By Noreen Marcus, FloridaBulldog.org
Karina Lopez belongs to a club nobody wants to join: foreclosure defendants who once thought their mortgage problems were over.
They most definitely are not.
Lopez, 51, is fighting a third foreclosure against the modest home she bought for cash in North Miami’s affluent San Souci district more than 20 years ago. Her mortgage issues began in 2008 when Bank of America offered her a $200,000 home equity line of credit and, later, a loan modification.
She never got the loan modification but late fees and insurance mounted until they doubled her outstanding balance. Bank of America filed the first foreclosure but voluntarily dropped it in 2012; a second foreclosure filed by a different nominal creditor popped up in 2017, apparently soon after the filing deadline expired. And so on.
Lopez represents a legion of foreclosure defendants whose creditor adversaries have trouble proving they’re the legitimate mortgage holders or that they acted quickly enough. Without such proof they aren’t empowered to sue for the unpaid debt.
Despite their vulnerability, the creditors almost always win because homeowners either don’t try to challenge them or, if they do try, they’re outgunned. The plaintiff in Lopez’s case is a federal savings bank named Wilmington Savings Fund Society (WSFS) , a powerhouse foreclosure litigant with a spotty but largely successful track record.
“It’s like being attacked by terrorists. That’s how we all feel,” Lopez said at a May 7 Zoom meeting of the American Property Owners Network (APON), a grassroots information-sharing and mutual support nonprofit. Florida Bulldog attended the meeting.
A new wave of so-called “zombie” foreclosures is tormenting other homeowners. They took out second mortgages 15 or more years ago, when the subprime scandal ignited a recession.
The second mortgages, usually for 20 percent of a purchase price – first mortgages covered up to 80 percent – lay dormant until speculators revived them in recent years, looking to profit from rising property values.
“It’s a major scam,” said Margery Golant, a Coral Springs foreclosure defense lawyer. “People are blindsided and scared to death. They’ve paid their first mortgage down, maybe improved their house. They thought they were in the clear and somehow, out of nowhere, comes this.”
The debt gets “flipped and flipped and flipped,” she said, until property values rebound and investors holding bundles of second mortgages pursue a big payday. “They want the principal and all the interest that accrued over all of those years. With a $40,000 loan, now, maybe they want $100,000,” Golant said.
“On second mortgages, creditors don’t pay tax and insurance so they had no expenses,” she said. “They just sat there under the radar and let the interest mount up and then went after the whole thing. And now they’re demanding a much larger number and threatening to foreclose, or foreclosing, unless the borrower pays.”
A ‘WIN-WIN’ FOR DEBTORS, LENDERS
Nothing about his business model is nefarious, Miami investment banker David Gordon insists. The website of ArcPe, his private equity firm, says it’s engaged in “securitizing over $10 billion of mortgage-backed assets annually.”
What Gordon advocates sounds like textbook capitalism for lenders and buyer beware for homeowners. He reminded Florida Bulldog that property liens, including unpaid second mortgages, are recorded and available for free public viewing at county offices.
“I don’t think it’s predatory lending because you’re going to collect on something you own in the first place,” Gordon said. When property values rise, “it’s a win-win for both” debtor and lender. “Why should only the owner of the home see the upside?”
He likened foreclosure to student debt repayment. “If someone signs up for a degree that costs $80,000 and studies Taylor Swift, is that the lender’s fault or is that your fault for picking a major you can’t use to get a job?” he asked.
“You signed up for a loan and you’re responsible for that,” Gordon said. “There’s got to be a medium. Banks would not be in business unless you can collect on a debt.”
“We try to work with almost all of our borrowers to some extent,” he said. “When we stop working with our borrowers is when they lie to us. There’s cases of fraud where someone says my home is worth less than the mortgage when it might be worth ten times the mortgage.”
“I’d prefer to work with a situation where I can modify the loan than do an eviction or a foreclosure because it makes more sense,” Gordon said. “A performing loan on my books is always better than a non-performing loan.”
FLORIDA: #3 IN FORECLOSURES
Florida has an outsized foreclosure and eviction problem, in line with a dearth of affordable housing and surging homelessness.
As of October 2024, the state ranked third nationally in the number of residential foreclosures: one filing for every 3,086 housing units. Only Nevada and New Jersey exceeded that rate, according to Homeinc, a Fort Lauderdale real estate service company.
Florida evictions reportedly increased as the COVID-19 pandemic wound down – along with expiring government homeowner programs.
A whopping 4,317 residential evictions were pending in Miami-Dade County courts in the third quarter of 2024, the county commission auditor reported. These open eviction actions were filed between Oct. 1, 2020, and Sept. 30, 2024.
The Biden and Obama administrations had programs to help homeowners with foreclosure. but President Donald Trump has eliminated or deactivated them. His designated head of the Consumer Financial Protection Bureau (CFPB), the agency for monitoring mortgage servicers, stopped all regulatory activity and tried to fire 90 percent of the staff.
“The CFPB could do something about zombie foreclosures but nothing is going to happen now because they’ve been gutted and there’s no enforcement scheme in place,” said Andrea Bopp Stark, a lawyer with the National Consumer Law Center, an economic justice policy, advocacy and education nonprofit.
Only Virginia and Ohio have adopted second-mortgage homeowners’ protection — and Maryland, California and Massachusetts are considering the legislation, she said. Florida doesn’t seem to be doing anything.
THE LENDER’S COURT
South Florida state trial courts have special foreclosure dockets, but that doesn’t mean all judges who run them understand the nuances or empathize equally with borrowers and lenders.
For example, some judges can’t seem to imagine a homeowner ever having a legal right to withhold a mortgage payment.
