Exasperated courts order investigation into foreclosure attorney William Butler

The chief federal judge in Minnesota has taken the rare step of ordering an investigation of a Minneapolis foreclosure lawyer who has been slapped with sanctions at least nine times since 2011.

The sanctions imposed by federal district judges against William B. Butler total $323,307, according to Star Tribune calculations. The self-described Libertarian openly defies the judges on his website, Butler Liberty Law, reveling in their attacks and declaring he won't pay. In an interview, he said he believes their criticisms are "illegitimate and unfounded."

Chief Minnesota federal Judge Michael Davis filed court documents last week appointing former chief federal Judge James Rosenbaum "to investigate [Butler's] fitness to appear before this court, and to make a recommendation regarding appropriate disciplinary actions or sanctions."

Martin Cole, who heads the Minnesota Lawyers Professional Responsibility Board, said it's "quite rare" for the federal judiciary to investigate a lawyer. It usually relies on the state board to conduct inquiries and supports their discipline.

U.S. District Judge Patrick Schiltz announced last year that he was asking the state board to investigate Butler. Cole acknowledged last week that such a probe was underway. Now it appears that the local federal judiciary decided it was not going to wait for the state board's conclusions.

Butler has had cases in front of most, if not all, local judges, and several have publicly expressed exasperation.

In a March 2012 memorandum, Schiltz hit Butler with a $50,000 sanction and another $7,500 in legal fees for the entities he'd sued, saying Butler had filed "nearly 30 frivolous lawsuits." He called Butler's arguments "evasive and often absurd," said he misrepresents the facts with "constantly shifting and contradictory arguments."

In another case, in June 2012, U.S. District Judge Ann Montgomery ordered Butler to pay a $75,000 sanction, plus $17,068 in attorneys' fees.

"Butler's insistence on re-litigating losing arguments is staggering, and it comes with a cost, because it multiplies the expense of litigation and monopolizes scarce judicial resources," she wrote. "Moreover, no one, not even Butler, can reasonably or competently believe in the merits of any of these arguments."

In August 2012, U.S. District Judge Donovan Frank hit Butler with $45,451 in sanctions. He said Butler's "baseless" arguments had been "consistently rejected" by other courts. He also noted that Butler had defaulted on his mortgage and had "been living in his house for more than three years without making any payments."

A few days later, the 8th Circuit Court of Appeals affirmed an earlier Frank decision upholding the 2010 foreclosure on Butler's house, which Butler and his wife, Mary, purchased in 2006 for $280,000. The Appeals Court labeled Butler's reasoning "deficient" and having "no merit."

Butler said he remains in his home, having started a second action against Fannie Mae. U.S. District Judge Susan Richard Nelson threw that case out, but Butler said it is on appeal.

Schiltz explained in his memorandum that in mortgage transactions, a borrower signs both a note in which he promises to pay the loan and a mortgage in which he pledges his home as a security to repay it.

Historically, the lender held both note and mortgage. But since the 1990s, it has become common for them to be held by different entities. Often, the note is held by the lender, or someone who bought the note from the lender, while the mortgage is held and recorded in the name of a nominal mortgagee such as Mortgage Electronic Registration Systems Inc. (MERS).

"This system allows loans secured by mortgages to be sold and resold multiple times without the necessity of recording each sale on the title of the mortgaged property," Schiltz said.

Arguing that MERS does not hold the note, as Butler does, "is frivolous under Minnesota law," said Schiltz, and has been rejected by the state Supreme Court, the U.S. Court of Appeals "and by every federal judge sitting in Minnesota who has addressed the argument," he said.

Butler claimed that three state court decisions embraced his views, but Schiltz said that two of them rejected Butler's theory and that the third says not a word about it.

"Butler attracts clients through a website that blatantly misrepresents Minnesota law and attacks the legal system, the banking system and other targets," Schiltz said. "Butler has been quite successful in attracting clients who either do not know or do not care that he has never actually won a show-me-the-note claim."

Butler is "a very smart and aggressive lawyer," writes Schiltz, who "knows exactly what he is doing."

In an interview, Butler countered that the judges are "guarding the crooks, the bailout banks holding securitized mortgages."

He said he argues in court that burden of proof is on the bank, which judges misinterpret to mean he is taking the "show-me-the-note" position.

"There was no motivation to pick a judge," Butler said. "It was motivation to serve a client. What we are targeting is not just the banks in general, [it's] the 2008 bailout banks holding securitized mortgages. … I don't think any of the subsequent sanctions can stand."

Attorney Jeff Vesel, who has represented some homeowners in foreclosure who were previously clients of Butler, conceded that some got temporary relief, staying in their homes for free while he sued.

But Vesel said that instead of helping clients on a case-by-case basis, Butler presses the same theory for all his cases, which has "practically zero chance" of succeeding.

Butler said, "I'm not in it for the money," and more than 10 percent of his cases are done for free. But according to one "legal service agreement" from Butler's firm, he required clients to pay him $2,000 up front, followed by monthly payments of $495.

James Konobeck, a 62-year-old retired custodian and painter, said he paid Butler thousands of dollars to represent him in a bid to block the foreclosure of his house in Marine on St. Croix. "I really got the shaft," he said. "I sure wish I hadn't given him a dime."

He said the foreclosure and Butler's handling of the case made him feel suicidal. He said he managed to save his home, but only after hiring Vesel.

Butler says he cut Konobeck's bill by 80 percent with Konobeck's concurrence and blames Judge Schiltz for not following the legal precedents. He said he is still billing Koenig because his case is on appeal.

"I wish we could have done a better job for Mr. Koenig and Mr. Konobeck, but we don't control results," Butler said in an e-mail. "Judges do."

Schiltz suggested that "Butler's clients may be paying him, not for bringing legitimate claims, but simply for each month that he delays foreclosure by tying up mortgages in frivolous court proceedings."

Still, several of Butler's clients praise him.

"We believe in [his] interpretation of the law that he is fighting," said Marci Thornberg, whose Ham Lake house is in foreclosure. She and her husband have been paying Butler $500 a month.