April 2, 2013
Reiss on CFPB Complaint Database
E-Commerce.com has a story on this tempest in a teapot, Finance Companies Bristle at Public Airing of Consumer Complaints. It reads in part as follows:
The angst of the finance industry isn’t universal, however.
This database is evolutionary — not revolutionary — in that it expands what has been done with credit card companies, noted David Reiss, a professor of law at Brooklyn Law School.
“As a general rule, regulators should favor disclosure, which is integral to most consumer protection regimes,” he told CRM Buyer. “Banks and financial institutions have focused on the way that the database can be used inappropriately — allowing, for instance, adversaries to build an unverified record of wrongdoing by financial institutions.”
There is no evidence that this has occurred so far, Reiss said — and if it does occur, it can be addressed.
April 2, 2013 | Permalink | No Comments
April 1, 2013
Motion to Dismay
A recent Opinion and Order by Judge Forrest (SDNY) in IBEW Local 90 Pension Fund v. Deutsche Bank AG gives hints of some of the challenges facing plaintiffs in cases alleging misrepresentations and a scheme to defraud investors.
Like many other cases alleging misrepresentation (here, here and here for instance), this case has some juicy examples/. They include the following:
- Greg Lippmann, Deutsche Bank’s top gobal RMBS trader, described Deutsche Bank’s RMBS products as “crap” and shorted it to the tune of billions of dollars. (6)
- Lippmann described the process of selling CDOs based on RMBS as a “ponzi scheme.” (7)
- Lippmann described some Deutsche Bank CDOs as “generally horrible.” (8)
Because this Opinion and Order is considering a motion to dismiss, it treats the allegations as true for the purposes of the motion. But the opinion does not consider the back story here (not that it should). And the back story undercuts the plaintiff’s case quite a bit, such that it illustrates the markedly different standards that would apply if this case were to be decided on a motion for summary judgment or if it went to trial.
So what is the back story? Well, Greg Lippmann is no faceless Wall Street operator. Rather, he is one the handful of Wall Street rebels who bet big against the conventional wisdom about subprime mortgages and was profiled by Michael Lewis in the Big Short.
So imagine how the defense will contextualize these alleged statements. Lippmann has been well-documented to have been a lone wolf within Deutsche Bank. In fact, Deutsche Bank was overall long on these products. Deutsche Bank was acting responsibly by hedging its exposure across the whole bank, even if some desks and units were at odds with each other.
Bottom line: this plaintiff will have a tough row to hoe as this case proceeds past the motion to dismiss phase.
April 1, 2013 | Permalink | No Comments
March 31, 2013
The Michigan Court of Appeals Holds that Sheriff’s Sale was Invalid because MERS Foreclosed on Homeowner’s Property using Nonjudicial Foreclosure by Advertisement even though MERS was only a Mortgagee
In Richard v. Schneiderman & Sherman, PC, 294 Mich. App. 37, 818 N.W.2d 334 (2011), the Michigan Court of Appeals held that MERS foreclosure by Advertisement was void ab initio.
Aaron Richard, homeowner, appealed an order granting summary disposition in favor of Schneiderman & Sherman, P.C., GMAC Mortgage, and MERS. Richard purchased the property in question through a $50,000 loan from Homecomings Financial network, Inc. The loan was secured by a May 4, 2006 mortgage with MERS, as nominee of Homecomings. On October 9, 2009, Schneiderman, acting as GMAC’s agent, mailed Richard a notice stating that his mortgage was in default and explained his right to request mediation. Ultimately, MERS began nonjudicial foreclosure by advertisement and purchased the property subsequent to the sheriff’s sale.
The court noted that in Residential Funding Co., LLC v. Saurman, the court held that MERS was not entitled to use a foreclosure by advertisement when it does not own the underlying note. The question here was whether Saurman should be granted full or limited retroactivity. The general rule is that judicial decisions are to be given complete retroactive effect. Cases given limited retroactivity apply in pending cases where the issue had been raised and preserved. Cases with full retroactivity apply to all cases then pending. Here, plaintiff contested the foreclosure, but he did not specifically raise and preserve the issue of whether MERS had the authority to foreclose by advertisement. Further, the court stated that the decision in Saurman was not tantamount to a new rule of law because it did not overrule a law or statute. Therefore, the court held that Saurman should be given full retroactive effect.
Thus, because MERS did not own the underlying note prior to the foreclosure by advertisement; Richard filed his claim during the redemption period; and since there was no evidence of a bona fide purchaser, Richard was entitled to relief under Saurman. The court reversed the trial court’s grant of summary disposition, vacated the foreclosure proceeding, and remanded the case for further proceedings.
March 31, 2013 | Permalink | No Comments
Sixth Court of Appeals Clarifies Recording Fee Standing Issue
In Christian County Clerk, et al. v. Mortgage Electronic Registration Systems, Inc., et al., No. 12-5237 (6th Cir. 2013), the United States Sixth Circuit Court of Appeals heard a case on appeal from the United States District Court for the Western District of Kentucky. The case involved two county clerks suing MERS, its parent company (MERSCorp), and a number of financial institutions to collect the two counties’ lost recording fees as a result of MERS. The District Court dismissed the action under rule 12(b)(6) because the court found there is no private right of action under the relevant Kentucky statute that requires mortgage assignments be filed for recording with the county clerk’s office.
