January 22, 2013
CFPB Issues Rule on Loan Originator Compensation
Distorted mortgage broker incentives were one of the big problems during the Subprime Boom. Indeed, many lenders have since stopped outsourcing loan originator to mortgage brokers because a lot of the terrible loans they were stuck with had been originated by them. Homeowners were also frequently burned by mortgage brokers who placed them in inappropriate products.
The CFPB has just issued new rules (summary here) relating to the compensation of mortgage brokers. One of the key elements of the rule is that broker compensation cannot be based on a term of the transaction such as the interest rate. This is intended to keep brokers from steering borrowers into more expensive mortgages solely to increase their own compensation. This is a major consumer protection initiative because a large number of homeowners with subprime loans were eligible for prime loans with lower interest rates. Because brokers had been financially incentivized to place them in subprime loans, that is what they did.
The new rule seeks to prevent the mortgage industry from doing an end run around the rule by attempting to identify proxies for the terms of the transaction. Time will tell whether the proxies work as intended.
January 22, 2013 | Permalink | No Comments
January 18, 2013
New York Supreme Court, Appellate Division Holds that Bank Has Standing to Foreclose
In Countrywide Home Loans, Inc. v Delphonse, 64 A.D.3d 624 (2d Dept. 2009) the Supreme Court, Appellate Division, Second Department found that the lender, Countrywide Home Loans (Countrywide), had standing to foreclose on the Delphonses, the homeowners in the case, because the court found that the Delphonses waived the issue at the pre-trial stage, and furthermore that Countrywide met its burden of proof. The court held, “[the Delphonses] waived the defense of lack of standing (see CPLR 3211[a][3]) by failing to either make a pre-answer motion to dismiss the complaint on that ground or by asserting that defense in their answer. . . . On its motion for summary judgment, [Countrywide] established its prima facie entitlement to judgment as a matter of law by submitting the mortgage, the underlying note, and evidence of a default.”
January 18, 2013 | Permalink | No Comments
January 17, 2013
Rental Housing Market Trends — Growing Demand, Unsurprisingly
The Bipartisan Policy Center has an interesting “infographic.” I found the demographic information to be of particular note. The Center says that Baby Boomers, Echo Boomers, Former Homeowners and Recent Immigrants will be driving demand.
January 17, 2013 | Permalink | No Comments
Plaintiff’s Claim Against MERS Time-Barred in Nevada
In Haischer v. Mortgage Electronic Registration Systems, Inc., et al., No. 2-11-cv-01786-GMN-RJJ (D. Nev. Sep. 17, 2012), the plaintiff challenged a foreclosure after the property was sold at a foreclosure auction. The plaintiff requested an order to set aside the foreclosure sale and cancel the Trustee’s deed due to a violation of the Nevada Revised Statutes § 107 regarding deficiencies of the notice of default. Failure to comply with the notice provisions of § 107 warrant voiding a sale by the court. The defendants made a motion to dismiss the claim, which the court ultimately granted.
In this case, the plaintiff failed to bring the claim within the proper timeframe (within 90 days after the date of the sale or within 120 days of receiving actual notice of the sale). As a result, the court found that her claim was time-barred.
However, the court continued to address the plaintiff’s deficient notice claims.
The plaintiff first challenged the authority of ReconTrust, the organization that recorded the notice of default, arguing that they were neither a beneficiary or trustee at the time they recorded the notice. The court stated that in Nevada, “an assignment of the beneficial interest in a deed of trust need not be recorded in order to be valid.”
In response, the defendants submitted evidence that MERS was initially assigned the beneficiary interest in the deed of trust. MERS then assigned a beneficiary interest to BAC Home Loans Servicing, L.P. which was recorded in the proper county. BAC Home Servicing then named ReconTrust the Trustee. As a result, the court found that ReconTrust had the authority to record the notice of default.
The plaintiff then challenged the actual notice of default, alleging there were deficiencies in the notice that was required by the statute. However, the court found that the deficiencies the plaintiff alleged were either not required by the statute or were sufficiently addressed by the notice.
After addressing the plaintiff’s underlying claim, the court granted the defendant’s motion to dismiss.
