Tag Archives: foreclosure

S.D.N.Y. Denies Mortgagor Under 11 U.S.C.S. § 1109(b)

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The court in deciding In re Residential Capital, LLC, 2013 Bankr. 5316 (Bankr. S.D.N.Y., 2013) denied the mortgagor’s motion for an order declaring that the debtors’ bankruptcy estate owned title to the note, to void a state court title transfer, and enjoin the foreclosure action.

The court decided Phillip Scott’s motion to (1) determine that bankruptcy estate owned title to note, (2) void state court title transfer, and (3) enjoin post petition.

In this case, the mortgagor (Scott) did not have standing under 11 U.S.C.S. § 1109(b) to seek a ruling from the bankruptcy court that the business declared Chapter 11 bankruptcy after it acquired and transferred the mortgage he executed with the note held title to real property that secured the note.

In regards to the order to enjoin the foreclosure action, the court found that the mortgagor was not a creditor in the debtors’ bankruptcy estate, the note and mortgage were not owned or serviced by any of the debtors, and none of the debtors was a party to the foreclosure action.

Foreclosure Review

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The US Government Accountability Office issued a report, Foreclosure Review:  Regulators Could Strengthen Oversight and Improve Transparency of the Process. GAO did this study because it was asked to examine the amended consent order process relating to foreclosures. This process was pretty controversial. By way of background,

In 2011 and 2012, OCC and the Federal Reserve signed consent orders with 16 mortgage servicers that required the servicers to hire consultants to review foreclosure files for errors and remediate harm to borrowers. In 2013, regulators amended the consent orders for all but one servicer, ending the file reviews and requiring servicers to provide $3.9 billion in cash payments to about 4.4 million borrowers and $6 billion in foreclosure prevention actions, such as loan modifications. One servicer continued file review activities. (no page number)

GAO concluded that

One of the goals that motivated the original file review process was a desire to restore public confidence in the mortgage market. In addition, federal internal control standards and our prior work highlight the importance of providing relevant, reliable, and timely communications, including providing information about the processes used to realize results, to increase the transparency of activities to stakeholders — in this case, borrowers and the public. Without making information about the processes used to categorize borrowers available to the public, such as through forthcoming public reports, regulators may miss a final opportunity to address questions and concerns about the categorization process and increase confidence in the results. (66)

GAO also found that in “the absence of specific expectations for evaluating and testing servicers’ actions to meet the foreclosure prevention principles, regulators risk not having enough information to determine whether servicers are implementing the principles and protecting borrowers.” (66)

So we are left with an ongoing crisis in confidence for the public and homeowners in particular. We are also left with regulators who are at risk of not being able to properly regulate financial institutions. With much of the news we are receiving these days, it feels as if we have let our financial crisis go to waste. No foreclosure reform, no housing finance reform, no real leadership to create a housing finance system for the 21st Century.

During the Great Depression, the federal government created the Federal Home Loan Bank System, the Federal Housing Administration, the Home Owners’ Loan Corporation. We have created a black hole — Fannie and Freddie are in that limbo known as conservatorship. The President must take a lead on housing finance reform. Otherwise, my money is on another bailout in the not so distant future.

Settling NY Foreclosures

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Three legal services providers issued Stalled Settlement Conferences: A Report on Residential Foreclosure Settlement Conferences in New York City. The report opens,

New York has coped with the foreclosure crisis by implementing a pioneering settlement conference process administered by the court system, designed to promote negotiation of affordable home-saving solutions. These conferences present a remarkable opportunity for lenders and borrowers to meet face-to-face in a court supervised settlement conference at which creative solutions can be forged, and have allowed thousands of New Yorkers to avert foreclosure. But banks routinely flout the law by appearing without required information or settlement authority, causing delays that cost borrowers money and can make home-saving settlements impossible. The process can be far more effective, and less prone to delay, if the courts rigorously enforce the requirements of the settlement conference law, as this report recommends.

