By the Consumer Financial Services Group
Claims by borrowers related to alleged
"robo-signing" in mortgage foreclosures must be raised in the original
foreclosure action and not in a subsequent lawsuit for damages, the U.S.
District Court for the District of Maryland has ruled.
In Smalley v. Shapiro & Burson,
the court held that borrower claims for alleged common law fraud,
violations of the Fair Debt Collection Practices Act, and other statutes
were barred by res judicata because the borrowers had failed
to raise the claims in the underlying foreclosure case. Robert A. Scott
and Glenn A. Cline of Ballard Spahr's Baltimore office represented the
defendants in the case.
The class action plaintiffs, two Maryland
homeowners, sued over alleged improprieties in the foreclosure process,
including the alleged use of affidavits that were "robo-signed" by
lawyers and paralegals who allegedly had failed to verify that the
foreclosing lender was entitled to foreclose. The plaintiffs also
claimed that non-lawyers signed attorneys' names to certain documents
used in the foreclosures.
After the state-court foreclosure cases were
litigated to final judgments, plaintiffs filed a separate class action
lawsuit in the federal court, seeking damages under the FDCPA, the
Maryland Consumer Protection Act, and other statutes. Plaintiffs argued
that attorneys fees assessed against them in the state-court foreclosure
cases were improper because of the alleged "robo-signing" activities.
The court dismissed the case in its entirety,
ruling that plaintiffs could have raised their claims in the
state-court foreclosure proceedings. Because those proceedings were
litigated to final judgments, the court ruled that res judicata barred the plaintiffs from bringing a new lawsuit for damages allegedly incurred in the foreclosure case.
The court rejected plaintiffs' argument that res judicata
did not apply because plaintiffs did not become aware of the alleged
"robo-signing" until after foreclosure cases were fully litigated. The
court ruled: "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."
Given the increasing prevalence of claims
based on "robo-signing" and other alleged irregularities, this decision
is good news for mortgage lenders and servicers. For more information,
please contact Robert A. Scott at 410.528.5527 or
scottr@ballardspahr.com, or Glenn A. Cline at 410.528.5549 or
clineg@ballardspahr.com.
Copyright © 2011 by Ballard Spahr LLP.
www.ballardspahr.com
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should not be construed as legal advice or legal opinion on any specific
facts or circumstances. The contents are intended for general
informational purposes only, and you are urged to consult your own
attorney concerning your situation and specific legal questions you
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