January 24, 2013
Center on Budget and Policy Priorities Report on Rental Assistance
The Center has issued a thought-provoking report, Renters’ Tax Credit Would Promote Equity and Advance Balanced Housing Policy. The summary states that
Over the past several decades, the nation’s housing policy has focused predominantly on increasing homeownership. Most federal housing expenditures now benefit families with relatively little need for assistance. About 75 percent of federal housing expenditures support homeownership, when both direct spending and tax subsidies are counted. The bulk of homeownership expenditures go to the top fifth of households by income, who typically could afford to purchase a home without subsidies. Overall, more than half of federal spending on housing benefits households with incomes above $100,000.
The report makes the obvious but politically delicate point that federal housing policy should assist low-income households as opposed to upper income households. The report proposes a well thought out renter’s tax credit that could complement existing programs like the Low Income Housing Tax Credit.
Whether a renter’s tax credit (budgeted at $5 billion in the report) is politically feasible at this time is another question entirely.
January 24, 2013 | Permalink | No Comments
January 23, 2013
Appellate Division of New Jersey Finds Deutsche Bank Did Not Have Standing to Foreclose Under NJSA 12A:3-301
In Deutsche Bank Nat. Trust Co. v. Mitchell, 422 N.J. Super. 214, 27 A.3d 1229 (App. Div. 2011) the Appellate Division of New Jersey reversed the trial court’s grant of summary judgment to plaintiff/Deutsche Bank. In doing so, the court found that Deutsche Bank did not prove it had standing at the time it filed the original complaint and its post-complaint amendment was insufficient to cure the default. Thus, Deutsche Bank lacked standing to foreclose.
The facts of this case are somewhat complex as the defendant/tenant, Ms. Jacqueline Bethea, was also a victim of a buy-lease-back “mortgage rescue scam.” After her mother passed away and her medical conditions worsened, Ms. Bethea had filed bankruptcy. However, while her petition was pending, she met Steve French, CEO of Elite Financial Services, who convinced her to dismiss the petition as he would help her save her home, pay off her debts, and improve her credit score. The plan was termed a buyout of the property, and included a straw-man, Mr. Mitchell, who would be awarded a $10,000 consulting fee for making the purchase. Additionally, the agreement provided for a $25,000 consulting fee to Elite for arranging the transaction. After two years renting, Ms. Bethea would be able to repurchase her home. However, the terms of the agreement proved unsustainable, as the payments Ms. Bethea was expected to make were higher than her original mortgage payments. In addition, while paying property taxes, utility bills and municipal charges as a tenant, Ms. Bethea’s proceeds from the original sale had been escrowed and drained through the course of the two year plan. Approximately 7 months later, Deutsche Bank filed a complaint for foreclosure against Mr. Mitchell and Ms. Bethea, who was included due to the $35,000 mortgage she had given to Mr. Mitchell in connection with the sale of the property originally. The day after the complaint was filed, Washington Mutual, as successor in interest to Long Beach Mortgage Company (the original mortgagee), assigned the mortgage to Deutsche Bank.
Ms. Bethea filed a number of affirmative defenses, including violations of the Truth In Lending Act (TILA), Home Ownership Equity Protection Act, Real Estate Settlement Procedures Act, and New Jersey Home Ownership Security Act, and a third-party complaint alleging violations of the Consumer Fraud Act, amongst other violations against Deutsche Bank, Mr. Mitchell, Mr. French and Elite. The trial court granted summary judgment to Deutsche Bank finding “the fact that the HUD-1 prepared by the third-party defendants is a lie does not put the lender on notice that the seller wasn’t going to be getting everything that she thought she was going to be getting out of the proceeds of the sale.” Additionally, the court found Deutsche Bank’s amended complaint cured its original defect of not possessing the mortgage on the date of filing.
The Appellate Division reversed, finding Deutsche Bank did not have standing at the time it filed its complaint as it did not possess the note. Under NJSA 12A:3-301, there are three categories of persons entitled to enforce negotiable instruments. The court explored each category and in turn rejected each one from application in this case.
