June 21, 2013
Massachusetts District Court Interprets Ibanez Narrowly in Deciding That Plaintiff-Homeowner Lacked Standing to Challenge Bank’s Standing to Foreclose
This action arose out of an attempted foreclosure by defendant Aurora Loan Services on plaintiff David Kiah’s property. Based on the recent holding from U.S. Bank National Ass’n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40 (2011), Kiah sought a declaratory judgment to make the “mortgage on record legally null and void.” The Massachusetts District Court in deciding Kiah v. Aurora Loan Services, LLC, No. 10-40161-FDA, 2011 WL 841282 (D.Mass. Mar.4, 2011) considered the Massachusetts Supreme Court’s holding from Ibanez, along with the plaintiff-homeowners’ arguments, and concluded that granting the defendant’s dismissal was proper.
The court found that the plaintiff’s claims were merit-less, as he challenged neither the note nor the note’s assignment to Aurora. As expressed in Ibanez “By law, the transfer of the note automatically transfers an equitable interest in the underlying mortgage, even without a formal assignment.” An equitable right to the mortgage was thus transferred to Aurora along with the note.
The court noted that the Ibanez holding did not require a reconsideration of the lower court’s judgment. In Ibanez the Massachusetts Supreme Court held that a foreclosure sale made by a party who holds the note but not the mortgage is void as a matter of law. In that case, the note holder provided no evidence of assignment prior to foreclosure. However here, there was a facially valid assignment of the mortgage from MERS to Aurora prior to the foreclosure sale. To the extent the assignment was defective, the court interpreted Ibanez required, at most, that a confirmatory assignment be executed and recorded.
June 21, 2013 | Permalink | No Comments
June 20, 2013
Servicing Fraud Claim Survives Motion To Dismiss
Judge Gonzalez Rogers issued an opinion in Ellis v. J.P. Morgan Chase, No. 4:12-cv-03897-YGR (N.D. Cal. June 13, 2013) in which she denied a motion to dismiss a fraud claim in this class action lawsuit arising from Chase’s servicing business. The plaintiffs allege that “Chase engaged in fraudulent practices by charging marked-up or unnecessary fees in connection with Defendants’ home mortgage loan servicing businesses.” (1)
The opinion states that
Plaintiffs have alleged numerous instances where deficient information was provided and could have been revealed—namely, in the mortgage agreements themselves, in the mortgage statements reflecting the marked-up fees, or during communications with Chase where it told Plaintiffs that the fees were in accordance with their mortgage agreements. Plaintiffs provide specific dates for statements in which they believe they were charged the marked-up fees, and allege they paid the fees without knowing their true nature. Plaintiffs describe the content of the omission as the failure to inform them that the fees were marked-up and that the majority of the fees ultimately went to Chase, and not third-party vendors performing the services. As discussed above, Plaintiffs have also sufficiently alleged that they did pay the marked-up fees. (36)
It continues,
Defendants allegedly demanded payment for fees that, in some cases, were never actually incurred. Moreover, Plaintiffs allege that false representations were made to borrowers when Chase told them that the fees were in accordance with their mortgage contracts—this is distinguishable from an omission. As alleged, the fraud is equally about the failure to disclose material information as it is that the amounts demanded on mortgage statements were false because they did not correspond to the actual amounts owed pursuant to the mortgage agreements relied upon by Defendants. Based on the alleged nature of the fraudulent scheme, the lack of an explicit “duty to disclose” is not dispositive in light of affirmative fraud that is also alleged. (37, citations omitted)
Denying the motion to dismiss this claim exposes servicers to great potential liability for their acts and omissions.
June 20, 2013 | Permalink | No Comments
June 19, 2013
The Devil is in the Statute of Limitations
NY Supreme Court Justice Kornreich (N.Y. County) issued an opinion ACE Securities Corp. v. DB Structured Products Inc., No. 650980/2012 (May 13, 2013) that diverges in approach from an earlier SDNY opinion as to whether the statute of limitations runs “from the execution of the contract.” (5) The case concerns allegations that an MBS securitizer made false representations about the loans that underlay the MBS.
Kornreich held that the statute of limitations begins to run when the MBS securitizer (a Deutsche Bank affiliate) “improperly rejected the Trustee’s repurchase demand” so long as the Trustee did not “wait an unreasonable time to make the demand.” (7) (On a side note, Kornreich also held that the plaintiff in such a case is not required “to set forth which of the specific loans are affected by false” representations in a breach of contract claim. (7))
This really opens up the statute of limitations under NY law. There has been a lot of speculation that the flood of lawsuits arising from the Subprime Boom would have to come to an end because the statute of limitations covering many of the claims was six years. A variety of developments has extended the possibility of filing a suit. There is FIRREA‘s ten year statute of limitations. There is NY’s Martin Act, with its lengthy statutes of limitation. And now there is this expansive reading of NY’s statute of limitations for breach of contract actions.
