July 1, 2013
Empire State Bidding War?
I was quoted in a Law360 Story on the ongoing Empire State Building saga, Empire State Bids Soar Over Approaching REIT Deal (behind a paywall). It reads in part:
the bidders that have come out of the woodwork since Schron’s left-field offer may be banking on the assumption that Malkin and its shareholders could be willing to part with the iconic skyscraper in an all-cash deal that would avoid some of the drama associated with the REIT proposal.
“The owners … may lose the prestige by losing control of the Empire State Building, but they may end up making more money,” said David Reiss, a professor of real estate law at Brooklyn Law School, on Friday. “They may be more than happy to sell to the highest bidder if they’re going to get more than what the REIT would get them for it.”
The bidders appeared to think the unhappy shareholders would find value in their offers as well.
In connection with his bid, Schron agreed to enter into a contract with Malkin with a $50 million nonrefundable deposit immediately and to close the all-cash deal in 90 days. As part of the deal, investors would be able to choose to remain invested in the building and receive a membership interest in Schron’s Cammeby’s International Group in lieu of cash, according to an offer letter revealed last week.
The offers that followed — one from Thor Equities that was “north of $2.1 billion,” one from a group of investors including Phil Pilevsky and Joseph Tabak, and another from an unnamed bidder — reportedly offered similar assurances.
In addition to the chance to own one of the most famous buildings in the world, experts say those who have thrown their hats into the sudden bidding war for the skyscraper are also keen to take advantage of its retail potential.
“I think there’s a belief that this is a valuable property, and that particularly the retail portion of it — and to some extent the office portion too — is undervalued,” Israel said. “I think they feel they could do a major upgrade.”
Those who may have been previously interested in the building also now have the assurance, after a May court ruling in one of the lawsuits over the proposed deal, that verified the legality of a controversial $100-per-share buyout provision, according to Reiss.
Potential buyers now know “that the buyout provision is valid and … that a good bid can get the requisite votes,” he said.
An appeal of the ruling on the buyout provision remains pending.
July 1, 2013 | Permalink | No Comments
June 28, 2013
BoA Claws Back Clawback
New York County Supreme Court Justice Bransten held, in U.S. Bank National v. Countrywide Home Loans, Inc., no. 652388-2011 (May 29, 2013), that a trustee cannot succeed in getting the defendants (Countrywide entities among others) to repurchase all of the mortgages in a securities pool based on a theory of “pervasive breach.” Rather, she holds that the repurchase obligations are determined by the terms of the agreements governing this MBS transaction.
The trustee asserted that the loans breached the reps and warranties. The deal documents, however, limited the trustee’s remedy for such a breach to repurchase. The Court writes that
Plaintiff invites this Court to look past the absence of contractual language supporting its claim, asserting that it is entitled to the benefit of every inference on a motion to dismiss. While the Trustee is entitled to all favorable inferences with regard to its factual claims on a motion to dismiss, its bare legal conclusion that the Servicing Agreement accommodates its pervasive breach theory is not entitled to deference. (8)
Justice Bransten has ruled on a number of MBS cases involving alleged breaches of reps and warranties and is developing a coherent body of law on this topic. In the Bransten Trio of cases, she rejects the idea that vague disclosures are sufficient to immunize securitizers from liability for endemic misrepresentation. And here, she rejects the idea that vague theories of liability can replace the clear language agreed to by the parties. In good judicial fashion, she is letting parties know that they should pay attention to the text of their agreements and be ready to face the consequences of those agreements.
June 28, 2013 | Permalink | No Comments
June 27, 2013
Casting Light on the Shadow Docket
New York Attorney General Schneiderman’s lawsuit against various HSBC entities, New York v. HSBC Bank USA et al., No. 2013-1660 (May 31, 2013), alleges that HSBC entities have sent hundreds or thousands of NY households into legal limbo because they did not comply with procedural requirements applicable to foreclosure. The complaint outlines these procedural requirements as follows (warning: technical details to follow):
13. At lease 90 days prior to filing a foreclosure action, the lender must send a homeowner a notice that (i) states the homeowner is at risk of losing the home, (ii) sets forth the amount owed and (iii) provides a list of approved housing counseling agencies that may provide free or low-cost counseling. [RPAPL section 1304(1).] The intent of RPAPL, section 1304(1) is to prevent the necessity of a foreclosure action the first place.
