February 3, 2014
Foreclosure Prevention: The Real McCoy
Patricia McCoy has posted Barriers to Foreclosure Prevention During the Financial Crisis (also on SSRN). In the early 2000s, Pat was one of the first legal scholars to identify predatory behaviors in the secondary mortgage market. These behaviors resulted in homeowners being saddled with expensive loans that they had trouble paying off. As many unaffordable mortgages work themselves through the system, Pat has now turned her attention to the other end of the life cycle of many an abusive mortgage — foreclosure.
The article opens,
Since housing prices fell nationwide in 2007, triggering the financial crisis, the U.S. housing market has struggled to dispose of the huge ensuing inventory of foreclosed homes. In January 2013, 1.47 million homes were listed for sale. Another 2.3 million homes that were not yet on the market—the so-called “shadow inventory”—were in foreclosure, held as real estate owned or encumbered by seriously delinquent loans. Discouragingly, the size of the shadow inventory has not changed significantly since January 2009.
Reducing the shadow inventory is key to stabilizing home prices. One way to trim it is to accelerate the sale of foreclosed homes, thereby increasing the outflow on the back-end. Another way is to prevent homes from entering the shadow inventory to begin with, through loss mitigation methods designed to keep struggling borrowers in their homes. Not all distressed borrowers can avoid losing their homes, but in appropriate cases—where modifications can increase investors’ return compared to foreclosure and the borrowers can afford the new payments—loan modifications can be a winning proposition for all. (725)
The article then evaluates the various theories that are meant to explain the barriers to the loan modification and determines “that servicer compensation together with the high cost of loan workouts, accounting standards, and junior liens are the biggest impediments to efficient levels of loan modifications.” (726) It identifies “three pressing reasons to care about what the real barriers to foreclosure prevention are. First, foreclosures that could have been avoided inflict enormous, needless losses on borrowers, investors, and society at large. Second, overcoming artificial barriers to foreclosure prevention will result in loan modifications with higher rates of success. Finally, knowing what to fix is necessary to identify the right policy solution.” (726)
It seems to me that the federal government dealt with foreclosures much more effectively in the Great Depression, with the creation of the Home Owners’ Loan Corporation. In our crisis, we have muddled through and have failed to systematically deal with the foreclosure crisis. McCoy’s article does a real service in identifying what we have done wrong this time around. No doubt, we will have another foreclosure crisis at some point in our future. It is worth our while to identify the impediments to effective foreclosure prevention strategies so we can act more effectively when the time comes.
February 3, 2014 | Permalink | No Comments
January 31, 2014
The Future of Fair Housing
I attended an interesting discussion of the Mount Holly fair housing case today. The question presented in the case was: “Are disparate impact claims cognizable under the Fair Housing Act?” The case was settled before the Supreme Court had an opportunity to hear it. The conventional wisdom is that a number of Justices on the Supreme Court would take a hard look at disparate impact claims generally if a case were ever to reach them.
Mount Holly happens to be next to Mount Laurel, home to another important fair housing dispute that is the subject of a recent book, Climbing Mount Laurel. Douglas Massey, one of the co-authors of Climbing Mount Laurel, is also the author of one of the best non-fiction books I have ever read, American Apartheid: Segregation and the Making of the Underclass. Massey’s new book takes a look at how the Mount Laurel dispute has played out over time:
Under the New Jersey State Constitution as interpreted by the State Supreme Court in 1975 and 1983, municipalities are required to use their zoning authority to create realistic opportunities for a fair share of affordable housing for low- and moderate-income households. Mount Laurel was the town at the center of the court decisions. As a result, Mount Laurel has become synonymous with the debate over affordable housing policy designed to create economically integrated communities. What was the impact of the Mount Laurel decision on those most affected by it? What does the case tell us about economic inequality?
Climbing Mount Laurel undertakes a systematic evaluation of the Ethel Lawrence Homes–a housing development produced as a result of the Mount Laurel decision. Douglas Massey and his colleagues assess the consequences for the surrounding neighborhoods and their inhabitants, the township of Mount Laurel, and the residents of the Ethel Lawrence Homes. Their analysis reveals what social scientists call neighborhood effects–the notion that neighborhoods can shape the life trajectories of their inhabitants. Climbing Mount Laurel proves that the building of affordable housing projects is an efficacious, cost-effective approach to integration and improving the lives of the poor, with reasonable cost and no drawbacks for the community at large.
