Tag Archives: judicial foreclosure

Fightin’ Words on Consumer Complaints

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Deloitte has issued a report, CFPB’s Consumer Complaint Database: Analysis Reveals Valuable Insights, that provides valuable — but superficial insights — into the CFPB’s massive database of consumer complaints.

Deloitte’s main insights are

  • Troubled mortgages are behind the majority of the complaints – a growing trend
  • Customer misunderstanding may create more complaints than financial institution error
  • Affluent, established neighborhoods were more likely sources of complaints
  • Complaint resolution times have improved (2)

As to the second insight — customer misunderstanding may create more complaints than financial institution error — Deloitte notes that

Financial institutions have a number of options for resolving consumer complaints. They can close a complaint in favor of the consumer by offering monetary or non-monetary relief, or they can close the complaint not in favor of the consumer, perhaps providing only an explanation. The percentage of complaints closed in favor of consumers declined during the analysis period, falling from 30.9 percent in June 2012 to 18.0 percent in April 2013,6 a trend that was reflected in the monthly complaint [resolutions] for all products. (4)

The report continues, “In spite of fewer complaints closed with relief, consumers have been disputing fewer resolutions. In aggregate, the percentage of resolutions that were disputed fell from a peak of 27.9 percent in January 2012 to 18.6 percent in January 2013.” (5) Deloitte finds that “the data suggests that many complaints may be the result of customer misunderstanding or frustration rather than actual mistakes or operational errors by financial institutions.” (5)

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This conclusion seems like a big leap from the data that Deloitte has presented. I can imagine many alternative explanations for the decrease in disputes other than customer misunderstanding. For instance,

  • the consumer does not see a reasonable likelihood of a favorable resolution and abandons the complaint
  • the financial institution can point to a written policy that supports its position even if the consumer complaint had a valid basis, given the actions of the institution’s employees in a particular case
  • in the case of a mortgage complaint, the consumer is moving toward a favorable or unfavorable resolution of the issue with the financial institution on another track (e.g., HAMP, judicial foreclosure)

To be clear, I am not saying that customer misunderstanding plays an insignificant role in customer complaints.  Nor am I saying that the reasons I propose are the real reasons that that complaints do not proceed further. I am only saying that Deloitte has not presented sufficient evidence to support its claim that “customer misunderstanding may create more complaints than financial institution error.” Given that these are fightin’ words in the context of consumer protection, I would think that Deloitte would choose its words more carefully.

 

 

Shaky South Carolina Opinion Finds That Bank Owned Note in Foreclosure Action

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The South Carolina Court of Appeals held in Bank of America v. Draper et al., no. 5140 (June 5, 2013) that Bank of America had standing in a foreclosure action and had proved that it owned the mortgage note.  The Court stated that under South Carolina law, a mortgagee who has the note and the mortgage can elect to bring an action on either. The Court also stated that under South Carolina law, the servicer has standing to bring an action on behalf of the beneficial owner. Because Draper admitted that Bank of America was the servicer, the Court held that Bank of America had standing in this foreclosure action.

Draper also argued that Bank of America failed to prove that it was the owner or holder of the mortgage note. Relying on South Carolina UCC section 301, the Court found that the bank was a “person entitled to enforce.” (8) The Court reached this result because Draper did not contest the Bank’s evidence that it owned the note through a series of “transfer and mergers.” (8) The bank considered as relevant evidence of the Bank’s ownership a “ledger of payments” that showed “all transactions on the account.” (8)

One does not have a sense that this case was well briefed because the Court seems to take a lot of shortcuts.  For instance, the Court apparently assumed that the mortgage note was negotiable and thus subject to Article 3 of the UCC. There is a fair amount of controversy relating to this assumption, something that I will blog about soon.

 

(HT April Charney)

Don’t Show Me The Note in Georgia!

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The Georgia Supreme Court recently decided You v. JP Morgan Chase, No. S13Q0040 (May 20, 2013) which held that the “law does not require a party seeking to exercise a power of sale in a deed to secured a debt [a deed of trust] to hold, in addition to to the deed, the promissory note evidencing the underlying debt.” (1) The Georgia Supreme Court thus joins the Arizona Supreme Court which reached the same result in Hogan v. Wash. Mut. Bank, 277 P.3d 781 (Ariz. 2012). I discuss Hogan and cases reaching the opposite result in Show Me The Note!

The Georgia Supreme Court reached this result after reviewing the history of non-judicial foreclosure in Georgia.  It found nothing in recent statutory enactments that was inconsistent with the longstanding practice of allowing foreclosure on the mortgage alone.  The Court dismissed a number of arguments, including the contention that the UCC “prohibits a party who does not hold the note from exercising the power of sale in the deed securing the note.” (12) The Court notes that Chase is just seeking to enforce the deed of trust, not the note. The Court also acknowledges that it might be more sensible not to split the note from the mortgage, but it also notes that the Georgia legislature did not take that approach.

The court concludes the opinion with something of a cri de coeur, the type of statement one sees from a court that feels that its conscience is being constrained by binding authority:

As members of this State’s judicial branch, it is our duty to interpret the laws as they are written. See Allen v. Wright, 282 Ga. 9(1), 644 S.E.2d 814 (2007). This Court is not blind to the plight of distressed borrowers, many of whom have suffered devastating losses brought on by the burst of the housing bubble and ensuing recession. While we respect our legislature’s effort to assist distressed homeowners by amending the non-judicial foreclosure statute in 2008, the continued ease with which foreclosures may proceed in this State gives us pause, in light of the grave consequences foreclosures pose for individuals, families, neighborhoods, and society in general. Our concerns in this regard, however, do not entitle us to overstep our judicial role, and thus we leave to the members of our legislature, if they are so inclined, the task of undertaking additional reform.

 

 

 

 

(HT William Hart)

Show Me The Note!

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KeAupuni Akina, Brad Borden and I have posted Show Me The Note! to  SSRN and BePress.  The abstract reads

News outlets and foreclosure defense blogs have focused attention on the defense commonly referred to as “show me the note.” This defense seeks to forestall or prevent foreclosure by requiring the foreclosing party to produce the mortgage and the associated promissory note as proof of its right to initiate foreclosure.

The defense arose in two recent state supreme-court cases and is also being raised in lower courts throughout the country. It is not only important to individuals facing foreclosure but also for the mortgage industry and investors in mortgage-backed securities. In the aggregate, the body of law that develops as a result of the foreclosure epidemic will probably shape mortgage law for a long time to come. Courts across the country seemingly interpret the validity of the “show me the note” defense incongruously. Indeed, states appear to be divided on its application. However, an analysis of the situations in which this defense is raised provides a framework that can help consumers and the mortgage industry to better predict how individual states will rule on this issue and can help courts as they continue to grapple with this matter.