14. It the matter is not resolved within 90 days, the lender may file a foreclosure action. [RPAPL section 1304(1).]
15. In order to help homeowners avoid losing their home whenever possible, New York State law, CPLR section 3408(a), provides for the court to schedule a mandatory settlement conference for the homeowner and lender.
16. The express purpose of the settlement conference is “to determin[e] whether the parties can reach a mutually agreeable resolution to help the [homeowner] avoid losing his or her home, and evaluat[e] the potential for a resolution in which payment schedules or amounts may be modified or other workout options may be agreed to, and for whatever other purposes the court deems appropriate.” [CPLR section 3408(a).]
17. The lender or its counsel must appear a the mandatory settlement conference. If counsel appears, the lawyer must have authority to dispose of the case. CPLR section 3408(c) (emphasis added). The parties are required to negotiate in good faith to reach a mutually agreeable resolution, including a loan modification, that will enable the homeowner to stay in his or her home on more affordable terms.
18. Recognizing that the success of a settlement conference will be enhanced if it is heldf as soon as possible before the arrears, interest, fees and penalties owed by the homeowner mount, CPLR section 3408(a) mandates that the court must hold a settlement conference within sixty days after the date that the lender files proof of service.
19. However, proof of service is filed with the County Clerk and not the Uniform Court System, which is responsible for scheduling the mandatory settlement conference. Because the Unified Court System is not aware that a foreclosure action has been commenced until a Request for Judicial Intervention (“RJI”) has been filed, New York Court rules regarding residential foreclosures and mandatory settlement conferences, 22 NYCR section 202.12-a(b)(1), expressly require that the lender file an RJI with the proof of service.
20. Filing the RJI with the proof of service furthers the New York State policy of preventing the loss of homes to foreclosures in two important respects.
21. First, without filing the RJI with the proof of service, the Unified Court System cannot comply with its legal obligation to hold the mandatory settlement conference within sixty days after the date when proof of service is filed.
22. Second, the court sends the RJI, or the homeowner’s name, address and telephone number to an approved housing agency “for the purpose of that agency making the homeowner aware of housing counseling and foreclosure prevention services and options available to them . . .” CPLR section 3408(d). The obvious intent of this requirement is to provide homeowners with the tools and resources that can help them avoid losing their homes. (3-5)
These cases are what is now known as the “shadow docket” because they are in a litigation limbo. it seems that HSBC will have a hard time arguing with the AG’s identification of hundreds of such cases in the four of NY’s 62 counties that it investigated. But it is unclear whether courts will be willing to impose the penalties requested by the AG, including “waiving all accrued interest charges, fees and penalties that accrued, or will accrue, beginning 60 days after the filing of proof of service on the homeowner.” (11) While the failure to hold the settlement conference most certainly has harmed some homeowners, it has also most certainly not harmed others who were not in the position to pay anything at all on a mortgage after losing a job or facing some other serious crisis. There may be a disconnect between the wrong exposed and the remedy requested.
June 27, 2013 | Permalink | No Comments
June 26, 2013
FHFA: Critical Concerns Remain, Future Uncertain
The FHFA issued its 2012 Report to Congress which provides a report of the annual examinations of Fannie, Freddie and the FHLBs. The report documents critical concerns about Fannie and Freddie, none of which are particularly newsworthy at this late date. But the report does have some intimations of what may lay ahead, which are particularly interesting now that the Senate has finally taken up GSE reform.
The report reviews the three goals set in 2012 for the ongoing conservatorship of Fannie and Freddie:
There are some interesting specifics attached to these general goals.
For the Build goal, FHFA has taken the position that there should be a new infrastructure for the secondary mortgage market that operates like a “market utility,” a model bandied about by Henry Paulson when he was Treasury Secretary. (13)
For the Contract goal, FHFA has indicated that it “will continue increasing guarantee fees in 2013 and evaluating how close current guarantee fee pricing is to the point where private capital would be willing to absorb credit risk.” 14)
For the Maintain goal, FHFA has taken the position that the mortgage market should transition to a more “competitive ” model, moving away from one in which “the government touches more than 9 out of every 10 mortgages.” (15)
While not surprising given Acting Director DeMarco’s past statements and actions, this report indicates that at least the FHFA believes that we should move away from such intense government involvement in the mortgage market to a system that better prices risk and which spreads that risk across a range of competitors. At such a high level of generality, I agree that these are worthwhile goals. But as with everything involving housing finance policy — the devil will be in the details.
