February 21, 2014
Reiss on Single Family Rental-Backed Bonds
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 21, 2014 | Permalink | No Comments
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.
February 20, 2014 | Permalink | No Comments
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.
February 20, 2014 | Permalink | No Comments
Reiss on Mortgage Availability
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.”
February 20, 2014 | Permalink | No Comments
Calling All RE Law Profs!
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 https://www.business.rutgers.edu/faculty-research/teaching-opportunities. The search will continue until the position is filled.
February 20, 2014 | Permalink | No Comments
February 19, 2014
Reiss in Bloomberg on CS Lawsuit
Bloomberg quoted me in Credit Suisse Waits for $11 Billion Answer in N.Y. Fraud Suit. It reads in part,
As Credit Suisse Group AG (CSGN) sees it, time has run out on New York Attorney General Eric Schneiderman’s pursuit of Wall Street banks for mortgage fraud that helped trigger the financial crisis.
Schneiderman sued Credit Suisse in 2012 as part of a wide-ranging probe into mortgage bonds. He claimed Switzerland’s second-largest bank misrepresented the risks associated with $93.8 billion in mortgage-backed securities issued in 2006 and 2007.
Credit Suisse asked a Manhattan judge in December to dismiss Schneiderman’s case, as well as his demand for as much as $11.2 billion in damages. The bank argued that New York, by waiting so long to file the lawsuit, missed a three-year legal deadline for suing. The state countered that it had six years to file its complaint.
If the bank wins, Schneiderman will face a new roadblock as he considers similar multibillion-dollar claims against a dozen other Wall Street firms. The judge in New York State Supreme Court could rule at any time.
“It would obviously tilt everything in the favor of Credit Suisse and similarly situated financial institutions,” said David Reiss, a professor at Brooklyn Law School, hindering New York’s remaining efforts to hold banks accountable for mistakes that spurred a recession.
* * *
Since the latest bonds cited in Schneiderman’s suit originated in 2006 and 2007, if the judge chooses the bank’s argument, the lawsuit may be dismissed. If the judge takes Schneiderman’s more expansive view, most or all of the suspect bonds may still be covered by the litigation.
“The entire case is time-barred,” Richard Clary, a lawyer for the bank, told Friedman at the December hearing. Lawyers for the state argued that such limits weren’t intended to apply to the attorney general.
“We’ve successfully resolved cases filed within six years,” Deputy Attorney General Virginia Chavez Romano said, citing last year’s JPMorgan accord. “It has been our decades-long practice.”
So far, New York’s courts have broadly interpreted the statute in finding a six-year period, Brooklyn Law School’s Reiss said. That may be changing as legal scholars and financial industry lawyers question its propriety.
“Having these incredibly long and ambiguous statutes of limitations is not particularly fair,” he said.
* * *
Friedman’s ruling in the Credit Suisse case may be crucial to Schneiderman’s probe of close to a dozen other banks, and whether he can sue them successfully.
New York agreed with the firms in October 2012 that any legal deadline for bringing fraud claims against them would be suspended while he continues his investigation, a person familiar with the matter said.
Such tolling agreements stopped the clock on any statute of limitations and ensured Schneiderman can bring fraud claims against banks for conduct going as far back as 2006, said the person.
Brooklyn Law School’s Reiss said the banks may have agreed to the delay to avoid forcing Schneiderman to file a “kitchen sink complaint with every possible allegation in it” just to beat the clock. Doing so also builds good will with regulators and may also facilitate a favorable settlement.
The agreements don’t necessarily mean that suits will be filed, the person said. If Schneiderman sues any of the banks, they may then assert the statute of limitations is three years, and not six, just as Credit Suisse has done.
* * *
This may be a more potent argument if Friedman rules for the Swiss bank in the pending case.
A three-year statute-of-limitations would mean they can’t be held responsible for transactions before 2009, while a six-year deadline would allow Schneiderman to reach back to 2006.
There’s “great uncertainty” about whether Schneiderman can move forward with the Credit Suisse case in light of the statute of limitations arguments, said James Cox, a corporate law professor at Duke University in Durham, North Carolina.
Reiss said that any ruling would probably be challenged all the way to the Court of Appeals in Albany, the state’s highest court.
February 19, 2014 | Permalink | No Comments
Michigan Appeals Court Upholds Summary Judgment and Finds that Bank’s Purchase did not Violate MCL 600.3228
By Ebube Okoli
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.
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February 20, 2014 | Permalink | No Comments