April 19, 2013
Robo-Signing Complaints Must Sing A Different Toone
The Court of Appeals for the 10th Circuit took a hard look at a complaint alleging robo-signing misbehavior relating to a promissory note and its various endorsements in Toone v. Wells Fargo Bank, N.A. et al., (Mar. 8, 2013, No. 11-4188). The court noted that
Ordinarily, we accept the well-pleaded factual allegations of the complaint as true for purposes of resolving a motion under Rule 12(b)(6). But there are exceptions to this rule. Courts are permitted to review “documents referred to in the complaint if the documents are central to the plaintiff’s claim and the parties do not dispute the documents’ authenticity.” The Note falls squarely within this exception: We may consider it in evaluating the plausibility of the Toones’ claims because it is mentioned in the complaint, it is central to their claims, and its authenticity is not disputed. (7, citations omitted)
The Court found that
The face of the Note contradicts the Toones’ allegations. The first endorsement states that Accubanc is Premier’s “agent and attorney in fact,” Aplt. App., Vol. II at 209 (capitalization omitted), and the Toones present no argument why the endorsement would be invalid when signed by Premier’s agent. Likewise, the other endorsements look regular on their face. Of course, the endorsements may be forged or otherwise fraudulent. But the complaint alleges no facts from which one could infer such misconduct. It does not explain what “robo-signing” is or why it renders the endorsements fraudulent, let alone include factual content indicating that it occurred in this case.(8)
The 10th Circuit now joins many other courts in finding that “bald allegations of “robo-signing” do not suffice under the Rule 8(a)(2) standard set by Iqbal.” (8)
April 19, 2013 | Permalink | No Comments
April 18, 2013
Judiciary’s Take on the Subprime Zeitgeist
The 2nd Circuit’s opinion in FHFA v. UBS Americas Inc. et al. (April 5, 2013, No. 12-3207-cv) offers an interesting window into how at least some members of the judiciary understand the Subprime Crisis. On its face, the case was about some technical issues of procedure — whether the case was untimely and whether the FHFA lacked standing. The Court’s reasoning, however, delved into some deep issues.
In discussing the timeliness issue, the Court concluded that given the statute’s plain language and the particular provision as a whole, “a reasonable reader could only understand” it to resolve the issue in favor of the FHFA. (17) Then, seemingly gratuitously, the Court delved into the legislative history of the statute. But this legislative history seemed to be drawn as much from the Court’s understanding of recent events as from the record. It wrote
Congress obviously realized that it would take time for this new agency to mobilize and to consider whether it wished to bring any claims and, if so, where and how to do so. Congress enacted HERA’s extender statute to give FHFA the time to investigate and develop potential claims on behalf of the GSEs — and thus it provided for a period of at least three years from the commencement of a conservatorship to bring suit.
Of course, the collapse of the mortgage-backed securities market was a major cause of the GSEs’ financial predicament, and it must have been evident to Congress when it was enacting HERA that FHFA would have to consider potential claims under the federal securities and state Blue Sky laws. It would have made no sense for Congress to have carved out securities claims from the ambit of the extender statute, as doing so would have undermined Congress’s intent to restore Fannie Mae and Freddie Mac to financial stability. (17-18)
I agree with the Court on the substance, but I found it interesting that certain things about the legislative history were “obvious,” certain facts “must have been evident” and alternative interpretations would make “no sense.” I am not sure if I could go that far.
This version of legislative history does, however, reflect a view that Congress intended the Executive Branch to take extraordinary measures to hold financial institutions accountable for their role in the financial crisis.
April 18, 2013 | Permalink | No Comments
Washington State Court Holds that Defendants Could Not Challenge Chase’s Authority to Foreclose During an Unlawful Detainer Action
In JPMorgan Chase Bank, N.A. v. Pace, 163 Wash.App 1017 (2011), the Court of Appeals of Washington affirmed a lower court’s ruling granting Plaintiff summary judgment.
