January 11, 2013
New York Times Criticizes $8.5b Foreclosure Settlement
The New York Times published a story announcing an $8.5 billion settlement with 10 major banks to settle about four million foreclosure actions. The money will be split in two, with $3.3 billion going directly to 3.8 million homeowners, and the rest going towards lowering interest payments and loan amounts. The settlement is controversial, however, because in addition to the payout the settlement will also end the federal government’s review of those foreclosures, and the money is going to be split evenly amongst consumers regardless of whether harm was actually determined. Some believe that the settlement is the result of a flawed and incompetent review process, which became so costly and slow that the government decided to give up on the review. Others think that the rough justice achieved by the settlement is the closest that regulators can come to making victims of unlawful foreclosures whole again. Former FDIC chairwoman Sheila Bair was quoted in the article stating that the government is “mak[ing] the best out of a very bad situation.”
January 11, 2013 | Permalink | No Comments
January 10, 2013
Alabama District Court Continues to Uphold Enforceability of Mortgages Despite Split of Note and Mortgage
In Brooks v. Freddie Mac, 2011 WL 3794683 (AL District Court, 2011), the court held that once a mortgage is assigned to another, foreclosure action is not attributed to the assignor. Therefore, when MERS assigned its interest to another party, the foreclosure was not initiated or undertaken by MERS. The court also agreed with a number of Alabama cases that held that mortgages could still be enforceable even if the note and mortgage had originally been split. Therefore, MERS can serve as the mortgagee as nominee for a lender without invalidating the mortgage.
January 10, 2013 | Permalink | No Comments
Alabama District Court Finds that MERS had Standing to Foreclose Absent Showing of Fraud and Breach of Good Faith
In Mortensen v. MERS, 2010 WL 5376332 (AL Distr. Ct, 2010), the court did not find that refusal to modify a mortgage obligation constituted a breach of good faith and dealing. The court also held that that there was no fraud or deception in telling the mortgagee that “he had to be in default in order to negotiate the mortgage loan modification” because it was not a false statement per se. Therefore, MERS had standing to foreclose.
January 10, 2013 | Permalink | No Comments
New York Supreme Court Holds that Assignee Bank Lacks Standing to Foreclose for Failure to Validate MERS’s Authority to Assign and Condemns Frivolous Conduct Relating to “Robosigning”
In HSBC Bank v Taher, 32 Misc. 3d 1208(A) (Sup. Ct. 2011), the New York Supreme Court of Kings County held that an assignee bank conducting a foreclosure action must submit proof of the assignor’s authority to assign the mortgage, including the underlying note, on behalf of the original mortgagee in order for the assignee to lawfully conduct a foreclosure.
In this case, the court found that the assignee bank, HSBC, did not have standing to foreclose on Taher, the homeowner. The court stated, “the instant action must be dismissed because plaintiff HSBC lacks standing to bring this action. MERS lacked the authority to assign the subject Taher mortgage to HSBC and there is no evidence that MERS physically possessed the Taher notes.”
The court went on to explain that MERS must have authority to assign both the mortgage and the underlying note in order for an assignee to lawfully conduct a foreclosure. The court stated, “even if MERS had authority to transfer the mortgage to HSBC… MERS [was not] the note holder. . . . MERS cannot transfer something it never proved it possessed. . . . [Thus,] MERS was never the lawful holder or assignee of the notes described and identified in the consolidation agreement, the . . . assignment of mortgage is a nullity, and MERS was without authority to assign the power to foreclose to [HSBC]. Consequently, [HSBC] failed to show that it had standing to foreclose.”
In addition to finding that the assignee bank lacked standing, the court also took the opportunity in this case to highlight its intention to prevent the degradation of the foreclosure process, particularly concerning the practice of “robosigning.” Citing the need to “protect the integrity of the foreclosure process and prevent wrongful foreclosures,” the court announced its institution of a new filing requirement in any foreclosure action. This requirement is that assignees must “file an affirmation certifying that counsel has taken reasonable steps—including inquiry to banks and lenders and careful review of the papers filed in the case—to verify the accuracy of documents filed in support of residential foreclosures.” The court scrutinized HSBC’s foreclosure filing practices, which included instances where the court believed robosigning occurred, and reprimanded the bank and its counsel for its conduct. The court concluded that the conduct bordered on frivolous, and determined that further inquiry, by way of a hearing, was necessary.