Although one might think that all of the good cases have been filed already, you never know. And with the ACE Securities Corp. case, we can see how a case can be filed more than six years after the contract was entered into, under certain circumstances.
June 19, 2013 | Permalink | No Comments
Rhode Island Superior Court Deems PennyMac Foreclosure Proper
In Rutter v. MERS, et al., C.A. No. PC 10-4756 (R.I. Super. March 12, 2012) the Rhode Island Superior Court held that PennyMac’s foreclosure sale was proper, as the court upheld Rhode Island case law supporting the validity of MERS’s assignments and subsequent foreclosures.
In July 2007, the Rutters procured a loan with First National Bank of Arizona (FNBA) as lender. MERS was designated the mortgagee acting as nominee for the lender, FNBA. The loan was ultimately assigned by MERS to PennyMac.
The Rutters defaulted in November 2008, and received proper notice of both the intent to foreclose and the foreclosure sale, scheduled for February 2010. Although the Rutters attempted to submit a qualified written request under RESPA, PennyMac found their request insufficient and proceeded with the foreclosure sale. After the sale, the Rutters filed the within action to quiet title and sought damages for alleged RESPA violations by MERS and PennyMac, who counterclaimed for slander. Here, the court considers MERS and PennyMac’s motion for summary judgment, arguing that notice of foreclosure and the foreclosure sale were proper and that the assignment to PennyMac was valid. The motion further argues that even if the assignment were invalid, the Rutters lack standing to challenge it.
The court first considers the role MERS plays in current mortgage transactions, giving a brief history of MERS’s origination and its operational aspects. MERS was designed to promote efficiency and accuracy in transactions and recordkeeping, though the system is not without fault. Although some courts differ on how to manage MERS-affected foreclosures, the “clear majority” holds the MERS foreclosures are valid. The court criticizes the Rutters’ argument as lacking substance and failing to distinguish recent case law. The Rutters’ argument merely claimed that those decisions enforcing the MERS foreclosures were “flawed.” Rhode Island courts have continuously held that “foreclosure sales conducted by MERS or one of MERS’s assignees [a]re valid.” Kriegel, 2011 WL 4947398, slip op. at 5. Here, the clear and unambiguous language in the Rutters’ mortgage is identical to the language of mortgage documents in precedent MERS cases, giving MERS statutory power with the right to foreclose as mortgagee and nominee of the lender.
The Rutters raised the show me the note argument claiming that the note and mortgage must be held by the same entity under Rhode Island law, citing case law only from other states, such as Eaton v. Fed. Nat‟l Mortg. Ass‟n, No. 11-1382 (Mass. Super. Jun. 17, 2011). The court cites Bucci, which held that requiring an entity to possess both the note and mortgage would prevent loan servicing, which is a major part of the mortgage industry. 2009 R.I. Super. LEXIS 110. The court did not, however, have to do decide whether the contradicting Eaton decision was binding in Rhode Island because PennyMac held both the note and mortgage at the time of the foreclosure sale.
As to the assignment from MERS to PennyMac, the court found the assignment valid under Rhode Island law. Even if the assignment were found to be invalid, the Rutters, as a non-party to the assignment lack standing to challenge its validity. Regarding allegations of “robosigning,” the court cited Payette, stating that the “contention that MERS’s assignments were executed by an unauthorized signatory is a mere conclusion or legal opinion that is insufficient to create a genuine issue of material fact to defeat [a] Motion for Summary Judgment.” 2011 WL 3794700, slip op. at 19. Furthermore, MERS and PennyMac set forth the full chain of the note’s indorsements, which are presumed authentic.
The court found that PennyMac responded properly in rejecting the Rutters’ QWR attempt under RESPA, as RESPA no longer applied and the Rutters failed to prove that they suffered any actual damages. The fact that the Rutters submitted their QWR just days before the scheduled sale is emphasized heavily, as they had over 2 years to submit the QWR to PennyMac after their default. The Rutters also failed to act on a deed-in-lieu of foreclosure agreement which would have extended their occupancy in the property by 60 days.
