BOMBSHELL- Miami Judge Sanctions Florida Default Law-Wipes Out Mortgage on Home

All Orlando Eslava wanted from his lender was a loan modification to make his payments affordable. Instead, he got his $207,000 mortgage wiped out “” and a crash course in the confusing way foreclosures are unfolding in a court system chock-a-blocked with cases. The teacher was Miami-Dade Circuit Court Judge Jennifer Bailey, who cancelled Eslava’s debt after lender HSBC Bank USA ignored her previous order to post a $414,000 bond. Bailey said the actions of William Huffman, HSBC’s lawyer from Tampa-based Florida Default Law Group, were ” contemptuous,” according to a court hearing transcript.

HSBC’s run-in with Bailey began in December 2009 when she granted the lender’s motion for the foreclosure sale of Eslava’s one-bedroom unit at El Dorado Tower in Aventura. But HSBC lost the note on Eslava’s property. So the judge ordered the lender to post a $414,000 bond to indemnify Eslava in case another lender filed a claim against the unit. According to court records, HSBC and Florida Default did not post the bond and proceeded with an April 9 foreclosure sale that gave the lender title to the condo.

Eslava and his lawyer, Sheleen Khan, sought to overturn the sale, claiming the lender violated Bailey’s court order. At a May 6 hearing, Bailey dismissed the foreclosure case with prejudice, which prevents the lender from suing Eslava again. The judge also canceled the mortgage and ordered HSBC to return title of the condo to Eslava.

” None of us is above the law,” Khan said. ” This is a landmark ruling.”

In addition to canceling the mortgage, Bailey chastised Huffman, according to a transcript of the hearing obtained by The Daily Business Review. ” When the order is simply ignored “¦ at the end of the day, you’re the lawyer, you’re responsible,” she said. Bailey did not sanction Huffman but said he should consider her order a ” wake-up call.”

” Some day, this foreclosure crisis is going to be over, and you need to decide what kind of lawyer you are going to be,” Bailey told him. ” Because at the end of the day, you are responsible for your client’s compliance with court orders.” Huffman apologized. He said his client failed to post bond because he had misunderstood the order, according to the transcript. ” I don’t want apologies,” Bailey replied. ” I want performance. I want responsible attorneys who meet the basic standards of knowing what “¦ is going on in their files.” Huffman did not return a telephone call or e-mail seeking comment. Bailey’s frustration with the lender and Florida Default weren’t limited to Eslava’s case. She complained about the general ” chaos and disorganization” of lenders and their lawyers. Suzanne Hill, who represented Huffman and his firm at the hearing, said Florida Default was weighing its options, which include appealing Judge Bailey’s ruling or seeking a rehearing.   Hill, who is with the law firm of Rumberger Kirk & Caldwell in Tampa, declined further comment.

An attempt to buy time

Eslava, 53, a residential agent with Carden Realty & Investment in Sunny Isles Beach, says he fell behind on his $1,800 monthly mortgage payments when home sales plummeted in 2008 and commissions became scarce. He retained Sheleen Kahn two months before the foreclosure auction and says he never sought to get his mortgage canceled. He just wanted more time to negotiate with the lender. ” I wanted to lower the payments because I want to keep my home “¦ this is my home,” said Eslava. He said he spent thousands of dollars to repair the unit after it was damaged by Hurricane Wilma in 2005.

Last Nov. 6, months before the foreclosure auction, HSBC had placed Eslava into the Obama administration’s Home Affordable Modification Program (HAMP). The lender reduced Eslava’s monthly payments from $1,800 to $620 and put him in a three-month trial. Under such a trial, the reduction is temporary and the bank uses the time to decide whether the borrower can afford to make the reduced payment over the long term. Eslava said he never heard back from the lender after the trial period expired. But he says he continued to send payments to HSBC of $620 a month. Despite making those payments, the bank sold his condo.

His isn’t an isolated case, according to those who work with distressed homeowners. ” It is not infrequent,” said Arden Shank, executive director and president of Neighborhood Housing Services of South Florida in Miami. ” We worked with families who had that happen to them.” His organization receives public funding to help owners save their home from foreclosure.

The agency recently helped another family obtain a loan modification in Miami-Dade County, but the lender did not cancel the foreclosure sale. Four months ago, the family lost the house in an auction. They got the title back after Neighborhood Housing hired a lawyer who convinced a judge to overturn the sale. Shank said actions like that can undermine national efforts of programs like HAMP to keep homeowners in their homes. That was the case of Eslava.

” If lenders are implementing the HAMP program and then their two different departments don’t communicate and don’t know what each other is doing, then that is kind of problem in implementing HAMP,” Shank said. Initially, Judge Bailey sided with Florida Default’s request to proceed with the sale but ordered HSBC to post the bond by April 2. On April 9, the bank sold the condo without posting the court-ordered bond. Kahn. Eslava’s lawyer, filed an objection to the sale. At the May 6 hearing, Judge Bailey expressed disbelief that HSBC had opposed canceling the sale when Eslava was still in the middle of a loan modification trial.

She called the bank’s opposition ” idiotic,” according to the transcript.

” You are filing pleadings in court every day and you don’t even know what’s going on with the case,” she told Huffman, the HSBC lawyer. ” In no other species or kind of law would that be remotely acceptable, or frankly, anything short of malpractice. But somehow in Foreclosure World everybody thinks that is just fine, that you can know absolutely nothing about your files and walk in here and ask judges for things left and right without even knowing what’s going on.”

Eslava, who had never been to a courthouse before his foreclosure case, said he never expected he would learn so much about the court system in such a short time. ” This was a lesson for me,” said Eslava. Fort Lauderdale attorney Jed Frankel, who witnessed the exchange while awaiting a hearing in his own case, said he was stunned by the judge’s decision to cancel the mortgage, but not by the bank’s actions.

” It is very unusual to see this type of sanction entered,” said Frankel, who frequently represents condo associations on foreclosure-related matters. ” That’s a very severe sanction. But it was a very well thought out ruling.” Frankel said he had a similar experience recently, when Deutsche Bank was sanctioned for not complying with a court order related to the foreclosure of a unit at King Cole Condominium in Miami Beach.

Frankel said Miami-Dade Circuit Court Judge William Thomas ordered the lender to pay the condo association more than $4,000 for ignoring the judge’s court order to proceed with a foreclosure sale of a condo or pay $1,221 in condo dues.   ” Judges are looking at these cases a little bit differently than they would have four, five years ago,” said Frankel, who represents King Cole. ” They are more aware of what is going on in the foreclosure cases.”

Paola Iuspa-Abbott can be reached at (305) 347-6657.