In the case at hand, Defendants owned real property in Washington. In February 2005, they executed a note and deed of trust in favor of Long Beach Mortgage Company. Through a series of transactions, the plaintiff, JPMorgan Chase Bank N.A. (Chase), became the holder of the defendants’ note. The defendants stopped paying their mortgage in October 2008. Chase issued a notice of default in March 2009 and notices of foreclosure and trustee’s sale in April 2009. The notices warned that the property would be sold at auction on July 24, 2009 unless the defendants sought to restrain the sale under Washington law. As required by law, Chase also advised that “failure to bring such a lawsuit may result in a waiver of any proper grounds for invalidating the Trustee’s sale.” The defendants did not contest the default or attempt to restrain the trustee’s sale. Chase acquired the deed at the sale, and on August 24, 2009, Chase recorded the deed and issued a notice to vacate. When the defendants refused, Chase commenced and unlawful detainer action.
The defendants argued that Chase lacked standing to bring the unlawful detainer action because Chase had no authority to foreclose on the note. The court, however, rejected this argument and stated that the defendants could not litigate Chase’s authority to foreclose during an unlawful detainer action. Rather, an unlawful detainer action under Washington law “is a summary proceeding for obtaining possession of real property. The court’s jurisdiction is limited to determining which party is entitled to possession and ancillary issues such as damages and rent due.” The court went on to say that if the defendants believed Chase lacked authority to foreclose, Washington law required them to raise the issue before the trustee’s sale. The court concluded that, by their silence, the defendants waived any objection to the foreclosure proceedings, and unlawful detainer actions “do not provide a forum for litigating claims to title.” Thus, the court affirmed the grant of Chase’s summary judgment.
April 18, 2013 | Permalink | No Comments
April 17, 2013
Are Baby Steps Enough for Fannie and Freddie?
S&P issued a research report, The Implementation Of The FHFA’s Plan For Fannie Mae And Freddie Mac Still Has A Long Way To Go. The report addresses a number of recent events that will impact any reform program for the two Government-Sponsored Enterprises. S&P strike an optimistic note in the opening lines: “The U.S. government continues to gradually make progress on the reform of the” two Enterprises.” (1) It is unclear to me that we are actually making any progress at all. S&P seem to acknowledge as much a few paragraphs later: “Fannie and Freddie are perhaps more entrenched in the housing market today than ever before. Including Ginnie Mae, the government-related housing entities have combined to purchase or guarantee more than 90% of mortgages underwritten in the U.S. since the housing crisis, up from about 50% before the crisis.” (1)
S&P notes that Fannie and Freddie’s financial health is improving as they “are now generating earnings, which reduces the urgency to try to minimize taxpayer costs.” (1) Their underlying loans are also performing much better: “At Freddie, loans originated after 2008 account for 63% of its single-family guarantee portfolio and have a seriously delinquent rate of 0.39%, versus 9.56% for loans originated from 2005–2008. At Fannie, loans originated after 2008 account for 66% of its single-family guarantee portfolio and have a seriously delinquent rate of 0.35%, versus 9.92% for loans originated from 2005–2008.” (2)
S&P takes heart that change is afoot because of “the new key aspect of the FHFA’s plan to build a secondary market infrastructure is the proposed creation of a joint venture (JV) between Fannie and Freddie. This JV would have a CEO and chairman that are independent from Fannie and Freddie, and its physical location would also be separate. The GSEs would initially own, operate, and fund this unit, but the JV also would be able to eventually act as a common securitization platform for the entire market, instead of a proprietary platform. Furthermore, the ownership structure would be one that is easily sold or that policymakers can use in housing finance reform once Fannie and Freddie have less of a role in the market.” (2-3)
S&P characterizes the federal government’s approach as “taking baby steps.” (4) I would characterize it as just so much muddling about.
April 17, 2013 | Permalink | No Comments
April 16, 2013
Be Careful What You Contract For . . .
Justice Ramos of the Commercial Division of the New York State Supreme Court NY County) issued an opinion in Assured Guar. Corp. v. EMC Mtge., LLC, 2013 NY Slip Op. 50519(U) (April 4, 2013). Assured, a monoline insurer, “alleges that Bear Stearns grossly misrepresented the risk of the underlying pooled loans” that Bear Stearns had used as collateral in RMBS deals that it had underwritten. (1) Assured alleged that loan warranties in nearly 90 percent of the loans in one of the pools at issue had been breached. The court noted that more than half of the loans in that pool had either “defaulted or are seriously delinquent.” (2) Bear Stearns’ successor-in-interest refused to repurchase the breaching loans.
