March 9, 2014
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
Washington Court Upholds Dismissal of RESPA Claims
The court in deciding Bhatti v. Guild Mortg. Co., 2013 U.S. App. 25659 (9th Cir. Wash. 2013) ultimately upheld the lower court’s decision by dismissing the plaintiff’s RESPA claims.
Plaintiffs Nusrat Bhatti and Erfan Semuel filed a complaint in Washington state court against Guild Mortgage Co. and MERS for quiet title, declaratory judgment, and violations of the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601.
Defendants filed a Fed. R. Civ. P. 12(b)(6) motion to dismiss. The lower court granted defendants’ motion to dismiss. Plaintiffs appealed, after considering the plaintiff’s appeal, this court affirmed the lower court.
This court held that the lower court did not abuse its discretion in ruling on defendants’ 12(b)(6) motion. This court also found that defendants did not violate the DTA’s requirement that a deed of trust’s beneficiary hold the note when it appoints a successor trustee
Accordingly, the lower court’s judgment was affirmed.
March 6, 2014 | Permalink | No Comments
Reiss on Fannie/Freddie Suits
Bloomberg BNA quoted me in No Basis for Discovery by GSE Investors, Treasury Department, FHFA Memos Say. It reads
[Reproduced with permission from BNA’s Banking Report, 102 BBR 417, 3/11/14. Copyright 2014 by The Bureau
of National Affairs, Inc. (800-372-1033) https://www.bna.com]
The Treasury Department and the Federal Housing Finance Agency March 4 said a federal judge should deny a motion for discovery in lawsuits by Fannie Mae and Freddie Mac investors, citing an agreed-upon schedule and saying the motion would do nothing to address legal questions at the core of the case (Fairholme Funds v. Federal Housing Finance Agency, D.D.C., No. 13-cv-01053, 3/4/14).
In its memo filed in the U.S. District Court for the District of Columbia, Treasury said Fairholme’s Feb. 12 motion for discovery (31 DER EE-6, 2/14/14) would be “improper” under a November scheduling order, and urged the court to dismiss the Fairholme suit and related cases.
“These cases should proceed on the agreed briefing schedule, which already provided ample time to the plaintiffs to file their substantive briefs, and the Court, upon review of a completed set of briefing with respect to the defendants’ dispositive motions, should dismiss these cases,” Treasury said March 4.
In its March 4 filing, the FHFA memo said “no discovery is necessary to assess the purely legal arguments” before the court, adding the Housing and Economic Recovery Act of 2008 (HERA) bars second-guessing of the FHFA’s actions as conservator of Fannie Mae and Freddie Mac.
Litigation Ongoing
The suit is one of several in at least two district courts and the U.S. Court of Federal Claims that challenge Treasury and FHFA action in August 2012 that restructured contracts governing preferred stock issued by the two government-sponsored enterprises.
Fairholme and other investors say the August 2012 amendment amounted to an expropriation of their assets and have variously sought damages and compensation in response.
The government has sought to dismiss the Fairholme case and others, but in its Feb. 12 motion, Fairholme said the government’s motion to dismiss was too expansive and raised questions that require access to government documents, e-mails and other materials.
Arrowood Indemnity Co., the plaintiff in a related case in the district court and a separate case in the Claims Court, Feb. 20 sought to link its own bid for discovery to Fairholme’s (36 DER EE-8, 2/24/14).
Fairholme has already prevailed on its discovery motion in the Claims Court. In a Feb. 26 order, Judge Margaret M. Sweeney granted Fairholme’s motion for a continuance to pursue discovery in that case.
March Reply Scheduled
In the district court, Fairholme is scheduled to respond to the government’s March 4 memos by mid-March.
“We are reviewing the opposition briefs filed by the defendants just yesterday, and we will respond to them in our reply brief, due on March 14,” a spokesman for Fairholme told Bloomberg BNA March 5.
High Stakes Seen
Professor David Reiss of Brooklyn Law School in New York March 5 said discovery usually occurs after motions to dismiss have been decided.
In this case, he said, “the stakes are so high and the quality of lawyering so high that there is litigation over the scheduling order itself.”
“This is a hard-fought battle and the issues are incredibly complex,” Reiss told Bloomberg BNA. “Each side characterizes their arguments as relatively straightforward, but I think the judge will have a hard time parsing out the issues, because there are different statutory regimes, policy issues and the like that must be rationalized with each other. I think this is just the beginning of a long slog,” he said.
March 6, 2014 | Permalink | No Comments
March 5, 2014
What $4 Billion Does for Homeowners
Enterprise released a Policy Focus on What the JPMorgan Chase Settlement Means for Consumers: An Analysis of the $4 Billion in Consumer Relief Obligations. It opens,
On November 19, 2013, JPMorgan Chase reached a record-setting settlement deal with the federal government’s Residential Mortgage-Backed Securities (RMBS) Working Group for $13 billion, which included $4 billion in consumer relief for struggling homeowners and hard-hit communities.
This brief examines how the $4 billion obligation will likely flow to consumers over the next four years. According to the settlement terms, eligible activities for which JPMorgan Chase will receive credit broadly include: loan modifications; rate reduction and refinancing; low- to moderate-income/disaster area lending; and anti-blight work. (1)
Enterprise projects that JPMorgan’s $4 Billion obligation will
translate into $4.65 billion in relief for existing homeowners, with an additional $15 million going to homebuyers, and as much as $380 million in cash and REO properties allocated to reducing foreclosure-related blight. Our analysis projects that over 26,500 borrowers will receive a total of $2.6 billion in principal forgiveness, which translates into $1.5 billion in credit toward the bank’s obligation. Forbearance will be extended on 17,000 loans, and slightly more than 7,000 second liens will be fully or partially forgiven. In addition to forgiveness or forbearance, we anticipate the interest rates on approximately 26,500 loans will be reduced, resulting in a real borrower savings of $1.4 billion. (1)
We’re talking about some pretty big numbers here, so it might be useful to break them down on a per borrower basis.
- 26,500 loans will receive interest rate reductions resulting in $1.4 billion in consumer benefit, or $52,830 per loan.
- 26,500 borrowers will receive $2.6 billion in principal forgiveness, or $98,113 per homeowner.
The report, unfortunately, does not parse these big numbers out so well. For instance, do they reflect savings over the expected life of the loans or over the remaining term? We also do not know whether these changes, large as they are, will leave sustainable loans in their place. So, this is a report provides a useful starting point, but some very big questions about the settlement still remain to be answered.
March 5, 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