Massachusetts District Court Dismisses Homeowner-Plaintiff’s Claim of Alleged Inadequacies in Foreclosure and Assignment of His Mortgage
In Butler v. Deutsche Bank Trust Co. Americas, 2012 WL 3518560 (D Mass 2012), the court dealt with alleged inadequacies in the assignment and foreclosure of a mortgage. The plaintiff and mortgagor, Frank Butler, claimed that the defendant [Deutsche Bank] had wrongfully foreclosed on two separate occasions, slandered the property’s title, and violated G.L. c. 93A. Deutsche Bank moved to dismiss the complaint on the theory that the alleged inadequacies were not based on actionable legal theories that support the plaintiff’s claims. The court granted the bank’s motion to dismiss.
The plaintiff offered a number of theories to support his claim as to the invalidity of one or both of the foreclosure actions. First, he contended that the foreclosure actions were invalid because the bank did not hold the note secured by the mortgage and the mortgage assignments were not made in compliance with the Pooling and Servicing Agreement.
Next, the plaintiff contended that the foreclosure auctions were invalid because the assignments from MERS were invalid and a robo-signer was used. Lastly, he contended that the foreclosure auctions were invalid as the assignment was made without identifying the relevant trust.
After review of the plaintiff’s contentions, the court found that they all lacked merit. The court relied on case law that dealt directly with all of the plaintiff’s contentions. Because none of the plaintiff’s theories as to the invalidity of either the assignment or the foreclosure was actionable, the court granted the defendant’s motion to dismiss.
July 8, 2013 | Permalink | No Comments
Massachusetts District Court Dismisses Homeowner-Plaintiff’s Challenge to Assignment Due to Lack of Standing
The two actions from Oum v. Wells Fargo Bank, N.A., et al, 1:11-cv-11663, No. 23 (D.Mass. Jan. 4, 2012) reflected nearly identical facts. Both cases arose from an allegedly invalid assignment of a mortgage from defendant Sand Canyon to Wells Fargo.
Plaintiffs argued that because the assignments of their mortgages were invalid, the foreclosures by Wells Fargo as trustee on their homes were invalid as well. After considering the plaintiff’s contentions, the court dismissed the plaintiff’s claims, after holding that the non-party plaintiffs lacked standing to challenge the assignment.
Plaintiffs had asked the court to enjoin Wells Fargo from proceeding with any eviction action [Count 1]; to quiet title by declaring them the “sole owners” of the properties [Count 2]; and to grant appropriate relief for Wells Fargo as trustee’s breach of the duty of good faith and reasonable diligence [Count 3].
Defendants argued that plaintiffs lacked standing to challenge the validity of the assignments Sand Canyon made to Wells Fargo as trustee of their respective mortgages because plaintiffs were neither parties to the contractual assignments, nor were they third-party beneficiaries. Plaintiffs argued that because they had a “claim of rightful legal ownership” to the respective properties, they have standing to contest the “cloud” on their wrongfully divested title. The court sided with the defendants, finding that an assignment is a contract, and the plaintiffs were not parties to the contract.
July 8, 2013 | Permalink | No Comments
Pre-Closing Credit Checks
Since 2010, Fannie Mae has required lenders to recheck a borrower’s credit right before closing the mortgage. It is advised that borrowers not do anything that might affect their financial status quo until the mortgage has been closed. For example, purchasing a $3000 flat-screen television on a new credit card account may cause the loan to be sent back to underwriting.
Article can be found: https://www.nytimes.com/2013/07/07/realestate/pre-closing-credit-checks.html?adxnnl=1&adxnnlx=1373291990-/8qE0gsWAwJBjANdXsiVSw
July 8, 2013 | Permalink | No Comments
July 5, 2013
BofA No Worm Ouroboros
The Worm Ouroboros of myth was a gigantic serpent that encircled the earth only to bite its own tail. Judge Sweet (SDNY) has ruled that Bank of America is no modern-day Ouroboros that is so enormous that it must sue itself. In BNP Paribas Mortgage Corporation et al. v. Bank of America, N..A., No. 1:09-CV-09783 (June 6, 2013), Judge Sweet granted Bank of America’s motion to dismiss in its entirety (although this did not do away with all of the plaintiffs’ claims).
The Court noted that Bank of America served “in several distinct but related capacities for” what was a type of warehouse credit facility for Taylor, Bean & Whitaker Mortgage Corp. subsidiary, Ocala. (8) In particular, BoA served “as Indenture Trustee, Collateral Agent, Depositary and Custodian” for the transaction. (8) You may remember that the chairman of TBW was sentenced to 30 years in jail for running a massive fraud, from which this case ultimately springs.
The Plaintiffs “allege that BoA had contractual duties as Collateral Agent (under the Security Agreement) and as Indenture Trustee (under the Base Indenture) to sue itself in its other capacities for breaches of the Custodial and Depositary Agreements, respectively, and that it breached those duties by failing to bring suit against itself for these alleged cIaims.” (15, citations omitted)
Relying on well-settled law, the Court held that the transaction documents did not require BoA to sue itself. While this case does not really cover new legal terrain, its logic brings to mind S&P’s motion to dismiss DoJ’s FIRREA case. In that case, S&P argued that “the Complaint fails to allege that S&P possessed the requisite intent to defraud the investors in the CDOs at issue. It is more than ironic that two of the supposed ‘victims,’ Citibank and Bank of America—investors allegedly misled into buying securities by S&P’s fraudulent ratings—were the same huge financial institutions that were creating and selling the very CDOs at issue.” (3) The aftermath of the financial crisis laid much bare about the securitization process, but the utter incestuousness of it can still shock.
