July 10, 2014

Connecticut Court Denies All Five of Defendant’s Special Defenses to Foreclosure Action

By Ebube Okoli

The court in deciding Bank of Am., N.A. v. Samaha, 2013 Conn. Super. (Conn. Super. Ct., 2013) granted the plaintiff’s motion for summary judgment.

In this action, the plaintiff sought to foreclose a mortgage executed by Joseph Samaha and Denise Samaha in favor of the Webster Bank.

The defendant raised several special defenses to this foreclosure action. First, the defendant asserted that the plaintiff did not have standing to bring this litigation. Second, defendant claimed that as a result of the death of one of the makers of the note, Joseph Samaha, that his estate had an indivisible interest in the subject property and was subject to probate court jurisdiction. Third, the defendant challenged the authority of MERS to assign this mortgage to the plaintiff. Fourth, the defendant alleged that she had tendered payment with regard to the note and she alleged accord and satisfaction. Fifth, the defendant challenged whether or not the note in question was a negotiable instrument.

With regard to the first special defense, the court found that the affidavits supplied by the plaintiff established that they had standing for the purposes of doing this litigation.

In regards to the second defense, the court found that there was simply no authority for this assertion. The third special defense challenged the authority of the MERS to assign the note and mortgage. The court found that there were no facts alleged in the special defense and there was no affidavit from the defendant providing any factual foundation for her assertions.

The court found that the fourth defense was a mere assertion, without any evidence to support it, and thereby contest or create a material issue of fact for a motion of summary judgment is insufficient. Finally, the fifth special defense was deemed to be an assertion of a legal conclusion.

July 10, 2014 | Permalink | No Comments

July 9, 2014

Input on Housing Counseling

By David Reiss

HUD has issued a Notice, Federal Housing Administration (FHA): Homeowners Armed With Knowledge (HAWK) for New Homebuyers (Docket No. FR-5786-N-01).

HAWK is a pilot that will

provide FHA insurance pricing incentives to first-time homebuyers who participate in housing counseling and education that covers how to evaluate housing affordability and mortgage alternatives, to better manage their finances, and to understand the rights and responsibilities of homeownership. The goals of the HAWK for New Homebuyers pilot (HAWK Pilot) are to test and evaluate program designs that meet these objectives:

•To improve the loan performance of participants and reduce claims paid by FHA’s Mutual Mortgage Insurance Fund (MMIF).

• To expand the number of families who improve their budgeting skills and housing decisions through access to HUD-approved housing counseling agency services; and

• To increase access to sustainable home mortgages for homebuyers underserved by the current market. (27896)

I have already noted that HAWK is based upon some pretty sketchy research about the efficacy of housing counseling. The Notice presents additional research (in footnotes 5-8) that supports its goals, but I have to say that it seems cherry picked to me. The notice says, for instance, “some studies show” and “Several major studies have recently noted a correlation . . ..” But the Notice does not seem to contextualize these studies at all. A meta-analysis (see here too) of financial education initiatives is decidedly less optimistic.

It seems that the FHA and the CFPB have gone whole hog on counseling even though the evidence is not there to support such strong support. On the bright side, HAWK is a pilot program and the FHA will evaluate it to see whether it meets its goal of “improving loan performance.” (27903) I am just worried a bit worried though, because the FHA’s materials seem to show an unwarranted bias toward counseling that a review of the relevant literature does not seem to bear out.

The HAWK Notice requests comments by July 14, 2014, so you’d better act fast if you have something to say!

July 9, 2014 | Permalink | No Comments

July 8, 2014

Independent Foreclosure Review: Case Closed?

By David Reiss

The Federal Reserve Board issued its Independent Foreclosure Review. By way of background,

Between April 2011 and April 2012, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (“Federal Reserve”), and the Office of Thrift Supervision (OTS) issued formal enforcement actions against 16 mortgage servicing companies to address a pattern of misconduct and negligence related to deficient practices in residential mortgage loan servicing and foreclosure processing identified by examiners during reviews conducted from November 2010 to January 2011. Beginning in January 2013, 15 of the mortgage servicing companies subject to enforcement actions for deficient practices in mortgage loan servicing and foreclosure processing reached agreements with the OCC and the Federal Reserve (collectively, the “regulators”) to provide approximately $3.9 billion in direct cash payments to borrowers and approximately $6.1 billion in other foreclosure prevention assistance, such as loan modifications and the forgiveness of deficiency judgments. For participating servicers, fulfillment of these agreements satisfies the foreclosure file review requirements of the enforcement actions issued by the OCC, the Federal Reserve, and the OTS in 2011 and 2012. (1)

The government’s actions regarding the Independent Foreclosure Review have been its controversial, with some believing that it was completed too hastily. I am less interested in that debate than in FRB’s sense of the the servicing sector going forward.

The report states that “the initial supervisory review of the servicer and holding company action plans has shown that the banking organizations under Consent Orders have implemented significant corrective actions with regard to their mortgage servicing and foreclosure processes, but that some additional actions need to be taken.” (24) Overall, the report reflects an optimism that endemic servicer problems are a thing of the past.

drumbeat of reports and cases seems to be at odds with that assessment, although there is obviously a significant lag between the occurrence of  problems and the report of them in official sources. As a close observer of the mortgage industry, however, I am not yet convinced that regulators have their hands around the problems in the servicer industry. Careful monitoring remains the order of the day.