The United States’ history of residential segregation is a tragedy that unfolds in slow motion from decade to decade. Fair housing lawsuits in places such as Mount Holly and Mount Laurel are obviously important, but also feel like drops in the bucket of a much, much bigger problem. Unfortunately, it is such a big problem that solutions that have been proposed appear to be mere band-aids on the one hand or Utopian on the other. Let’s hope that there is a middle path that can develop between those two approaches.
January 31, 2014 | Permalink | No Comments
Nevada Court Dismisses Show-me-the-Note Action Brought Against Chase and MERS
The court in Leong v. JPMorgan Chase, 2013 U.S. Dist. LEXIS 144678 (D. Nev. Oct. 7, 2013) granted defendants’ motion to dismiss.
This action arose out of the foreclosure proceedings initiated against the property of pro se Plaintiff Teresa Leong. Pending before the court was a motion to dismiss filed by defendants JPMorgan Chase Bank, N.A. (“Chase”) and Mortgage Electronic Registration Systems, Inc. (“MERS”) (collectively, “Defendants”). Plaintiff continued to request “to see my original documents Note and Deed.”
Plaintiff insisted that defendant failed to provide the original note. The court found that the only possibly relevant Nevada statute requiring the presentation of the original note or a certified copy is at a Foreclosure Mediation. Nev. Rev. Stat. § 107.086(4). Moreover, the court noted that it treats copies in the same way as it treats originals: “a duplicate is admissible to the same extent as an original.” Nev. Rev. Stat. § 52.245.
The court noted that the defendants correctly point out that plaintiff failed to cite to any authority that requires defendants to produce the original note, and defendants additionally provided non-binding legal authority to the contrary. As such, the court dismissed this cause of action with prejudice.
January 31, 2014 | Permalink | No Comments
California Court Dismisses Action Brought Against MERS and Aurora Loan Services for Wrongfully Initiated Foreclosure Proceedings
The court in Morgan v. Aurora Loan Servs., LLC, 2013 U.S. Dist. LEXIS 145623 (C.D. Cal. 2013) granted defendants’ motion to dismiss plaintiff’s claims. The court concluded that the “allegation of other facts consistent with the challenged pleading could not possibly cure the deficiencies” of either the first or third through tenth claims, thus the court dismissed these claims with prejudice.
Plaintiff Cherie J. Morgan filed this action against Aurora Loan Services, LLC (“Aurora”), Mortgage Electronic Registration Systems, Inc. (“MERS”), and Does 1-100, inclusive (collectively, “defendants”).
Plaintiff principally complained that defendants wrongfully initiated foreclosure proceedings against her property and that a subsequent trustee’s sale was invalid because defendants lacked any interest in the property. Plaintiff’s claim asserted the following claims for relief: (1) lack of standing; (2) breach of written contract; (3) intentional misrepresentation; (4) negligent misrepresentation; (5) cancellation of instruments; (6) quiet title; (7) promissory estoppel; (8) breach of implied covenant of good faith and fair dealing; (9) premature and unlawful filing of notice of default; and (10) unfair business practices under Cal. Bus. & Prof. Code §§ 17200 et seq. (“UCL”).
Defendants moved to dismiss plaintiff’s SAC. Plaintiff opposed the motion, but after considering the parties’ arguments, the court granted defendant’s motion to dismiss.
January 31, 2014 | Permalink | No Comments
Tennessee Court Finds Allegation of Fraud Was Pled With Sufficient Particularity Pursuant to Tenn. R. Civ. P. 12.03
The court in deciding Zhong v. Quality Loan Serv. Corp., 2013 U.S. Dist. LEXIS 145916 (W.D. Wash. 2013) reversed the lower court’s ruling dismissing the mortgagor’s intentional misrepresentation claim on the pleadings pursuant to Tenn. R. Civ. P. 12.03.
