Legal decision has attorneys talking

MPR News received a tip about a complicated story involving an attorney, a judge and the state’s foreclosure laws.

U.S. District Judge Patrick J. Schiltz has taken the unusual step of sanctioning Minneapolis attorney William Butler for filing what the judge calls frivolous show-me-the-note actions. That’s where a homeowner facing foreclosure argues that because the mortgage and note are held by different entities, the home’s mortgage or foreclosure on that mortgage is invalid.

Separating the note from the mortgage contributed to the practice of mortgage securitization, one culprit in the housing bubble and crash.

Some courts in other states have ruled in favor of homeowners in cases like these. But here, Judge Schiltz says it’s been established under Minnesota law (he references Jackson v. Mortgage Electronic Registration Systems, Inc.) that the entity that holds the mortgage can foreclose on the mortgage even if that entity does not also hold the note. Showing the note is not necessary under foreclosure by advertisement, which is how most of Minnesota’s foreclosures are processed.

Butler, of Butler Liberty Law, LLC, brought nearly 30 of such cases on behalf of several hundred people and apparently never won.

Among other things, Judge Schiltz alleges Butler solicited homeowners facing foreclosure for frivolous cases and then “judge shopped” for sympathetic judges while his cases dragged on for months, allowing him to collect fees from clients and allowing those clients to continue living in their homes rent-free.

As punishment, the court ordered Butler to pay a $50,000 penalty and cover attorneys fees for some of the largest firms representing clients like GMAC Mortgage, Deutsche Bank, The Bank of New York and others. People familiar with the case expect these penalties to rise well into the six figures. Butler also risks losing his license to practice law.

Minneapolis attorney Daniel Tyson has been handling real estate and foreclosure cases for decades. He declined to comment on the specifics of Butler’s cases mentioned in the judge’s order. But he says it’s clear the judge’s ruling was intended to send a message.

“The amount of the sanction is high and the judge wanted to teach this attorney a lesson that his behavior wasn’t appropriate and if he’s going to start a lawsuit and bring it into federal court or any court it has to be based upon proper claims, and in this case the judge determined that the show-me-the-note claim was not appropriate for this particular matter before him.”

Other attorneys I spoke to about this case agreed the judge’s order is severe.

Judge Schiltz is known for being conservative but fair-minded.

Tyson says he hopes the decision won’t deter other attorneys from bringing foreclosure cases forward.

“I’d hope that the decision does not have a chilling effect on bringing claims which are properly brought by consumers and their attorneys. That would be an unfortunate result of this claim because there are many appropriate claims and appropriate situations – in particular in this foreclosure area – where bad things were done. That is what the robo-signing cases were all about, that is why there are sanctions and that is why we’ve got a nationwide settlement with the major banks, because things were not done properly,” said Tyson. “I’m hoping it doesn’t have a chilling effect on the ability to bring these. And I don’t think it will because this was a very limited situation where this individual attorney was using wrong methods and for those clients out there and those attorneys out there who have right claims and good claims to try to prevent foreclosures, that should be brought they should be able to bring them. That is our system.”

Butler didn’t provide a comment in time for this post, but says he plans to appeal the judge’s decision.