A class-action lawsuit over alleged foreclosure "robo-signing" was thrown out of federal court in Greenbelt last week when a judge ruled that the plaintiffs could have raised those complaints during their foreclosure cases.
The robo-signing scandal — when underlings or others forged the names of officials on foreclosure court documentation and later admitted they didn't verify the information — shook the mortgage industry nationwide as courts put foreclosure actions on hold.
The class-action suit was filed after a former paralegal at the defendant Shapiro & Burson, a law firm based in Virginia that has handled many Maryland foreclosure cases in recent years, complained to regulators and prosecutors, alleging that robo-signing there was routine.
An attorney for Shapiro & Burson suggested that the ruling could be a blow for other suits seeking damages for alleged foreclosure misconduct. The decision by U.S. District Court Judge J. Frederick Motz said homeowners could have raised the issue during their foreclosure cases and thus are barred from bringing it up in a later suit.
"There's been a lot of publicity about robo-signing, and I think that this decision makes clear that these kind of claims can't be brought in a subsequent lawsuit," said Robert A. Scott, a partner at the Ballard Spahr law firm, one of the attorneys representing Shapiro & Burson. "If you have a claim related to something that happened in the foreclosure, you have to bring it in the foreclosure case."
An attorney for the plaintiffs, Charles Smalley and Pamela Ball, who each lost a home to foreclosure, declined to comment.
But a consumer lawyer who wasn't involved with the suit thinks the ruling isn't a death knell for robo-signing cases.
"The dilemma here is the federal courts are seeing a lot more of these lawsuits because homeowners are struggling," said Phillip Robinson, acting executive director of Civil Justice, a Baltimore nonprofit that specializes in foreclosure issues. "But I think case law is really uncertain there."
Robinson, who has several pending lawsuits in state and federal court that touch on robo-signing, pointed to a recent federal appeals court decision that suggests Maryland homeowners aren't barred from suing after a foreclosure if they didn't raise the complaints during their foreclosure case. Homeowners aren't summoned to appear in foreclosure cases in Maryland, and many don't.
And if the complaint is over debt collection practices, Robinson said, "it's well settled federal law that those claims will … survive a foreclosure case."
The law firm of JR Howell & Associates, which represented the plaintiffs, alleged in the April suit that robo-signing at Shapiro & Burson meant the firm's legal fees and other charges were "fraudulently obtained" and improperly passed on to the homeowners.
The homeowners argued that allegations of robo-signing at Shapiro & Burson weren't made until after their foreclosures were complete, so they couldn't have raised the issue earlier.
But Motz dismissed that argument in his written decision Thursday, pointing to the so-called "doctrine of claims preclusion" in Maryland law.
"The fact that plaintiffs may not have been aware of the existence of their claims during the litigation of the previous action does not render the doctrine of claims preclusion from being applicable 'where the means of obtaining such knowledge existed and the knowledge could have been obtained with ordinary diligence,'" Motz wrote, citing a 1978 case.
And Scott, the attorney representing Shapiro & Burson, said of the homeowners: "There's no dispute ... that they hadn't paid their mortgages and that the lenders that were foreclosing had the right to foreclose."
Allegations of widespread foreclosure robo-signing among mortgage servicers and their law firms in 2010 prompted calls for reform and inquiries. State attorneys general from across the country are pondering whether to agree to a proposed settlement with big banks. A spokesman for Maryland Attorney General Douglas F. Gansler said Friday that he has not yet decided whether to participate.
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