Sunday, October 31, 2010

Teaching Lawyers How to Fight Foreclosures

O. Max Gardner runs a select boot camp for defense attorneys to pass on his strategies

Lawyers have been traveling to a remote 160-acre farm in the mountains of Western North Carolina since 2006 to drink Scotch, network, and prepare for legal combat in foreclosure and bankruptcy cases. Groups of a dozen or so arrive about nine times a year for the four-day "boot camp" where they learn how to protect their clients' assets by exploiting the mistakes of creditors. Their instructor is O. Max Gardner III, a 65-year-old bankruptcy litigator and grandson of a North Carolina governor, who was using flaws in mortgage servicing to stave off lenders years before cases involving shoddy paperwork spurred an investigation by the attorneys general of all 50 states. Gardner charges $7,775 for the program, which includes 3,000 pages of materials, lodging, food, and unlimited wine, beer, and single-malt Scotch.

"My time with Max changed the trajectory of my legal career," says Nick Wooten, a 40-year-old Alabama attorney who shifted his focus from personal injury to bankruptcy and foreclosure after attending the boot camp in 2007. "Knowledge is power, and one thing he is able to give in his boot camp is a tremendous amount of knowledge about how the other side operates," says Wooten.

Attendees, who are admitted only after a background check confirms they don't work for creditors, travel along a gravel road to reach Gardner's farm in the South Mountains. They sleep in cabins and swap stories over meals prepared by Gardner's wife, Victoria, in the family's three-story log-cabin style house on a hill overlooking a pond. Gardner spends 10 to 12 hours each day on topics such as "Max's Favorite Discovery Devices," "Strategy to Trap Opponents in their Own Mistakes," "Mortgage Servicing Litigation: How the Legal Network for Creditors Is Organized," and "The Alphabet Problem, A to D Unlawful Transfer of Mortgages and Notes." Guest speakers at his October boot camp included a forensic accountant, a North Carolina Superior Court judge, and the former general counsel for Saxon Mortgage, now owned by Morgan Stanley (MS).

The heart of Gardner's strategy is to uncover omissions and errors in mortgage securitizations, the process in which thousands of loans are bundled into bonds and sold to investors. Securitizations are plagued by lost promissory notes and missing or inconsistent tracking of changes in ownership of loans, Gardner says during a break at the October session. "One of my primary objectives is to give you enough knowledge so that you can understand more about the business structure and organization of the creditors than their own lawyers know," he tells a class.

He started the boot camp after piecing together evidence that lenders and servicers were relying on teams of workers—what defense lawyers now call "robo-signers"—to process thousands of foreclosure documents a day without the time to verify them. While Gardner and some of his 559 graduates have been winning settlements for years, it wasn't until Sept. 20, when Ally Financial (GJM) said it was halting some evictions, that foreclosure documentation became a national issue. "We had a steep hill to climb to convince the judges that the largest financial institutions in America were engaged in this kind of conduct," Gardner says.

Most foreclosures go unchallenged because homeowners rarely hire attorneys. That changed as judges began questioning whether banks were producing sufficient proof that they had standing to foreclose. Private attorneys working on behalf of homeowners are paid in different ways. Some are paid by clients, many of whom have cash even though they aren't making mortgage payments, says Margery Golant, a Boca Raton (Fla.) attorney who graduated from the boot camp in August 2009. If a bankruptcy court judge believes a mortgage company has submitted false evidence, the court can order the creditor to pay legal fees, she says.

Gardner says the graduates of his program act like a large law firm. Linda Tirelli, a consumer bankruptcy attorney in New York and Connecticut who attended the program in October 2008, says she has the confidence to go up against what Gardner calls "tall-building law firms" because the community of graduates located in 47 states functions as a unit, exchanging documents and discovering patterns of misconduct. "It's a fraternity," she says. "We don't see each other as competition. We want more attorneys to join, because the more we have the better."

By Prashant Gopal

Source: BusinessWeek

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