July 15, 2013
Oregon District Court Finds Claim Preclusion Bars Stop-Foreclosure Action
In Buckland v. MERS, Or. 11-3053-CL (2011) the court dealt with res judicata and the plaintiff relitigating the same claims that were raised or could have been raised in a previous action. The court found that the same factual transaction was at issue in the plaintiff’s prior litigation and at issue in the present case. Both actions arose out of the same non-judicial foreclosure proceeding associated with the loan on the plaintiff’s property.
The plaintiff had named Aurora Loan Services as sole defendant in his state action and MERS as a nominee for American Mortgage Network as sole defendant in the current action, although he referenced each of the parties in the complaints filed in both actions and challenged foreclosure of his property in both actions. As agents for the lender, the relationship between Aurora and MERS was close enough such that the court found the parties to be in privity. Since claim preclusion applies to a party to an earlier action and to a person who was not a party in the earlier action but who was in privity with the party to the earlier action, the plaintiff’s claim was precluded.
The court concluded that the plaintiff’s claims brought in this action, which arose out of the same factual transaction as the previous litigation, the court found that the claims could have been brought in those proceedings. Accordingly the claims were thus barred by claim preclusion.
July 15, 2013 | Permalink | No Comments
Bank of America and MERS Motion for Dismissal Granted Against Homeowner-Plaintiff in Reconsideration of Order Denying Preliminary Injunction in Foreclosure Proceeding
In Harris v. Americas Wholesale Lender, No. 2011-659-CH (Macomb Cty. Cir. Ct. June 8, 2011) the court granted the defendant’s motion for dismissal of all the homeowner-plaintiff’s claims in foreclosure proceeding.
Defendants Countrywide, Bank of America, and MERS moved for summary disposition against plaintiff-homeowner under MCR 2.116(C)(7) and (C)(8). Plaintiff moved for reconsideration of the lower court’s denial for preliminary injunction and another motion for entry of default judgment.
Plaintiff alleged five counts; [1] fraud, [2] breach of contract, [3] collusion, [4] conversion, and finally [5] unjust enrichment. In assessing these claims the court found that they were all without merit.
In regards to the plaintiff’s alleged fraud claim the court dismissed it as frivolous as plaintiff could not, and had not, produced any evidence to support the allegation. Upon considering the second count, the court likewise dismissed as the plaintiff failed to show any cognizable allegation of a breach of contract.
The claim of collusion was also dismissed as the court found that the plaintiff failed to plead the claim with particularity. Accordingly, the claim of conversion was also dismissed as the plaintiff failed to explain, to the court’s satisfaction, how a claim of conversion could be supported. Finally, the claim of unjust enrichment was found to be without merit, as the court found that the plaintiff failed to show how an unjust enrichment took place.
July 12, 2013 | Permalink | No Comments
July 11, 2013
FHA Whitewash, Redux
Richard Brooks and Carol Rose have recently published their book Saving the Neighborhood: Racially Restrictive Covenants, Law, and Social Norms. This well-written book brings to mind my recent post on the FHA Whitewash which reviewed a recent paper by HUD-affiliated researchers. The paper minimized the role that the FHA played in furthering housing discrimination. I mentioned that Kenneth Jackson’s classic book, Crabgrass Frontier, documented this sorry chapter of the FHA’s history. Saving The Neighborhood covers some of the same ground, but from a legal and legal history perspective. By doing so, it adds depth and texture to the historic record.
The book makes clear just how much of a role the FHA played. The FHA’s
Underwriting Manual reflected private developers’ and brokers’ views of the kinds of features that made housing values stable and secure. Those features clearly included racial segregation. In a section on “Protection from Adverse influences,” the Manual stated bluntly that “[a] change in social or racial occupancy generally leads to instability and a reduction in values” (par. 233). Thus property evaluators were to investigate the surrounding areas for the presence of “incompatible racial and social groups” and to assess whether the location might be “invaded” (par. 233). The Manual specifically noted that deed restrictions on “racial occupancy” could create a “favorable condition” (par. 228). in the section on subdivisions that were still in the development stage, the Manual recommended deed restrictions that included, among other matters, “. . . (g) Prohibition of the occupancy of properties except by the race for which they are intended” (par. 284(3)). (109)
The authors argue that these preferences gave developers, even those who did not favor segregation, an incentive to employ racially restrictive covenants in their projects. (110)
The FHA’s record of racial discrimination during the first few decades of its existence is clear, for all to see.
