I thought I had seen it all but this case must take top prize for the most abhorrent attempt at foreclosure fraud perpetuated by a federal savings bank.
A client hired me to audit his loan documents in preparation for an upcoming motion hearing in Miami-Dade County, Florida. Flagstar Bank is trying to foreclose on a mortgage originated back in 2008. The putative lender on the promissory note and mortgage is “Manhattan Mortgage Services, a Florida Sole Proprietor” and, of course, MERS is named as the lender’s nominee and beneficiary under the mortgage.
The first red flag for me was the assertion that Manhattan Mortgage Services was a “Sole Proprietor” because only a natural person can be a sole proprietor. A business may be a “sole proprietorship” (as opposed to a “sole proprietor”) meaning that an individual is doing business under a fictitious business name provided the name is registered and the true owner is identified to the public. There is no legal distinction between a sole proprietor and his/her business. According to the Florida Department of State Manhattan Mortgage Services had been registered as a business back on 5/20/1998, but the registration had expired on 12/31/2003. I then looked for evidence that this entity had a license to lend money in Florida and learned that a Mortgage Broker’s license had been issued to this entity in June 1998 but revoked only two months later. So at the time this loan was originated, in March 2008, there was no active lending license on record for this entity, nor for the individual who had registered the fictitious business name.Read Full Post | Make a Comment ( None so far )
This is proof positive that the outcome of your case depends entirely on the judge’s disposition and sensibilities. When there is clear and convincing evidence of predatory lending and fraud, the court can use its equitable powers to remediate the inequities.
In Re McGee v. Gregory Funding LLC, Dist. Court, D. Oregon 2010, on September 22, 2005 Plaintiff refinanced his home for $174,900 at 7.54% with a one year balloon payment of $175,999.66. Defendant received $9,800 as a loan origination fee and Plaintiff signed an option to extend the loan for an additional fee of $6980. TILA and HOEPA disclosures were not provided at settlement and the balloon rider was never signed by Plaintiff.
The following year Plaintiff tried obtaining a conventional loan but since Defendant did not report the payment history on Plaintiffs loan, he could not qualify for a refinance with any other lender. As such Plaintiff had to extend his loan with Defendant for another year and in the process ended up paying Defendant additional $9500 in fees. Again no material disclosures were provided.
On December 19, 2007 Plaintiff entered in to a third transaction with Defendant by signing an amendment for $216,216 at 7.54% that included advances for property taxes, legal fees and a modification fee totaling $14,320.68. Again Defendant failed to provide disclosures.
Plaintiff filed for bankruptcy protection in the District of Oregon on September 22, 2008, which was confirmed on April 16, 2009. The Bankruptcy Court ordered relief from the automatic stay on September 2, 2009.
Plaintiff filed a motion for temporary restraining order/preliminary injunction (“TRO/PI”). The court granted plaintiff’s motion for a TRO on November 10, 2010, prohibiting defendants from executing its proposed sale of plaintiff’s property on the Multnomah County Courthouse steps scheduled November 10, 2010 at 10:00 a.m.
Judge Ann Aiken found it troubling that Plaintiff was charged a total of $36, 418.81 in loan origination fees for three transactions over a four-year period, stating that considering the FHA recently announced a limitation of loan origination fees charged to borrowers as no more than 1% of the loan amount, Plaintiff’s loan fees of 5% and 7%, even considering the increased risk associated with a sub-prime loan, runs counter to 12 C.F.R. section 226.23(f)’s comment that fees must be bona fide and reasonable.
The court stated that HOEPA rescission does not have a statute of limitations subject to tolling, but a statute of repose that creates a substantive right not subject to tolling. Notwithstanding the foregoing the judge held that pursuant to King v. State of California, 784 F.2d 910.915 (9th Cir. 1986, cert denied, 486 U.S. 802 (1987), there was authority to allow Plaintiff to rescind the first transaction under the doctrine of equitable tolling. “Pursuant to the Ninth Circuit’s ruling in King, supra, it is permissible for district courts to evaluate specific claims of fraudulent concealment and equitable tolling to determine if the general rule would be unjust or frustrate the purpose of the Act”. The court found those circumstances existed here and therefore warranted tolling.
