December 31, 2012
Mortgagee Lacks Standing to Challenge Assignments in Texas
Bridges v. JP Morgan Chase Bank, N.A., et al., No. A-12-CA-635-SS (W.D. Tex Sept. 21, 2012), is a recently decided federal district court decision in Texas. The Western District Court in Austin granted the defendant’s motion to dismiss the plaintiff’s suit. The plaintiff, Bridges, is suing a number of financial entities including Chase Bank and MERS.
The plaintiff alleged that the initial transfer of her mortgage to MERS was not a proper transfer because MERS does not hold the note (MERS only held the deed of trust). However, this court relied on cases that held Texas foreclosure law enforces the deed of trust, not the underlying note. Additionally, Texas does not require possession of the original promissory note as a prerequisite to foreclosure.
The defendants also argued that the Bridges lacked standing to challenge the validity of the assignments of the note and deed. A number of Texas Federal District Courts held since the mortgagee was not a party to the assignments, they do not have standing to challenge the validity of the assignments. This Court rejected plaintiff’s reliance on a California Southern District court holding because the holding relied on California state law and was distinguishable because the plaintiff of the California case claimed deficiencies in the assignment that resulted in high payments to the wrong entity.
Bridges also alleged various fraud and misrepresentation claims that were either inapplicable (a statutory fraud claim applying to real estate does not apply to loan transactions), or does not fulfill the required elements (a negligent misrepresentation claim is dismissed because plaintiff did not rely to her detriment). A claim of filing a fraudulent lien was dismissed because the Bridges lacked standing to challenge the assignment (since she was not a party to it).
December 31, 2012 | Permalink | No Comments
December 24, 2012
District Court of Arizona finds homeowners do not have standing to challenge validity of assignments of deed of trust
In Campbell v. California Reconveyance Co., CV-11-00180-PHX-DGC, 2012 WL 5299099 (D. Ariz. Oct. 25, 2012), the court denied plaintiffs/homeowners, David & Marie Campbells’ motion for summary judgment, finding they lacked standing.
In July, 2006, plaintiffs received a loan from First Magnus Financial Corp, and signed a promissory note for $417,000 and a deed of trust. The deed of trust was then assigned by MERS to U.S. Bank in 2009. At trial, plaintiffs disputed the legitimacy of this assignment, claiming it was held on behalf of Chase rather than U.S. Bank (who were both defendants to this suit). Plaintiffs did not dispute that defendants’ counsel held the original note at trial.
In 2009, plaintiffs were accepted into a modification plan with Washington Mutual; however, after seven payments the modification was rescinded because their income was too high. Plaintiffs continued to make payments under the terms of the modified plan until August 2010, when Chase (who had since acquired Washington Mutual) returned the payment. In October 2010, California Reconveyance Company (“CRC”) filed a Notice of Trustee’s Sale, which had been postponed pending the outcome of this litigation.
First, plaintiffs sought a declatory judgment vacating the substitution of the trustee, the assignment of the deed of trust, and notice of the trustee’s sale based on alleged fraud or violations of the terms of the trust. Defendants argued plaintiffs lacked standing, citing multiple federal decisions for the proposition that “borrowers do not have standing to challenge assignments of deeds of trust related to their loans” (emphasis added).
The court agreed with defendants, finding plaintiffs were challenging assignments “to which they [were] not parties and in which they did not participate… [they] do not argue that the transactions somehow altered their legal rights or changed their obligations under the note and deed of trust.” The court went on to note that plaintiffs’ concrete and particularized injury claim, namely, that they would be vulnerable to future legal action by the true owner of the note, was insufficient based on both Arizona’s anti-deficiency law, Sec. 33-279(a), and the facts of the particular case. Since plaintiffs did not identify any entity other than the defendants who may have had an interest in the note and deed of trust, the principles of judicial estoppel would preclude defendants from changing their position at a later date. The court concluded that plaintiffs’ argument that the true owner may exist “somewhere” was “nothing more than conjecture” and thus plaintiffs lacked standing to challenge the assignments.
Additionally, the court dismissed plaintiffs’ claim for quiet title as Arizona law prohibits this relief until the mortgage is paid in full. The court also rejected plaintiffs’ claim that Chase breached its duty of good faith and fair dealing related to the renegotiation of the loan, as Chase never entered into a contract with plaintiffs. Similarly, plaintiffs’ request for an accounting on information related to the loan was denied, as plaintiffs did not allege any agency or trust relationship with Chase. Finally, injunctive relief was denied as summary judgment had been granted to defendants on all other claims.
December 24, 2012 | Permalink | No Comments
December 20, 2012
9th Circuit Affirms Dismissal of Homeowner’s Challenges to Non-judicial Foreclosure in Arizona
In Buchna v. Bank of Am., NA, 478 F. App’x 425 (9th Cir. 2012), the court affirmed the District Court of Arizona’s dismissal of plaintiffs/homeowners Mariusz and Julita Buchna’s action against Bank of America, MERS, and Bank of New York Melon Corp. Amongst other allegations challenging the propriety of the foreclosure proceedings, the court found the Buchnas had failed to state a claim on four different grounds.