First, Deutsche Bank argued they were entitled to foreclose as a party may enforce the instrument even if they are not in possession of the note. However, the court rejected this argument as it applies to only two specific categories. Under 12A:3-309, one may fit under this prong if the instrument has been lost, destroyed or stolen. Second, 12A:3-418 applies when an instrument has been paid or accepted by mistake. The court found neither scenario applicable to Deutsche Bank.
Second, the court found Deutsche Bank did not qualify as a “holder” of the instrument as the copy of the note it possessed was not “indorsed” within the meaning of NJSA 12A:3-204.
Third, the court found Deutsche Bank did not qualify as a “nonholder in possession of the instrument who has the rights of a holder” because it did not demonstrate it possessed the note at the time of filing.
Accordingly, the court reversed the order of summary judgment and remanded to determine whether, before the original complaint was filed, plaintiff was in possession of the note or had another basis to achieve standing.
The court also made one final interesting point related to plaintiff’s proof, finding the attorney’s certification based on the business records of Deutsche Bank insufficient. The court noted, “Attorneys in particular should not certify to facts within the primary knowledge of their clients.” (internal citations omitted).
January 23, 2013 | Permalink | No Comments
Plaintiff’s Challenge to MERS While Not in Default Dismissed by Nevada Court
In Wellington v. Mortgage Electronic Registration Systems, Inc., et al., No. 2:12-CV-00541-KJD-VCF (D. Nev. Oct. 30, 2012), the plaintiff decided to challenge the use of MERS after learning of fraudulent activity in the mortgage industry. After failing to obtain documents she requested from CMI, the entity that was assigned servicing rights by MERS (who is listed as the beneficiary in her deed of trust), she filed this suit. In this case, the plaintiff is representing herself and she is not in default, making it an unusual case since there is no foreclosure proceeding in process.
The plaintiff challenged the use of MERS as a nominee under her deed of trust. However, the court found that MERS has been recognized as a valid entity that can be named as a nominal beneficiary of deeds of trust by the courts in both the Nevada district court system and the 9th Circuit court system. In addition, the deed of trust signed by the plaintiff permitted MERS to exercise the rights and interests accompanied by legal title, including the right to sell the note without notice to the plaintiff. As a result, the court found that the initial appointment of MERS as a nominal beneficiary by the lender was valid.
The plaintiff also alleged a violation of the federal Fair Debt Collection Practices Act. However, the court found that the statute does not apply to the relevant mortgage institutions as long as the debt was not in default at the time it was assigned. In this case, it does not apply to the defendants since the plaintiff was not in default at the time of the assignment. In addition, the plaintiff did not state any specific abusive or fraudulent debt collection practices by CMI. She only challenged CMI’s collection of payments and failure to forward her payments to the actual creditor. However, the plaintiff failed to identify the actual creditor. As a result, the court granted the defendant’s motion to dismiss the claim.
January 23, 2013 | Permalink | No Comments
Court Dismissed Claim of Violation of the Nevada False Claims Act
In State of Nevada, ex rel. Barrett Bates, et al. v. Mortgage Electronic Registration System, Inc., et al., No. 11-16310 (9th Cir. 2012) (unpublished), the Court of Appeals for the federal court of Nevada affirmed the lower court’s decision to dismiss the plaintiff’s claim.
The plaintiff alleged the defendants violated Nevada’s False Claims Act, which was filed on behalf of the state of Nevada and its counties. To show a violation of the False Claim Act, the plaintiff must prove that the defendant “[k]nowingly makes or uses … a false record or statement to conceal, avoid or decrease an obligation to pay or transmit money or property to the State or a political subdivision.” Nev. Rev. Stat. § 357.040(1)(g). To support his claim, the plaintiff alleged that the lenders made false representations in naming MERS as a beneficiary to the recorded deeds of trust and the notes in order to avoid paying the recording fees in the various counties of Nevada.
However, the court found that the plaintiff failed to successfully state a claim of liability under the statute because he failed to allege that the lenders had an obligation to the Counties to record the assignments and pay the relevant recording fees. Furthermore, the court found that there was no obligation to do so under Nevada law. As a result, the court affirmed the decision to dismiss the claim.
