February 22, 2014
Federal District Court of Nevada Dismisses Homeowners’ Lawsuit Against Banks for not Pleading Enough Facts
In October 2013, the Federal District Court of Nevada in Prince v. Loop Capital Markets, LLC held that Plaintiff homeowners had failed to plead enough facts in their complaint against Defendants Wells Fargo Bank, N.A. and Bank of America, N.A. and dismissed Plaintiffs’ complaint with prejudice.
In August 2009, Thomas Prince and, his wife, Sarah Prince (“Plaintiffs”) bought a home in Las Vegas with a mortgage from New Line Mortgage, Div. Republic Mortgage Home Loans, LLC (“New Line”) as the lender on the deed and Equity Title of Nevada (“Equity”) as the deed trustee. MERS was listed as the nominee for New Line. In August 2012, MERS securitized and pooled the mortgage and sold it as a security to Bank of America, N.A.. Bank of America and Wells Fargo Bank, N.A. (“Defendants”), later initiated a foreclosure action against Plaintiffs, and Plaintiffs later sued Defendants. Plaintiffs sued the Defendants for intentional misrepresentation and negligent misrepresentation in the Defendants’ purchase of Plaintiffs’ mortgage, and sought to stop the foreclosure action. In March 2013, Defendants moved to remove the case from state to federal court and made a motion to dismiss the complaint for failure to state a claim upon which relief could be granted.
The District Court granted the Defendants’ motion to dismiss and held that Plaintiffs’ complaint failed to plead intentional and negligent misrepresentation with specificity under Federal Rules of Civil Procedure Rule 9(b). The Court found that the complaint did not identify a false or misleading statement by Defendants or explain why any alleged statements by Defendants were false. The Court also found that Plaintiffs did not identify the “who, what, when, where, or how of the alleged misconduct” and instead referred to a blanket statement that the discovery in the case revealed that the alleged misconduct occurred. The Court also denied Plaintiffs’ request to amend the complaint to change its argument that the securitization of the mortgage in this case inherently changed the existing legal relationship between the parties to the extent that the original parties ceased to occupy the roles that they did at closing. The Court found that case precedent held that “securitization of a loan does not in fact alter or affect the legal beneficiary’s standing to enforce the deed of trust.” The Court therefore denied Plaintiffs’ request to amend the complaint and granted Defendants’ motion to dismiss with prejudice.
February 21, 2014
Law360 Quoted me in Newest Property-Secured Bonds Invite Scrutiny (behind a paywall). It reads in part,
The Blackstone Group LP’s recent groundbreaking move to sell bonds secured by single-family rental homes may have created the next securitization blockbuster, but attorneys say the product could attract the same type of litigation that has plagued the commercial and residential mortgage-backed securities markets.
Blackstone is among a growing group of entities that amassed large numbers of foreclosed homes after the crisis and are turning them into profitable rentals. Now some are hoping to take that profitability one step further, extending loans secured by these single-family homes and securitizing them.
This process offers benefits both to players like Blackstone and to smaller landlords that own groups of single-family rentals and can’t get traditional lenders to lend against their assets. Blackstone’s debut product — sold to a syndicate led by Deutsche Bank AG — has been very well-received, but attorneys caution that many questions remain unanswered, and REO-to-rental-backed bonds could pose litigation risks.
* * *
Blackstone’s $480 million deal, in which it pooled 3,200 homes owned by its portfolio company Invitation Homes and used them to secured a single loan that it then securitized, made waves as the first of its kind.
Several other opportunistic real estate investment companies, including American Homes 4 Rent and Colony Capital LLC, are expected to follow suit, but they are treading lightly as the new product is assessed by the market and investors.
* * *
The homes themselves may also be subject to condemnation or landlord-tenant litigation that could encumber the overall loan indirectly by affecting the value of the collateral, according to David Reiss, a real estate finance professor at Brooklyn Law School.
Before the recession, single-family homes were considered too expensive to be managed by a large institution like Blackstone or American Homes 4 Rent because of their geographic diversity and because it was hard to control property management on so many different homes, according to Reiss.
The financial crisis made distressed single-family homes cheaper and more attractive to opportunistic investors, and the low price may compensate for the other issues, he said.
“This is a new asset class, and it is not yet clear whether Blackstone has properly evaluated its risks,” Reiss said. “Time will tell whether these bonds will become a significant new category of asset-backed securities or whether the financial crisis presented a one-time financial opportunity for some firms.”
February 20, 2014
Kansas Court of Appeals Finds that Wells Fargo’s Possession of Signed Promissory Note was Sufficient to Enforce and Foreclose
The court in deciding Wells Fargo Bank, N.A. v. Richards, 2013 Kan. App. 1160 (Kan. Ct. App. 2013) affirmed the lower court’s decision finding that Wells Fargo had standing to bring foreclosure action.
On January 25, 2013, the lower court filed its journal entry of judgment and dismissal, finding that defendant Richards had failed to controvert any of Wells Fargo’s allegations. The lower court found that Wells Fargo was holder of the note and mortgage; Richards was in default and Wells Fargo was entitled to judgment on the note and to foreclose the mortgage. The court reaffirmed its previous dismissal of Richards’ counterclaim, finding the “points, claims, and arguments” to be without merit.
