March 17, 2014
United States District Court Dismisses RICO and FDCPA Claims
The court in deciding Koenig v. Bank of Am., N.A., 2013 U.S. Dist. (E.D. Cal., 2013) ultimately granted the defendant’s motion to dismiss.
Plaintiff Philip A. Koenig commenced this action against defendant Bank of America. Plaintiff alleged causes of action for violations of the Fair Debt Collections Practices Act (“FDCPA”) and the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Plaintiff also brought claim requesting declaratory relief against the defendant. Defendant filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). After considering the arguments, the court granted the defendant’s motion to dismiss.
The theory underlying the totality of plaintiff’s complaint was that defendant had no right to affect foreclosure on the property. The second cause of action was a request for declaratory relief. Plaintiff sought a declaration from the court indicating that the defendant did not have and had never had any interest in the property.
Plaintiff alleged that the entity that intended to foreclose on the property was not the lender that originated any mortgage and was not an assignee of any mortgagee or a duly appointed trustee, thus the entity lacked the legal authority to foreclose.
After consider the plaintiff’s arguments, the court rejected them and granted the defendant’s motion to dismiss.
March 17, 2014 | Permalink | No Comments
March 14, 2014
No Justice for Mortgage Fraud
The Audit Division of the Department of Justice’s Office of the Inspector General has issued an Audit of the Department of Justice’s Efforts to Address Mortgage Fraud. One word for it — DEPRESSING:
The Department’s inability to accurately collect data about its mortgage fraud efforts was starkly demonstrated when we sought to review the Distressed Homeowner Initiative. On October 9, 2012, the FFETF [Financial Fraud Enforcement Task Force] held a press conference to publicize the results of the initiative. During this press conference, the Attorney General announced that the initiative resulted in 530 criminal defendants being charged, including 172 executives, in 285 criminal indictments or informations filed in federal courts throughout the United States during the previous 12 months. The Attorney General also announced that 110 federal civil cases were filed against over 150 defendants for losses totaling at least $37 million, and involving more than 15,000 victims. According to statements made at the press conference, these cases involved more than 73,000 homeowner victims and total losses estimated at more than $1 billion.
Shortly after this press conference, we requested documentation that supported the statistics presented. In November 2012, in response to our request, DOJ officials informed us that shortly after the press conference concluded they became concerned with the accuracy of the statistics. Based on a review of the case list that was the basis for the figures, the then-Executive Director of the FFETF told us that numerous significant errors and inaccuracies existed with the information. For example, multiple cases were included in the reported statistics that were not distressed homeowner-related fraud. Also, a significant number of the included cases were brought prior to the FY 2012 timeframe. (ii, footnote omitted)
According to the report, this was not a one time problem with the DoJ’s reporting about mortgage fraud.
The audit “makes 7 recommendations to help DoJ improve its understanding, coordination, and reporting of its efforts to address mortgage fraud.” (iii) The last two seem to be the most important:
6. Develop a method to capture additional data that will allow DOJ to better understand the results of its efforts in investigating and prosecuting mortgage fraud and to identify the position of mortgage fraud defendants within an organization.
7. Develop a method to readily identify mortgage fraud criminal and civil enforcement efforts for reporting purposes. (30)
I (along with Brad Borden) have previously argued that law enforcement agencies have not been tough enough on high-level perpetrators of mortgage fraud, although our position appears to be the minority view among lawyers (see here for a more common view). I think this audit supports our view that, for one reason or another, prosecutors have dropped the ball on this in a big way. It’s probably too late to do anything about the last financial crisis, but it sure would be swell to have a system of accountability put in place for the next one!
March 14, 2014 | Permalink | No Comments
March 13, 2014
Dog Bites Man: Housing Vouchers Are Good
The Center for Budget and Policy Priorites has issued a short report, Research Shows Housing Vouchers Reduce Hardship and Provide Platform for Long-Term Gains Among Children. Many housing policy researchers favor housing voucher programs over project-specific housing subsidies, although policymakers consistently favor the latter. So while this report isn’t really news, it is important to that its main points are frequently reiterated:
The Housing Choice Voucher program, the nation’s largest rental assistance program, helps more than 2 million low-income families rent modest units of their choice in the private market. Vouchers sharply reduce homelessness and other hardships, lift more than a million people out of poverty, and give families an opportunity to move to safer, less poor neighborhoods. These effects, in turn, are closely linked to educational, developmental, and health benefits that can improve children’s long-term life chances and reduce costs in other public programs. This analysis reviews research findings on vouchers’ impact on families with children, people with disabilities, and other poor and vulnerable households. (1, footnote omitted)
The report is not as precise as I would have liked. It describes a study of Temporary Assistance for Needy Families-eligible families as a study of “low-income” families. (compare text on page one with text in footnote ii). People eligible for Housing Choice Vouchers and TANF are “very low-income,” which is a meaningfully distinct subset of low-income families.Very low-income families have incomes that do not exceed 50% of the area median income whereas low-income families generally have incomes that do not exceed 80% of the area median income. I would guess that the findings about the very low-income subset would not directly apply to the bigger set of low-income families.
With that caveat in mind, here are the report’s main findings about Housing Choice Vouchers. They
- Reduced the share of families that lived in shelters or on the streets by three-fourths, from 13 percent to 3 percent.
- Reduced the share of families that lacked a home of their own — a broader group that includes those doubled up with friends and family in addition to those in shelters or on the streets — by close to 80 percent, from 45 percent to 9 percent.
- Reduced the share of families living in crowded conditions by more than half, from 46 percent to 22 percent.
- Reduced the number of times that families moved over a five-year period, on average, by close to 40 percent. (1)
These are big effects. Policymakers, pay attention!
March 13, 2014 | Permalink | No Comments
March 12, 2014
Duties to Serve in Housing Finance
Adam Levitin and Janneke Ratcliffe have posted Rethinking Duties to Serve in Housing Finance to SSRN (also on the Harvard Center for Housing Studies site here). The paper states that
an important question going forward concerns the role of duties to serve (DTS) — obligations on lending institutions to reach out to traditionally underserved communities and borrowers. Should there be DTS, and if so, who should have the responsibility to serve whom, with what, and how? (2)
These are, indeed, important questions as regulators chart a course between requiring safe underwriting by lenders and ensuring access to credit for communities that have historically had little access to sustainable credit. The authors distinguish fair lending from duties to serve, with the former being an obligation not to discriminate and the latter being an affirmative duty to address the “disparity of financial opportunity.” (2) The paper describes two main DTS regimes,the Community Reinvestment Act and the Fannie/Freddie housing goals, as well as their limitations.
The paper concludes that the “aftermath of the housing bubble presents an opportunity to rebuild DTS” and proposes a set of reforms. (29) I highlight the first two here:
- “DTS should apply universally to the entire primary market,” covering both depositories and non-depositories in order to avoid incentives to engage in regulatory arbitrage. (30)
- “DTS should apply equally for all secondary market entities,” not just the Fannies and Freddies of the world. (30)
This paper has a lot to offer thoughtful policymakers. As with everything to do with our massive housing finance system, however, the devil is in the details of any regulatory regime. Mandatory duties to serve must be drafted to so that they are consistent with safe underwriting practices. This paper starts a conversation about doing just that.
March 12, 2014 | Permalink | No Comments
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
