March 7, 2013
Hawaii District Court Dismisses Plaintiff Homeowners’ Complaint with Prejudice for Various Failures to Plead with Particularity
In Gambing v. OneWest Bank, 2011 U.S. Dist. LEXIS 77924 (D. Haw. July 18, 2011), Plaintiffs Lorenzo and Lorie Gambing’s filed a twelve-count motion against OneWest Bank, MERS, and other parties to prevent the foreclosure of their property. OneWest and MERS’s motion to dismiss the complaint was granted with prejudice when the Plaintiffs failed to file opposition documentation and failed to appear at their hearing. The court granted Plaintiffs leave to file a request to reopen the case within 15 days.
The court noted that to survive a motion to dismiss, per Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955 (U.S. 2007), the Plaintiffs needed to do more than provide a laundry list of different causes of action. Rather, Plaintiffs should supply facts to support their claims with “plausible grounds for relief.” The court further noted that for allegations of fraud or mistake, the Plaintiffs are required to “state with particularity the circumstances constituting fraud and mistake.” Fed. R. Civ. P. 9(b). The court considered and ruled upon the myriad claims of the plaintiffs using these criteria as its starting point for analysis.
The court dismissed Plaintiffs’ claims for declaratory relief and injunctive relief to prevent foreclosure of their property because they failed to provide factual support for their conclusions relating to Defendant’s compliance with RESPA procedures or violations of relevant State and Federal laws.
The court similarly dismissed Plaintiffs’ claims for contractual breach of implied covenant of good faith and fair dealings, as they failed to allege any facts demonstrating defendants charged excessive fees or withheld disclosures and notices.
Plaintiffs’ TILA violation claims for both rescission, under 15 U.S.C. § 1635, and for damages under 5 U.S.C. § 1640 were both time barred. Claims for equitable tolling do not apply for rescission and plaintiffs never alleged any facts to support a claim that they could not have found TILA violations with reasonable diligence justifying equitable tolling.
Plaintiffs’ unfair and deceptive business practices claims were also dismissed because they only included conclusory statements and no factual support.
Plaintiffs’ claim for beach of fiduciary duty by the defendants was dismissed, as no fiduciary duty was owed to Plaintiffs beyond the “arms-length” lender-borrower relationship.
The Plaintiffs’ claim under UCC-2302 that the loan agreement was unconscionable, was dismissed, because the plaintiffs did not provide any evidence of contractual terms or behavior that support such a claim,
The Plaintiffs also alleged that the defendants engaged in a variety of predatory lending practices, but did not point to any state or federal law which these practices violate, The court dismissed these claims, as it noted that the court is not required to speculate as to which laws these would be.
Furthermore, Plaintiffs sought to quiet title against all the defendants, but the court dismissed these claims as well. The Plaintiffs in their filing did not recognize or isolate which defendant they were making claims against and the court was unable to determine the specific claims against each named party, and as such, Plaintiffs failed to property state a claim to quiet title.
Plaintiffs also made the bold claim that the assignment of mortgage to MERS was illegal and thereby gave MERS no standing to foreclose, a claim the court found confusing given that standing is required only for plaintiffs, not defendants and because no facts were supplied to support this claim.
Lastly, Plaintiffs alleged the defendants’ conduct constituted fraud, but much like all the other claims, these failed to meet the burden of Fed. R. Civ. P. 8 or the heightened requirements for fraud under Fed. R. Civ. P. 9(b).
Nonetheless, the court granted Plaintiffs’ leave to file a request to reopen the case within 15 days of the filing.
March 7, 2013 | Permalink | No Comments
Should CFPB Be a Nudge?
Cass Sunstein, until recently the Administrator of the White House Office of Information and Regulatory Affairs, has posted an early draft of Nudges.gov: Behavioral Economics and Regulation. While it touches on real estate finance only indirectly, it provides a nice follow up to yesterday’s post on financial education. Sunstein writes that it “It is clear that behavioral findings are having a large impact on regulation, law, and public policy all over the world . . ..” (2) For the purposes of residential mortgage regulation it is worth restating some of the central findings of behavioral research:
- Default rules often have a large effect on social outcomes. (3)
- Procrastination can have significant adverse effects. (3)
- When people are informed of the benefits or risks of engaging in certain actions, they are far more likely to act in accordance with that information if they are simultaneously provided with clear, explicit information about how to do so. (4)
- People are influenced by how information is presented or “framed.” (4)
- Information that is vivid and salient usually has a larger impact on behavior than information that is statistical and abstract. (4)
- People display loss aversion; they may well dislike losses more than they like corresponding gains. (5)
- In multiple domains, individual behavior is greatly influenced by the perceived behavior of other people. (5)
- In many domains, people show unrealistic optimism. (6)
- People often use heuristics, or mental shortcuts, when assessing risks. (7)
- People sometimes do not make judgments on the basis of expected value, and they may neglect or disregard the issue of probability, especially when strong emotions are triggered. (7)
Sunstein tentatively concludes — although I would certainly state it more strongly — “it would be possible to think that at least some behavioral market failures justify more coercive forms of paternalism.” (10)
March 7, 2013 | Permalink | No Comments
March 6, 2013
The Financial (Mis)Education of Lauren Willis
Lauren Willis has posted Financial Education: Lessons Not Learned and Lessons Learned. This is a sobering, even depressing, overview of what we know about the efficacy of financial education. This is an extremely important topic because the CFPB has identified financial education as a core part of its mission in its Strategic Plan (see Outcome 2.2).