June 26, 2013 | Permalink | No Comments
Massachusetts Bankruptcy Court Grants Assignee Bank’s Motion For Relief, Denies Debtor’s Assignment Challenges and Home Affordable Modification Program Claim
Aurora, as an assignee of a Chapter 13 debtor’s mortgage, moved for relief from stay to exercise its rights in property, and debtor objected to assignee’s standing and on the ground that his post petition payment default was the result of an improper refusal to modify his mortgage under the government’s Home Affordable Modification Program (HAMP). After considering arguments, the court decided In re Lopez, 446 B.R. 12, 18–19 (Bkrptcy.D.Mass.2011) by granting Aurora’s motion for relief.
The Debtor raised a plethora of questions regarding Aurora’s standing to prosecute the motion for relief. First, he contended that an assignment of the mortgage, without the note, was void. Next, the Debtor argued that MERS, as nominee, could not assign the mortgage because it was merely a title holding entity. Further, he noted that the assignment could not assign the note because MERS never held it.
The Debtor also found fault with the note, complaining that the endorsements were undated, thus concealed the date of the transactions. He further questioned whether the signatory of two of the endorsements could have been an authorized officer as the final endorsement is in blank, the Debtor asserted that the current holder of the note was unknown, making it unclear who authorized MERS to assign the mortgage.
Further, the Debtor attacked the validity of the assignment on the basis that Aurora had not proven that the signatory was sufficiently authorized to execute the assignment.
With respect to HAMP eligibility, the Debtor argued that the monthly payment used to determine borrower eligibility included a monthly payment of principal regardless of whether the expense was included in the Debtor’s current mortgage payment. Furthermore, he contended that Aurora mischaracterized the interest rate as adjustable rather than fixed. As such, the provisions regarding rate resets relied on by Aurora are inapplicable.
In determining whether a creditor has a colorable claim to property of the estate, the court found that Aurora has established a colorable claim to the Property as Mortgagee.
First, the Debtor asserted that the assignment of the mortgage, without the note, was void, but under Massachusetts law, “where a mortgage and the obligation secured thereby are held by different persons, the mortgage is regarded as an incident to the obligation, and, therefore, held in trust for the benefit of the owner of the obligation.” Accordingly, even though MERS never had possession of the Note, it was legally holding the Mortgage in trust for the Note holder.
Second, the Debtor contended that MERS, due to its status as a nominee, could not assign the Mortgage to Aurora. The court rejected this argument as it misapprehended the meaning of “nominee.” Though MERS never held the Note, it could, by virtue of its nominee status, transfer the Mortgage on behalf of the Note holder.
The remainder of the Debtor’s arguments involved challenges to the assignment authorization. Specifically, whether the signatory was authorized to execute the assignment; whether MERS was authorized to assign the mortgage; whether the officers endorsing the note had authorization to do so; whether, given the absence of transaction dates, the endorsements were placed on the note only recently; and the fact that the final endorsement on the note is blank, rendering it a bearer instrument negotiable by transfer of possession alone.
The Court found that the Debtor did not affirmatively state that there were any defects in Aurora’s chain of title; rather he merely suggested that an evidentiary hearing is necessary to be sure. This, the court noted, was not the standard.
Having determined that Aurora is a party in interest, the court considered whether relief from stay was warranted. The court found that the Debtor had not articulated any theory through which he could have asserted standing to obtain the relief he sought.
June 26, 2013 | Permalink | No Comments
Massachusetts Trial Court Grants Defendant Bank’s Motion For Summary Judgment in Service Member Civil Relief Act Case
The Plaintiff in Randle v. GMAC, No. 09 MISC 408202 GHP filed a complaint seeking, among other things, a declaration that defendant GMAC Mortgage did not hold any claim secured by a mortgage recorded with the County Registry, and lacked standing to bring an action against the plaintiff pursuant to the Service Members Civil Relief Act.
