March 11, 2014
This Note and Mortgage Are Unenforceable
The Bankruptcy Appellate Panel of the Sixth Circuit issued a thoughtful opinion in In re: Dorsey, File No. 14b0002n.06 (March 7, 2014) but it leaves me dissatisfied. As Elizabeth Renuart and Dale Whitman have each demonstrated, courts have had a hard time parsing how UCC Article 3 relates to the enforceability of mortgage notes. That is not the problem with this opinion — the Court carefully applies UCC Article 3, but still concludes that the possessor of the note could not establish that it was a Person Entitled To Enforce it. As a result, the Court concludes that the possessor of the note cannot enforce the note and as a result, the mortgage is “no longer enforceable under Kentucky law.” (12)
Because of the complexity of the analysis, I refer interested readers directly to the opinion itself, which is as clear as can be expected for such a technical subject. But I will note that the Court’s result means that a party that holds the note itself and has much circumstantial evidence that the note was transferred to it by the original lender under the note can forfeit the entire value of the note and mortgage. I generally believe that lenders should be held to strict standards when seeking to enforce the terms of a mortgage loan. But in this bankruptcy proceeding, the possessor of the note is left with nothing and the borrower is granted a windfall — the entire mortgage debt has been extinguished. This does not seem to be consistent with the principles of equity.
I am curious to know what others think, particularly bankruptcy experts. Perhaps I am missing something.
[HT April Charney]
March 11, 2014 | Permalink | No Comments
March 10, 2014
Reiss on NYC Development
Law360 quoted me in Domino Deal Shows De Blasio Can Play Nice With RE Cos. (behind a paywall). The story reads in part,
New York City Mayor Bill de Blasio’s affordable housing deal with the developer of the Domino Sugar factory, despite being for a unique project, may be a harbinger of how the mayor will implement his affordable housing goals without hampering the market, experts say.
When De Blasio first took office, many in the real estate community, and their attorneys,were concerned that the new mayor’s “tale of two cities” approach to governing might elevate the development of affordable housing to the detriment of other types of projects.
While his administration is still young and the Domino Sugar project is a unique one that had previously been approved in a different form under former Mayor Michael Bloomberg, experts say the way De Blasio handled negotiations that led to the project’s City Planning Commission approval on Wednesday may be a positive sign for the future.
* * *
But the mayor’s willingness to reach out directly to a developer and negotiate for terms that fit his goals — De Blasio wants to add or retain 200,000 affordable units over the next 10 years — without harming the deal will be noted by developers.
“One data point does not make a trend, but as a symbol at the beginning of the administration, I think it’s a pretty powerful one,” said David Reiss, a real estate professor at Brooklyn Law School.
Community Preservation Corp. and Kattan Group LLC had originally planned to build a $2.2 billion, 2,200-unit residential project in place of the Domino Sugar factory, but the plan stalled in 2012, and the partners began looking for a new buyer.
When Two Trees Management Co. was chosen in June 2012, the developer purchased the property for $185 million after a long court battle with Katan. The approvals process then began anew, and Two Trees’ revised plan — for 2.3 million square feet of residential space, plus office and retail components — was certified for review in November.
This week, as the City Planning Commission was poised to cast its vote on Two Trees’ plan, De Blasio stepped in to ask for a larger affordable housing component. The project called for about 660 units, but the mayor wanted about 60 more in exchange for zoning changes Two Trees would need to construct the development.
Two Trees Principal Jed Walentas told the New York Times that the mayor’s request was “not workable,” and onlookers worried that the mayor’s relationship with the real estate industry, which had thawed after a Real Estate Board of New York speech in which he assured developers that he wanted them to “build aggressively,” might again be chilling.
But the fears were premature; the mayor and developer reached a deal late Monday that would yield an additional 110,000 square feet of affordable housing at the development.
In connection with the deal, Two Trees agreed to construct 700 permanently affordable units ranging in size to accommodate small and large families that will be integrated throughout the complex.
