- Ocwen and Assurant settle with homeowners for $140 million in class action suit, in which the homeowners alleged that Ocwen received kickbacks by inflating premium costs for forced-placed insurance.
- New York’s Appellate Division, First Department, affirmed dismissal of suit against UBS AG for $30 million, brought by Hanwha Life Insurance Co. (a Korean corporation) claiming that NY courts do not have an interest in adjudicating the suit. Hanwha purchased $30 million in credit-linked notes from UBS that turned out to be worthless. It was trying to recover its losses because it relied on UBS’s advice in purchasing the notes.
- CFPB and the Maryland Attorney General filed suit and settlement consent orders against a title company and participants in an alleged illegal mortgage-kickback scheme.
- After the National Credit Union Administration Board (NCUA) filed a complaint against HSBC for failing as trustee of $2 billion in residential mortgage-backed securities trusts, HSBC claims that the regulator lacks standing to represent the trusts and is barred by Delaware’s three-year statute of limitations.
- Wells Fargo and Deutsche Bank moved to dismiss fives suits from BlackRock Inc., Pacific Investment Management Co. and NCUA for allegedly failing to watch over 850 RMBS trusts as the trustees.
Tag Archives: deutsche bank
Whitman on Foreclosing on E-Note
Professor Dale Whitman posted a commentary on Good v. Wells Fargo Bank, 18 N.E.3d 618 (Ind. App. 2014) on the Dirt listserv. The case addresses whether a lender foreclosing a mortgage securing an electronic note must provide proof that it had “control” of the note when it filed the foreclosure action. This is an interesting new take on an old issue. Dale’s commentary reads:
By now, everyone is familiar with the requirements of UCC Article 3 with respect to enforcement of negotiable notes. Article 3 requires either proof that the party enforcing the note has possession of the original note, or as an alternative, requires submission of a lost note affidavit. With conventional paper notes, it has become common for courts in judicial foreclosure states to require, as a condition of standing to foreclose, that the note holder or its servicer have had possession of the note on the date the foreclosure complaint or petition was filed. This requirement is problematic if (as is often true) the endorsement on the note is undated. In such cases, the servicer will usually be expected to provide additional proof (commonly in the form of affidavits of employees of the holder and/or servicer) that the note had been delivered to the foreclosing party before the date of filing of the action. See, e.g., Deutsche Bank N.T. v. Beneficial New Mexico, Inc., 335 P.3d 217 (N.M. App. 2014); Boyd v. Wells Fargo Bank, N.A., 143 So.3d 1128 (Fla.App. 2014); U.S. Bank, N.A. v. Faruque, 991 N.Y.S.2d 630 (N.Y.App.Div. 2014).
Suppose, however, that the note was electronic rather than paper. Such notes are enforceable under eSign and UETA, but these statutes modify the concepts of delivery and possession. Because an electronic note can be reproduced as many times as desired, and each copy is indistinguishable from the original, eSign creates the concept of the note as a “transferrable record.” Such records must have the following characteristics:
1. The record must be held within a system in which “a single authoritative copy of the record (the note) exists, which is unique, identifiable, and unalterable.”
2. To have the equivalent of possession of such a note, if it has been transferred, a person must have “control” in the sense that the system for tracking such notes must reliably establish that the person enforcing the note is the one to whom the record was transferred.
3. Finally, if the record has been transferred, the authoritative copy of the record itself must indicate the identity of the person who whom it was most recently transferred.
See 15 U.S.C. sec. 7021.
There are very few cases thus far involving foreclosures of mortgages securing e-notes, and little authority on exactly what the holder must prove in order to properly foreclose. In the Good case Wells Fargo was acting as servicer for Fannie Mae, the holder of an e-note that was registered in the MERS e-registry. (MERS’ role with e-notes is very different than for paper notes. In paper note transactions, MERS does not take possession of the note and has no dealings with it, but in e-note transactions, MERS operates a registry to track who has control of the note.)
Accompanying its foreclosure complaint, Wells filed an affidavit by one of its officers, stating that Wells was the servicer, that it maintained a copy of the note, and that its systems provided controls to assure that each note was maintained accurately and protected against alteration. Finally, it stated that the paper copy it submitted with the foreclosure complaint was a true and correct copy of the original e-note.
Unfortunately for Wells, the court found that this affidavit was woefully inadequate to establish Wells’ standing to foreclose the mortgage. Here is the court’s list of particulars:
1. The affidavit stated that Wells possessed the note, but the court couldn’t tell whether it meant the electronic note or a paper copy.
2. The affidavit did not assert that Wells had “control” of the record, either by maintaining the single authoritative copy itself in its own system, or by being identified as having control of the single authoritative copy in the MERS registry system.
3. In fact, Wells never even mentioned the MERS registry system in its affidavit, even though it is obvious from the facts that the note was being tracked within that system.
