Lack of Standing and Mortgagor Protection

The Illinois Second District Appellate Court recently adopted a legal principle aimed at protecting borrowers and further curbing lender wrongs, such as improperly affixing lender’s signatures to foreclosure documents without reviewing them.

As early as 2008, Federal and State jurisdictions around the country began a trend of dismissing foreclosure suits due to a lack of mortgagee standing.  In December 2012, the Second District adopted this trend — which could have significant implications on Illinois mortgagors and mortgagees alike.

In practice, it is not unusual for a mortgagee foreclosing on an assigned note to produce documents evidencing such assignment took place after or even well after initiation of the foreclosure suit.  These late assignments could be a result of a mortgagee’s honest inadvertent act or, more likely, may represent a mortgagee’s standard business practice.  Mortgagees that engage in this behavior intentionally operate on the assumption that no one will notice or raise the timing discrepancy.  Usually, they are correct.

For whatever reason the assignment was late, the servicer will more than likely argue that it should be given retroactive effect because it merely memorialized an earlier assignment or dismissal and refiling would unnecessarily strain judicial resources.  Moreover, a servicer will also most likely attempt to argue that the statutory provision, 735 ILCS 5/2-616(c), allows for liberal amendment of pleadings to correct so that cases are decided on the their merits and not on procedural technicalities.

However, federal courts[1] and state courts in New York[2], Ohio[3] and elsewhere[4] recently began dismissing foreclosure suits in which servicers or mortgagees were assigned the note subsequent to initiating a foreclosure action.  For example, in Saxon Mortgage Servs., Inc v. Hillery, a foreclosure action was dismissed because a plaintiff failed to allege the note had been assigned to it before filing its complaint.  2008 WL 5170180.  Moreover, in Countrywide Home Loans, Inc. v. Gress, a foreclosure suit was dismissed because it was “undisputed that the subject mortgage was not assigned to the plaintiff until . . . more than five months after the commencement of [the] action” and “retroactive assignment cannot be used to confer standing upon the assignee in a foreclosure action.”  888 N.Y.S. 2d 914-15 (2009).  While the factual bases of the foregoing examples differ, the trend of courts scrutinizing plaintiff standing in foreclosure cases is clear.

Recently, in Deutsche Bank National Trust Co. v. Gilbert, the Illinois’ Second District appellate court followed this trend when it dismissed Deutsche Bank’s foreclosure claim on the basis that it lacked standing at the time of filing.  982 N.E. 2d 815, 824 (2012).  Lack of standing is an affirmative defense, and the burden of proving the defense is on the party asserting it.  Therefore, the mortgagor bears the burden to prove the mortgagee lacked standing at the time the foreclosure was initiated.  However, when a prima facie showing is made — such as an assignment executed subsequent to filing of the foreclosure complaint– the mortgagee must rebut that showing with admissible evidence to establish it had standing at the time the action was initiated.

In Gilbert, the mortgagor established a prima facie defense by drawing attention to the fact that Deutsche Bank’s assignment did not explicitly state when it was assigned the mortgage.  That showing established a prima facie defense and shifted the burden to Deutsche Bank National Trust Co. to rebut with admissible evidence.

Deutsche Bank attempted to rebut Gilbert’s prima facie showing by submitting an affidavit stating that the assignment merely memorialized an earlier assignment of the note, but did not attach any documentary evidence to support the assertion.  The appellate court was not persuaded by the affidavit but rather followed the trend of scrutinizing mortgagee standing in foreclosure cases.  Although not addressed in the Gilbert decision, it is important to note that other jurisdictions and courts have expanded on this trend to further securitize mortgagee standing by awarding attorneys’ fees for such deficiencies.[5]

The upshot of the recent Illinois appellate court decision in Gilbert is that counsel for mortgagees and mortgagors alike must diligently examine the dates of any assignments and be prepared to support a prima facie defense or rebuttal with documentary evidence.  A failure to do so could result in a dismissal, a failure to obtain a dismissal or even sanctions.

— James D. Trail
The Bernstein Law Firm, LLC

[1] Saxon Mortgage Servs., Inc. v. Hillery, 2008 WL 5170180 (N.D. Cal. Dec. 9, 2008)

[2] Countrywide Home Loans, Inc. v. Gress, 888 N.Y.S.2d 914 (2009)

[3] Wells Fargo Bank, N.A. v. Jordan, 2009 WL 625560 (Ohio Ct. App. Mar. 12, 2009)

[4] Jeff-Ray Corp. v. Jacobson, 566 So. 2d 885 (Fla. Dist. Ct. App. Sept. 12, 1990)

[5] Bank of New York v. Williams, 979 So. 2d 347 (Fla. Dist. Ct. App. 2008); Countrywide Home Loans, Inc. v. Taylor, 843 N.Y.S.2d 495 (N.Y. Sup. Ct. 2007)


The Constitutionality of the Federal Defense of Marriage Act

On March 27, 2013, the Supreme Court heard arguments dealing with same sex marriage in the matter of United States v. Windsor, which questions whether it is constitutional for the federal government to refuse to recognize same sex marriages that have been recognized by other states.