Finally to overcome Plaintiffs inability to obtain new financing for tender purposes, the court ordered Defendant to file an amended proof of claim with the bankruptcy court using the tender amount as the secured debt payable at 7.547% interest over 30 years.
In re: James P. McGee, Plaintiff,
GREGORY FUNDING, LLC, an Oregon limited liability company, and RANDAL SUTHERLIN, Defendants.
Civil No. 09-1258-AA.
United States District Court, D. Oregon.
February 20, 2010.
Tami F. Bishop, M. Caroline Cantrell, M. Caroline Cantrell & Assoc. PC, Portland, Oregon, Attorneys for Debtor/Plaintiff.
Kathryn P. Salyer, Farleigh Wada Witt, Portland, Oregon, Attorney for Defendants.
OPINION AND ORDER
ANN AIKEN, District Judge.
Plaintiff filed a motion for temporary restraining order/preliminary injunction (“TRO/PI”). The court granted plaintiff’s motion for a TRO on November 10, 2010, prohibiting defendants from executing its proposed sale of plaintiff’s property on the Multnomah County Courthouse steps scheduled November 10, 2010 at 10:00 a.m. On November 23, 2010, the date scheduled to hear plaintiff’s motion for a preliminary injunction, the parties elected to forego oral argument and submit the matter to the court on the briefs. Plaintiff’s motion for a preliminary injunction is granted.
Plaintiff brings this action for injunctive relief, actual damages, statutory damages, attorney fees and costs against defendants for violation of the Truth in Lending Act, 15 U.S.C. sections 1601 et seq. and 1640(a) (“TILA”), among others.
Plaintiff, an African-American male, alleges this is a “residential predatory lending case” arising from a “fraudulent” home mortgage refinance transaction originated by defendant Gregory Funding, LLC with defendant Randal Sutherlin as the loan interviewer. Defendants originated a series of three loan transactions with plaintiff signed on September 12, 2005, September 26, 2006, and December 19, 2007. Plaintiff alleges those loans “stripped plaintiff of his home equity and put him at risk of losing his home.” Plaintiff alleges that he failed to receive accurate, material disclosures required by TILA and the Home Ownership and Equity Protection Act of 1994 (“HOEPA”) at the closing of both his second and third loans. As a result, plaintiff exercised his right to rescind the 2006 and 2007 loans under TILA, and filed the action at bar to enforce those rights.
Plaintiff filed for bankruptcy protection in the District of Oregon on September 22, 2008, which was confirmed on April 16, 2008. The Bankruptcy Court ordered relief from the automatic stay on September 2, 2009.
In September 2005, plaintiff contacted defendant Gregory Funding, LLC (“Gregory”) to request information regarding refinancing his home. At that time there was a pending foreclosure sale on plaintiff’s home. Plaintiff had recently started a new job. Defendant Sutherlin visited plaintiff’s home to discuss refinancing and spent about fifteen minutes with plaintiff. Later that day, Sutherlin phoned plaintiff to inform him that the loan was approved and the closing would take place within a couple of weeks. Plaintiff was not asked to provide tax returns, pay stubs, or complete a credit application at any point during the refinance. There is no record of a real estate appraisal completed at any point to determine the value of plaintiff’s home. On September 12, 2005, plaintiff signed the closing documents and refinanced his home for $174,900 at 7.54% interest with a one-year balloon payment of $175,999.66. A fixed rate balloon note was signed setting forth 12 principal and interest payments of $1,100 with the first payment due November 1, 2005, and a late payment fee of $55. Defendant Gregory received $9,800 as a loan origination fee from the transaction. Plaintiff signed an option to extend the loan for a fee of $6,980. The loan maturity date was October 1, 2006.
