The Stauffer case in Arizona is the first novel effort to thwart banks' wrongful foreclosure practices in Arizona, as it raises the issue of wrongful recordation of liens on the Arizona false claims statute. Ron Warnicke, attorney with Gordon Silver in Phoenix, Arizona, says that the Stauffer case decided three things.
It determined that normal documents filed in the foreclosure process by banks if false are indeed an assertion of interest or an encumbrance against real property. Secondly, that the homeowner has standing to sue for damages under the false claim statute. Lastly, it determined that homeowners have a right to bring a claim to quiet title against false recordations.
Banks have routinely moved cases from the Arizona court system to the federal court system, where they are getting a more receptive hearing, says Warnicke, especially initially. The banks have no financial interest in having made a loan or accountability for what it does, as they're in it for the fees, Warnicke says. They are also not attempting to negotiate any reasonable work out with the homeowners to reduce extremely high interest rates to market rates, which a lender would do if they really wanted a return on their loan. Instead, they are throwing homes into foreclosure, processing it, taking these huge fees and having it sold at a foreclosure sale, adds Warnicke.
The Stauffer case provides a bright line in saying that they're not going to throw these transactions out in whole but when there is a foreclosure, you have to follow the rules and not file false documents, Warnicke says.
In the Stauffer case, Karl Stauffer was keeping his mortgage current but after endless solicitations from banks offering help with his mortgage, he decided to pursue it. First, he had to default on his mortgage to receive the relief from a lender. He complied with everything and after several months went by, he noticed a trustee's sale, which did get postponed a few times but ultimately, he got word that the lender couldn't help him and the property was going to be sold.
Warnicke says they had a smoking gun because the sale was noticed on behalf of an entity that hadn't owned the note for 4 1/2 years. Worse, Warnicke discovered that the bank had been taken over by the FDIC.
Warnicke suspects the banks will file a petition with the Arizona Supreme Court, who doesn't have to take the case. However, the consensus at the appellate level is that the situation has gone too far.