Notwithstanding media reports about rebounding real estate markets, New York remains mired in a foreclosure crisis. In fact, in 2013 foreclosure cases represented approximately one third of the judiciary’s civil case load. New York State’s courts experienced a significant increase in foreclosure fi lings during 2013, with the pending inventory increasing more than 16% in 2013, with over 84,000 foreclosure cases pending as of the last report issued by the judiciary, and with 44,035 projected new filings for calendar year 2013 (representing an increase of nearly 20,000 new filings over 2012). (2)

This is clearly an advocacy document, but it is also clear that it is documenting a real problem, one that has cropped up time after time in judicial decisions. It may, however, go too far when it states that “banks and their lawyers themselves are largely responsible for prolonging the process.” (3) In fact, NY’s foreclosure process was longer than most before the mandatory conferences were implemented and remain long even as other jurisdictions adopt similar requirements.

Nonetheless, lenders should comply with the letter and spirit of the law. The report advocates for courts to “vigorously enforce the settlement conference law and deter banks from violating it by penalizing parties who appear in court without the authority and information needed to negotiate in good faith.” (2) Seems like a pretty reasonable recommendation to me.

The Second Frannie Bailout: Who Could’ve Known?

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There is a good chance that five or so years from now, Fannie and Freddie will be in the midst of another bailout. This next crisis will be directly caused by the Executive and Legislative branches of the federal government. But members of those branches will say, “Nobody could have known that this crisis was going to happen, nobody is at fault.” That won’t be true, but nobody will be punished in any case. That’s because the crisis will result from inaction, that most fearsome of government flaws.

Who is the Cassandra, warning us of this impending crisis? None other than Donald Layton, the CEO of Freddie. You may think that he is speaking merely from self-interest and you would probably be right. But his self-interest happens to align with the truth in this matter.

In a letter to FHFA Director Watt, Layton writes:

the ability of Freddie Mac to continue to support the mortgage markets and the U.S. economy duling an unprecedentedly lengthy transition period should be one of the most important objectives of a housing finance reform proposal, such as the Johnson-Crapo Bill. The existing Bill draft does not focus on this issue and so, in my personal but experienced opinion, leaves the risk of a failure in Freddie Mac’ss Core Policy Function unacceptably high. With certain specific changes, none of which alter the fundamental nature of the future state envisioned or even the key aspects of the transition, l believe this risk can be reduced, although it would still remain high. (7)

Layton highlights the extraordinary complexity of Freddie’s activities in an appendix to the letter. The highlights include the fact that Freddie Mac guarantees  “about  17% of all U.S. mortgage debt outstanding;” 1,400 Servicers and 2,000 Sellers work with Freddie; and Freddie manages 44,600 REO properties. (8)

Layton states that “It goes without saying that Freddie Mac cannot deliver upon its Core Policy Function, its support of the transition to a future state, or its support of Conservatorship initiatives without experienced and knowledgeable people in place at the executive level, at the Subject matter expert level and at the “been-here-a-long-time-to-know-how-everything-works level.” (3) He believes that departures are likely to cripple the company as experienced staff move on to other, more stable opportunities, leaving behind the quagmire that life in a GSE has become.

The Executive and Legislative branches are not really moving toward some kind of resolution of the Fannie and Freddie conservatorships, although we are now five years past the initial crisis. There is a good chance that the federal government will not move us to the next phase of housing finance in the next couple of years. Operations at the two GSEs will thus continue to suffer and will likely build up to a new crisis. And it will be a totally predictable crisis.

I am the kind of person who likes to say, “I told you so.” But the stakes here are so humungous and so important for the health of the economy, that I could take no pleasure in saying I told you in 2014 that our entire housing finance edifice was going to crumble a second time in a decade. But it will, if nothing is done to prevent it today.