“Most judges don’t really understand the loan-servicing or mortgage industry at all,” said Margery Golant, the foreclosure defense lawyer. “It’s just not their world.”
One now-retired Broward foreclosure judge showed favoritism by placing bank lawyers in the front of his courtroom and consigning defense lawyers to the back benches, said a lawyer who spoke anonymously, fearing retaliation.
This lawyer heard the judge say, “Sorry, you’re not paying your mortgage. What do you want from me?”
Former Broward Circuit Judge Andrea Gundersen was notorious for her hostility to borrowers’ counsel.
In 2019 Gundersen handled 217 cases with illegal loan endorsements; she closed 126 of them and never once ruled for a defendant homeowner, according to a 2021 investigation by Floridians for Honest Lending (FHL). Gundersen lost her reelection bid in 2022.
The loan papers FHL examined were machine-stamped – a practice called “robo-signing” – although the law says human bank officials must sign off on their accuracy.
THE PROBLEM WITH STANDING
In 2012 the use of fraudulent documents and other lender misconduct like robo-signing were exposed by a $25-billion settlement between the five biggest mortgage servicers and, on the other side, 49 state attorneys general and the U.S. Justice Department. (Bank of America, one of the five mortgage servicers, dropped its foreclosure against Karina Lopez that year.)
The next year a dozen U.S. mortgage lenders agreed to end robo-signing as part of a $9.3-billion settlement with the Office of the Comptroller of the Currency.
Yet the mortgage industry continues trampling legal boundaries, the FHL investigation and recent evidence show.
“It’s all still going on,” said Chicagoan Linda Sevilla, an active APON volunteer and foreclosure defendant who ran the May 7 Zoom meeting. “It’s hard to get judges to pay attention to evidence of fraudulent or missing documents.”
In addition to loan document problems, foreclosure cases are complicated by the issue of standing, meaning in this context the legal authority to sue over outstanding mortgage debts.
If a mortgage loan is signed by a homeowner and X Bank, and the debt winds up with Y Bank after a series of hand-offs, Y Bank may have trouble proving it has the correct paperwork to foreclose on the homeowner.
“The underlying mortgage was passed around like the flu,” Judge Robert Gross of the Fourth District Court of Appeal (4th DCA) complained in a 2017 opinion. The year before, his colleague Judge Mark Klingensmith noted that lack of standing had become “a common problem” in foreclosure cases.
WILMINGTON BANK, WSFS TRUST
The nominal creditor in the two 4th DCA standing cases, Wilmington Savings Fund Society federal savings bank, lost them both.
In each case the appellate court took the unusual step of not just telling the trial judge to have another look; the lower courts were directed to toss Wilmington’s foreclosure claims because the bank couldn’t prove it had the right to effectuate them.
Wilmington bank is the main subsidiary of WSFS Financial Corp. (Nasdaq: WSFS), a multi-billion dollar financial services company. As of March 31, WSFS had $20.5 billion in assets and another $89.6 billion in assets under management and administration, according to its website.
The Federal Housing Finance Agency (FHFA) suspended Wilmington Savings Fund Society Trust and its affiliates “indefinitely,” effective Oct. 10, 2022, from doing business with Fannie Mae, Freddie Mac and all 11 Federal Home Loan Banks. The purpose was to eliminate “excessive risk to their safety and soundness.”
The suspension followed the 2021 conviction of Wilmington’s then-owner, Los Angeles-based Patrick Soria, “for orchestrating a real estate fraud scheme that victimized more than 2,000 homeowners, involved fraudulent filings that affected the title to properties across the country and caused more than $7 million in losses,” a Justice Department press release states.
Los Angeles U.S. District Judge Dale S. Fischer called Soria “a skillful conman who created a very sophisticated scheme.” She commented, “This is not the largest case I have presided over in terms of dollars, but it is the most brazen and heartless,” according to the press release.
Fischer sentenced Soria to 152 months in federal prison. He apparently plays no role in the bank of the same name in the 4th DCA cases.
The relationship, if any, between Soria’s operation and the bank now known as Wilmington Savings Fund Society is unclear.
The public company WSFS Financial Corp. that owns WSFS Bank calls it “the longest-standing locally managed bank and trust company headquartered in Delaware and the Greater Delaware Valley,” dating back to 1832. The WSFS Trust is a separate but related entity that handles wealth management.
IS LOPEZ FORECLOSURE DOOMED?
Today in South Florida, Wilmington is a busy plaintiff with a high-volume business in mortgage foreclosures.
“They’re not the only player, there are others, but Wilmington is the biggest by a mile,” Golant said.
The bank may have a spoiler standing problem in Karina Lopez’s case. She claims many of the loan documents that passed from creditor to creditor over the past eight years were incomplete or erroneous.
On April 15, Miami-Dade Circuit Judge Antonio Arzola paused her non-jury trial to give Wilmington time to sort out when it transferred her mortgage debt to a different creditor. If it happened after the trial began, the judge promised to dismiss the case.
Wilmington is trying to substitute in the other creditor as a new plaintiff with the same claim. Lopez’s lawyers argue the bank wants to transfer an illegitimate claim to another party only to prevent the judge from dismissing the foreclosure action and to keep it going.
If Lopez’s allegation is true, Arzola wrote, Wilmington’s “corporate representative is likely to lose all credibility with the Court. The Court’s decision to postpone the trial is not an opportunity for Plaintiff to try to acquire ‘standing’ to enforce a mortgage that it did not have” at the outset.
A hearing was scheduled for this month.
Last week Florida Bulldog emailed a request for comment about the Lopez case, other Wilmington cases and the FHFA suspension to Wilmington’s lawyers at the Boca Raton firm Manganelli, Leider and Savio. They did not respond.
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