October 2, 2013
California Court of Appeals holds that MERS Does Not Bear Burden of Proving Valid Assignment
In Fontenot v. Wells Fargo Bank N.A, No. A130478, 198 Cal.App.4th 256 (Ca. Ct. App. 1st Dist. Aug. 11, 2011), Fontenot sued Wells Fargo Bank, MERS and three other entities after she defaulted and lost the property to foreclosure. In the fourth amended complaint, plaintiff alleged the foreclosure was unlawful because Wells Fargo had breached an agreement to forbear from foreclosure, and MERS made an invalid assignment of an interest in the promissory note relating to the property.
Fontenot had given Alliance Bancorp a $1 million promissory note, secured by a deed of trust in the purchased real property. MERS was identified as the “nominee” of the lender in the deed of trust. The court held that first, MERS did not bear the burden of proving a valid assignment and second, the lack of a possessory interest in the note did not necessarily prevent MERS from having the authority to assign the note. It reasoned that MERS may have had no power in its own right to assign the note, since it had no interest in the note to assign, MERS did not purport to act for its own interests in assigning the note. Rather, the assignment of deed of trust states that MERS was acting as nominee for the lender, which did possess an assignable interest.
The court also found that there was nothing inconsistent in MERS’s being designated both as the beneficiary and as a nominee. The legal implication of the designation is that MERS may exercise the rights and obligations of a beneficiary of the deed of trust, a role ordinarily afforded the lender, but it will exercise those rights and obligations only as an agent for the lender, not for its own interests.
October 2, 2013 | Permalink | No Comments
October 1, 2013
Financial Education: Miles to Go Before We Can Sleep Easily
The CFPB has posted Financial Empowerment Training for Social Service Programs: A Scan of Community-Based Initiatives. The report opens well, with Gail Hillebrand, the Associate Director for Consumer Education and Engagement, noting that
Consumers need four things to be financially empowered. First, consumers need consistent access and the ability to choose among high-quality financial services. Second, consumers need sufficient information about the costs, the benefits, and the risks, of choices in the marketplace. Third, consumers need a set of financial habits and skills that constitute financial capability to help them to make the financial decisions that benefit themselves and their families. Finally, consumers need to know that they can get a better shot at achieving their own life goals if they affirmatively seek information, make choices, and take steps to control their financial lives. (1)
No argument there.
But the “scan” in this document makes me fear for a strong connection between what consumers need, as outlined above, and what existing programs are doing. Finding 9 of the report state that “Most training initiatives targeted at case managers recommended some form of assessment of the effectiveness of the initiatives, but few tracked whether case managers were using this information with clients.” (6-7)
This was the only finding that really talked about evaluating the success of financial education/empowerment initiatives. And it indicates that programs don’t really try to measure their implementation, let alone their effectiveness. I have earlier critiqued (and here) the CFPB’s financial education agenda and this most recent report only strengthens my belief that the CFPB should do more fundamental research on what actually helps consumers make good financial decisions before it begins to fund financial education initiatives.
October 1, 2013 | Permalink | No Comments
September 30, 2013
Borden & Reiss on REMIC Failure, in a Big Way
Brad and I posted REMIC Tax Enforcement as Financial-Market Regulator to SSRN (as well as to BePress). The article is forthcoming in the University of Pennsylvania Journal of Law and Business and it provides our extended analysis of how the organizers of purported Real Estate Mortgage Investment Conduits (REMICs) failed to abide by the requirements necessary to obtain the favorable REMIC tax status. We had addressed this topic in shorter articles here, here, and here, but this is our most comprehensive take on the subject. We look forward to hearing reactions to it.
The abstract reads:
Lawmakers, prosecutors, homeowners, policymakers, investors, news media, scholars and other commentators have examined, litigated, and reported on numerous aspects of the 2008 Financial Crisis and the role that residential mortgage-backed securities (RMBS) played in that crisis. Big banks create RMBS by pooling mortgage notes into trusts and selling interests in those trusts as RMBS. Absent from prior work related to RMBS securitization is the tax treatment of RMBS mortgage-note pools and the critical role tax enforcement should play in ensuring the integrity of mortgage-note securitization.