Defaulting Mortgagor Lacked Standing Under 11 U.S.C.S. § 1109(b)

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The court in deciding In re Residential Capital, LLC, 2013 Bankr. (Bankr. S.D.N.Y., 2013) held that the plaintiff Scott was not a party in interest and therefore lacked standing to assert a violation of the automatic stay. The court thus denied his motion.

Before this court was Phillip Scott’s motion to (1) determine that bankruptcy estate owns title to the note, (2) void state court title transfer, and (3) enjoin post petition state court prosecution.

Through his Motion, Scott sought: (1) declaratory relief determining that the bankruptcy estate owns title to the note; (2) injunctive relief enjoining, restraining, and prohibiting the mortgage foreclosure action in the Supreme Court of New York, County of Westchester; and (3) judgment for costs, including attorneys’ fees.

This court held that a mortgagor who defaulted on a note he executed in 2005 did not have standing under 11 U.S.C.S. § 1109(b) to seek a ruling from the bankruptcy court that a business that declared Chapter 11 bankruptcy after it acquired and transferred a mortgage he executed with the note held title to real property that secured the note, and an order enjoining a foreclosure action which a bank filed against the property in a New York court. The court also held that the mortgagor was not a creditor in the debtors’ bankruptcy estate, the note and mortgage were not owned or serviced by any of the debtors, and none of the debtors was a party to the foreclosure action.

Thus this court denied the mortgagor’s motion for an order declaring that the debtors’ bankruptcy estate owned title to the note, voiding a state court title transfer, and enjoining the foreclosure action that was filed in state court.

Arizona’s Non-Judicial Foreclosure Statutes do not Require the Beneficiary to ‘Show the Note’ Before Commencing a Non-Judicial Foreclosure

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The court in deciding Famili v. Wells Fargo Bank NA, 2013 U.S. Dist. (D. Ariz., 2013) reaffirmed the holding that “Arizona’s non-judicial foreclosure statutes do not require the beneficiary to prove its authority or ‘show the note’ before the trustee may commence a non-judicial foreclosure.”

All counts alleged in plaintiff’s complaint centered on her assertion that whenever the promissory note was transferred or a change was made to the beneficiary of the deed of trust, the holder or beneficiary was required to demonstrate authority for the transfer or substitution. This court noted that each claim of breach of contract and lack of authority put forth by the plaintiff was an iteration of the “show-me-the-note” argument resolved by the Arizona Supreme Court in Hogan v. Wash. Mut. Bank, N.A., 230 Ariz. 584, 277 P.3d 781, 782 (Ariz. 2012).

Thus, as a matter of Arizona law, the court found the plaintiff’s argument without merit.

Court Rejects Arguments that Mortgage Electronic Registration Systems, Inc. Lacked the Authority to Assign Mortgage

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The court in deciding Jones v. Nationstar Mortg. LLC, 2013 U.S. Dist. (W.D. Mich., 2013) granted defendant Nationstar’s motion for summary judgment.

Plaintiff alleged that the foreclosure of his property was unlawful for the following reasons: (1) Nationstar refused to accept his payment of $1,019.74; (2) Nationstar failed to produce the original note with the red blood signature; (3) Mortgage Electronic Registration Systems, Inc. (MERS) lacked the authority to assign the mortgage; (4) Plaintiff was not afforded sufficient due process; and (5) Nationstar lacked standing to seek foreclosure. Defendants moved for summary judgment.

Plaintiff had responded to defendant’s motion for summary judgment. However, this court found that the plaintiff had failed to submit any evidence challenging, refuting, or otherwise calling into doubt the evidence submitted by the defendant.

Instead, the court found that the plaintiff had submitted several exhibits that supported the defendant’s motion for summary judgment. Plaintiff had also submitted an affidavit in which he asserted irrelevant matters such as the fact that the defendant Nationstar “was not a human being” and defendants “did not have the rights of a natural human being.”

This court found that to the extent that plaintiff had asserted relevant facts, such did not advance plaintiff’s position.