First, the Buchnas claimed that splitting the note and deed of trust rendered the non-judicial foreclosure provisions in the deed unenforceable. The court found this argument failed to state a claim and noted it was “conclusory speculation” that the parties exercising power under a deed of trust were not the note holders or agents of the holder. Particularly as the plaintiffs did not dispute the default nor the trustee’s right to foreclose.
Second, the court rejected the Buchnas claim that the beneficiary was required to prove ownership of the note before commencing a non-judicial foreclosure for the same reasons.
Third, and most interestingly, the Buchna’s argued defendants were not permitted to enforce the power of sale provision in the deed because they were not “persons entitled to enforce a negotiable instrument” under Sec. 47-3301 of Arizona’s UCC. The court again found this argument failed to state a claim as Arizona law does not require compliance with the UCC before a trustee commences a non-judicial foreclosure.
Fourth, the court found the Buchna’s argument that MERS was not a valid beneficiary also failed to state a claim.
Finally, the court affirmed the district court on all other grounds, and affirmed the implicit denial for the Buchnas to amend their complaint, as “amendment would have been futile.”
December 20, 2012 | Permalink | No Comments
December 17, 2012
NCUA Sues JP Morgan over MBS Representations
The National Credit Union Administration has sued J.P. Morgan Securities and Bear, Stearns & Co. for alleged securities laws violations relating to the sale of mortgage-backed securities to 4 credit unions that are now in NCUA conservatorship. According to the complaint, Bear Stearns (now owned by JPMorgan) made misrepresentations to the purchasing credit unions as part of its underwriting and sales of the MBS. The press release notes that NCUA has initiated eight similar suits against a variety of financial institutions.
One of the representations at issue states that “a mortgage loan will be considered to be originated in accordance with a given set of underwriting standards if, based on an overall qualitative evaluation, the loan is in substantial compliance with those underwriting standards.” (Complaint paragraph 408, page 170)
Given what we know about a lot of the securities that were issued, it is hard to imagine that reps like this were not violated for many of them.
December 17, 2012 | Permalink | No Comments
CFPB Issues Fair Lending Report That Highlights Data Collection
The Fair Lending Report of the Consumer Financial Protection Bureau provides an overview of the Bureau’s actions over the last year. Some of the most interesting elements of the report relate to future HMDA and TILA rulemaking:
Section 1094 of the Dodd-Frank Act amends HMDA to require the collection and submission of additional data fields related to mortgage loans, including certain applicant, loan, and property characteristics, as well as “such other information as the Bureau may require.” The CFPB is examining what changes it may propose to Regulation C. . . .
Finally, section 1403 of the Dodd-Frank Act requires that the CFPB prescribe regulations under TILA to prohibit “abusive or unfair lending practices that promote disparities among consumers of equal credit worthiness but of different race, ethnicity, gender or age. The CFPB has begun preliminary planning with regard to this rule. (26) (emphasis added)
Data collection about borrower and mortgage characteristics is very fraught. Lenders have typically fought against efforts to increase such data collection as it could only hurt them if others knew their business so well. Academics and consumer advocates have complained that data about the mortgage market is very hard to come by unless one had massive financial resources to pay private providers for it.
This was especially true, given the rapid rate of change in that market. Working with data that is twelve months old was the same as working with outdated information during the Boom years of the early 2000s. If the CFPB collects and analyzes data in something approximating real-time, it will be far more nimble than previous regulators. If it shares its data with outside researchers, it is likely to become even more sophisticated in its approach to the dynamic housing finance sector.
December 17, 2012 | Permalink | No Comments
December 14, 2012
Levitin and Wachter’s New History of American Housing Finance
Adam Levitin and Susan Wachter have released a very interesting paper on The Public Option in Housing Finance. The paper provides a history of the development of the housing finance infrastructure in the United States. It concludes that
[t]he experience of the U.S. housing finance market teaches us that public options can only succeed as a regulatory mode in certain circumstances. A public option that coexists with private parties in the market is only effective at shaping the market if all parties in the market have to compete based on the same rules and standards. Otherwise, the result is merely market segmentation. Moreover, without basic standards applicable to all parties, the result can quickly become a race-to-the-bottom that can damage not only private parties, but also public entities.(60)
Personally, I wish they struggled more with the trillion dollar issue that they highlight in the middle of the paper: “It is not clear how deep of a housing market can be supported if credit risk is borne by private parties rather than by government.” (30) As the Obama Administration seeks to impose a new order on the housing finance market that will likely last for generations, we should seek a consensus (or as close to one as we can) among policymakers as to how much credit risk the private sector can take when it comes to mortgages secured by single and multifamily housing. Personally, I believe it can handle a lot more than we give it credit for.
December 14, 2012 | Permalink | No Comments