This Article is the first to examine federal tax aspects of RMBS mortgage-note pools formed in the years leading up to the Financial Crisis. Tax law provides favorable tax treatment to real estate mortgage investment conduits (REMICs), a type of RMBS pool. To qualify for the favorable REMIC tax treatment, an RMBS pool must meet several requirements relating to the ownership and quality of mortgage notes. The practices of loan originators and RMBS organizers in the years leading up to the Financial Crisis jeopardize the tax classification of a significant portion of the RMBS pools. Nonetheless, the IRS appears to believe that there is no legal or policy basis for challenging REMIC classification of even the worst RMBS pools. This Article takes issue with the IRS’s inaction and presents both the legal and policy grounds for enforcing tax law by challenging the REMIC classification of at least the worst types of RMBS pools. The Article urges the IRS to take action, recognizing that its failure to police these arrangements prior to the Financial Crisis is partly to blame for the economic meltdown in 2008. The IRS’s continued failure to police RMBS arrangements provides latitude to industry participants, which facilitates future economic catastrophes. Even without the IRS taking action, private parties can rely upon the blueprint set forth in the Article to bring qui tam or whistleblower claims to accomplish the purposes of the REMIC rules and obtain the beneficial results that would occur if the IRS enforced the REMIC rules.
September 30, 2013 | Permalink | No Comments
September 27, 2013
CFPB Tool Puts HMDA Data on Web
The Consumer Financial Protection Bureau has posted an online tool to make Home Mortgage Disclosure Act (HMDA) data available to consumers in an easy to use format. The Bureau notes that in 2012
there were approximately 18.7million HMDA records from 7,400 financial institutions. This information includes the majority of the country’s mortgage applications and mortgages made – known as loan “originations” – by banks, savings associations, credit unions, and mortgage companies. The public information is important because it helps show whether lenders are serving the housing needs of their communities; it gives public officials information that helps them make decisions and policies; and it sheds light on lending patterns that could be discriminatory.
The Bureau says that the tool
focuses on the number of mortgage applications and originations, in addition to loan purposes and loan types for 2010 through 2012. It looks specifically at first-lien, owner-occupied, one- to four- family and manufactured homes. Using the tool, the public can see nationwide summaries or they can choose interactive features that allow them to isolate the information for metropolitan areas. The public can easily explore millions of data points with these user-friendly graphs and charts.
I found one of the highlights derived from the tool particularly interesting: “Of the nearly 13 million applications in 2012 for home purchase loans, home improvement loans, and refinancing, more than 8 million resulted in loan originations.” (2) It will be interesting to see what Google Mashups might come from all this data.
September 27, 2013 | Permalink | No Comments
United States District Court Dismisses Plaintiff’s Contentions Against MERS, Alleging Wrongful Foreclosure and Unfair Business Practices
The United States District Court for the Northern District of California in deciding Pantoja v. Countrywide Home Loans, et al. 5:09cv016015 (N.D. Cal., 2009) affirmed MERS’ authority to foreclose. MERS’ ability to foreclose was again affirmed in this case, contrary to plaintiff contentions alleging wrongful foreclosure, unfair business practices, failure to disclose information regarding the plaintiff’s loan, claims arising under TARP, and various violations of state law related to the Notice of Default and the trustee sale.
The Court granted MERS’ motion to dismiss on several grounds. One ground was that the court concluded that the plaintiff lacked standing to bring the suit because he failed to tender the amounts due and owing under the note. The court also held that the plaintiff did not have a private right of action under TARP, and that his claims for unfair business practices were not supported by any facts.
The court also denied the claims for wrongful foreclosure. Accordingly, the court found that under state law, there was no requirement for the production of an original promissory note prior to the initiation of a non-judicial foreclosure. So, the absence of an original promissory note in a non-judicial foreclosure does not render a foreclosure invalid.
September 27, 2013 | Permalink | No Comments
California Court Rules That State Law Did Not Require Possession of the Promissory Note in Order to Initiate a Non-Judicial Foreclosure
The Eastern District of California in deciding Chilton v. Federal National Mortgage Association, No. 1:09; 2187 (E.D. Cal., 2010) dismissed the plaintiff’s complaint claiming wrongful foreclosure and lack of standing. The court held that California law did not require possession of the promissory note in order to initiate a non-judicial foreclosure.
Although MERS was not explicitly named as a defendant in the action, the plaintiff argued that MERS lacked standing to foreclose since the note and deed of trust had been separated. The court rejected this argument.
September 27, 2013 | Permalink | No Comments
California Court Held That State Law Did Not Require Possession of the Note as a Precondition for Initiating a Foreclosure Sale
The Los Angeles County Superior Court in deciding Linares, et al. v. JLM Corporation, et al., No. YC060372 (2009), after considering the plaintiff’s contentions, rejected them in favor of the defendant’s argument. In accepting the defense’s argument, the court held that California law did not require the possession of the original note as a precondition for initiating a foreclosure sale.
Additionally, the court found that under California law, an “allegation that the trustee did not have the original note or had not received it, is insufficient to render the foreclosure proceeding invalid.”
September 27, 2013 | Permalink | No Comments
