Florida Bar says foreclosure lawyers must report fraud to court

By Christine Stapleton and Kimberly Miller

Palm Beach Post Staff Writer

In an opinion that could have unfathomable consequences in countless foreclosure cases, The Florida Bar says attorneys must notify a judge about potential fraud — including robo-signed affidavits and forged notary stamps — even if a foreclosure case is closed and the home has been sold at auction.

The direction was published in an article in today’s issue of The Florida Bar Journal as part of an outline in a new free online foreclosure class offered by The Bar. The class is in response to problems that led several major lenders to temporarily freeze foreclosures last fall.

No one knows how many cases could be affected or what judges will do when they are notified. About 1.2 million foreclosures have been filed in Florida since January 2007, according to RealtyTrac. Investigators for the Florida Attorney General’s Office have found tens of thousands of forged signatures, backdated documents and other problem paperwork at four law firms, so-called “foreclosure mills” currently under investigation.

“There has never been a problem like this before or this kind of wholesale misrepresentation,” said Margery Golant, a Boca Raton-based attorney who teaches a portion of the Bar’s four-hour online course, which instructs lawyers to report fraud. “No one knows how this is going to turn out or what the right things to do are.”

While attorneys are instructed to report fraud, they should not to do so in a public court hearing without their client’s permission. Instead, the banks’ attorneys should ask for a private hearing with the judge, said Cynthia Booth, an ethics attorney with the Bar.

“You try to cause the least amount of harm as possible to the client,” Booth said. When fraud is suspected, an attorney’s duty to the court supercedes the attorney’s duty to the client, Booth said. Private hearings would allow the attorney to fulfill both duties, she added.

But the thought of private hearings about widespread fraud in foreclosure cases has some lawyers bristling. Robo-signers have admitted in depositions that they signed off on hundreds of thousands of foreclosures and major lenders have already acknowledged that court documents were not properly verified, said foreclosure defense attorney Thomas Ice of Ice Legal in Royal Palm Beach

“This is a very public problem and to try and address it in a private way is not going serve the court in its attempt to assure everyone about the integrity of the court system,” Ice said.

St. Lucie Circuit Judge Burton Conner, another instructor, said he was not aware of the Bar’s recommendation about private hearings. Conner, also a member of the Florida Supreme Court’s Task Force on Residential Mortgage Foreclosures, said private hearings, called in-camera hearings, are appropriate in certain cases but very rare.

“I’m not sure if that’s an appropriate procedure,” Conner said. “This is a civil court, and it is open to the public.”

When an attorney asks for an in-camera hearing, the judge must hold a public hearing to decide if the private hearing is necessary. That means more time and more delays in processing foreclosure cases.

Palm Beach County Chief Judge Peter Blanc said he’s not sure how attorneys will bring problems to the court’s attention in old cases or how many cases could come forward.

“I would like to think if the attorneys knew, they wouldn’t have been doing it in the first place,” Blanc said.

As far as getting guidance from the court, Blanc said a judge has a range of options when a breach of ethics is revealed, including doing nothing to throwing out a judgment. In pending foreclosure cases, the judge could halt the proceedings while the fraud is investigated.

However, the biggest and most troublesome problem is what to do with cases that ended years ago. Can judges undo these foreclosures, and what happens in cases in which the home was sold to new owners without a clear title? As for discipline, the judges must decide what to do with fraud brought to their attention. Should they refer the cases to the Bar for further investigation or to legal authorities for prosecution?

“It’s going to create a huge mess. There’s no other way to describe it,” Conner said. “We just don’t know how bad it really is. I guess you could say we’re just waiting for the shoe to drop.”