The law, the Defense of Marriage Act (DOMA), defines marriage, at least for federal purposes, as between a man and a woman.  Section three of the Act, which is the section at issue in the case, states that, “the word ‘marriage’ means only a legal union between one man and one woman as husband and wife” for purposes of “any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States.”

The Plaintiff in the case, Edie Windsor, brought suit against the IRS because it denied her a federal tax refund following the 2009 death of Thea Spyer, her partner for over forty years.  The two were finally married in Canada in 2007, but resided in the State of New York.  Following Spyer’s death, Windsor would have been eligible for a federal tax exemption in excess of $363,000 on her inheritance of her wife’s estate.  Windsor sued, arguing that if Spyer had been a man – if federal law had accorded their marriage the same status as heterosexual marriages recognized by their state – she would have paid no taxes.

So, the issue before the Supreme Court is whether the federal government must recognize same sex marriages that occur in states where it is legal.  More practically: if DOMA is ruled unconstitutional, then same sex couples can get married in states that allow gay marriage while residing in states that do not and still retain federal (but not state) recognition of that marriage.

Legally, whether DOMA will be upheld or struck down depends on the type of scrutiny the Court uses in its judicial review of the issue involved.  The lowest level of scrutiny is called the rational basis test, which states that if a law discriminates against a group of people, it must be for some legitimate reason.  Thus far both the US District Court as well as the US Court of Appeals for the 2nd Circuit struck down DOMA using the rational basis test and will likely do so here.

There is, however, the possibility that the Court will not reach a decision in this case.  President Bill Clinton signed DOMA into law in 1996, with just 81 of the 535 members of Congress opposed to the Act.  In the past, President Obama has defended laws passed by Congress that were challenged in court.  But, in February of 2011, the Obama administration announced it would cease defending the law because it believed the law to be invalid under the Constitution.  Because the Justice Department would not defend the law as passed by Congress, Republican Congressmen hired Paul Clement, George W. Bush’s former solicitor general, to represent the federal government in this case.  The Court, therefore, may decide not to rule on the case, because Congress did not technically receive any actual harm in order to defend it and because the Obama administration is not a viable party because it agrees with the lower courts.

Surviving this argument, and given the remainder of the questions the Justices asked at oral argument, it appears the Court may be leaning to overturn DOMA, though.  Justice Kennedy, who is thought to be the Court’s swing vote on this issue, acknowledged that there were 1,100 references to marriage in the federal code, and that the definition of who is married is “intertwined with daily life.”  He questioned whether the federal government may impose its own view of marriage, which has “always thought to be” the domain of the state.  Justice Ginsburg said that if same sex couples don’t receive federal pension, Social Security, and family medical leave benefits, “what kind of marriage is it” she questioned.  She said the law basically created two classes: real marriage and “skim-milk marriage.”  And Justice Sotomayor asked: “What gives the federal government the right to define marriage?”

One final question asked by Kennedy, however, caused Court observers to speculate that he would join the four liberal-leaning justices to create a majority against the Act: when questioning the reach of DOMA into state’s rights, he said it “presents a real risk of running into traditional state police power to regulate marriage.”  Kennedy’s repeated questioning is significant because he has written the majority opinion in two of the court’s most important gay rights decisions.

A decision in the Windsor case is expected in June.

—  Mike Herbst


A Change in Direction

“A change in direction was required.  The story you finished was perhaps never the one you began.”  –Salmon Rushdie

So many of us begin our careers knowing little of our direction — our goal — and find that as our careers evolve, we know less and less about our direction and path, even though we are becoming, at least outwardly, more successful.

Upon first entering the law profession, I worked at a small general practice firm in New York.  My responsibilities ranged from drafting motions, attending court in all five boroughs to picking up White Castle for the office.  I enjoyed the camaraderie of the small office, but I also yearned for “the bright lights” of a larger, more prestigious firm with all of the trappings of success.

Soon, I moved to Chicago and joined a larger and very well-established firm.  My responsibilities grew with more challenging assignments, including a promotion to Burger King delivery.  As my career grew, so did my aspirations.  I wanted all the “big firm trappings” – big money, corner office, election to the most prestigious, impressive committees.  Ego drove my progress and while I obtained much of what I thought was important, I grew increasingly disenchanted with the prestigious law firm experience… and my career.  Much of what I thought was important was ultimately unimportant.  In fact, it was personally and professionally unsatisfying.

Finally, I decided to create a different environment for myself and others with whom I would work.  In the fall of 2009, I opened Bernstein Law Firm – although much consternation ensued in selecting the firm’s name.