On appeal, the plaintiffs argued that the defendants either willfully or negligently violated Kentucky’s recording fee statute.
The court found that the Kentucky statutory scheme recognized three categories of persons protected under the recording fee statute: existing lienholders and lenders who record their security interests in the land to give notice of their secured status; prospective lienholders and purchasers; and property owners and borrowers whose loans have been satisfied. The court further found that the plaintiffs do not fall into the categories listed.
Next, the court rejected the plaintiff’s argument that officers charged with maintaining property records are within the class of persons protected by the statute. It found that the statute only permits causes of action for persons protected by statutes, not the public officers who administer the law.
The plaintiffs argued that the Kentucky legislature stated that its statutes “shall be liberally construed with a view to promote their objects and carry out the intent of the legislature.” However, the court found no indication in the legislative history that the legislature intended to protect county clerks so they rejected this argument as well.
The court then states that property owners and the Kentucky attorney general, “who presumably has the power to act to enforce the state’s statutes,” are parties that would have standing in this case.
The court then addressed the plaintiff’s claim of civil conspiracy and dismissed the claim because the cause of action required an underlying tort. In this case, since the negligence per se argument was dismissed, the civil conspiracy claim is dismissed as well.
Finally, the court dismissed the unjust enrichment claim because the action was based on the alleged willful violation of the recording statute, not on an implied contract as required for an unjust enrichment claim.
As a result, the court affirmed the district court’s dismissal of the case.
March 29, 2013 | Permalink | No Comments
March 28, 2013
Tennessee Court of Appeals Dismisses Homeowner Complaint as Unripe
In Mills v. First Horizon Home Loan Corp., No. W-2010-00310-COA-R3-CV, 2010 WL 4629610 (Tenn. Ct. App. Nov. 16, 2010), the court dismissed the homeowners complaint as unripe for declaratory judgment. It did not find that the mortgage would be unenforceable based on the involvement of MERS.
The appeal arose from a complaint to quiet title filed by the homeowners against First Horizon Home Loan Corporation MERS. The homeowners had two mortgages and asserted that, although the second mortgage held by First Horizon on their residence had been satisfied and the deed of trust released, First Horizon had failed to surrender the note as required by Tennessee Code Annotated § 47-3-501(b). Moreover, they were told that the second “note” was destroyed, therefore under Tennessee Code Annotated § 47-3-309, First Horizon had a burden to prove that the second mortgage was enforceable “when the note went missing.” The homeowners also argued that despite language in the deed of trust, MERS cannot be a beneficiary of the first mortgage deed because it never had a right to their mortgage note payments.
The court held that even though the complaint is styled as an action to quiet title, there is no suggestion that the homeowner’s title currently is encumbered other than by a mortgage which they do not deny executing. The second deed of trust securing the second mortgage has been released. The terms of the first mortgage are not in dispute, the mortgage is not in default, and no enforcement proceedings have been initiated against the homeowners. Therefore the action is actually in the nature of a declaratory judgment action that seeks to ascertain whether there is a right to enforce the first mortgage in foreclosure action. The court also found that the real question raised in this action is whether a potential foreclosure action or action to enforce the note upon default would be successful if the original note cannot be produced. Because this was not an enforcement proceeding or foreclosure action, the court found that the issue is not ripe for review where the note is not in default and no foreclosure or enforcement proceedings have been initiated against the homeowners.
March 28, 2013 | Permalink | No Comments
Bransten Trio: Part Tres
The last of the Bransten Trio of cases (previously, I wrote of Part Un and Part Deux) dealing with Allstate’s complaint against Morgan Stanley has some of the allegedly misrepresentative language at issues in such cases. A sampling includes
- “These mortgage loans may be considered to be of a riskier nature than mortgage loans made by traditional sources of financing . . .. The underwriting standards used in the origination of [these loans] are generally less stringent than those of Fannie Mae or Freddie Mac with respect to a borrower’s credit history and in certain other respects . . . . As a result of this less stringent approach to underwriting, the mortgage loans purchased by the trust may experience higher rates of delinquencies, defaults and foreclosures . . ..” (24)
- “It is expected that a substantial portion of the mortgage loans will represent” a DTI ratio exception, a pricing exception, a LTV ratio exception or “an exception from certain requirements of a particular risk category.” (25)
- The court noted that the Morgan Stanley defendants indicated that in connection with various MBS certificates they issued, “‘a significant number,’ ‘a substantial portion,’ or a ‘substantial number’ of the loans represented underwriting exceptions.” (25)
Justice Bransten found, as she did in the other two cases referenced above, that such warnings are “ineffective.” (26) She further notes that the defendants’ “statements are misleading to the extent that they imply that defendants would act in accordance with, rather that [sic] completely disregard, the results of their findings” from their reviews of the loans securing the MBS certificates at issue in the case. (29)
March 28, 2013 | Permalink | No Comments