“This agreement is a win for all sides, and it shows that we can ensure the public’s needs are met, while also being responsive to the private sector’s objectives,” Deputy Mayor of Housing and Economic Development Alicia Glen said in a statement.
That balance will not be lost in the city’s development community, even if another project of this size and complexity doesn’t come around any time soon, experts say. There are many developers looking to do deals in the city, and many of them may now feel at least a bit more comfortable that their needs will be understood by a mayor with an ambitious affordable housing plan.
“He took a line and stuck to it and got what he wanted, without killing the deal,” Reiss said. “That’s a good thing from the development perspective.”
March 10, 2014 | Permalink | No Comments
March 9, 2014
Michigan District Court Dismisses Homeowners’ Claims Against J.P. Morgan Chase Bank and Fannie Mae
In October 2013, the United States District Court for the Western District of Michigan in Nederhoed v. J.P. Morgan Chase Bank, 2013 WL 5533683 (W.D.Mich. 2013) dismissed the Plaintiff homeowner’s claims against Defendants J.P. Morgan Chase Bank and Fannie Mae for recission and breach of contract with prejudice.
In July 1999, Plaintiffs Stephen and Paula Nederhoed (“Plaintiffs”) bought a home in Michigan with a mortgage from First Chicago NBD Mortgage Company (First Chicago). In January 2001, First Chicago sold the mortgage to MERS. During 2009, Plaintiffs fell behind in their mortgage payments due to unemployment and economic uncertainties, and entered into a Forbearance Plan Agreement (FPA) with Defendant J.P. Morgan Chase Bank (“Chase”). The FPA required the Plaintiffs to make monthly payments in the amount of $448.88 from July 2009 through December 2009.
Plaintiffs later made their first payment under the FPA but Chase rejected the payment stating that the funds were insufficient to cure the default. Chase sent notices of mortgage rate changes to Plaintiffs in September 2010 and 2011 with details of a new interest rate and a new monthly payment amount. Plaintiffs made timely payments with each rate change but Chase continued to send Plaintiffs delinquency notices. In September 2010, Chase bought Plaintiff’s property at a foreclosure sale and later sold the mortgage to Fannie Mae. Plaintiffs had six months to redeem the property but failed to redeem it within the allotted time. However, Plaintiffs alleged that Chase never provided them with notice of the foreclosure or the foreclosure sale and never posted a notice of foreclosure in a conspicuous place on the Property until May 2012.
In June 2012, Plaintiffs sued Chase and Fannie Mae (“Defendants”) in Michigan state civil court, but the case was removed federal district court in July 2012. Plaintiff sued for rescission (Count I); Defendants’ waiver of right, privilege, advantage or benefit (Count II); estoppel (Count III); unclean hands, civil fraud (Count IV); and breach of contract (Count V). For relief on Counts I through IV, Plaintiffs requested that the Court either rescind or set aside the foreclosure sale and restore Plaintiffs’ ownership of the property. In Count V, Plaintiffs’ sought damages in excess of $25,000 for Defendants’ alleged breach of a forbearance agreement and two adjustment agreements. Defendants moved to dismiss the case under Federal Rules of Civil Procedure 12(b)(6) for failing to state a claim.
The District Court found that since the Plaintiffs did not contest the foreclosure prior to the expiration of the redemption period, they could only obtain relief if they could show a strong case of fraud or irregularity in the foreclosure sale. The Court found that Plaintiffs did not sufficiently allege fraud or irregularity in the foreclosure sale and found that Defendants complied with all of the statutory requirements for the foreclosure sale as they provided adequate notice to Plaintiffs of the sale. The Court therefore dismissed counts I-IV of Plaintiffs claim. The Court dismissed count V of Plaintiffs’ claim for breach of contract because it found that the claim was barred by Michigan’s statute of frauds. All of Plaintiffs’ claims were dismissed with prejudice.
March 9, 2014 | Permalink | No Comments
Michigan District Court Dismisses Fraud and Contract Breach Claims Against Mortgage Lender
In October 2013, the United States District Court of Michigan, Eastern District in Davis v. Green Tree Servicing, LLC 2013 WL 5551055 (E.D.Mich 2013) dismissed the Plaintiff homeowner’s claims for fraud and breach of contract against the Defendant mortgage lender.
