March 8, 2013
The Georgia Northern District Court Holds that Homeowner does not have Standing to Stop Non-Judicial Foreclosure because Homeowner’s claim that MERS Fraudulently Assigned Homeowner’s Deed is not Casually Connected to the Foreclosure on her Property
In Dehdashti v. Bank of New York Mellon, et al., 1:12-cv-595-TCB, (N.D.Ga. June 7, 2012), the Georgia Northern District Court dismissed homeowner’s claims because she did not have standing.
Manizeh Dehdashti alleged that Bank of New York Mellon and other Defendants lacked standing to foreclose on her home because MERS fraudulently assigned the deed securing Dehdashti’s home loan. Dehdashti also alleged that she made payments on her loan that were not properly accounted for. As a result, she sought to quiet title to her home, obtain money damages, and to have the court vacate the security deed. The Bank and MERS filed a motion to dismiss arguing that Dehdashti lacked standing to challenge the validity of the assignment because she was not a party to the assignment.
The court stated that in order for Dehdashti to have standing, she must have suffered an injury that was traceable to Defendants and would likely be redressed by a favorable decision. The court held that although the foreclosure of Dehdashti’s home was sufficient to establish an injury in fact, there was no connection between that injury and the action she complained of—MERS’s assignment of the security deed. The assignment did not affect whether the security deed’s power of sale could be exercised; instead, it affected who could exercise it. Further, “the only interest or right which an obligor of a claim has in the instrument of assignment is to insure him or herself that he or she will not have to pay the same claim twice.” But here, there was no risk that the power of sale would be exercised twice. Thus, Dehdashti’s claims were dismissed for lack of standing.
The court also dismissed Dehdashti’s claim that her loan payments were unaccounted for, because Dehdashti failed to show how those payments, if they were properly accounted for, would have prevented default.
March 8, 2013 | Permalink | No Comments
Wrapping up America’s Housing Future
This is my last post (see here and here for the first two) on the Bipartisan Policy Center’s Housing America’s Future report. I have one last thought to share — a radical one at that.
The report takes for granted that the federal government should provide a guarantee that wraps mortgage-backed securities and completely covers investors for credit losses. (51-52) Is it too Un-American to contemplate a world where investors bear some (I’m not even saying all!) of the credit risk? Why is that not on the table at all? Investors obviously bear credit risk in all sorts of credit markets.
But housing, we are told, is special. The 30 year fixed rate mortgage would disappear without it. That is patently not true because the private-label market has issued 30 fixed rate jumbos in the past. It may be true that the number of 30 year fixed rate mortgages would shrink to an unacceptable level if there was no government wrap, but that leads to a modest proposal.
What if the government offered a range of wraps at different price points? a 100% wrap. But also a 75% wrap and a 50% wrap and a 25% wrap. What if those limited wraps covered either first loss or last loss on different MBS? What if this menu of options allowed us to better determine a socially optimal level of government guarantee instead of assuming that it has to be total to keep the housing market from melting, melting away?
March 8, 2013 | Permalink | No Comments
March 7, 2013
Hawaii District Court Grants Defendants Motion for Summary Judgment against Plaintiff Homeowners for Foreclosure
In Krakaeur v. Indymac, 2010 U.S. Dist. Lexis 132284 (2010), the United States District Court for the District of Hawaii granted motion for summary judgment of Defendants IndyMac Mortgage Services and OneWest Bank, entitling Defendants to a decree of foreclosure on the disputed property and a possible deficiency judgment.
On March 31, 2006, to build a home on their property, Plaintiffs Dean and Robbin Krakaeur executed and delivered a promissory note in favor of IndyMac Bank in the amount of $546,00. A mortgage was recorded on April 7, 2006 and assigned to OneWest as early as March 19, 2009. Plaintiffs made mortgage payments from August 2008 – April 2009. In September 2009, OneWest recorded a “notice of intent to foreclose under power of sale” for $636,274.15.
Initially Plaintiffs offered to settle with defendants for $749,000, conditioned upon Defendants sending original note to a third-party escrow agent.
Plaintiffs asserted five counts against Defendants:
Plaintiffs first allege that Defendants violated the Unfair Trade Practices Involving Non Compliance Under 15 U.S.C. § 1802 et. seq. for failing to disclose original documentation pertaining to the mortgage. As the court found this section of law is only found in the “US Code Chapter on Newspaper Preservation,” Defendants were granted summary judgment.
The Plaintiffs’ second and third claims allege Defendants violated TILA, 15 U.S.C. § 1601 et seq., by failing to give Plaintiffs three day right to rescind and other required documentation disclosures. Plaintiff’s rescission, 15 U.S.C. § 1635 and statutory damage, 15 U.S.C. § 1640, claims were both time barred. The court did not grant Plaintiffs’ equitable tolling protection under the statutory damage provision because Plaintiffs offered no evidence as to demonstrate why they failed to discover the alleged deceptive business practices earlier.
The Plaintiffs’ fourth claim alleged Defendants violated Hawaii’s Unfair and Deceptive Trade Practices Act H.R.S. §§ 480-2 and 480-13, which the court dismissed for failure to submit evidence to support their conclusory allegations.
The Plaintiffs’ fifth claim, alleging Unfair and Deceptive Acts in Violation of UCC 1-304, 3-302.C., 3-309. 8-102.17, 8-105, 8-107, 9-0203, were found by the court to be unintelligible and without evidentiary support for their claims, granted summary judgment.
The Defendants’ motion for summary judgment as to counterclaims for foreclosure were granted. Plaintiffs opposition rooted in the claim that Defendants are not in possession of the original note and mortgage, their failure to produce these items, and their failure to record assignment of mortgage until July 6, 2010.
As there was no genuine dispute that Defendants possessed the original note and the Hawaii courts have rejected “show me the note arguments” the court dismissed these first two motions.
The court also denied Plaintiff’s argument that Defendants lacked standing due to delayed recordation of ownership. Following IndyMac v. Miguel, 117 Haw. 506 (Haw. Ct. App. 2008), to “hold form over substance” would burden the court, especially considering that the same result would occur in this case, and no meaningful delay affected any parties’ rights, since OneWest perfected its rights soon after filing for foreclosure against the plaintiffs.
Lastly, there is no genuine issue of material fact regarding the existence of the terms of the note, no dispute as to whether Plaintiffs received the loan, and no dispute as to whether the Plaintiff neglected to cure the default on the mortgage, meeting the criteria necessary for summary judgment.
March 7, 2013 | Permalink | No Comments
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