I was determined to create a boutique litigation firm, representing well-established corporations and entrepreneurs.  We would provide one-on-one contact with our clients and better lawyering in a dynamic and youthful firm and an environment where everyone who worked together also enjoyed one another’s company; where they were friends, not just co-workers; where everyone works together and supports one another.

To that end, everyone who works at Bernstein Law Firm was recommended by someone who works at the firm.  We started with our office manager, Sharon Meyers, and me.  We found great offices just across the Chicago River from the Daley Center.  We have grown organically to five attorneys, a paralegal and law clerks

The firm invests in its atmosphere and culture – we spend a good amount of time outside of work in social situations – further underscoring the cohesiveness of the group when we are in the workplace.  We consider each other friends first, and when we work into the night or over a weekend, I at least, am working with people for whom I care a great deal.

Obviously, our small firm does not have the expensive trappings of the bigger, more prestigious firms.  We pass those savings on to our clients.  Better yet, we each know all of our clients personally, and we are all motivated daily to do the best work possible for each of them.  We have largely avoided big firm politics because we all work together to pull the oar of the boat.  How do I know that?  I am once again relegated to delivering from White Castle.

All in all, for me, the trade-offs I have made have been worthwhile.  It shows that the story I “finished was perhaps never the one [I] began.”

– Lou Bernstein

A Personal Perspective on the Bernstein Law Firm Difference

Practicing at Bernstein Law Firm has made an enormous difference in my life, and in the service I give my clients.

I have worked at large law firms. I have been a part of the corporate machines that incessantly push associates to bill more hours, no matter what the cost. I have been there. I have been exposed to unhappy clients, unhappy fellow associates, and partners who treat associates as poorly as they were treated.

According to an often cited Johns Hopkins University study of more than 100 occupations, researchers found that lawyers lead the nation with the highest incidence of depression.[1]

Seven in ten lawyers responding to a California Lawyers magazine poll said they would change careers if the opportunity arose.[2]  Surprising?  Not in the least.

For me, the opportunity to change careers did not just arise for me – but I sought it out.  After becoming so dissatisfied both personally and professionally while working at a larger law firm, I quit – hopeful that the bad dream I had been living would disappear.  At that point, I thought my legal career was over and I returned to school to pursue another career path.  Then, I came across Lou Bernstein and the Bernstein Law Firm.

Today, I enjoy practicing law.  I advocate zealously for our clients and feel supported while I do so.  I feel as though I am part of a team that is improving our client’s lives.  I know I am part of a team that has the best interests of the client and of other team members in mind.

The Bernstein Law Firm is like a family and the family composition does not end with its staff.  Clients join us for dinner and celebrations marking the anniversary of the firm.  My own friends constantly ask when the next Bernstein event will take place because they want to join!  It is truly unbelievable to me.  I could never have imagined, while working at previous larger firms, that I could become so lucky.  I could not imagine finding such true happiness while working at a law firm.  But I did.  And others can too.

Lou’s leadership and the firm’s culture he has created lead to an atmosphere that allows both personal growth and career growth for all involved.  Here, I am encouraged to be a well-rounded person with a happy and healthy lifestyle.  Because, as we all know – and as Lou demonstrates – to serve at your best, you must be at your best.

Now, I plan to maintain my legal career indefinitely.  Lou and the culture of this firm gave me that gift.  It makes my client service better – and I believe it makes Bernstein Law Firm very effective for all of our clients.

— Tracey Guerin

[1] Eaton, W.W. (1990). Occupations and the prevalence of major depressive disorder. Journal of Occupational Medicine, 32 (11), 1079-1087.

[2] Dolan, M. (June 28, 1995). “Disenchantment growing pervasive among barristers,” Houston Chronicle, 5A.

Welcome to Bernstein Law Firm

Sharp, inquisitive, tough, and protective – these are just some of the words our clients use to describe us. From major banking institutions like JP Morgan Chase, energy corporations like Chevron, and high-profile companies such as Lettuce Entertain You, Friedman Properties, Joseph Freed & Associates, and Bigsby & Kruthers to emerging companies and entrepreneurs, Bernstein’s aggressive, intensely client-focused approach has earned us a singular reputation for excellence and integrity.

The firm’s size enables us to nimbly adapt to changing situations, free of large firm bureaucracy. At Bernstein, you get the lawyer you actually hired, not a junior associate or a paralegal. From trial through the appellate process, we provide our clients with highly skilled attorneys across numerous industries – from commercial law and real estate to banking, energy, and bankruptcy. Our attorneys have a track record of success that attests to the firm’s effective approach and philosophy.

At Bernstein, creative lawyering is not an oxymoron. To succeed, our firm values outside-the-box thinking, attention to detail, and unabashed tenacity. If there is a loophole, our attorneys will find it. When other firms say it “can’t be done,” Bernstein attorneys take a different approach; an approach that clearly says, “we can.”

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