This is not to say that this complexity and self-dealing are per se bad. Just that it seems that the sophisticated business people who put the deals together did not think through at all what would happen if deals went south. Will they during the next boom? Probably not.
So what does that mean for regulators?
July 5, 2013 | Permalink | No Comments
July 3, 2013
More Misrepresentations, More Litigation
Judge Pfaelzer (C.D. Cal.) issued an order in American International Group Inc. v. Bank of America Corp., No. 2:11-CV-10549 (May 6, 2013), which allowed AIG to proceed with its claim that it was fraudulently induced to buy MBS by Countrywide (now a part of BoA). This case joins a long list of cases where judges have allowed fraud and misrepresentation allegations to proceed in the context of MBS issuances (for instance, here, here and here). AIG claims that the deal documents for the MBS “fraudulently misrepresented and concealed the actual credit quality of the mortgages by providing false quantitative data about the loans, thus masking the true credit risk of AIG’s investments.” (5, quoting the Amended Complaint)
in allowing some of the claims to proceed, the Court notes that AIG “plausibly alleges that the underwriting guidelines stated in the Offering Documents were false. The Amended Complaint describes a company-wide culture of abandonment of underwriting standards and wholesale use of ‘exceptions’ to the normal standards. This raises an inference, however strong, that the loans in AIG’s RMBS deviated from the underwriting standards.” (28, citations omitted)
Judge Pfaelzer notes that she has repeatedly issued similar rulings regarding Countrywide’s behavior in other cases, so this comes as no surprise. But once all of these MBS cases alleging fraud misrepresentation are decided, it will be interesting to see just what the contours of this body of law will look like. Clearly, issuers can’t avoid liability by means of general disclaimers in the offering documents. Will they provide clearer, more explicit disclaimers and carve-outs in the hopes of avoiding liability in future deals or will they ensure that future deals hew more closely to the deal documents? Time will tell.
July 3, 2013 | Permalink | No Comments
July 2, 2013
The Future of Foreclosure
Professor Roger Bernhardt (Golden Gate University School of Law) has posted The Future of Foreclosure to SSRN. This short article is ostensibly about a few recent California foreclosure decisions but I was more intrigued by its “case for going back to the courthouses” and its rejection of nonjudicial foreclosure. (2) Bernhardt makes the common argument that for debtors, “judicial foreclosure would give them the opportunity to have their defenses heard before their property is taken away by foreclosure . . ..” (3) But he also argues that lenders would benefit from a judicial-foreclosure-only regime because it could “effectively eliminate the risks and consequences that a challenged conduct will later be determined to have amounted to a fatal error.” (3)
Bernhardt does note that
National reform movements have always gone in the opposite direction: attempting to improve the nonjudicial foreclosure procedure in ways to eliminate its deficiencies (e.g., the Uniform Land Transactions Act, the Uniform Land Security Interests Act, the Uniform Nonjudicial Foreclosure Act, and now the (draft) Residential Real Estate Mortgage Foreclosure and Protections Act). But those approaches all concede a premise that may no longer be tenable—that the foreclosure process can be safely or efficiently run without contemporaneous judicial supervision. After-the-fact oversight is too time consuming and too late. (3)
I have not heard any lenders advocate for such a solution and would be curious to hear what they would have to say. My sense is that they would not agree that they would benefit from such a regime, but it would be interesting to know if I am wrong.
July 2, 2013 | Permalink | No Comments
July 8, 2013
State of the Nation’s Housing 2013: Build It and They Will Come
By David Reiss
The Joint Center for Housing Studies of Harvard University released The State of the Nation’s Housing 2013. As always there is much of interest in this annual report. I was particularly intrigued by Figure 21 on page 20, “The Government Continues to Have an Outsized Footprint in the Mortgage Market.” The report states
Despite efforts to entice private capital into the mortgage market, the GSEs and FHA continue to back the vast majority of loans(Figure 21). In 2001, loans securitized into private-label securities or held in bank portfolios accounted for nearly half of loan originations. Their market share rose to about two-thirds at the height of the housing boom before retreating to the low single-digits. Beginning in 2009, government-backed loans have accounted for roughly 90 percent of all originations. While the private securities market was still moribund in 2012, portfolio lending by banks showed its first substantial increase in years (albeit to a modest level), bringing the government share down slightly. (20-21)
As Fannie and Freddie return to profitability, policymakers are acting as if only the government can provide credit to the residential mortgage market, but from Figure 21 we can see that over a relatively short time period, capital can meaningfully shift from the secondary market (private MBS) to the government (FHA, Fannie and Freddie) to the primary market (portfolio lenders). Instead of assuming that the present structure is the best of all possible worlds, we should design the system we want and incentivize capital to find it.
Build it and they will come.
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July 8, 2013 | Permalink | No Comments