October 17, 2013
$2.7 Million Punitive Damages for Wrongful Foreclosure Action
Many argue (see here, for instance) that wrongful foreclosures aren’t such a big deal. A recent case, Dollens v. Wells Fargo Bank, N.A., No. CV 2011-05295 (N.M. 2d Jud. Dist. Aug. 27, 2013) highlights just how bad it can be for the homeowner who has to defend against one.
Dollens, the borrower, died in a workplace accident but had purchased a mortgage accidental death insurance policy through Wells Fargo, the lender (although the policy was actually underwritten by Minnesota Life Insurance Company). Notwithstanding the existence of the policy, Wells Fargo kept trying to foreclose, even five months after the insurance proceeds paid off the mortgage. Some lowlights:
- “Apparently, ignoring its ability to to make a death benefit claim is typical of how Wells Fargo deals with such situations. . . . This is a systemic failure on the part of Wells Fargo.” (4)
- “There is no doubt that Wells Fargo’s conduct was intended to take advantage of a lack of knowledge, ability, experience or capacity of decedent’s family members, and tended to or did deceive.” (5)
- “Wells Fargo charged the Estate for lawn care of the property” even though the “property did not have a lawn.” (6)
The court found that the”evidence of Wells Fargo’s misconduct is staggering.” (6) The court also found that “Wells Fargo used its computer-driven systems as an excuse for its ‘mistakes.’ However, the evidence established that this misconduct was systematic and not the result of an isolated error.. . . The evidence in this case established that the type of conduct exhibited by Wells Fargo in this case has happened repeatedly across the country.” (7) As a result of these findings, the Court awarded over $2.7 million in punitive damages.
Mary McCarthy famously said that “[b]ureaucracy, the rule of no one, has become the modern form of despotism.” We generally think of this in terms of government actors, but it applies just as well to large financial institutions that implement “computer-driven systems” that seemingly cannot be overwritten by a human being who might exercise common sense and common decency.
Given that this type of problem seems to affect all of the major loan servicers, I must reiterate, thank goodness for the CFPB.
[HT April Charney]
October 17, 2013 | Permalink | No Comments
October 16, 2013
Glaski Full of It?
I had blogged about Glaski v. Bank of America, No. F064556 (7/31/13, Cal. 5th App. Dist.) soon after it was decided, arguing that it did not bode well for REMICs that did not comply with the rules governing REMICS that are contained in the Internal Revenue Code. The case is highly controversial. Indeed, the mere question of whether it should be a published opinion or not has been highly contested, with the trustee now asking that the case be depublished. The request for depublication is effectively a brief to the California Supreme Court that argues that Glaski was wrongly decided.
Because of its significance, there has been a lot of discussion about the case in the blogosphere. Here is Roger Bernhardt‘s (Golden Gate Law School) take on it, posted to the DIRT listserv and elsewhere:
If some lenders are reacting with shock and horror to this decision, that is probably only because they reacted too giddily to Gomes v Countrywide Home Loans, Inc. (2011) 192 CA4th 1149 (reported at 34 CEB RPLR 66 (Mar. 2011)) and similar decisions that they took to mean that their nonjudicial foreclosures were completely immune from judicial review. Because I think that Glaski simply holds that some borrower foreclosure challenges may warrant factual investigation (rather than outright dismissal at the pleading stage), I do not find this decision that earth-shaking.
Two of this plaintiff’s major contentions were in fact entirely rejected at the demurrer level:
-That the foreclosure was fraudulent because the statutory notices looked robosigned (“forged”); and
-That the loan documents were not truly transferred into the loan pool.
Only the borrower’s wrongful foreclosure count survived into the next round. If the bank can show that the documents were handled in proper fashion, it should be able to dispose of this last issue on summary judgment.
Bank of America appeared to not prevail on demurrer on this issue because the record did include two deed of trust assignments that had been recorded outside the Real Estate Mortgage Investment Conduit (REMIC) period and did not include any evidence showing that the loan was put into the securitization pool within the proper REMIC period. The court’s ruling that a transfer into a trust that is made too late may constitute a void rather than voidable transfer (to not jeopardize the tax-exempt status of the other assets in the trust) seems like a sane conclusion. That ruling does no harm to securitization pools that were created with proper attention to the necessary timetables. (It probably also has only slight effect on loans that were improperly securitized, other than to require that a different procedure be followed for their foreclosure.)
In this case, the fact that two assignments of a deed of trust were recorded after trust closure proves almost nothing about when the loans themselves were actually transferred into the trust pool, it having been a common practice back then not to record assignments until some other development made recording appropriate. I suspect that it was only the combination of seeing two “belatedly” recorded assignments and also seeing no indication of any timely made document deposits into the trust pool that led to court to say that the borrower had sufficiently alleged an invalid (i.e., void) attempted transfer into the trust. Because that seemed to be a factual possibility, on remand, the court logically should ask whether the pool trustee was the rightful party to conduct the foreclosure of the deed of trust, or whether that should have been done by someone else.
While courts may not want to find their dockets cluttered with frivolous attacks on valid foreclosures, they are probably equally averse to allowing potentially meritorious challenges to wrongful foreclosures to be rejected out of hand.
October 16, 2013 | Permalink | No Comments
California Court Found That MERS Held Interests in the Property and Rejected the Plaintiff’s Argument that MERS Lacked Standing
The California court in deciding Nacif v. White-Sorensen, et al., NO. D056993. (San Diego Ct. Sup. Ct., 2009), determined that MERS held interests in the property and rejected the plaintiff’s argument that MERS had no standing because it was not qualified as a foreign corporation.