Willis asks, “Does financial education work as hoped?” (125) She answers her own question: “Empirical evidence does not support the theory. Some (but not all) studies show a positive correlation between financial education and financial knowledge or between financial knowledge and financial outcomes. But no strong empirical evidence validates the theory that financial education leads to household well-being through the pathway of increasing literacy leading to improved behavior.” (125)
Some of her her other important conclusions (based on a thorough review of the literature) include
- “the only statistically significant effect of mandatory personal financial training on soldiers was that they adopted worse household budgeting behaviors after the training than before it.” (126)
- “Youth who took a personal finance course in high school do not report better financial behavior several years later than youth who did not take the course. Adults who attended public schools where they were required to take personal financial courses were found to have no better financial outcomes than adults who were not required to take such courses.” (126, citations omitted)
- One “reason financial education is unlikely to produce household financial well-being is that consumers’ knowledge, comprehension, skills, and willpower are far too low in comparison with what our society demands.” (128)
Willis’ conclusions should caution against assuming that financial education is a proven method to reduce the impact of predatory practices in the consumer finance sector. The CFPB has shown a willingness to test the efficacy of its approaches. Hopefully it will do so with its financial education initiiatives too.
March 6, 2013 | Permalink | No Comments
March 5, 2013
Reiss on Fannie and Freddie Multifamily Contraction
GlobeSt.com interviewed me (and others) about Federal Housing Finance Agency Acting Director Edward J. DeMarco plans to reduce Fannie and Freddie’s multifamily finance volume by 10% from last year’s levels:
Also consider this, says David Reiss, a professor of Law at Brooklyn Law School who has published papers on the GSEs: “We are living through a very abnormal time when the federal government dominates the market for single family and multifamily mortgages.”
This is neither necessary nor optimal, he tells GlobeSt.com. “It is not necessary because there have been long stretches in the past when the government had a much smaller role in those markets. And other credit markets operate well with no or a much smaller government footprint.”
This is not to say that there is no role for the federal government in the multifamily mortgage market, Reiss continues — just that it is far too large at this point in time. “If the reduction in the GSE footprint is telegraphed over a reasonable time horizon to the other market participants, this change should be taken in stride by the multifamily market,” he predicts.
March 5, 2013 | Permalink | No Comments
Michigan Court of Appeals holds that Bank has Standing to Foreclose on Property by Advertisement because Bank had a Sufficient Interest in the Indebtedness Secured by the Mortgage as Record Holder of the Mortgage
In Fawaz v. Aurora Loan Services LLC, 302840, 2012 WL 1521589 (Mich. Ct. App. May 1, 2012), the Michigan Court of Appeals held that Aurora Loan Servicing LLC had standing to foreclose on homeowners’ property by advertisement.
Nazih and Iman Fawaz obtained a loan from American Brokers Conduit Corporation which was secured by a mortgage on their residential property. MERS was designated the mortgagee with the right of foreclosure and the power of sale. When the Fawazs defaulted MERS assigned the mortgage to Aurora. Six months later, Aurora foreclosed on the property by advertisement. The Fawazs brought this action to quiet title on grounds that they had entered into loan modification negotiations with Aurora.
The Fawazs contend that the foreclosure was void because Aurora did not own or have any interest in the indebtedness secured by the mortgage. MCL 600.3204(1) governs foreclosure by advertisement and provides, in relevant part, as follows: “[A] party may foreclose a mortgage by advisement if all of the following circumstances exist: (d) The party foreclosing on the mortgage is either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage.” The Fawazs argue that MERS, as mortgagee, did not own or have an interest in their indebtedness and therefore when MERS assigned its interest to Aurora, such interest did not give Aurora the authority to foreclose by advertisement.
The court cited the proposition expressed in Residential Funding Co., LLC v. Saurman, 490 Mich. 909; 805 NW2d 183 (2011) that MERS, as mortgagee, owned a sufficient interest in the indebtedness secured by the subject mortgage because, as record holder of the mortgage, MERS owned a security lien on the property. Thus MERS could foreclose by advertisement. Thus, when MERS assigned its interests in the mortgage to Aurora, Aurora had the same authority to foreclose under MCL 600.3204(1). Therefore, the foreclosure was valid.
March 5, 2013 | Permalink | No Comments
UCC’s Permanent Editorial Board Reports on Ownership of and Right to Enforce Notes
By Brad Borden
In Application of the Uniform Commercial Code to Selected Issues Related to Mortgage Notes, the Permanent Editorial Board for the Uniform Commercial Code describes the legal difference between the right to enforce a note (governed by Article 3 of the UCC) and ownership of a note (governed by Article 9 of the UCC). The Report identifies the bases for different rules governing the right to enforce and ownership:
The Report recognizes that a person may own a mortgage note but not have the right to enforce it. In disputes between parties regarding the rights of finance institutions vis-a-vis other finance institutions or borrowers, that distinction could be important. When the issue relates to the tax status of a mortgage pool, the distinction is relevant for purposes of determining the parties rights with respect to the note.
Share this:
Like this:
March 6, 2013 | Permalink | No Comments