Defendant, in this appeal, asserted five claims, (1) Wells Fargo lacked standing to bring the foreclosure action; (2) the district court erred in holding Wells Fargo’s possession of the promissory note he signed was insufficient to enforce and foreclose the mortgage it secures; (3) Wells Fargo did not experience/suffer a default; (4) there was no contract because the note and mortgage were split; and (5) that there was lack of due process.
The court examined the record and considered the arguments of the parties. After the consideration, the court held that there was no merit to any of defendant Richards’ arguments. Consequently, the court affirmed the lower court’s decision.
Michigan Appeals Court Upholds Summary Judgment and Finds that Bank’s Purchase did not Violate MCL 600.3228
The court in deciding Bank of N.Y. Mellon Trust Co. Nat’l Ass’n v. Robinson, 2013 Mich. App. 2170 (Mich. Ct. App. 2013) upheld the lower court’s grant of summary judgment.
In this action for possession of a foreclosed property, defendants appealed as of the summary disposition that the lower court granted in favor of the plaintiff on the defendant’s counterclaims. After considering the defendant’s arguments the court affirmed the lower court’s ruling.
On appeal, the defendant raised two issues with regard to the underlying mortgage. First, the defendant argued that the plaintiff, through its predecessor, committed fraud in the execution of the mortgage. Second, the defendant alleged that the plaintiff did not have the right to foreclose because there was no evidence of record that the defendant’s note was assigned to plaintiff. The defendant also argued that the bank’s purchase violated MCL 600.3228, which required that a purchase by a mortgagee at a foreclosure sale be made “fairly and in good faith.”
After considering the defendant’s contentions the court ultimately affirmed the lower court’s ruling.
Illinois Court of Appeals Upholds Lower Court Decision Finding that Wells Fargo had Standing to Foreclose
The court in deciding Wells Fargo Bank, N.A. v. Abatangelo, 2013 IL App (1st) 130423-U (Ill. App. Ct. 1st Dist. 2013) that Wells Fargo had standing to foreclose the mortgage.
Defendant, Peter Abatangelo, appealed the order of the circuit court granting summary judgment in favor of plaintiff, Wells Fargo Bank, on plaintiff’s foreclosure complaint. On appeal, Mr. Abatangelo contended that the court erred in granting summary judgment because (1) the mortgage contract did not properly assign the right to foreclose to Wells Fargo; and (2) the trial court improperly considered new arguments raised by Wells Fargo for the first time in a reply brief in support of their motion to dismiss.
After considering the defendant’s contentions the court ultimately affirmed the lower court’s ruling.
The Consumer Eagle quoted me in Will Mortgages be Harder to Get in 2014? It reads in part,
David Reiss, Professor of Law at Brooklyn Law School, also sees some benefit in more conservative guidelines. “The QM rules and ability-to-repay rules legislate commonsense things like making sure people can repay loans that they take out, which was something that was given up not only in the last boom but in the boom that preceded it. So from the consumer perspective, you now know that when you get a mortgage you’re probably going to be able to pay it back,” Reiss says. “Some consumers and some people in the industry would say let people make their own decisions with minimal consumer protection regulation, but we had a phase of that and it ended poorly for all of us.”
Borrowers who are self-employed or have irregular income may have a harder time qualifying for a loan under the new rules. Reiss notes that those who are ineligible for a QM may still be able to get a non-qualified mortgage. “What we haven’t seen is what this non-QM market is going to look like in 2014 and beyond,” Reiss says. “It’s a new market.”
Members of the banking industry have expressed concerns about the changes. In recent testimony before the House Committee on Financial Services, William Emerson, CEO of Quicken Loans and vice chair of the Mortgage Bankers Association, said the rules “are likely to unduly tighten mortgage credit for a significant number of creditworthy families who seek to buy or refinance a home” and “may impair credit access for many of the very consumers they are designed to protect.”
Reiss notes that consumer protections are always a compromise. “Regulators want to be conservative to protect consumers, but they also don’t want to keep people who would pay back their loans from getting credit,” he says. “There’s always a dance.”
I have been asked to post this announcement by Rutgers Professor Jay Soled. He indicated that they were very interested in hearing from law professors who do research in this area.
Paul V. Profeta Chair in Real Estate
The Finance and Economics Department of the Rutgers Business School at Newark and New Brunswick, Rutgers University invites nominations and applications for the inaugural holder of the Paul V. Profeta Chair in Real Estate. The School and University are strongly committed to recruiting an accomplished scholar necessary to lead the school’s ambition to be a leader in research and teaching in Real Estate. The successful candidate will become the Founding Executive Director of the Rutgers Center for Real Estate Studies. The center is envisioned to facilitate scholarship activities and promote the education of real-estate issues in its various degree granting and continuing education programs. The Finance and Economics Department has 35 full-time faculty members. The Rutgers Business School offers BS, MBA, Masters of Quantitative Finance, and Ph.D. programs that include finance and applied economics concentrations. Please submit your application (cover letter, three names of your letter writers, research paper[s], and CV) electronically at http://www.business.rutgers.edu/faculty-research/teaching-opportunities. The search will continue until the position is filled.