The court granted MERS and PennyMac’s motion for summary judgment, holding that plaintiff homeowners failed to prove any existence of material factual disputes.
June 19, 2013 | Permalink | No Comments
June 18, 2013
CFPB Complaints Vary by State, Unsurprisingly
The Baltimore Sun quoted me today in Marylanders Aren’t Shy About Complaining: New Federal Consumer Agency Finds State Residents Quick to Gripe About Mortgages, Credit Cards, Banks. The story opens,
Marylanders are big complainers.
At least when it comes to the financial services they receive.
Maryland ranked No. 2 in the nation in mortgage complaints per capita, second only to New Hampshire, for grievances lodged with the Consumer Financial Protection Bureau. The state came in third for grousing about credit cards and placed fifth for gripes about banks and service.
The CFPB’s database, launched toward the end of 2011, catalogs thousands of gripes about banking, credit cards and mortgages that the newfound agency has received. The agency forwards complaints — ranging from disputes about billing and interest rates on credit cards to incorrect information on credit reports and problems with loan payments — to the businesses involved. Not all complaints are resolved.
Why are Marylanders more motivated to complain? Experts point to the state’s higher education levels, relative wealth and proximity to the do-gooders in Washington, D.C.
“Education level predicts complaint behavior, and this is a very well-educated area,” said Rebecca Ratner, a professor of marketing at the University of Maryland’s Robert H. Smith School of Business.
The more educated consumers are the more likely they are to feel that they can affect outcomes and know what steps to take to complain, Ratner said.
Consumers here also are more aware of the new agency because of our proximity to Washington, the CFPB’s home, she said.
Indeed, Washingtonians also are big whiners, ranking No. 1 in complaints about bank accounts and credit cards and coming in third for mortgage grievances.
Consumers near the Beltway also may have more faith in the government to correct problems, given that they are likely to have friends and neighbors who work for Uncle Sam, said David Reiss, a professor at Brooklyn Law School with an expertise in consumer finance.
“The federal government has a face when you live in Maryland and D.C.,” he said.
Maryland also has the highest median income in the country. Moneyed consumers, Reiss said, are more inclined to speak up when there’s a problem.
“Wealthier people are more likely to expect more from financial institutions,” he said.
They also know that financial institutions are regulated and can be held accountable, he said.
The rest of the story is here.
June 18, 2013 | Permalink | No Comments
June 17, 2013
Why We Need The CFPB
Judge Illston (N.D. CA.) has preliminarily approved a settlement of a class action in Jordan et al. v. Paul Financial LLC et al., No. 3:07-cv-04496 (June 14, 2013). The class action arises from lender practices during the Subprime Boom of the early 2000s. The class is composed of
All individuals who within the four-year period preceding the filing of Plaintiffs’ original complaint through the date that notice is mailed to the Class (the “Class Period”), obtained an Option ARM loan from Paul Financial, LLC that either (a) was secured by real property located in the State of California, or (b) was secured by real property located outside the State of California where the loan was approved in or disseminated from California, which loan had the following characteristics: (i) the yearly numerical interest rate listed on page one of the Note is 3.0% or less; (ii) in the section entitled “Interest,” the Promissory Note states that this rate “may” instead of “will” or “shall” change, (e.g., “The interest rate I will pay may change”); (iii) the yearly numerical interest rate listed on page one of the Note was only effective through the due date for the first monthly payment and then adjusted to a rate which is the sum of an “index” and “margin;” and (iv) the Note does not contain any statement that paying the amount listed as the “initial monthly payment(s),” will definitely result in negative amortization or deferred interest. (2)
Of the problems alleged by the lead plaintiffs and given credibility by the judge’s order, the most disturbing is that the lender described a rate that was fixed for only one month as a “yearly” one. It is hard to see how consumers can parse the language of a mortgage note on their own, especially in California where borrowers typically are not represented by counsel in a residential real estate transaction.
Many commentators claim that more disclosure and financial education are all that are necessary to ensure that consumers have access to credit on reasonable terms. But residential finance transactions are too complex under the best of circumstances. And they become just plain abusive when lenders describe an interest rate that adjusts after one month as “fixed.” And they become too predatory when an interest rate that adjusts monthly is described as a “yearly” one.
This case, arising from lender behavior during the Boom, reminds us why we now have the Consumer Financial Protection Bureau, post-Bust. When pundits inevitably claim that even reasonable consumer protection regulation initiatives are too paternalistic and too restrictive of credit, let’s remind them of this case and the many others like it.
June 17, 2013 | Permalink | No Comments
