A Foreclosure Case With Far-Reaching Repercussions for the ARM Industry

Homeowners Dana and Robin Murphy took out a $149,000 mortgage loan back in March of 2005. A year later, they stopped making payments on that loan.

HSBC, the servicing bank, began foreclosure proceedings through the Maine court systems — but ran into a snag and ultimately lost their case against the Murphys because the affadavits used by HSBC were not “of a quality that would be admissible at trial,” according to a story in the Wall Street Journal.

HSBC’s downfall was a two-parter: When they initially filed against the Murphys, the court ruled that HSBC had not shown standing — or, rather, permission — to foreclose. And even if they did, the court continued, HSBC hadn’t properly notified the Murphys.

So HSBC went back to the drawing board, drew up a new affidavit, and were initially successful.

Then, the Murphys appealed.

They based their appeal on irregularities in the affidavit. (For example, the WSJ story shares that “the initial affidavit in the case was dated and notarized on Sept. 10, 2008, even though it included the balance and late fees as of Jan. 29, 2009—or for four months that hadn’t yet happened.”) And it was these irregularities that ultimately led the Maine Supreme Court to side with the Murphys against HSBC.

Now, the court did not go so far as to allege that HSBC was knowingly fradulent in its pursuit of a foreclosure — at least not explicitly. The State Supreme Court appears to have recommended that the Murphys ask for for penalties and lawyers fees. They also forbid HSBC from asking for any more summary judgements until the issues raised are addressed.

What this amounts to is: foreclosures are about to be a whole lot more complicated and expensive — especially for entities who thought to cut some corners by going easy on due diligence. This could also be precedent-setting for the collections industry, too — especially in this heightened environment of robo-signings and uncertain provenance.