A Florida state-court judge, in a
rare ruling, said a major national bank perpetrated a "fraud" in a
foreclosure lawsuit, raising questions about how banks are attempting to
claim homes from borrowers in default.

The ruling, made last month in Pasco County, Fla., comes amid
increased scrutiny of foreclosures by the prosecutors and judges in
regions hurt by the recession. Judges have said in hearings they are
increasingly concerned that banks are attempting to seize properties
they don’t own.

The Florida case began in December 2007 when
U.S. Bank N.A. sued a homeowner, Ernest E. Harpster, after he defaulted
on a $190,000 loan he received in January of that year.

The Law Offices of David J. Stern, which represented the bank,
prepared a document called an "assignment of mortgage" showing that the
bank received ownership of the mortgage in December 2007. The document
was dated December 2007.

But after investigating the matter, Circuit Court Judge Lynn Tepper
ruled that the document couldn’t have been prepared until 2008. Thus,
she ruled, the bank couldn’t prove it owned the mortgage at the time the
suit was filed.

The document filed by the plaintiff, Judge Tepper wrote last month,
"did not exist at the time of the filing of this action…was subsequently
created and…fraudulently backdated, in a purposeful, intentional effort
to mislead." She dismissed the case.

Forrest McSurdy, a lawyer at the David Stern firm that handled the
U.S. Bank case, said the mistake was due to "carelessness." The mortgage
document was initially prepared and signed in 2007 but wasn’t notarized
until months later, he said. After discovering similar problems in
other foreclosure cases, he said, the firm voluntarily withdrew the
suits and later re-filed them using appropriate documents.

"Judges get in a whirl about technicalities because the courts are
overwhelmed," he said. "The merits of the cases are the same: people
aren’t paying their mortgages."

Steve Dale, a spokesman for U.S. Bank, said the company played a
passive role in the matter because it represents investors who own a
mortgage-securities trust that includes the Harpster loan. He said a
division of Wells Fargo & Co., which collected payments from Mr.
Harpster, initiated the foreclosure on behalf of the investors.

Wells Fargo said in a statement it "does not condone, accept, nor
instruct counsel to take actions such as those taken in this case." The
company said it was "troubled" by the "conclusions the Court found as to
the actions of this foreclosure attorney. We will review these
circumstances closely and take appropriate action as necessary."

Since the housing crisis began several years ago, judges across the
U.S. have found that documents submitted by banks to support foreclosure
claims were wrong. Mistakes by banks and their representatives have
also led to an ongoing federal criminal probe in Florida.

Some of the problems stem from the difficulty banks face in proving
they own the loans, thanks to the complexity of the mortgage market.

The Florida ruling against U.S. Bank was also a critique of law firms
that handle foreclosure cases on behalf of banks, dubbed "foreclosure

Lawyers operating foreclosure mills often are paid based on the
volume of cases they complete. Some receive $1,000 per case, court
records show. Firms compete for business in part based on how quickly
they can foreclose. The David Stern firm had about 900 employees as of
last year, court records show.

"The pure volume of foreclosures has a tendency perhaps to encourage
sloppiness, boilerplate paperwork or a lack of thoroughness" by
attorneys for banks, said Judge Tepper of Florida, in an interview. The
deluge of foreclosures makes the process "fraught with potential for
fraud," she said.

At an unrelated hearing in a separate matter last week, Anthony
Rondolino, a state-court judge in St. Petersburg, Fla., said that an
affidavit submitted by the David Stern law firm on behalf of GMAC
Mortgage LLC in a foreclosure case wasn’t necessarily sufficient to
establish that GMAC was the owner of the mortgage.

"I don’t have any confidence that any of the documents the Court’s
receiving on these mass foreclosures are valid," the judge said at the

A spokesman for GMAC declined to comment and a lawyer at the David
Stern firm declined to comment.

Write to Amir Efrati