In June 2007, Plaintiff Nataki Davis (“Plaintiff”) and non-party Paula Barnes–Rooks bought a home in Michigan with a mortgage from Quicken Loans Inc. (“Quicken”). Quicken then sold the mortgage to Green Tree Servicing, LLC (“Defendant”). Plaintiff made timely mortgage payments for over five years but failed to make a payment in July 2012 and Defendant started foreclosure proceedings. In December 2012, Defendant bought Plaintiff’s property at a sheriff’s sale and Plaintiff was given six months to redeem the property. Plaintiff did not redeem the property and Defendant later sold the property to Fannie Mae.
In June 2013, Plaintiff brought a pro se lawsuit against Defendant for fraud, breach of contract, that Defendant purposely failed to notify her of the status of her property and the foreclosure sale and the lack of notice removed her opportunity to buy the property at the sheriff’s sale, and that Defendant failed to satisfy the requirements of the Fair Debt Collection Practices Act (“FDCPA‘), § 339.915(f)3 because Defendant failed to notify Plaintiff that the property was being foreclosed or sold due to nonpayment of debt. Plaintiff also argued in her complaint that since she was not notified of the sheriff’s sale, she was not given the required six-month period from the date of the sale to redeem the property. Plaintiff also claimed that Defendant’s were not the not bona fide purchasers of the property. Plaintiff requested that the court discharge the foreclosure sale and give her an opportunity to redeem the property or alternatively require the Defendant to pay money damages for the value of the property.
Defendant responded with a motion to dismiss for failure to state a claim upon which relief could be granted under Federal Rules of Civil Procedure (“FRCP”) 12(b)(6), and that Plaintiff failed to meet the pleading standards for a complaint under FRCP Rule 8 and for fraud under FRCP Rule 9, failed to make proper claim under the FDCPA, and failed to set forth sufficient fraud or irregularity to set aside the foreclosure.
The District Court denied Defendant’s Rule 8 challenge and found that Plaintiff met the less stringent pleading standards for a pro se lawsuit. However, the District Court dismissed Plaintiff’s claim for fraud as it found that Plaintiff made conclusory accusations and failed to satisfy all of the required elements for fraud. The District Court similarly dismissed Plaintiff’s claim for fraud based on irregularities in the foreclosure proceedings for failing to allege facts to support the claim.
For Plaintiff’s claim under the FDCPA, the District Court found that it could not determine whether Defendant was a “debt collector” under the FDCPA because the Court could not determine Plaintiff’s actual date of default. The Court found that the default date was an issue of material fact and therefore ordered Plaintiff to appear for a future court date to show cause as to (1) the actual default date (2) why the date made Defendant’s “debt collectors” within the meaning of the FDCPA.
March 9, 2014 | Permalink | No Comments
March 7, 2014
Whitman on Servicer Lies
Professor Dale Whitman posted a commentary on Quintana v. Bank of America, No. CV 11–2301–PHX, 2014 WL 690906 (D.Ariz. Feb. 24, 2014) (not reported in F.Supp.2d) on the Dirt listserv:
Synopsis: A borrowers who is “jerked around” by a mortgage servicer may have claims in fraud or on other theories.
Karoly Quintana’s home mortgage loan was serviced by Bank of America, When she began having difficulty making her payments in 2009, she was told by B of A that she would have to miss three payments to be considered for a loan modification, and that the servicer would forbear foreclosure while it did so. She missed the payments and applied for a modification, but (she alleged) B of A did not consider it, and instead accelerated her loan and commenced foreclosure.
Quintana filed a suit in federal court to stop the foreclosure. In March 2012 the suit was dismissed voluntarily on the assurance that B of A would again consider a loan modification, but again it did not do so. (Oddly, B of A’s counsel conceded these facts.)