Summary judgment was sought by the defendant and granted. It was undisputed that GMAC was the current holder of the mortgage, and therefore there were only two issues and one sub-issue left in contention.
The first issue was whether the plaintiff’s claimed right to challenge the standing of GMAC to have filed the Service Members Case required a judgment in the previous case, declaring the foreclosure invalid; and whether the plaintiff was entitled to the ninety-day right to cure set out in state law.
In deciding the judgment from the Service Member case, the court considered the plaintiff’s argument that due to the chronology of the assignments of the mortgage, and the recording with the registry, relative to the filing and prosecution of the Service Member’s case by GMAC, and also due to evident discrepancy in the date the judgment in the Service Member case was entered on the docket, the foreclosure sale by GMAC cannot be valid and cannot be effective to pass a title.
The court rejected this line of argument and found that such an argument ignored the long established limited scope of Service Members proceedings in Massachusetts. The court noted that a foreclosure is not invalid because title passed on a date prior to the issuance of the judgment in a Service Members case, which has a limited scope and purpose does not permit litigation of broader issues involving the relationship between the borrower and the lender.
Next, the court considered the standing of the mortgagee. The plaintiff claimed a right to challenge the standing of GMAC to have filed the Service Members case. GMAC argued that the standing of a mortgagee to commence a Service Member action was not a live issue in determining the validity of a foreclosure when the mortgage was the record holder of the subject mortgage at the time of the foreclosure. The court agreed with GMAC’s argument.
Lastly, the plaintiff argued that GMAC was unable to foreclose because it did not provide the plaintiff with a 90-day the notice and opportunity to cure a default, as mandated by state law. However, upon review of the designated state law, the court found that the plaintiff was not entitled to such notice, because the specified state law did not apply “to such mortgages whose statutory condition had been voided prior to May 1, 2008.”
June 26, 2013 | Permalink | No Comments
Massachusetts Trial Court Limits Ibanez Holding by Rejecting Plaintiff’s Proposition That Foreclosing Party Needs to Hold The Mortgage in Order to Bring a Service Member’s Action
By Ebube Okoli
This action commenced in this court on August 12, 2009. The plaintiff in Randle v. GMAC, No. 09 MISC 408202 GHP, Allison Randle, sought to prevent a foreclosure sale by defendant GMAC Mortgage, LLC [GMAC], and asked the court for judgment declaring that GMAC did not hold any claim secured by a certain mortgage recorded with the county registry of deeds. Therefore GMAC lacked standing to bring such an action against plaintiff Randle pursuant to the Servicemembers Civil Relief Act, and under legislation enacted in Massachusetts under and pursuant to that federal law.
Partially relying on the holding from U.S. Bank Nat’l Assoc. v. Ibanez, 17 LCR 202 (2009), the plaintiff claimed that she had a right to challenge the standing of GMAC to have filed the Servicemembers Case as a vehicle to vindicating this right, she had filed the Miscellaneous Case.
In relying on Ibanez the court found that the plaintiff confused or conflated the issue in Ibanez with the issues in her case. In Ibanez two foreclosures were determined to be invalid because the foreclosing parties failed to comply with the provisions of G.L. c. 244, § 14. These provisions required that requisite notice be given which “identifies the holder of the mortgage.” See Ibanez, 17 LCR at 204 [failure to identify holder of mortgage renders sale void as matter of law]; Ibanez, 17 LCR at 206-07 [foreclosure invalid where foreclosing party named in notice had not been assigned mortgage either on or off record].
In reaching this decision in Ibanez, the Land Court determined that a bank did not “hold” a mortgage, within the meaning of G.L. c. 244, §14, before a valid assignment had been executed and delivered. However, it was also noted that nothing from the Ibanez decision stood for the proposition that a foreclosing party needs to “hold” the mortgage to file a complaint under the Servicemembers Civil Relief Act for a determination that the mortgagor or owner is not entitled to the benefits of the federal Act, and the plaintiff’s complaint pointed to neither an authority in support of such a contention nor precedent in support of her contention.
Accordingly, the court in the current case decided there was no need to consider the question of whether GMAC Mortgage had standing to commence the Servicemembers Case, deciding that the answer to such a question could not and did not affect the outcome in such a case.
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June 28, 2013 | Permalink | No Comments