April 5, 2013
The 11th Circuit Court in Georgia Holds that Homeowners’ Claim of Wrongful Foreclosure Must be Dismissed Because there Has Not Been an Actual Foreclosure Sale on the Property Yet
In Jenkins v. McCalla Raymer, LLC, 492 F. App’x 968 (11th Cir. 2012), the court dismissed homeowners’ second amended complaint for failure to state a claim.
Wendy Jenkins and Eleanor Spratlin Crawford appealed from the District Court’s order dismissing their second amended complaint for failure to state a claim. Appellants were Georgia homeowners who brought a class action suit against McCalla Raymer, LLC and other various defendants alleging, among other things, wrongful foreclosure. On appeal, Appellants allege that: 1) the magistrate judge erred in failing to sua sponte recuse himself, and 2) the District Court erred in dismissing the appellants’ wrongful foreclosure claim.
28 U.S.C. § 455(a) requires a judge to recuse himself in any proceeding in which his impartiality might reasonably be questioned. The test is whether an “objective, disinterested, lay observer . . . would entertain a significant doubt about the judge’s impartiality.” McWhorter v. City of Birmingham, 906 F.2d 674, 678 (11th Cir. 1990). And pursuant to 28 U.S.C. § 455(b)(1), a judge is required to recuse himself only where the judge has an actual bias or prejudice against a litigant. Here, Appellants suggest that the magistrate judge should have recused himself because of his participation in two seminars on residential mortgage regulation. In Appellants’ opinion, the recusal was required because the magistrate judge was presumably giving his judicial perspective on claims similar to the instant case. The court stated, however, that when a judge has spoken or written on a particular area of law, he does not automatically need to recuse himself unless specific remarks indicate that he harbors a bias towards or against a litigant or legal claim. The court then held that the magistrate judge was not required to recuse himself because Appellants did not provide information regarding the substance of the magistrate judge’s comments or topics discussed during the seminar. Thus, the court could not conclude that an objective observer would “entertain a significant doubt about the magistrate judge’s impartiality.”
Appellants’ also claimed that the non-judicial foreclosure proceedings were improperly commenced because certain defendants did not have the power to initiate the foreclosure proceedings—the security deeds were not properly assigned to the foreclosing parties. The court noted, however, that although there were no Georgia cases with law directly on point, other non-judicial foreclosure states have held that a homeowner cannot seek damages in a wrongful foreclosure action unless there has been an actual foreclosure sale. Because the Appellants failed to cite any authority indicating that Georgia courts would rule differently, the court concluded that Georgia law required a plaintiff seeking damages for wrongful foreclosure to establish that the property at issue was actually sold at foreclosure. Because Appellants failed to allege that their properties were foreclosed on, they did not state a claim for wrongful foreclosure. Thus, Appellants’ claim of wrongful foreclosure was properly dismissed.
Reiss on Mortgage Insurance Probe
Law360 interviewed me in Lenders Face Hefty Fines in CFPB Mortgage Insurance Probe (paywall) about the recent $15 million settlement with four mortgage insurers. It reads in part:
The Consumer Financial Protection Bureau’s $15.4 million settlement Thursday with four mortgage insurers is just the first to come out of a probe into an alleged scheme to pay kickbacks to banks in exchange for business, and lenders caught up in the agency’s net are likely to get hit even harder, experts say.
In announcing the settlement, the CFPB made clear that it was looking closely at lenders and their role in the alleged kickback scheme, which the bureau said began in the 1990s. Implied in the CFPB’s statements is that the lenders were at the center of the enterprise, and that could mean that both bank and nonbank lenders could face a far stiffer penalty than the mortgage insurance firms paid, said Brooklyn Law School professor David Reiss.
“In the context of the overall markets that we’re talking about, $15 million is not even a rounding error. If this is for real, it’s going to have to be a larger settlement with the financial institutions that demanded the bribe,” he said.
April 5, 2013 | Permalink | No Comments
April 4, 2013
Stand-Offish
Judge Swain (SDNY) issued a Memorandum Opinion and Order in Rajamin v. Deutsche Bank National Trust Co. in which she followed “the weight of caselaw throughout the country” to effectively hold that “a non-party to a [Pooling and Servicing Agreement lacks standing to assert non-compliance with the PSA as a claim or defense unless the non-party is an intended (not merely incidental) third party beneficiary of the PSA.” (6) The Opinion cites a number of cases to that effect.
KeAupuni Akina, Brad Borden and I will be posting a draft of an article on the “Show Me The Note!” foreclosure defense soon. There is a real thicket of cases addressing the extent to which homeowners can raise real and evidentiary problems with the loan documents. The general rule seems to be that courts do not find these problems to be germane to the homeowner’s foreclosure, eviction or bankruptcy proceeding. There are exceptions, however, such as the Eaton v. Fannie Mae case which held that the Show Me The Note defense would apply prospectively in Massachusetts. But more often than not, courts stick closely to the language of their jurisdiction’s foreclosure statute which tend not to touch upon many issues that arise from the complexities of the securitization process through which these mortgages have traveled.
April 4, 2013 | Permalink | No Comments
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