July 11, 2013 | Permalink | No Comments
First Circuit Grants Wells Fargo’s Motion to Dismiss Plaintiff-Homeowner’s Suit to Preclude Foreclosure Sale
The court in McKenna v Wells Fargo Bank, N.A. Case No. 11-1650 (C.A. 1, Aug. 16, 2012) was faced with questions relating to the district court’s subject matter jurisdiction. Here, Wells Fargo’s primary assertion in its removal papers – “that there was federal question jurisdiction present in the case” – turned out to be mistaken as no federal claim was present. However, diversity jurisdiction was found to be sufficient enough to support the state statutory claims that were asserted in the complaint.
Wells Fargo brought a foreclosure action against the plaintiff [McKenna], the plaintiff responded by asserting a right to rescind the mortgage and then filed suit to preclude the foreclosure sale.
The plaintiff claimed a right to rescind on the grounds that [1] Wells Fargo had provided her with only one Truth in Lending disclosure statement at the time of the loan rather than two copies, and [2] Wells Fargo had understated the finance charge in its Truth in Lending statement by more than $35. The lower court then issued a preliminary injunction restraining Wells Fargo from taking further action to sell the plaintiff’s home.
On March 10, 2010, Wells Fargo removed the case to the federal district court in Massachusetts. Wells Fargo asserted that federal question jurisdiction existed. The bank then moved to dismiss for failure to state a claim, and the district court granted the motion. On review, the court found that diversity jurisdiction existed as Wells Fargo was a bank and a citizen of the state where it is “located.” The bank’s location being North Dakota, and the plaintiff being a citizen of Massachusetts, allowed for diversity jurisdiction.
On review the court determined that the plaintiff’s complaint alleged that Wells Fargo made certain misrepresentations. However, the court found that the plaintiff failed to specify the time or place of these misrepresentations or their real content and, as the district court held, these assertions were “too vague to meet the particularity requirement of Rule 9.” The First Circuit affirmed the lower court’s ruling. Further, the suit was not timely under the federal Truth in Lending Act, 15 U.S.C. 1635(a), and the complaint failed to state claims under the equivalent state law.
July 11, 2013 | Permalink | No Comments
July 10, 2013
Minnesota U.S. District Court Finds Homeowners’ Complaint Fails Procedurally and Sanctions Counsel for Frivolous Claims
In Blaylock v. Wells Fargo Bank No. 12-693, 2012 WL 2529197, (D. Minn 2012) the court found six individual property mortgage assignments and foreclosures proper, dismissing the quiet title actions on both procedural and substantive grounds. The court also sanctioned the plaintiff’s attorney for his repeated frivolous claims.
On procedural grounds the court dismissed the claim under FRCP 12 finding that the complaint failed to state a “short and plain” statement upon which relief could be granted for each claim and each party.
The court held that independent of procedural grounds for dismissal, the Plaintiffs lacked substantive theories upon which quiet title relief could be granted. The court quickly discounted the claim that mortgages must be perfected claiming that the argument was based upon the same “faulty logic” as the plaintiff’s second “show me the note” claim that in order to foreclose a party must hold both the note and mortgage on a property. “This argument has been rejected by every federal and state court that has considered it under Minnesota law.” Minnesota and Eighth Circuit precedent clearly determined that a mortgagee may commence foreclosure even if the promissory note had been previously transferred to a third party. See Stein v. Chase Home Fin., LLC, 662 F.3d 976, 980 (8th Cir. 2011); Jackson v. Mortg. Elec. Reg Sys., Inc., 770 N.W. 2d 487 (Minn. 2009). These cases are blogged here and here.