January 23, 2013 | Permalink | No Comments
Levitin Gives Overview of CFPB
The extraordinarily prolific Adam Levitin has posted The Consumer Financial Protection Bureau: An Introduction. He concludes that the
CFPB faces a constant challenge in terms of measuring and then balancing the consumer protection benefits from regulation with the costs of regulation and the potential impact of those costs on the availability and pricing of consumer financial products and services. What remains to be seen, however, is whether the CFPB will back away from more controversial rulemaking and enforcement activity because of the political threat it faces or whether the agency will pursue the policies it believes to be substantively right irrespective of the political situation. In other words, will the agency’s own interests affect guide its behavior? And are those interests best served by compromise and living to fight another day or by taking a principled stand and hoping to rally political support on that basis? The CFPB is a powerful new agency, but it is also one very much aware of its vulnerability. (35)
The paper was posted just as the Bureau unleashed a series of major rules for the mortgage industry. Levitin is right that the path that the Bureau will take in the long term is still unclear. But the early reaction indicates that the Bureau has taken a middle ground that has not unleashed vicious attacks from consumer advocates nor from industry groups. Indeed, it has garnered measured praise from both camps. Congressional Republicans do appear, however, to be preparing for a long term fight to dismantle the Bureau (see here for instance).
January 23, 2013 | Permalink | No Comments
January 22, 2013
CFPB Issues Rules on High-Cost Mortgages
The CFPB issued rules for high-cost mortgages (those with high interest rates and/or points and fees). Importantly, the rules now apply to most mortgages, including purchase money mortgages; refis; home equity loans; and home equity lines of credit.
High-cost loans can no longer have prepayment penalties, balloon payments (except in special circumstances), big late fees and some other miscellaneous fees.
The high-cost mortgage rules have been criticized for not reaching many mortgages as they only kick in (in most cases) when the APR on a first mortgage is more than 6.5 percentage points higher than what people with good credit would pay or if the points and fees are more than five percent of the total loan amount. The new rule will still cover only a small number of loans, so it is not clear if the new rule will have much impact on the market, as opposed to the new Qualified Mortgage rules.
January 22, 2013 | Permalink | No Comments
Alleged Violation of Deceptive Trade Practice Dismissed by Nevada Court
In Medina v. Quality Loan Service Corp., et al., No. 12-CV-00428-KJD-PAL (D. Nev. Oct. 25, 2012), the district court in Nevada addressed the plaintiff’s claim of a violation of the Nevada Deceptive Trade Practices Act.
The Act prohibits sellers from making false statements or misrepresentations about their goods or services. However, the court found that the Act doesn’t apply to most real estate loan transactions. The use of the Deceptive Trade Practices Act was only recognized once by the Nevada Supreme Court in Betsinger v. D.R. Horton, Inc., 232 P.3d 433, 436 (Nev. 2010). However, in that case, the plaintiff purchased a home after the defendant offered a 4.6% mortgage interest rate. After entering a purchase contract and receiving the plaintiff’s deposit, the defendant increased the interest rate to 6.5%. As a result, the plaintiff cancelled the contract and sued for the deposit after the defendant refused to return it. The Supreme Court upheld a jury finding that the defendant violated the Deceptive Trade Practices Act.
In this case, the court distinguished the facts because there was no allegation of a bait and switch, the defendant was not selling a house and the plaintiff was not purchasing one, and the defendant was not withholding a deposit.
The plaintiff also alleged there was a wrongful foreclosure because the party that initiated the foreclosure proceedings, Quality, had no authority to do so. The plaintiff argued that the only person who can enforce the note is the current note holder, not the party in possession of the deed of trust. This theory is a challenge to the split note theory that was addressed in Edelstein v. Bank of New York Mellon, 128 Nev. Adv. Op. 48, *2-3, 286 P.3d 249, ___ (2012). The court summarized the court’s opinion that supported the split note theory and rejected this challenge as well.
As a result, the court granted the defendant’s motion to dismiss this case.
January 22, 2013 | Permalink | No Comments