January 17, 2013 | Permalink | No Comments
CFPB Issues New Rules To Protect Homeowners in Foreclosure
The CFPB issued new rules today that increase protections for homeowners in foreclosure. The 2013 Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules. These rules are a first national standard to replace a hodgepodge of practices that had been in place. The rules come on the footsteps of the $85 billion settlement last week arising from improper foreclosure practices by the ten banks who are parties to the settlement. The rules address many of the behaviors that infuriated homeowners over the last few years including
1. non–transparency as to interest rate adjustments, fees, penalties and other costs;
2. inability to speak with employees at mortgage servicers;
3. overly complicated forms and procedures;
4. glacially slow processing of information; and
5. capricious review standards.
The CFPB has a fact sheet about the rule.
January 17, 2013 | Permalink | No Comments
New Jersey Superior Court Dismisses Foreclosure Suit, Requiring Physical Possession of Note & Mortgage at Time of Filing
In Bank of New York v. Raftogianis, 418 N.J. Super. 323, 13 A.3d 435 (Ch. Div. 2010) the Superior Court of New Jersey, Chancery Division, Atlantic County, found that although the lender had not separated the note and mortgage through the securitization process, there was insufficient evidence that the trustee had physical possession of the original note as of the date the foreclosure was filed.
Defendant, Michael Raftogianis, executed a note in the amount $1,380,000 to American Home Mortgage Acceptance, Inc. (“AHA”) and corresponding mortgage in September 2004. The mortgage described MERS as the mortgagee, as nominee for the Lender. In December 2004, defendant’s mortgage was securitized along with a group of other mortgages held by AHA to American Home Mortgage Securities, LLC. Afterwards, defendant’s mortgage was resold to plaintiff’s trust. Defendant defaulted in October 2008. Bank of New York was prosecuting this foreclosure case as indentured trustee for the trust.
After a lengthy discussion of the UCC, MERS recording system, and securitization in general, the court concluded “[w]hile it was clear the note had been indorsed prior to the time it was presented to the court, presumably as a part of the securitization process, it was not clear just when that occurred, or when the note had been physically transferred from American Home Acceptance to some other individual or entity.”
In turn, the court addressed the three central issues necessary to resolution.
First, the court rejected defendant’s “separation theory.” Splitting the note and the mortgage, in the sense the note was payable to the lender, and the mortgage was directed to MERS as nominee for the lender does not restrict the ability to foreclose. Interestingly, the court seemed to focus in part on the lender’s intent, stating “[i]t is clear, however, that there was no real intent to separate ownership of the note and mortgage at the time those documents were created.”
Second, the court rejected plaintiff’s argument that it did not have to establish it had possession of the note at the time of filing as it was a “real party in interest” under New Jersey Rule 4:26-1. The court focused on the permissive nature of this statute and the uncertainty that the trust had possession of the note (which would be required under the UCC) to reject this position.
Third, the court addressed plaintiff’s claim that possession of the note after the complaint was filed was sufficient to overcome any initial deficiencies. Citing to the Southern District of Ohio, the court stated to satisfy Article III’s standing requirements, “the plaintiff in a foreclosure action must establish that it was the holder of the note and the mortgage at the time the complaint was filed.”
Here, the bank’s witness was unable to offer any direct proof as to the physical transfer of the note at issue. Accordingly, the court found “[p]laintiff failed, even by the preponderance of the evidence standard, [to establish] that it did have possession of the note as of the date the complaint was filed” and dismissed without prejudice.
January 17, 2013 | Permalink | No Comments
January 16, 2013
New York Supreme Court, Appellate Division, Second Department Holds that MERS has Standing to Foreclose
In Mtge. Elec. Registration Sys., Inc. v Coakley, 41 A.D.3d 674 (2d Dept. 2007), the Supreme Court, Appellate Division, Second Department found that MERS had standing to foreclose on the homeowner. The court held, “[t]he record shows that the promissory note was. . . ultimately transferred and tendered to MERS. Therefore, at the time of the commencement of this action, MERS was the lawful holder of the promissory note and of the mortgage, which passed as an incident to the promissory note. . . . Moreover, further support for MERS’s standing to commence the action may be found on the face of the mortgage instrument itself. Pursuant to the clear and unequivocal terms of the mortgage instrument, Coakley expressly agreed without qualification that MERS had the right to foreclose upon the premises in the event of a default.” Thus, in this case MERS was able to prove that it held both the mortgage and the underlying note, which was enough for the court to determine that MERS had standing to foreclose.
January 16, 2013 | Permalink | No Comments