The court held that the allegations of both the 2009 and 2012 conduct of B of A stated claims of fraud, sufficient to withstand a motion to dismiss. The statements that she would be considered for a modification were false, she relied upon them, and was damaged. Her damages were the expenditure of additional attorney’s fees, and the court found this sufficient, even though in general attorneys’ fees are not recoverable in a fraud action.
The court also held that the plaintiff’s count for breach of the implied covenant of good faith and fair dealing survived a motion to dismiss. While the loan documents did not require the servicer to consider the mortgage modification or to forbear foreclosure, when it promised to do so and then did not, it breached the implied covenant. The promise was only oral, and B of A asserted it was inadmissible under the Statute of Frauds, but the court found that Quintana’s detrimental reliance (in missing the payments) provided a basis for promissory estoppel, overcoming the Statute of Frauds defense.
However, the court dismissed Quintana’s claim under the Arizona Consumer Fraud Act (on the ground that it was barred by the 1-year statute of limitations). There’s a convoluted argument about whether B of A can be liable under the FDCPA, but the court ultimately refused to dismiss that claim.
Comment: Borrowers have often tried to claim that they should have received loan modifications, but have not in fact received them. In general, of course, there’s no legal right to a modification. But this court holds that a false promise to consider a modification is enough to make out a claim of fraud.
March 7, 2014 | Permalink | No Comments
Ohio Court Dismisses Claims Asserting that MERS Could Not Act as Nominee
The court in deciding Cline v. Mortg. Elec. Registration Sys., 2013-Ohio-5706 (Ohio Ct. App., Franklin County 2013) overruled appellant’s seven assignments of error, thus this court upheld the judgment of the lower court.
The lower court granted MERS’ motion after concluding that, because appellant voluntarily signed the mortgage and agreed to the existing lien, the mortgage could not constitute a cloud on appellant’s title subject to R.C. 5303.01. On appeal, appellant argued the original loan was originated by CBSK, a company no longer in business; therefore, any agreement between CBSK and MERS that MERS would act as nominee for CBSK is void.
In appellant’s view, because the agreement between CBSK and MERS was void, the note and mortgage were no longer in effect and constituted a cloud upon her title. Appellant argued that, unlike Unger, which concerned mortgage assignments, this matter was different as it concerns the underlying mortgage itself.
Upon review, this court found that the appellant’s complaint failed to state a claim upon which relief can be granted, and, thus, the trial court did not err in dismissing appellant’s complaint pursuant to Civ.R. 12(B)(6). Accordingly, all of the appellant’s claims were overruled.
March 6, 2014 | Permalink | No Comments
March 6, 2014
California Court Denies Dismissal of Wrongful Foreclosure Claim
By Ebube Okoli
The California court in Engler v. ReconTrust Co., 2013 U.S. Dist. 179950 (C.D. Cal. 2013) dismissed all but one of the plaintiff’s complaint.
Plaintiff originally filed suit against defendants BAC and MERS on June 6, 2012. On March 1, 2013, the lower court dismissed plaintiff’s complaint with leave to amend.
The plaintiff’s current complaint alleged thirteen causes of action: (1) Declaratory Relief; (2) Violation of RICO; (3) “Common Law Conspiracy;” (4) “Filing of Invalid Lien;” (5) “Fraudulent Conveyance Deceptive Practices Code of Federal Regulations 17 CFR Parts 204-249;” (6) Fraudulent Concealment; (7) Fraudulent Inducement; (8) Wrongful Foreclosure; (9) Violation of the Real Estate Settlement Procedures Act; (10) Violation of the Fair Credit Reporting Act; (11) Violation of the Federal Fair Debt Collection Practices; (12) Violation of the Truth in Lending Act; and (13) Constructive Fraud.
After considering the plaintiff’s contentions the court found that the plaintiff’s first, second, third, fourth, fifth, sixth, seventh, ninth, tenth, eleventh, twelfth, and thirteenth causes of action were rightfully dismissed with prejudice. However, defendants’ motion to dismiss plaintiff’s eighth cause of action was denied. Accordingly, the only cause of action remaining in Plaintiff’s claim was the Eighth Cause of Action.
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March 6, 2014 | Permalink | No Comments