Wells tried to repair the damage at trial; an employee of Wells testified that Wells was in control of the note, currently maintained it, and serviced the loan. But the court found that this testimony was “conclusory” (as indeed it was) and was insufficient to establish that Wells had control of the note.
Comment: The court provides an extremely useful road map for counsel representing a servicer in the judicial foreclosure of a e-note. The statute itself provides (in 15 U.S.C. 7021(f)) that the person enforcing the note must provide “reasonable proof” that it was in control of the note, and the court felt this must be detailed information and not merely a bare statement.
While the case involved a judicial foreclosure, one might well ask how the “reasonable proof” requirement would be satisfied in a nonjudicial foreclosure. In about eight states, the courts have held (with paper notes) that their nonjudicial foreclosure statutes do not require any assertion or proof of possession of the note. But it is arguable that, if the note is electronic rather than paper, eSign overrides this conclusion by virtue of its express requirement of “reasonable proof.” And since eSign is a federal statute, it is quite capable of preempting any contrary state legislation. On the other hand, the “reasonable proof” requirement only applies “if requested by a person against which enforcement is sought.” In a nonjudicial foreclosure proceeding, how would the borrower make such a request? These are interesting, but highly speculative questions.
Reiss on BoA-FHFA Settlement
Inside The GSEs quoted me in BofA MBS Lawsuit Settlement Shrinks List of FHFA Defendants (behind a paywall). It reads,
It’s only a matter of time before the remaining big bank defendants settle lawsuits filed by the Federal Housing Finance Agency over billions in non-agency mortgage-backed securities sold to Fannie Mae and Freddie Mac in the years leading up to the housing crisis, predicts a legal expert.
Last week, Bank of America agreed to a $9.3 billion settlement that covers its own dealings as well as those of Countrywide Financial and Merrill Lynch, which it acquired in 2008. The agreement covers some $57 billion of MBS issued or underwritten by these firms.
BofA did not admit liability or wrongdoing but it will pay $5.8 billion in cash to Fannie and Freddie and repurchase about $3.5 billion in residential MBS at market value. In return, FHFA’s lawsuits against the bank will be dismissed with prejudice.
The FHFA said it is working to resolve the remaining lawsuits regarding non-agency MBS purchased by the GSEs between 2005 and 2007. The suits involve alleged violations of federal and state securities laws and allegations of common law fraud. One week earlier, the Finance Agency announced that Credit Suisse Group had agreed to pay $885 million to settle a similar lawsuit.
Under the terms of that agreement, Credit Suisse will pay approximately $234 million to Fannie and approximately $651 million to Freddie. In exchange, certain claims against Credit Suisse related to the securities involved will be released.
So far, the FHFA’s lawsuits have recovered $19.5 billion in total payments. Expect more where that came from, said David Reiss, a professor at Brooklyn Law School.
“Every case is different and each institution has a different risk profile in terms of litigation strategy,” said Reiss. “The BofA settlement is so high profile because it’s Countrywide. It gives a lodestar when trying to figure out how low [defendants] can go in a settlement offer.”
Prior to the BofA deal, the FHFA had collected $8.9 billion in prior settlements. The Morgan Stanley settlement is the fourth largest of those settlements, behind Deutsche Bank, which agreed to pay $1.93 billion in December, and JPMorgan Chase, which reached a $4 billion settlement in October.
The bank defendants have repeatedly tried and failed to dismiss the FHFA suits on procedural grounds, including a claim that the cases were no longer timely.
In October, the U.S. Supreme Court declined to hear an appeal from the banks, prompting the expectation in legal circles that few, if any, of the remaining cases will ever go to trial.
“I don’t think that if you are a [big bank] defendant, that you see a particularly favorable judiciary,” said Reiss. “You see that the government is able to reach deals with companies in front of you and I think you’re thinking about settling.”
Entities that have yet to settle non-agency MBS claims with the FHFA include Barclays Bank, First Horizon National Corp., Goldman Sachs, HSBC, Nomura Holding America and the Royal Bank of Scotland.