Plaintiff defaulted on her mortgage and defendants advised plaintiff of their plan to foreclose. Plaintiff subsequently sought an injunction and a declaratory judgment. The trial court entered a temporary restraining order preventing foreclosure, which it dissolved after granting defendants’ motion for judgment on the pleadings. Plaintiff appeals the trial court’s grant of defendants’ motion for judgment on the pleadings.
This court ruled that the lower court erred in dismissing the mortgagor’s intentional misrepresentation claim on the pleadings pursuant to Tenn. R. Civ. P. 12.03 because her allegation of fraud stemming from an intentional misrepresentation were pleaded with sufficient particularity.
Moreover, because the amended complaint alleged particular intentional misrepresentations of a material fact, that signatories possessed authority to execute the deed of trust, as well as the mortgagor’s detrimental reliance upon such, the claim satisfied the heightened requirements of Tenn. R. Civ. P. 9.02. Further, this court found that the mortgagor’s claim was not correctly dismissed based upon the statute of limitations, Tenn. Code Ann. § 28-3-105, because it was at least plausible that the mortgagor was unable to discover the alleged intentional misrepresentation until the mortgagees commenced foreclosure against her.
January 31, 2014 | Permalink | No Comments
Washington Court Rejects Split-the-Note Theory
The court in Zhong v. Quality Loan Serv. Corp., 2013 U.S. Dist. LEXIS 145916 (W.D. Wash. 2013) granted defendant’s motion to dismiss.
In her complaint, plaintiff alleged ten causes of action in connection with the initiation of the non-judicial foreclosure of her property.
Specifically, she brought claims for (1) wrongful foreclosure under the Washington Deed of Trust Act (“DTA”), RCW 61.24, (2) violation of Washington’s Consumer Protection Act (“CPA”), (3) negligence and breach of the duty of good faith and fair dealing, (4) a request for injunctive relief, (5) a request for declaratory judgment, (6) cloud of title, (7) quiet title, (8) predatory lending, (9) emotional distress, and (10) unjust enrichment. Defendants removed the case to federal court, and now move to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim.
The defendants filed a motion to dismiss, this motion was granted. The court found that the plaintiff’s arguments failed as the court found that the plaintiff simply rehashed well-worn arguments that courts have repeatedly rejected.
January 31, 2014 | Permalink | No Comments
Michigan Court Finds Plaintiff’s Argument to Prevent Removal Lacked Merit
By Ebube Okoli
The court in Ordway v. Bank of Am., N.A., 2013 U.S. Dist. LEXIS 145228 ( E.D. Mich. Oct. 8, 2013) granted defendants’ motion and denied plaintiff’s motion.
This was a case challenging foreclosure proceedings. Plaintiff named Bank of America, N.A. (BOA); Bank of New York Mellon (BNYM), as Trustee for the benefit of the CWABS Inc. Asset-Backed Certificates, Series 2007-9 (the Trust); and unknown holders of the trust as defendants.
The complaint asserts multiple claims, as follows:
Count I Declaratory Relief that the foreclosure violated MCL 600.3204(1) and (3); Count II Declaratory Relief that the foreclosure violated MCL 600.3204(4), 600.3205a, and 600.3205c; Count III Breach of Contract; Count IV Intentional Fraud; Count V Constructive Fraud; Count VI Tortious Interference with Contractual Relations; Count VII Civil Conspiracy; Count VIII Michigan’s Regulation of Collection Practices Act; and Count IX: Accounting.
BOA and BNYM removed the case to federal court on the grounds of diversity jurisdiction under 28 U.S.C. § 1332. Before the court was the plaintiff’s motion to remand and defendants’ motion to supplement the notice of removal. The court denied plaintiff’s motion and granted defendants’ motion.
Plaintiff contended that removal was improper because (1) the unknown Trust holders did not consent to removal; (2) defendants did not attach the TRO with the removal papers; and (3) defendants had not established that diversity jurisdiction exists because they have not stated in their removal papers the citizenship of the unknown trust holders. The court found that the plaintiff’s arguments lack merit.
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January 31, 2014 | Permalink | No Comments