The Court found that the deal documents make “clear that the parties intended to limit Assured’s remedies for breach of the representations and warranties relating to the quality and characteristics of the pooled loans to the Repurchase Protocol . . .” and the Court indeed so limited Assured’s remedies. (4) Justice Ramos relied on the opinion by Judge Rakoff (SDNY) in Assured Guar. Mun. v. Flagstar Bank, that reached a similar result.
One wonders how monoline insurers will seek to change deal documents going forward. Will they be so willing to treat representations and warranties as mere risk allocation devices between the parties? As risk allocation devices, the reps and warranties typically make only limited remedies available. Or will they demand that they be treated as something more — perhaps as actual representations and warranties about the underlying transaction and upon whose shoulders broader remedies could be hung?
April 16, 2013 | Permalink | No Comments
Eleventh Circuit Holds that Claim under TILA is Time-barred
In Johnson v. Mortgage Electronic Registration Systems, Inc., 252 Fed. Appx. 293 (11th Circ. 2007), the Eleventh Circuit dismissed borrower’s claims under the Truth in Lending Act (“TILA”), because they were time-barred.
On March 17, 2001 Johnson executed a loan from Homegold Financial Inc. The loan was transferred to Household Mortgage Services (“Household”) and MERS held the security deed as nominee for Household. Plaintiff filed a complaint alleging that Household and MERS “failed to make certain disclosures required by [TILA] and sought rescission of her loan and other remedies.” MERS moved to dismiss and the District Court granted summary judgment in favor of MERS. Plaintiff appealed.
Under TILA, the borrower is entitled to a right of rescission, which is “triggered” either (1) by notifying the creditor or (2) “in the face of a judicial or non-judicial foreclosure.” Both of these rights to rescission expire upon the three-year anniversary of the loan transaction. Since Johnson exercised her right to rescission three years and six months after executing the loan, her claim is barred. Since she did not show fraud, the district court properly granted summary judgment.
April 16, 2013 | Permalink | No Comments
Georgia District Court Allows Homeowner Plaintiff to Amend Fraud Claim but Dismisses Wrongful Disclosure Claim
In LaCosta v. McCalla Raymer, Civil Action No. 1:10-CV-1171-RWS, 2011 WL 166902, Civil Action (N.D. Ga. January 18, 2011), the Court ruled that Homeowner Plaintiff could amend her fraud claim, but dismissed Plaintiff’s other claims stemming from an alleged modification on her loan and subsequent foreclosure.
Plaintiff executed a loan and note from Home America Mortgage, Inc. in 2008 and granted a security deed to MERS, which granted MERS power of sale and the power to foreclose on the property. Subsequently, MERS assigned the security deed to BAC Home Loans {“BAC”). Plaintiff attempted to arrange a mortgage modification with BAC and represents that BAC agreed to a monthly payment of $837.00 until the modification was finalized. Despite paying $837.00 per month, the loan was declared to be in default. BAC initiated foreclosure and Plaintiff filed claims objecting to the foreclosure. Plaintiff also moved for a temporary restraining order, while Defendant moved to dismiss for failure to sufficiently state a claim.
The District Court denied Plaintiff’s motion for a temporary restraining order since Plaintiff did not show “a substantial likelihood of success on the merits of her wrongful foreclosure claim.” The Court dismissed Plaintiff’s claim for wrongful disclosure, because “Plaintiff unequivocally granted MERS the power to sell the Property if she were not able to comply with the terms of the Note,” and for defective notice of foreclosure sale since Georgia law does not assert that “a secured creditor may not utilize an agent to serve notice on a debtor of the initiation of foreclosure proceedings.” Further, the Court dismissed Plaintiff’s claim for an invalid assignment because Plaintiff cited no relevant Georgia Statute or relevant case law that stated BAC needed to have an ownership interest in the Deed and the Note. Finally, the Court dismissed Plaintiff’s FDCPA Claim because notice of the foreclosure to Plaintiff was proper.
With regard to Plaintiff’s fraud claim “based upon representations supposedly made by Defendant BAC concerning a modification of [Plaintiff’s] mortgage,” the Court gave Plaintiff an opportunity to amend her Complaint since the Complaint currently fails to “provide the requisite level of detail needed to adequately allege fraud.”
