Our Moreno Valley foreclosure defense lawyers write frequently in this space about the confusion caused by banks' sloppy paperwork practices during the housing bubble. In many foreclosures and bankruptcies, this has caused lenders to be unable to prove their ownership, slowing down the court case and in a few cases even leading courts to cancel the debt entirely. That was the remedy the homeowners wanted in Guttman v. Wells Fargo Bank et al., a consolidated appeal to the Maryland Court of Appeals with four certified questions about how Maryland law applies to four bankruptcies. The court decided that the plain language of the law, Real Property Section 4-109(b), allows defects in the paperwork to be cured and the deeds to be enforceable in all four cases.
The Bankruptcy Court for the District of Maryland approached the appeals court after hearing many adversary proceedings involving deeds of trust with affidavits that were defective under Maryland law. The state requires each deed of trust to contain an affidavit of consideration, and numerous deeds before the court apparently had missing or defective affidavits. In three of the cases before the court, the affidavit was defective in that it was missing names and other information, or had names filled into the wrong places. The trustees for the debtors argued that the deeds were invalid and the trustees should own them free of the lenders' liens. The lenders involved argued that Section 4-109 cures the defects because it says "any failure to comply with the formal requisites listed in this section has no effect unless it is challenged in a judicial proceeding commenced within six months after it is recorded." The adversary proceedings were started more than six months after recording in every case. The bankruptcy court's questions asked Maryland's highest court whether that law could cure the flaws in each of these cases.
The Court of Appeals answered yes in all four cases, holding that the language of the law unambiguously cures the kinds of defects at issue. It rejected the trustees' arguments that the defects at issue are substantive and not merely formal, since the defects in question are expressly addressed, and named as formal defects, by Sec. 4-109. Its opinion also made heavy use of the law's legislative history. Maryland's affidavit of consideration requirement was intended to prevent fraud where property is transferred for no real consideration, the court said. The court's own decision in 1968 found that any defect in form rendered the affidavit invalid, but the legislature passed curative laws in 1971 and 1972 that expressly allowed affidavits with formal deficiencies. Finally, the court dismissed the trustees' argument that its finding that 4-109 cured the defects would effectively nullify the affidavit requirement, saying it was not free to question the legislature's balancing of public policy goals. Thus, it found for the mortgage lenders and sent the cases back to bankruptcy court.
This decision is very specific to Maryland law, and as Placentia foreclosure defense attorneys, we are pleased that our clients here in California do not have such a high burden to meet. Most states don't even have the affidavit requirement, in fact, and most cases of shoddy or missing paperwork center around paperwork granting ownership of the debt and mortgage. Controversies over the legality of paperwork have taken center stage in the last year because of the robo-signing controversy, but robo-signing is only one of the paperwork problems our Vista foreclosure defense lawyers have seen in recent appeals court decisions. Others, some more serious, include outright failure to notify a second lienholder of a foreclosure auction, improperly assigned notes and paperwork dated after legal action started, throwing the new lender's rights into doubt. These and other paperwork problems can slow or sometimes even stop a foreclosure, so homeowners should not hesitate to call us if they believe their lender is using dirty documents.
If you're struggling to hold on to your home and your lender is delaying, denying and generally seeming not to help, you should call Howard Law, P.C., to discuss your legal options. For a free consultation, send us an email or call toll-free at 1-800-872-5925.