The court also found the assignment of the mortgage proper since each of the mortgages expressly permitted assignment. Each assignment in this case granted legal title, the power of sale, and the right to foreclose to the mortgagee and its successors. The Minnesota MERS Statute §507.413 allows nominees to record an assignment to foreclose and district case law also supported a MERS assignment of a mortgage. See Kebasso v. BAC Home Loans Servicing, LP, 813 F. Supp. 2d 1104, 1109 (D. Minn. 2011).
The fact that some of the notes and mortgages for the plaintiffs were held in trust did not allow plaintiffs to challenge the transfer of the note. The court reaffirmed precedent noting that the plaintiffs had no standing to enforce a trust agreement because they were not party to the agreement between the banks. Furthermore, “securitization is standard practice, and Plaintiff’s loans specifically authorize securitization.”
Finally, the court dismissed the plaintiff’s slander of title claim for failure to establish all the elements of a prima facie claim and sanctioned Plaintiff’s counsel, William Butler, in the amount of $75,000 and awarded attorneys’ fees pursuant to FRCP 11 and 28 USC Sec. 1927 because of counsel’s repeated attempts to litigate frivolous slander and “show me the note” claims. Butler used the same theory and motioned for slander claims in multiple prior cases as well as some pending cases.
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July 10, 2013 | Permalink | No Comments
District of Minnesota Rules in Favor of CitiMortgage, Finding Foreclosure and Assignment of Mortgage Proper Despite Alleged Oral Modification of the Mortgage Prior to Assignment
In LaBrant v. MERS 870 F. Supp. 2d 671 (D. Minn. 2012) 0:11-cv-03029-JRT-LIB the court granted CitiMortgage’s motion to dismiss LaBrant’s claim. LaBrant brought action against CitiMortgage to enforce an oral loan modification as a binding agreement and also sought to have the modification enforced under theories of promissory estoppel, misrepresentation, and unjust enrichment.
LaBrant first contracted for a mortgage with Prime Mortgage Corporation who immediately assigned to CitiMortgage. LaBrant never received a written confirmation of a loan modification from CitiMortgage but claims that CitiMortgage assured him that upon filing the correct paperwork a modification would be granted given Mr. LaBrant’s excessive medical expenses. CitiMortgage claimed that they never agreed to a modification. CitiMortgage later assigned to PennyMac Loan Services who foreclosed on the property when LaBrant failed to continue payments. LaBrant unsuccessfully requested postponement of the foreclosure so he could have time to cure his default.
Enforcing an Oral Agreement. The court dismissed LaBrant’s claim that the alleged oral agreement with CitiMortgage for a loan modification should be enforced. Under Minnesota Statute § 513.33 and Minnesota case law an agreement regarding any financial accommodation is a credit agreement that can only be enforced if it is in writing. LaBrant argued that the arrangement was not a credit agreement but rather a modification to an existing credit agreement. The court disagreed finding that a “credit agreement” includes any “agreement by a creditor to take certain actions, such as . . . forbearing from exercising remedies under prior credit agreements.”
Promissory Estoppel. The court determined LaBrant failed to fulfill a prima facie case for estoppel. LaBrant did not establish that CitiMortgage made a clear and definite promise to modify the loan payments nor did LaBrant show that reliance upon CitiMortgage’s promise to modify the loan arrange would entitle LaBrant to stop payments altogether, rather than to simply decrease payments. Furthermore, Minn. Statute §513.33 precludes the claim of promissory estoppel when plaintiffs seek to enforce “an agreement to enter into a new credit agreement” or a modification of such an agreement.