The court found that the under California law, MERS’s status as a “nominee” on a deed of trust means that it had the right to initiate foreclosure proceedings as the lender’s agent.
October 16, 2013 | Permalink | No Comments
October 15, 2013
Court Finds That MERS, as the Beneficiary Under the Deed, Had the Authority to Assign its Beneficial Interest
The United States District Court, Northern District California in Benham v. Aurora Loan Services, No. C-09-2059, (N.D.Cal. 2009) dismissed the plaintiff’s claims in the entirety.
The plaintiff brought a litany of claims. Among the plaintiff’s claims, was that MERS and violated the Rosenthal Fair Debt Collection Practices Act (“RFDCPA” or “Rosenthal Act”), Cal. Civ. Code 1788 et seq. FAC ¶¶ 62-65. Plaintiff also alleged negligence and fraud.
After considering the plaintiff’s contentions the court dismissed all of the plaintiff’s claims. The court found, that MERS as the beneficiary under the deed of trust had the authority to assign its beneficial interest under the deed of trust to assignee.
October 15, 2013 | Permalink | No Comments
California Eastern District Court Notes There is no Requirement for the Production of the Original Note to Initiate a Non-Judicial Foreclosure Sale Under California Law
The California Eastern District Court in Castaneda et al v. Saxon Mortgage Services, Inc. et al., No. 2:2009cv01124 (E.D. Cal. 2010) dismissed the plaintiff’s claim alleging wrongful foreclosure due to foreclosing party’s lack of note.
Plaintiffs Cesar and Suzzanne Castaneda filed this action against defendants Saxon Mortgage Services, Inc., plaintiffs’ action purported to state a claim for “wrongful foreclosure” against Saxon. Plaintiffs attempted to base this claim on California Commercial Code section 3301, alleging that Saxon was not in possession of the note, was not a beneficiary, assignee or employee of the entity in possession of the note, and was therefore not a “person entitled to enforce” the security interest on the property in accordance with section 3301. (SAC ¶¶ 187-89.)
The court however found that section 3301 did not govern non-judicial foreclosures, which is governed by California Civil Code section 2924.Further, the court noted there is no requirement for the production of the original note to initiate a non-judicial foreclosure sale under California law.
October 15, 2013 | Permalink | No Comments
Southern District of California Holds that Production of Original Note is Not Required to Proceed with a Non-Judicial Foreclosure
The United States District Court for the Southern District of California in Putkkuri v. Recontrust Co., Case No. 08cv1919 WQH (AJB) (S.D.Cal. 2009) granted the defendants’ motion to dismiss.
The plaintiff in this case demanded written proof of the defendants’ right to proceed in foreclosure, and the plaintiff claimed that no such proof had been offered. The plaintiff alleged that the defendants “engaged in a pattern and practice of utilizing the non-judicial foreclosure procedures of this State to foreclose on properties when they do not, in fact, have the right to do so.”
The plaintiff also alleged that in pursuing non-judicial foreclosure, defendants falsely represented that they had a right to payment under plaintiff’s residential loan, which was secured by the deed of trust. However, after considering the plaintiff’s claims the court dismissed them, holding that production of the original note is not required to proceed with a non-judicial foreclosure.
October 15, 2013 | Permalink | No Comments
Mortgage Reform Schooling on 30 Year Term
S&P has posted U.S. Mortgage Finance Reform Efforts and the Potential Credit Implications to school us on the current state of affairs in Congress. It provides a useful lesson on three major mortgage reform bills introduced in Congress this year. They are the Housing Finance Reform and Taxpayer Protection Act of 2013 (Corker-Warner); Protecting American Taxpayers and Homeowners ACT of 2013 (PATH); and the FHA Solvency Act.
Given the current mood in D.C., S&P somewhat optimistically states that there “seems to be a bipartisan commitment to encourage private capital support for the U.S. housing market while winding down Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) that hold dominant positions in the mortgage market.” (1) S&P uses this report as an opportunity to “comment on the potential credit implications of these mortgage finance reform efforts on several market sectors.” (1)
In this post, I focus on, and criticize, S&P’s analysis of the appropriate role of the 30 year fixed-rate mortgage. S&P states that
The 30-year fixed-rate mortgage has contributed significantly to housing affordability in the U.S. And while some market players have looked at current rates on jumbo mortgages (those that exceed conforming-loan limits) and suggested that the private market could support mortgage interest rates below 5%, we think this view is distorted. Jumbo mortgage rates carrying the lowest interest rates, for the most part, are limited to a narrow set of borrowers who have FICO credit scores above 750 and equity of roughly 30% in their homes. We don’t believe that these same rates would be available to average prime borrowers, such as those with credit scores of 725 and 25% equity in a property. (3)
While I think that S&P is probably right about the limited usefulness of comparing current jumbo loans to a broad swath of conforming loans, I see no support in their analysis for the assertion that the “30-year fixed-rate mortgage has contributed significantly to housing affordability in the U.S.” First, a 30-year FRM typically carries a higher interest rate than an ARM of any length. Second, a typical American household only stays in a home for about seven years. Thus, a 30-year FRM provides an expensive insurance policy against increases in interest rates that most Americans do not end up needing.
While we may end up providing governmental support for the 30-year FRM because of its longstanding popularity, S&P’s mortgage reform school should be based on facts, not fancy.
October 15, 2013 | Permalink | No Comments