January 10, 2013 | Permalink | No Comments
Texas Case Distinguishes Between a Holder and an Owner of Promissory Notes
In Martin v. New Century Mortgage Company, et al., 2012 Tex. App. Lexis 4705 (Houston 1st Court of Appeals, June 14, 2012), the plaintiffs executed a deed of trust and promissory note with New Century Mortgage Corporation. The deed of trust contained a provision allowing, “the note (together with [the deed of trust]) can be sold one or more times without prior notice to the borrower.” The deed of trust was assigned to Wells Fargo after the plaintiffs defaulted and acceleration of the loan occurred. The plaintiffs filed suit on the day before the foreclosure sale by Wells Fargo alleging a lack of standing.
The plaintiffs argued that Wells Fargo failed to prove they were the holder or owner of the note, which is required to have standing to foreclose on the property. Specifically, they argued that there was no written endorsement from New Century showing an assignment to Wells Fargo. The Court agreed with the plaintiffs that Wells Fargo is not considered a “holder” of the promissory note under Texas commercial law. Without the written endorsement from New Century that showed negotiation (which is defined as the “transfer of possession … of an instrument by a person other than the issuer to a person who thereby becomes its holder”) (Tex. Bus. & Com. Code Ann. § 3.201(a) (West 2002)), Wells Fargo cannot be the holder of the note.
However, under Texas common law, it is still possible to assign ownership of the note without a written endorsement as required under Texas commercial law. With a proper assignment, Wells Fargo could acquire the rights associated with the note, even without the status as a “holder” of the note. Wells Fargo has the burden of proving the transfer of ownership and any gap in the chain of title may result in a question of ownership.
In this case, Wells Fargo proved the transfer of ownership through an executed document assigning the deed of trust and promissory note along with their respective rights. As a result, the Court found Wells Fargo had standing to continue the foreclosure process.
January 10, 2013 | Permalink | No Comments
CFPB Releases Ability-To-Repay and Qualified Mortgage Final Rules
The CFPB has released the final rules relating to ability-to-repay and Qualified Mortgages. The CFPB’s Summary is currently available.
The big news is that qualified mortgages do NOT have a minimum down payment requirement. This was a very big bone of contention during the proposed rulemaking process (which I discussed here and here).
It is also very interesting to see that the CFPB has taken the position that a total debt-to-income ratio of 43% is the maximum that is generally sustainable for homeowners. This was a bone of contention in the FDIC’s workout of the IndyMac mess during the early years of the crisis, which I had addressed a bit here at page 807. 43% is on the high side of earlier estimates of what is sustainable, so it will be interesting to see if future default data confirms the wisdom of this position.
The rules take effect a year from now.
January 10, 2013 | Permalink | No Comments
Waiver and Equitable Estoppel Argument Rejected by Texas Court
The federal Court of Appeals in Texas affirmed a district court’s dismissal of the plaintiff’s claims in Wigginton v. Bank of New York Mellon, et al., No. 12-10136, (5th Cir. 2012).
Two weeks after two default notices were sent to the plaintiff, a letter reporting a rate adjustment was sent to the plaintiff. The plaintiff argued that the defendant could not foreclose after the change of rate notice was sent because the notice implied the continuation of the note. Specifically, the plaintiff argued that the change of rate notice was effectively a waiver of the default notices because the notice implied that the loan was still on a monthly payment schedule.
The district court stated that the elements of waiver are (1) an existing right, benefit, or advantage; (2) knowledge, actual or constructive, of its existence; and (3) an actual intent to relinquish that right (which can be inferred from conduct). Furthermore, the court stated that waiver is largely a matter of intent, which can be shown by actual renunciation or inference. However, proving a waiver through inference would require a showing that the opposite party has “unequivocally manifested its intent to no longer assert its claim.”
In this case, the district court found that there was no express waiver of the default in the rate of change notice. In addition, although the plaintiff argued that the rate notice indicates that the plaintiff’s loan was still on a monthly payment schedule, she failed to allege facts that would reasonably infer that the defendants unequivocally manifested intent to waive. The court found the claim to be conclusory without supporting evidence. As a result, the district court dismissed the claim because of the pleading deficiency.
The Court of Appeals also disagreed with the plaintiff’s theory of waiver and estoppel and affirmed the district court’s finding.
The Northern District Court case may be found here.
January 10, 2013 | Permalink | No Comments