Deutsche Bank Fails to Sufficiently Prove Ownership in Maine Supreme Judicial Court
In Deutsche Bank Nat’l Trust Co. v. Wilk, 2013 ME 79, 76 A.3d 363 (Me. 2013), the Maine Supreme Judicial Court vacated a judgment of foreclosure for Deutsche Bank on appeal by homeowner for Deutsche Bank’s failure to show ownership of the mortgage. Wilk procured a loan from Luxury Mortgage Company in 2005 with MERS named as nominee. Deutsche Bank commenced foreclosure proceedings after homeowners’ default in 2010, going to trial in 2012. The trial court found that Deutsche Bank provided evidence sufficient to merit foreclosure authority via a chain of assignments showing it was the holder of both the note and mortgage under 14 M.R.S. 6321. On appeal, the court notes that while Deutsche Bank evidenced its ownership of the note, it failed to adequately document its ownership of the mortgage, citing flaws in the chain of assignments. The court explains that the chain runs from MERS to IndyMac, then to FDIC as receiver for IndyMac to OneWest Bank, and finally OneWest Bank to Deutsche Bank; the problem is the date on the final assignment is two weeks prior to FDIC’s transfer to OneWest, meaning OneWest lacked authority to assign the mortgage at the time of its assignment to Deutsche Bank. Deutsche Bank attempted to rely on an earlier 2010 assignment from FDIC to Deutsche Bank, but provided no explanation for why the same mortgage as assigned twice by FDIC. As a result of the inconsistencies presented, the court found “the April 2010 assignment of the mortgage to Deutsche Bank, upon which the [trial] court relied, is not a ‘source whose accuracy cannot reasonably be questioned’ as a means of ‘accurate and ready’ proof of Deutsche Bank’s ownership of the mortgage.” See M.R. Evid. 201(b)(2); see also HSBC Mortg. Servs., Inc. v. Murphy, 2011 ME 59.
The court further found that the theory of estoppel by after-acquired property does not apply, and Deutsche Bank failed to prove its ownership under this theory; “the disputed assignment from OneWest Bank to Deutsche Bank did not involve a warranty deed or contain any factual allegation that OneWest Bank would need to contradict to assert title to the mortgage. The assignment purports to transfer ‘all interest’ OneWest Bank then held in the mortgage, without alleging that OneWest Bank had any interest to convey or making any other statement that could be interpreted to estop OneWest Bank from claiming title.” Pike v. Galvin, 29 Me. 183, 185 (1848); Bennett, 90 Me. at 461-62, 38 A. 372. Deutsche Bank was unable to prove any harmless error existed in the assignments, and therefore the trial court erred in granting the judgment of foreclosure.
Homeowners in Fifth Circuit Fail to Defeat Deutsche Bank Assignments
In Reinagel v. Deutsche Bank Nat’l Trust Co., 2013 U.S. App. LEXIS 22133 (5th Cir. Tex. July 11, 2013), the U.S. Court of Appeals for the Fifth Circuit upheld the Texas district court’s decision to grant Deutsche Bank’s motion to dismiss the homeowners’ complaint alleging the loan assignments were invalid due to robo-signing. The Reinagels refinanced their property in 2006 with Argent Mortgage Company, LLC who sold the loan to Deutsche Bank where it was pooled and sold to investors. The sale of the loan to Deutsche Bank was not documented until 2008, when the assignment was executed. The first assignment of the deed of trust failed to reference the promissory note. A second assignment was executed in 2009, expressly naming the subject note.
After the homeowners defaulted on payments, the state court granted the order for foreclosure in 2010, naming Deutsche Bank as mortgagee with right to foreclose. The Reinagels brought this action for a temporary injunction alleging that the assignments were “robo-signed” and as such facially void. They further argued that the assignments violated the pooling and service agreement (“PSA”), which did not permit transfers into the Deutsche Bank trust after October 1, 2006. The case was removed to the district court on diversity grounds, where the court later granted Deutsche Bank’s motion to dismiss the complaint. The Fifth Circuit affirmed this decision on appeal, finding the Reingals’ challenge of the the assignments unconvincing. The court held that although a non-party to a contract cannot enforce said contract, the obligor may defend on any ground which renders the assignment void, giving homeowners standing as they assert the assignments are facially void. The first assignment was held valid, as the court notes “the transfer of a mortgage presumptively includes the note secured by the mortgage” even if it doesn’t expressly reference the note; the validity of the second assignment is irrelevant here. Additionally, the Reinagels cited no precedent to support invalidating the assignments solely on account of robo-signing, or that violations of the PSA would invalidate the assignments. Further, the court did not find sufficient evidence of robo-signing in regard to either assignment. The court is careful to note that its decision is a narrow one, and provides a warning to banks: “we merely reaffirm that under Texas law facially valid assignments cannot be challenged for want of authority except by the defrauded assignor. We do not condone ‘robo-signing’ more broadly and remind that bank employees or contractors who commit forgery or prepare false affidavits subject themselves and their supervisors to civil and criminal liability.” Id at 12.
Glaski Full of It?
I had blogged about Glaski v. Bank of America, No. F064556 (7/31/13, Cal. 5th App. Dist.) soon after it was decided, arguing that it did not bode well for REMICs that did not comply with the rules governing REMICS that are contained in the Internal Revenue Code. The case is highly controversial. Indeed, the mere question of whether it should be a published opinion or not has been highly contested, with the trustee now asking that the case be depublished. The request for depublication is effectively a brief to the California Supreme Court that argues that Glaski was wrongly decided.
