- Bank of America, Wells Fargo & Citigroup cannot escape the City of Miami’s discriminatory lending suit, which caused a loss in city tax revenue.
- Texas federal judge sanctions the US Environmental Protection Agency for failure to turn over documents that would have killed a Clean Water Act suit brought against Thomas Lipar, a property developer, and four other Lipar companies.
- Mortgage borrowers of Citibank and JPMorgan Chase seek class certification in suit over property inspection fees.
- If appeal fails from Second Circuit judgment, Nomura Holdings & Royal Bank of Scotland Group will pay $33 million more than the $806 million damages for selling risky mortgage securities.
- A New York federal judge found that federal law did not cover many claims in class action against Citibank for “mishandling mortgage-backed securities in more than $17 billion worth of pooled loans.”
- Property owners have petitioned the U.S. Supreme Court to determine their standing in suit against several banks, including Bank of New York Mellon, HSBC, US Bank, Deutsche Bank & Wells Fargo, after the Second Circuit denied their claims that those banks did not own their mortgages.
- A class action over highly leveraged mortgage-backed securities against Goldman Sachs is dismissed for lack of evidence.
- The Securities Industry and Financial Markets Association (SIFMA) claims the Fifth Circuit incorrectly interpreted an FDIC statute, by extending the statute of limitations period, when it reinstated $2.1 billion mortgage-backed securities suit, which conflicts with Supreme Court precedent in CTS Corp. v. Waldburger.
The Maine Supreme Judicial Court issued an opinion, U.S. Bank, N.A. v. David Sawyer et al., 2014 ME 81 (June 24, 2014), that makes you question the sanity of the servicing industry and the efficacy of the rule of law. If you are a reader of this blog, you know this story.
This particular version of the story is taken from the unrebutted testimony of the homeowners, David and Debra Sawyer. They received a loan modification, which was later raised to a level above the predelinquency level; the servicers (which changed from time to time) then demanded various documents which were provided numerous times over the course of four court-ordered mediations; the servicers made numerous promises about modifications that they did not keep; the dysfunction goes on and on.
The trial court ultimately dismissed the foreclosure proceeding with prejudice. Like other jurisdictions, Maine requires that parties to a foreclosure “make a good faith effort to mediate all issues.” (6, quoting 14 M.R.S. section 6321-A(12) (2013); M.R. Civ. P. 93(j)). Given this factual record, the Supreme Judicial Court found that the trial court “did not abuse its discretion in imposing” that sanction. (6-7) The sanction is obviously severe and creates a windfall for the borrowers. But the Supreme Judicial Court noted that U.S. Bank’s “repeated failures to cooperate and participate meaningfully in the mediation process” meant that the borrowers accrued “significant additional fees, interest, costs, and a reduction in the net value of the borrower’s [sic] equity in the property.” (8)
The Supreme Judicial Court concludes that if “banks and servicers intend to do business in Maine and use our courts to foreclose on delinquent borrowers, they must respect and follow our rules and procedures . . .” (9) So, a state supreme court metes out justice in an individual case and sends a warning that failure to abide by the law exposes “a litigant to significant sanctions, including the prospect of dismissal with prejudice.” (9)
But I am left with a bad taste in my mouth — can the rule of law exist where such behavior by private parties is so prevalent? How can servicers with names like J.P. Morgan Chase and U.S. Bank be this incompetent? What are the incentives within those firms that result in such behavior? Have the recent settlements and regulatory enforcement actions done enough to make such cases anomalies instead of all-too-frequent occurrences? U.S. Bank conceded in court that these borrowers have “been through hell.” (9, n. 5) The question is, have we reached the other side?
HT April Charney
The court in Parkway Bank & Trust Co. v. Korzen, 2013 IL App (1st) 130380 (Ill. App. Ct. 1st Dist. 2013) rejected show-me-the-note argument proffered by the defendant.
Defendants claimed that Parkway did not demonstrate proper standing to foreclose because it did not establish the fact that it was the true holder of its own loan. The basis of this argument was the contention that the defendants requested Parkway to produce the “original title” or original notes on numerous occasions but Parkway failed to do so.
The court easily resolved the first part of this argument by finding that the defendants did not explain what an “original title” was. Even so, the court found that the defendants also failed to cite any authority as to why such a document would be a necessary element of proof in a foreclosure case, or why it might be relevant.
The court found that the mortgagors were personally served and that was all that was necessary in this case. With regard to the mortgagors’ claim that the mortgagee did not establish that it was the true holder of the loan, the court held that production of the original note in open court was not a required element of proof in a foreclosure case under 735 ILCS 5/15-1506(b) (2010).
Apparently not. The Florida Supreme Court issued a narrow ruling in Pino v. Bank of New York that a trial court does not have the authority “to grant relief from a voluntary dismissal where the motion alleges fraud on the court in the proceedings but no affirmative relief on behalf of the plaintiff has been obtained from the court.” (3)
In Pino,the homeowner defendant had sought to have the trial court strike “a notice of voluntary dismissal of the mortgage foreclosure action” and have “the case reinstated in order for the trial court to then dismiss the action with prejudice as a sanction to the mortgage holder for allegedly filing fraudulent documentation regarding ownership of the mortgage note.” (2)
As the court noted, the question before it was very limited. It indicates that the “case is not about whether a trial court has the authority in an ongoing civil proceeding to impose sanctions on a party who has filed fraudulent documentation with the court.” (2) That being said, if the judiciary has an epidemic of fraudulent filings in plain sight — foreclosure filings with facially flawed documentation– could it and should it have done more? If foreclosure mill law firms (and debt collection law firms) realize that they can file flawed papers and either withdraw or correct them later on, where are defendants, particularly unrepresented ones, left?
The common law already acknowledges the tort of Abuse of Process which awards damages against a party who maliciously and intentionally perverts judicial process. And yet, the judiciary has taken very few systemic measures to address what has become a dominant business model for foreclosure and debt collection law firms. So, the Florida Supreme Court is right that it only addressed a limited question under Florida law. It could have sought to rule more broadly about the judiciary’s inherent authority to protect the process of litigation. (See 33) But it chose not to.
The Court does acknowledge that there are bigger issues at play, as it asked the Florida Civil Procedure Rules Committee to consider whether additional sanctions should be available to courts to address fraudulent pleadings. (43) But it is also time for the courts to deal with the bigger questions. How should courts deal in particular with robo-signing practices endemic to the 50 states? How does the rule of law suffer when officers of the court are not required (i) to do due diligence as to their own filings and (ii) to stand by them when they turn out to be fraudulent or materially flawed? And how can that state of affairs best be remedied?