9c-9af9-7ac7-32b94d398d27&Region_id=&Issue_id= (projecting foreclosed home owners will lose $71 billion due to foreclosure crisis, neighbors will lose $32 billion, and state and local governments will lose $917 million in property tax revenue); William C. Apgar, Mark Duda, & Rochelle Nawrocki Gorey, The Municipal Cost of Foreclosures: A Chicago Case Study (Hous. Fin. Policy Research Paper), 2005, at 1, available at 2

www.995hope.org/content/pdf/Apgar_Duda_Study_Full_Version.pdf. Communities of color remain at the epicenter of the crisis; targeted for subprime, abusive lending, they now suffer doubly from extraordinarily high rates of foreclosure and the assorted ills that come with foreclosure. Written Testimony of Alys Cohen, National Consumer Law Center also on behalf of National Association of Consumer Advocates and National Association of Consumer Bankruptcy Attorneys Before the United States Senate Subcommittee on Administrative Oversight and the Courts of the Committee on the Judiciary. July 23, 2009. Documentary Clearing House and Associates (DCH) has pioneered a new strategy to defend foreclosure cases. This defense program was designed to implement the new strategy. Viewed from afar, the short, unpleasant history of foreclosure litigation 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 governments 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. DCHs new motion addresses both these requirements.

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 specific questions of fact and law unique to each case, a defense which most defendants 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. This program provides the bullets. It puts foreclosure defense on the assembly line.
1.

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. Lawyers are also taught to employ tactics to complicate the other sides case and discover damaging information. Lawyers also try to use discovery to find errors and omissions in the other sides case. A proficient litigator wages war upon the other side with motions, depositions, production of 3

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 part 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, a different strategy becomes. Maybe if a defendant cannot afford a custom suit, it behooves the defendant 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 common. In this connection, DCH has concluded that 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. Defendants 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.

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.
2.

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. In this program, the documents explicitly call for the court to 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: Review foreclosure fees and charges. 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.
a. b. 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. 5

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 debtors 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. Tie all legal arguments, to the fullest extent practicable, to the mortgage and note and to a showing of harm to the mortgage debtor defendant. For many judges, if there is no harm, there is no foul. It is accordingly essential to demonstrate to the court that any non-compliance with legal authorities by the other side specifically harms the defendant. Similarly many judges want to limit the proceeding to the issue of foreclosure and not collateral issues such as violations of consumer protection authorities by the mortgagor named on the note.
4. 5. 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. The ultimate goal is to bring down the cost of legal care, just like health care, to make it affordable to one and all. This program imposessubstantial costs and burdens upon the opponent. This program provides information about and extensive links to forensic consumer audits for those who choose to pursue this line of defense. This line of defense does not meet the criteria of the new strategy. It is expensive, case specific and generally not dispositive of the foreclosure. To use the software, one must be familiar with the complex of consumer protection statutes, rules and regulations as they relate to mortgages. One must then purchase audit software or go to a vendor which provides the audit service. The forensic audit report detailing violations usually cannot be introduced into evidence without retaining an expert witness will and able to testify. All of the foregoing costs money, of which, there is already too little. The application of the defense is case specific. Each set of closing documents is unique. The forms maybe identical but the information filled in is not. The relevant information for conducting the forensic audit must be obtained from the closing documents and individually entered for each case. One size does not fit all. Finally, judges rarely overturn foreclosure so that the tactic is largely ineffective for disposing of the case. It will delay foreclosure by forcing the other side to produce documentation. There is also an exception for the case whether a defendant can rescind a loan within three years of the time it was made but most cases do not trigger this right of rescission. Judge are often very dismissive of this line of defense considering it extrinsic to a foreclosure proceeding . Judges, for example, can exclude consumer protection defenses by requiring that such matters be dealt with in a separate lawsuit and not as a counterclaim to foreclosure. Do not be afraid of the Judge. The judge is at trial to preside. The judge is a neutral between the adversaries, the plaintiff and the defendant. The judge is not there as a friend of the defendant or to aid, assist or protect the defendant from the other side. Some judges believe that foreclosure is an open and shut case. If the debtor has not made timely payments, the creditor is entitled to foreclose and compel the sale of the property. Such judges often act as if any argument made to defend against foreclosure is an impertinence and a deliberate waste of the courts tiles as the debtor struggles to postpone the inevitable.There are rumors that some defense counsel buy into this arguemtns and are loathe to offend the court by mounting a vigorous defense.
6.

Effective defense against foreclosure cannot proceed without effective advocacy. This means that whoever appears for the defendant has got to be believe in the case, bel;ieve in the arguments and stop worrying about whether or not the presiding judge will be offended. In this connection, it is extremely important to have a court rep[orter present for any court appearance. Moreover, it is absolutely necessary to ask the judge on the record if he or she has read the pleadings and the motions. This may annoy the judge; some judges actually believe that a judge can make a ruling without examining the pleadings or the motion documents. Unless this were the case, there would be no rocket docket where a judge can brag that he handed down 500 summary judgments of foreclosure in one day. An admission by the court that it has ruled without reading the field documents relevant to the case is virtually certain to constitute a reversible error on appeal. Accordingly any advocate unwilling to confront the court and ask this question cannot serve as an effective advocate. Each side

has the right to present and have its case heard. Anything less is not only wrong; it is also illegal. Somewhere, some day, a judge will actually admit a failure to examine relevant documents. On that day, the advocate has a duty to the client and to all other advocates and clients to request the judge to recuse himself or herself and ask for a replacement judge who reads. The judge is not presiding simply to sign like an automaton all summary judgments placed before him by foreclosure mills. The presiding judge must do more than act like a baboon with a signature stamp. Conclusion DCH is respectfully calling for a change in foreclosure defense strategy by implementing the following tactics: 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.
1.