July 8, 2014 | Permalink | No Comments

July 7, 2014

Servicer Safety & Soundness and Consumer Protection

By David Reiss

The FHFA’s Inspector General issued an audit, FHFA Actions to Manage Enterprise Risks from Nonbank Servicers Specializing in Troubled Mortgages. The audit identified two major risks in the current environment:

  • Using short-term financing to buy servicing rights for troubled mortgage loans that may only begin to pay out after long-term work to resolve their difficulties. This practice can jeopardize the companies’ operations and also the Enterprises’ timely payment guarantees and reputation for loans they back; and
  • Assuming responsibilities for servicing large volumes of mortgage loans that may be beyond what their infrastructures can handle. For example, of the 30 largest mortgage servicers, those that were not banks held a 17% share of the mortgage servicing market at the end of 2013, up from 9% at the end of 2012, and 6% at the end of 2011. This rise in nonbank special servicers has been accompanied by consumer complaints, lawsuits, and other regulatory actions as the servicers’ workload outstrips their processing capacity. (1-2)

The audit notes that “nonbank special servicers do not have a prudential safety and soundness regulator at the federal level for their mortgage servicing operations.” (6)

I think the important story here is more about consumer protection than it is about safety and soundness regulation. That is not to say that the Inspector General’s audit ignored consumer protection. Indeed, it it does spend a significant amount of time addressing that topic, noting that other federal regulators such as the CFPB have also zeroed in on the impact that non-bank servicers have on consumers.

But the safety and soundness risks may a bit overblown. A significant number of consumers, on the other hand, continue to be treated poorly, poorly, poorly by servicers.

July 7, 2014 | Permalink | No Comments

July 4, 2014

Independence Day

By David Reiss

Read the Declaration of Independence!

July 4, 2014 | Permalink | No Comments

July 2, 2014

Running CERCLA around FIRREA

By David Reiss

Law360 quoted me in High Court Environmental Ruling Could Clear Air For Banks (behind a paywall). The article reads in part,

A recent U.S. Supreme Court ruling that a federal environmental law does not preempt state statutes of repose has inspired banks and other targets of Wall Street enforcers to test the decision’s power to finally fend off lingering financial crisis-era cases on timeliness grounds.

The high court on June 9 found that the Comprehensive Environmental Response, Compensation and Liability Act could not extend the 10-year statute of repose in a North Carolina environmental cleanup suit in the in CTS Corp. v. Waldburger case. Although the decision pertained to a case outside of the financial realm, attorneys say it could limit the ability of federal financial regulators to bring claims on behalf of failed financial institutions under two of their favored tools: the Financial Institutions Reform, Recovery and Enforcement Act and the Housing and Economic Recovery Act.

That’s because the defendants in those cases, including banks but others as well, will now be able to argue that regulators like the National Credit Union Administration, the Federal Housing Finance Agency and the Federal Deposit Insurance Corp. missed their chance to bring claims on behalf of institutions in receivership.

Given the Supreme Court’s interpretation, the regulators may be on shaky ground.

“The government is going to have a much more difficult time sustaining the arguments it’s been making after CTS,” said Jeffrey B. Wall, a partner with Sullivan & Cromwell LLP and a former assistant solicitor general.

In its CTS ruling, the Supreme Court found that CERCLA does not preempt state statutes of repose like the one in North Carolina, citing CERCLA’s exclusive use of the phrase “statute of limitations.”

Statutes of repose and statutes of limitations are distinct enough terms in their usage that it’s proper to conclude that Congress didn’t intend to preempt statutes of repose when it crafted CERCLA, Justice Anthony M. Kennedy said in the majority opinion. The justice cited a 1982 congressional report on CERCLA that recommended repealing state statutes of limitations and statutes of repose but acknowledged that they were not equivalent.

According to a memo released June 10 by Sullivan & Cromwell, both FIRREA and HERA are susceptible to similar readings by courts.

Both statutes include extenders that allow government agencies suing on behalf of failed financial institutions to move beyond statutes of limitations on state law claims. However, much like CERCLA, both say nothing about extending statutes of repose, the memo said.

And that could make a major difference for a large number of defendants trying to fend off claims from the FDIC, NCUA and FHFA, Wall said.

*    *    *

The CTS ruling is likely to play out in cases brought by financial regulators in smaller cases over losses incurred by failed financial institutions using FIRREA and HERA. But FIRREA has also become a favored tool in the U.S. Department of Justice’s big game hunts against ratings agency Standard & Poor’s and Bank of America.

Because those cases are largely predicated on federal claims, the CTS case is unlikely to be a help for those institutions, according to Brooklyn Law School professor David Reiss.

“I don’t read it as having an extension on the higher-profile FIRREA cases,” he said.

But even if CTS is limited to state law claims brought by financial regulators, that could have a major impact given the sheer number of cases the FDIC, NCUA and FHFA bring.

July 2, 2014 | Permalink | No Comments