- Court denies US Bank’s opportunity to revive suit against Citigroup over hundreds of millions of dollars in mortgage-backed securities sold during the financial crisis.
- IL court refuses to dismiss suit against Bank of America over lowering underwriting standards for borrowers protected by the Fair Housing Act.
- National Credit Union Administration sues HSBC claiming it failed as trustee for $2 billion of residential mortgage-backed securities trusts and lead to the downfall of five credit unions.
Tag Archives: trustee
Washington Court Dismisses Fair Debt Collection Practices Act and Washington Deed of Trust Act Violation Claims
The court in deciding Dietz v. Quality Loan Serv. Corp., 2014 U.S. Dist. (W.D. Wash. Jan. 3, 2014) granted Wells Fargo and MERS’ motion to dismiss.
This action involved is a post-sale wrongful foreclosure case. Plaintiff Timothy Dietz alleged causes of action for violation of the Fair Debt Collection Practices Act (FDCPA)(Counts I and IV) and violation of the Washington Deed of Trust Act (DTA)(Counts II and III).
The court in deciding this case noted that Dietz’s first and fourth causes of action were for violation of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §§ 1692g(b) and 1692e(5) respectively. These causes of action did not mention MERS and there was no allegation in the complaint that MERS engaged in any activities that could be construed as a “debt collection.” As such, this court dismissed the FDCPA causes of action against MERS.
Similarly, the court found that Dietz had not alleged facts that gave rise to a violation of the debt validation notice requirements. Dietz’s claim that that Wells Fargo violated 15 U.S.C. § 1641(g) by failing to notify him within 30 days after it purchased the Loan. Wells Fargo purchased the Loan in 2008 and the assignment was recorded in 2011. The court found that under either date, the claim was barred by FDCPA‘s one year statute of limitations, 15 U.S.C. § 1640(e), as this lawsuit was not filed until 2013.
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.
BoA Claws Back Clawback
New York County Supreme Court Justice Bransten held, in U.S. Bank National v. Countrywide Home Loans, Inc., no. 652388-2011 (May 29, 2013), that a trustee cannot succeed in getting the defendants (Countrywide entities among others) to repurchase all of the mortgages in a securities pool based on a theory of “pervasive breach.” Rather, she holds that the repurchase obligations are determined by the terms of the agreements governing this MBS transaction.
The trustee asserted that the loans breached the reps and warranties. The deal documents, however, limited the trustee’s remedy for such a breach to repurchase. The Court writes that
Plaintiff invites this Court to look past the absence of contractual language supporting its claim, asserting that it is entitled to the benefit of every inference on a motion to dismiss. While the Trustee is entitled to all favorable inferences with regard to its factual claims on a motion to dismiss, its bare legal conclusion that the Servicing Agreement accommodates its pervasive breach theory is not entitled to deference. (8)
Justice Bransten has ruled on a number of MBS cases involving alleged breaches of reps and warranties and is developing a coherent body of law on this topic. In the Bransten Trio of cases, she rejects the idea that vague disclosures are sufficient to immunize securitizers from liability for endemic misrepresentation. And here, she rejects the idea that vague theories of liability can replace the clear language agreed to by the parties. In good judicial fashion, she is letting parties know that they should pay attention to the text of their agreements and be ready to face the consequences of those agreements.
The Devil is in the Statute of Limitations
NY Supreme Court Justice Kornreich (N.Y. County) issued an opinion ACE Securities Corp. v. DB Structured Products Inc., No. 650980/2012 (May 13, 2013) that diverges in approach from an earlier SDNY opinion as to whether the statute of limitations runs “from the execution of the contract.” (5) The case concerns allegations that an MBS securitizer made false representations about the loans that underlay the MBS.
Kornreich held that the statute of limitations begins to run when the MBS securitizer (a Deutsche Bank affiliate) “improperly rejected the Trustee’s repurchase demand” so long as the Trustee did not “wait an unreasonable time to make the demand.” (7) (On a side note, Kornreich also held that the plaintiff in such a case is not required “to set forth which of the specific loans are affected by false” representations in a breach of contract claim. (7))
This really opens up the statute of limitations under NY law. There has been a lot of speculation that the flood of lawsuits arising from the Subprime Boom would have to come to an end because the statute of limitations covering many of the claims was six years. A variety of developments has extended the possibility of filing a suit. There is FIRREA‘s ten year statute of limitations. There is NY’s Martin Act, with its lengthy statutes of limitation. And now there is this expansive reading of NY’s statute of limitations for breach of contract actions.
Although one might think that all of the good cases have been filed already, you never know. And with the ACE Securities Corp. case, we can see how a case can be filed more than six years after the contract was entered into, under certain circumstances.
Noncompliance with PSA Voids Assignment of Note and Mortgage
Wells Fargo Bank, N.A. v Erobobo, 2013 NY Slip Op 50675(U) (Sup. Ct. Kings, Apr. 29, 2013) reaches a pretty extraordinary result: noncompliance with the assignment provisions of a Pooling and Servicing Agreement voids the assignment of a note and mortgage. In particular, the court found that
The assignment of the note and mortgage from Option One [the first assignee] rather than from the Depositor ABFC violates section 2.01of the PSA which requires that the Depositor deliver to and deposit the original note, mortgage and assignments to the Trustee. The assignment of the Defendant’s note and mortgage, having not been assigned from the Depositor to the Trust, is therefore void as in being in contravention of the PSA.The evidence submitted by Defendant that the note was acquired after the closing date and that assignment was not made by the Depositor, is sufficient to raise questions of fact as to whether the Plaintiff owns the note and mortgage, and precludes granting Plaintiff summary judgment. (13)
If the Court’s reasoning holds up on appeal or is adopted in other jurisdictions, it could have a big, big impact on Foreclosure litigation.
Untrustworthy?
John Campbell has posted an abstract (and hopefully soon a draft) of Putting the ‘Trust’ in Trustees: An Examination of the Foreclosure Crisis and Suggestions for Reforming the Role of the Trustee. The draft itself proposes legislation for non-judiical foreclosure jurisdictions “that would make trustees real gatekeepers who require essential proofs, ask basic questions, and when factual disputes arise between the foreclosing party and the homeowner, refer those questions to courts.” (53) It is valuable to set forth some of the things that Campbell’s proposal would require from trustees:
- Proof of the transfer of the original note from the original lender to the current party who seeks to foreclose, including any and all intervening assignments. The foreclosing party should be required to produce a copy of the original note and attest in a sworn affidavit that the original note exists in its original form.
- Proof that the party who seeks to foreclose is the party who is recorded in the public records as the secured party, along with all the recordings that show how that party came to be secured.
- Detailed financial records that show when default occurred and precisely how much money the homeowner currently owes. (56)
Each of these items reflects a major controversy in the world of foreclosures. The first would ensconce the “Show Me the Note!” claim made by homeowners during foreclosure and bankruptcy proceedings in the statutory framework of non-judicial foreclosure regimes. The second would be a frontal assault on the role of MERS, requiring that the foreclosing party record in its own name its interest in the deed of trust. And the third would require that servicers provide adequate evidence to homeowners of the default. The proposal would effectively make non-judicial foreclosure a lot more like judicial foreclosure, an objective that I will not weigh in on today.
