The Florida Supreme Court heard oral arguments in an important case that could have wide-ranging implications for foreclosures in that state. The case, Roman Pino v. Bank of New York Mellon, could invalidate the ability of banks to refile documents in situations where the initial documents they filed to foreclose on homeowners were fraudulent. Pino went through a foreclosure on his house in 2008, but attorneys found that the mortgage assignment used in the foreclosure proceedings was signed by known robo-signer Cheryl Samons and stamped with a notarization that was out of date. In depositions, Samons and colleagues at the David J. Stern foreclosure mill where she worked admitted to not just robo-signing but forgery, backdating of documents, inflated billings and a host of other illegal activities.

Bank of New York Mellon dismissed the first case against Pino, and then came back with a new foreclosure lawsuit with new documents, known familiarly as “ta-da” documents in the foreclosure fraud world. This is the heart of the case; whether a bank can file a voluntary dismissal in a case where they issued fraudulent documents to a court, and then file a second case with different documents after the fact.

The court is deciding whether banks who used fraudulent documents to file foreclosure lawsuits can dismiss the cases and refile them later with different paperwork.

The decision, which may take up to eight months to render, could affect hundreds of thousands of homeowners in Florida, and could also influence judges in the other 26 states that require lawsuits in foreclosures […]

“This was a case of an intentionally fraudulent document fabricated to use in a court proceeding,” says former U.S. Attorney Kendall Coffey, author of the book Foreclosures in Florida.

If the Supreme Court rules against the banks, “a broad universe of mortgages could be rendered unenforceable,” Coffey says. “The cost to the financial industry is difficult to estimate, but it could be substantial.”

You’re talking about something akin to the Ibanez case in Massachusetts, only in Florida, ground zero for the foreclosure fraud crisis, with a much more wide-ranging set of implications.

Unfortunately, observers of the oral arguments today did not seem optimistic that the case would ultimately work against the banks. According to experts who viewed the proceedings, only one Justice, Barbara Pariente, seemed to be sympathetic to the arguments about widespread fraud in the foreclosure process. Other Justices, including the Chief Justice, Charles Canady, focused on the fact that Pino did not pay his mortgage during the time when he was in litigation, as if this was sufficient “relief” for the crimes committed.

Bruce Rogow, the lawyer for the banks, argued that there were other venues for relief from filing fraudulent documents, and that the bank should not be barred from refiling the cases. For example, according to foreclosure fraud expert Lynn Szymoniak, who witnessed the arguments, Rogow said that the bar association could simply sanction the lawyers who made the fraudulent filings. This has not “made an iota of difference,” according to Szymoniak, “but Bruce thinks that is plenty of protection for homeowners defrauded by banks.”

Bank lawyer Rogow “tried very hard to pretend that fraud was a small problem in the greater world of civil litigation,” Szymoniak said, and he added that banks do not need assignments to foreclose, so their veracity didn’t matter. Only Justice Pariente pushed back against this viewpoint. “(Pariente) seemed to be the one voice saying that, ‘let’s assume these docs are fraudulent,’ Szymoniak said. “But then (lawyer Rogow) argued that the fraudulent documents must be material and assignments of mortgage are not material. I would have liked someone to say why were the assignments all filed, if they weren’t material?”

Szymoniak says that the issue of lower courts being able to sanction a party when they file fraudulent documents is another aspect of the case, but one that the state Supreme Court didn’t address in the arguments.

Added to the intrigue is the fact that Pariente, and others on the state Supreme Court, have retention elections this year. So they may be wary of stepping into such a highly charged and controversial case when they have to face voters. That’s another problem with our system of judicial elections. We may not see a ruling on this until after the election, perhaps for that reason.

There’s also the point that Bank of New York Mellon actually struck a settlement with Pino, giving him the house free and clear, in what appears to be an admission of the massive exposure this case has caused all involved. That did not stop the case from being heard in court, because of the frequent use of voluntary dismissal in cases with fraudulent documents. Hundreds of thousands of cases could be affected by this ruling, and the banks would no longer be able to just file and re-file documents until they find a set satisfactory to a court.

But those who watched the proceedings today weren’t entirely hopeful.

UPDATE: Foreclosure defense attorney Matthew Weidner writes in to say that the Justices discussed a 2010 rule in Florida that was supposed to create a process where plaintiffs in foreclosure cases had to “verify” the foreclosure complaint. “The banks were permitted to ignore this rule, and it continues to be ignored even today, two years later,” Weidner said. “No one is aware of a single party or lawyer who has ever been sanctioned for violating the rule they established in 2010, a rule that speaks directly to the Pino issues and which they all sat around talking about like it meant something.”

Weidner has audio and video of today’s arguments, which I will post as soon as it’s ready.

UPDATE II: The oral arguments have now been posted above.

David Dayen

David Dayen