Because of its significance, there has been a lot of discussion about the case in the blogosphere. Here is Roger Bernhardt‘s (Golden Gate Law School) take on it, posted to the DIRT listserv and elsewhere:
If some lenders are reacting with shock and horror to this decision, that is probably only because they reacted too giddily to Gomes v Countrywide Home Loans, Inc. (2011) 192 CA4th 1149 (reported at 34 CEB RPLR 66 (Mar. 2011)) and similar decisions that they took to mean that their nonjudicial foreclosures were completely immune from judicial review. Because I think that Glaski simply holds that some borrower foreclosure challenges may warrant factual investigation (rather than outright dismissal at the pleading stage), I do not find this decision that earth-shaking.
Two of this plaintiff’s major contentions were in fact entirely rejected at the demurrer level:
-That the foreclosure was fraudulent because the statutory notices looked robosigned (“forged”); and
-That the loan documents were not truly transferred into the loan pool.
Only the borrower’s wrongful foreclosure count survived into the next round. If the bank can show that the documents were handled in proper fashion, it should be able to dispose of this last issue on summary judgment.
Bank of America appeared to not prevail on demurrer on this issue because the record did include two deed of trust assignments that had been recorded outside the Real Estate Mortgage Investment Conduit (REMIC) period and did not include any evidence showing that the loan was put into the securitization pool within the proper REMIC period. The court’s ruling that a transfer into a trust that is made too late may constitute a void rather than voidable transfer (to not jeopardize the tax-exempt status of the other assets in the trust) seems like a sane conclusion. That ruling does no harm to securitization pools that were created with proper attention to the necessary timetables. (It probably also has only slight effect on loans that were improperly securitized, other than to require that a different procedure be followed for their foreclosure.)
In this case, the fact that two assignments of a deed of trust were recorded after trust closure proves almost nothing about when the loans themselves were actually transferred into the trust pool, it having been a common practice back then not to record assignments until some other development made recording appropriate. I suspect that it was only the combination of seeing two “belatedly” recorded assignments and also seeing no indication of any timely made document deposits into the trust pool that led to court to say that the borrower had sufficiently alleged an invalid (i.e., void) attempted transfer into the trust. Because that seemed to be a factual possibility, on remand, the court logically should ask whether the pool trustee was the rightful party to conduct the foreclosure of the deed of trust, or whether that should have been done by someone else.
While courts may not want to find their dockets cluttered with frivolous attacks on valid foreclosures, they are probably equally averse to allowing potentially meritorious challenges to wrongful foreclosures to be rejected out of hand.
Just Shoot Me
Florida Twelfth Judicial Circuit Magistrate Bailey issued a Recommended Order in HSBC Bank USA, National Association, et al. v. Marra, No. 2008 CA 000630 NC (Aug. 14, 2013) that makes you want to give up. Not because of the judge, but because of what she documents in what is in all likelihood a run of the mill foreclosure in Florida.
Somewhat amazingly, the defendant was unrepresented but was able to get the Court to focus on various inconsistencies in the court filings and implausible assertions made by the Plaintiff, particularly those relating to whether the plaintiff owned and held the note and mortgage as it alleged in the complaint.
It would require about as many words to summarize the opinion as are in it, so I refer you to the link above if you want to see it in all of its glory. Let me leave you with the Court’s conclusion:
After taking into consideration the above-cited information from the [Pooling and Servicing Agreement], it appears that the transfers that have been variously asserted by the Plaintiff in several Motions and/or documents attached to those Motions as conferring standing upon it could not possibly have occurred as the Plaintiff represents. Further, the Magistrate cannot conceive of any manner in which the Plaintiff could possibly create additional documentation in an effort to manufacture standing in this action. (5)
Said less politely, the Plaintiff appear to have lied to the Court or at least been unbelievably negligent in preparing its papers. The Court also had these things to say about the Plaintiff’s filings:
- the procedural history recounted by the Plaintiff in its Motion is inaccurate. (4)
- it is not even likely that GreenPoint was the “owner and holder” of Marra’s loan documents at the time this case was filed in 2008, as was alleged in the original Complaint. (4)
As a law professor, I teach students about the importance of procedure to the functioning and legitimacy of our system of adjudication. Reading cases like this, replete with a factual summary of obfuscation and possibly outright lies, I wonder what the lesson is that we should take away from the foreclosure epidemic.
One lesson is that you can say anything you want in court and you are unlikely to be punished even if you are caught. If that is the lesson we are left with, just shoot me now.
An alternative lesson is that we should severely punish those who treat the courthouse as no better than a white-collar fight cage where trained mercenaries lord it over ill-prepared amateurs, with no holds barred. If that is the one we take, lower your gun, roll up your sleeves and start thinking about what a well-functioning judicial system would look like for unrepresented parties in civil suits, such as homeowners in foreclosure and consumers facing debt collectors.
[HT April Charney]
