The courts in New York State instituted a new rule yesterday that would require bank lawyers to ensure that their clients' filings in foreclosure cases are accurate and honest. This requirement enlists the help of lawyers--who are not just advocates, but also officers of the court--in the effort to protect the integrity of the courts in the face of widespread fraud. The penalties that attach to a false certification are criminal: lawyers must endorse the allegations contained in their clients' filings "under the penalties of perjury." While using lawyers to check their client's homework is not novel, the type of detail required of lawyers in New York pursuing foreclosure cases is. Could such an approach help chart a course out of the current foreclosure quagmire? And could this type of an approach help not only in states where judicial intervention is required to foreclose on a home but also where it is not?
A series of revelations about flawed bank practices brought about the current state of the foreclosure crisis, with several major banks calling a halt to foreclosures and advocates pressing for a national foreclosure moratorium. Those revelations exposed the widespread practice of robo-signing: bank officials failing to check bank records when making applications for foreclosures, failing to sign their affidavits supporting those applications, and failing to have those affidavits properly notarized. The robo-sign scandal raised deeper and more serious questions: questions about the ability of banks to bring these foreclosure actions in the first place.
What are these questions? Shoddy record keeping and flawed procedures during the height of the mortgage securitization market may have infected the chain of title of many mortgages that were sold on that market, so much so that it is not always clear whether banks have legal interests in the mortgages that are at the heart of their foreclosure actions. Without a clear interest in a mortgage, the bank should not be able to foreclose on that mortgage. If a foreclosure goes ahead despite such a question about the bank's interest in the mortgage, a subsequent purchaser of the foreclosed property may find him or herself in court, fighting to defend title to the property. Such questions about the owners of these mortgages threaten to undermine the property title system, raise doubts about the integrity of the courts, and could expose banks to criminal liability for the ways in which they handled hundreds of thousands of foreclosure actions.
Attempting to resolve these issues is like a giant game of pickup sticks: it is a challenge to address one aspect of the crisis without making other matters worse. Ignoring the defective bank filings excuses criminal conduct and threatens the legitimacy of courts as guardians of due process. Assessing bank filings on a case-by-case basis would require significant resources that overworked court personnel are unable to do on short order, likely delaying matters for a significant amount of time. Is there some way to ensure the legitimacy of bank filings without placing a strain on already overburdened courts and without leaving the assessment of those filings to bank personnel who have a clear stake in the outcome that might cloud their judgment?
New York's new foreclosure filing requirements attempt to work a fine balance between efficiency and legitimacy, by placing the burden on bank lawyers to check their client's homework and ensure that banks have a strong basis for bringing their foreclosure claims. These requirements include a statement by the lawyer that he or she has spoken with a bank official personally and that bank official has assured the lawyer that he or she has personally reviewed bank records, confirmed the legitimacy of the bank's claims and can attest to the propriety of the notary public's endorsement of the filing. The lawyer must also conduct a "diligent inquiry" into the legitimacy of the bank's claims on his or her own, and cannot just sit by and rubber-stamp bank allegations. These requirements hold lawyer's personally accountable for failing to monitor bank practices closely; indeed, these certifications must be made under the penalties of perjury, and shoddy lawyer oversight will most certainly result in a referral for disciplinary proceedings separate and apart from any criminal prosecution that might arise as a result of poor oversight.
Are these obligations on lawyers new, different or more detailed? In most civil litigation, in both state and federal courts, lawyers are under a duty to present only good faith claims, and cannot offer falsified evidence in the cases they bring. The new requirements, imposed by court rule in New York State, raise the ante for lawyers handling foreclosure cases by imposing highly detailed obligations and requiring a hands-on diligent inquiry (which, I would argue, means an "independent" inquiry) into the legitimacy of their clients' claims. In this way, they require lawyers to perform a critical gate keeping function for the courts and weed out illegitimate from legitimate claims. Lawyers should always do this, but New York's new rule places new and more detailed requirements on lawyers unlike any others, and adds criminal penalties for violation of the rule.
Will such requirements help? Possibly. Lawyers play the dual role of advocates and officers of the court. Too often, lawyers favor the first of these roles, and neglect the second. This new requirement places the onus squarely on bank lawyers to monitor their clients' conduct, and holds them accountable when such conduct is improper. With a lawyer's license and livelihood on the line, it is possible that New York may have found a straightforward, simple and efficient way to cut through the myriad problems the robo-sign scandal revealed and ensure the legitimacy of foreclosure filings and the integrity of the courts.
Could this approach be used in other jurisdictions? Unquestionably. This could prove an effective tool in the 22 states, like New York, that require judicial intervention in foreclosures. But it could also prove adaptable in non-judicial foreclosure states. State law could require this type of certification before any foreclosure auction takes place, and could require that any attempt to file title documents with the county clerk's office be accompanied by an attorney's certification, signed under the penalties of perjury, that the attorney for the bank has reviewed the records and found them legitimate and the sale proper.
It is not a perfect solution, and it is one that certainly still poses the risk that a lawyer's desire for personal gain will trump his or her professional honor. Let's bank on honor, for now, and see whether the lawyers will not disappoint.