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Failure to Assign: Travesty or Triviality? Brooklyn Judge May Decide

In a Bloomberg News article December 8, 2010 (Authors: Thom Weidlich and Karen Freifeld), the Amherst, NY foreclosure law office of Steven J. Baum is apparently the subject of several state and federal court lawsuits concerning alleged shoddy legal practices - and is defending its practices vigorously.

The article reports that in one state court case, the Baum office has been ordered to pay $14,532.50 in legal fees and costs and a $5,000 fine (Federal Home Loan Mortgage Corp. v. Raia, SP 002253/10, District Court of Nassau County, New York, Hempstead; Hon. Scott Fairgrieve ). The article further reports that Baum's office has also been sued in Federal Court over charging attorney fees for foreclosure settlement conferences (Menashe v. Steven J. Baum P.C., U.S. District Court, Eastern District of New York; Central Islip; case #10-cv-5155).

One lawsuit mentioned in the article summarizes two different orientations to current foreclosures. In a class action federal suit brought in Brooklyn, the court is being asked to chose between two dramatic alternatives: are mistakes made in litigating foreclosures trivial errors easily corrected? Or are they stunning examples of widespread fraud and litigation abuse?

The case is Campbell v. Baum,, U.S. District Court, Eastern District of New York, Brooklyn, case #10-CV-3800, filed August 17, 2010 (Assigned to District Court Judge Jack B. Weinstein and Magistrate Judge James Orenstein.) New York City attorney Susan Chana Lask is suing the Baum office for fraud and racketeering on behalf of two homeowners, and is seeking class action status (see amended complaint, attached below). The Baum office is vigorously defending against the lawsuit (see motion to dismiss memorandum, attached below).

For its part, the Baum office has, in a separate action, sued Attorney Lask in Buffalo for defamation (Baum v. Lask, Erie County Supreme Court index #2010-012048.) According to The Buffalo News (Article December 8, 2010, by Jonathan Epstein), Mr. Baum has sued for $6 million, due to statements lask has made online and in a YouTube video concerning the class action suit. UPDATE: Ms. Lask, the attorney subjected to this alleged lawsuit called me on January 13, 2011,and reported that the lawsuit was never served on her, and that it appears the Baum office has no intention of serving the suit or otherwise pursuing it. In the opinion of Ms. Lask, the filing of the Erie County lawsuit was just a publicity stunt.

The named plaintiffs in the class action suit, Campbell v. Baum, are Concepcion Campbell and Jeffrey Miller. The Baum office filed a foreclosure in Kings County Supreme Court (Brooklyn) against Campbell on behalf of HSBC Bank in June of 2007. Apparently the foreclosure was discontinued after Campbell paid off the mortgage in full, including foreclosure attorney fees and costs, in October 2007. In this new federal court action, Campbell accuses the Baum office of fraud, that HSBC never had standing to bring the foreclosure, that they overcharged fees, and that both the foreclosure complaint and the satisfaction of mortgage were fraudulent documents.

Miller is a homeowner in Rock Hill, New York, in the Southern Catskills. The Baum office filed a foreclosure against Miller in Sullivan County Supreme Court on behalf of Wells Fargo in December 2008. The Miller foreclosure was dismissed, apparently without prejudice, in October 2009 on the grounds that Wells Fargo did not have standing to sue.

The original mortgages for both Campbell and Miller were recorded by Mortgage Electronic Registrations Systems, Inc., commonly known as "MERS". MERS was established in 1996 by the mortgage industry to act as a nominee for actual mortgage banks and investors. The idea was that mortgages would be recorded in the local county clerk's offices by MERS, while the actual mortgage note could be transferred from one bank to another - or to mortgage-backed investment securities - without having to record assignments of the mortgages again and again from one party to the next. In short, MERS was intended to allow quick and easy transfer of mortgage financing.

Attorney Lask alleges that the MERS mortgage notes in Campbell and Miller were either never assigned to HSBC or Wells Fargo, or were assigned fraudulently. The plaintiff alleges that this is a pattern of rampant deception justifying a class action against the Baum office for fraud and racketeering (plaintiff actually accuses the Baum office of RICO violations.)

For its part, the Baum office contends that any errors in the foreclosures were minor paperwork glitches. They contend that Campbell should have presented its alleged arguments of misconduct at the original foreclosure, and that the Miller foreclosure will be refiled soon under the name of a plaintiff that will satisfy the Sullivan Supreme Court judge (The Baum office does not agree that the Sullivan County judge was correct, only that the matter was not worth appealing.) I would note that the Miller foreclosure was dismissed a year ago, and yet no new foreclosure has been filed.

The over-all story told by the plaintiffs in the case is one of wide spread fraud, shoddy paperwork, and false oaths in litigation papers. The Baum office takes a dramatically opposite view, that any errors were minor and insignificant, and that these are just two homeowners who, having borrowed hundreds of thousands of dollars from banks now want to use technical loopholes to escape from their mortgage obligations.

These legal arguments mirror discussions I have been having recently with other local attorneys concerning the increasing mortgage paperwork mess engulfing foreclosure and bankruptcy courts. Are all these developments just time-wasting stopgaps, merely delaying the inevitable reality that someone has to get paid for the mortgage or else foreclosure is inevitable? Or could this lead to some sort of widespread legal relief from mortgages, resulting in huge numbers of homeowners ending up with homes free of mortgage liens?

I personally am of a curious but cautious temperament. I find all this activity very interesting and am curious to see where it leads. On the other hand, I find it hard to imagine that banks so screwed up their paperwork that courts would actually void out large numbers of mortgages. On the other hand, who ever heard the phrase "robo-signers" a year ago?

My suspicion is that in the end of the day banks will be slapped around a bit, maybe made to eat some fees and perhaps compromise on some defaults. Given the hubris of financial institutions in the recent past, a little legal humbling will not necessarily be a bad thing. In any case, no one can say for sure how this will all play out. Campbell v. Baum may become a significant case that addresses these issues head-on. Good bankruptcy and foreclosure attorneys need to follow these developments closely as they happen.

Campbel- Brooklyn-Motion-Summary-Judgment-Memorandum.pdf

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