Misrepresentation and Unjust Enrichment. The court ruled that LaBrant failed on his claim of negligent misrepresentation and unjust enrichment. LaBrant only showed that he was provided with false information when he was told that he would receive a loan modification upon submission of his application. There was no further proof of claim that CitiMortgage knew the statements were false at the time they were made or that CitiMortgage directed LaBrant to stop making payments altogether. Establishing an unfulfilled promise is not sufficient to show negligent misrepresentation. The court found that LaBrant failed on his unjust enrichment claim for merely alleging that a party has received a voluntary payment but not showing that such payments were unlawful or why the payments to defendants were not justified.
Violation of Minnesota Statute § 580. LaBrant further claimed that the defendants violated Minnesota Statute § 580 by failing to provide clear notice of the foreclosure and failing to postpone the foreclosure so LaBrant could cure his default. The court also rejected these claims finding that the record before the court clearly established that LaBrant was given notice of foreclosure and the § 580.11 does not impose a general fiduciary duty upon a mortgagee which would require the defendants to honor a request for postponement of foreclosure. The court mentioned that in two prior cases the plaintiff’s attorney made identical arguments which the court rejected in both cases. See Scott v. Wells Fargo Bank, 2011 WL 381766 at 4 (D. Minn. 2011); Cox v. MERS 794 F. Supp. 2nd at 1065 (D. Minn. 2011).
Finally, the court dismissed the LaBrant’s claim for “temporary and permanent injunctive relief” because injunctive relief is only proper as a remedy and not as a separate claim.
The court found in favor of CitiMortgage on all claims.
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July 10, 2013 | Permalink | No Comments
July 12, 2013
Ain’t Misrepresentin’
By David Reiss
According to Wikipedia, the performers in the musical Ain’t Misbehavin’ “present an evening of rowdy, raunchy, and humorous songs that encapsulate the various moods of the era and reflect” a “view of life as a journey meant for pleasure and play.” In U.S. RMBS Roundtable: Arrangers And Investors Discuss The Role Of Representations And Warranties In U.S. RMBS Transactions, S&P does something similar with securitization. It presents the views of industry players as they try to predict and shape the future of the recently emerging private-label RMBS market, in the hopes of “achieving a healthy and sustainable RMBS market.” (2)
ACT I: Lookin’ Good but Feelin’ Bad
The piece contains a lot of important insights, including the following point made by investors: “standardizing R&Ws would be a step towards improving the transparency and their ease of understanding. Smaller investors noted that they can be particularly limited in distinguishing R&Ws given the complexities involved.” (3)
This point encapsulates in so many words the classic market for lemons problem, famously formalized by George Akerlof. The lemon problem leads us to ask how a buyer is to price a purchase where the buyer has less information about the product than the seller. Because of this information assymetry, the purchaser will assume the worst about the product and offer to buy it with that in mind.
R&Ws are an attempt to overcome that problem because the RMBS arranger or the mortgage originator promises to compensate the investor for lemons that are contained with a mortgage pool securing an RMBS. Consistent with that view, investors noted that “they expected to be compensated for losses caused by origination defects, rather than legitimate life events.” (2) In other words, origination defects are the lemons that should be borne by the arranger/originator with its superior information about the mortgages. And “legitimate life events” represent the credit risk that the investors have signed up for.
ACT II: That Ain’t Right
Arrangers and originators made the following points:
These points clearly align with the interests of the seller in a market for lemons. To restate them a bit, 1. caveat emptor; 2. arrangers and originators don’t sell lemons (!); and (3) it is too hard to come up with provisions that consistently protect investors so don’t bother trying.
ENCORE: Find Out What They Like
S&P notes that there “was broad agreement that one of the keys to achieving a healthy and sustainable RMBS market is aligning the interests of arrangers and investors.” (2) From that broader perspective, S&P is right that the industry should work toward a state of affairs that “minimizes the cost of unknown risks and ultimately reduces losses and related litigation.” (2) Given the spate of lawsuits over reps and warranties, we had fallen shy of that mark in the past (here, for example). It remains to be seen if the industry can get it better next time and if the incentives are aligned enough to do so.
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July 12, 2013 | Permalink | No Comments