The material disclosures required by HOEPA for a high cost loan were not provided to plaintiff prior to or at the closing. Plaintiff did not sign and receive his two copies of his right to cancel under TILA and the balloon rider to the deed of trust was unsigned at closing.
In August 2006, plaintiff began shopping for a conventional loan; however, due to defendant Gregory not reporting the payment history on plaintiff’s loan, he was unable to qualify for a refinance with another lender. Plaintiff therefore entered into a second loan transaction with defendants on September 21, 2006. Plaintiff signed a document titled First Amendment to Promissory Note at defendants’ office on September 21, 2006. The transaction was for $184,400 at 7.54% interest with a one-year balloon payment of $185,559.72. The first amendment set forth 12 principal and interest payments of $1,159.72 and a late payment fee of $57.99 with the first payment due November 1, 2006. Defendant Gregory received $9,500 as a loan fee from the transaction. The loan maturity date was October 1, 2007. Again, the material disclosures required by HOEPA for a high cost loan were not provided to plaintiff prior to or at the closing including the HUD H-8 form (explaining a limited right to cancel for same lender refinancing).
Plaintiff made the November and December 2006 and January 2007, payments and did not make another payment until November 2007. He made a payment of $2,500 on November 15, 2007, and another payment of $3,500 on November 29, 2007. On December 1, 2007, plaintiff was an estimated $6,177.26 in arrears. In early December 2007, plaintiff discussed his refinancing options with defendant Sutherlin. On December 19, 2007, plaintiff believed he was entering into a 30-year principle and interest conventional mortgage when he entered into the third loan transaction with defendants.
Plaintiff alleges that Sutherlin failed to inform him that the loan was an interest only loan with a balloon payment due in 30 years of an amount higher than the original loan amount. Plaintiff was not asked to provide proof of his income or ability to repay the loan prior to signing the second amendment. This transaction was for $216,216 at 7.54% interest with a loan maturity date of December 31, 2007 under the second amendment to the note. According to the second amendment, Gregory advanced an additional $21,406.46 to borrower as 1) property insurance ($450); 2) property taxes (46,223.23); 3) lender attorney fees ($360); 4) one-day interest ($52.55); and 5) extension and modification fee ($14,320.68). The first amendment was $14,400 plus $21,406.46 in lender advances under the second amendment for a total of $205,806.46. The second amendment is for an explained difference of $10,409.54. Plaintiff was not provided a good faith estimate prior to closing or a HUD statement at closing detailing the loan fees and costs paid to defendant. The additional loan fee under the second amendment was $16,216. Gregory advanced all but $1,895.32 of the fee. Plaintiff paid the balance at closing of the second transaction.
Again, defendants failed to provide any material disclosures required by HOEPA for a high cost loan including the HUD H-8 form. The limited right to cancel provided on the H-8 form for same lender refinancing was not provided to plaintiff when he signed the first amendment to the promissory note. Plaintiff did not make any payments under the second amendment to the note. Defendant charged plaintiff $30,906.46 in fees for the 2006 and 2008 loans and an additional $9,840 for the original loan in 2005, for a total of $40,746.46 in fees for the three transactions. Plaintiff alleges these fees are excessive and unreasonable. Further, plaintiff alleges that defendants’ actions in refinancing plaintiff’s loan three times within a two year period without regard to the best interest of plaintiff establishes an egregious pattern or practice of making loans in violation of 12 C.F.R. section 226.32.
Gregory set a foreclosure sale date for September 23, 2008, in the interior foyer of the Multnomah County Courthouse. Plaintiff filed for bankruptcy protection under Chapter 13 on September 22, 2008.
The sale of plaintiff’s home was held on October 27, 2009, with defendant as the sole bidder. Defendant now moves to execute its proposed sale of plaintiff’s home.
The party seeking a preliminary injunction must demonstrate that he is (1) likely to succeed on the merits; (2) likely to suffer irreparable harm in the absence of preliminary relief; (3) the balance of equities tips in his favor; and (4) an injunction is in the public interest. Winter v. Natural Res. Def. Council, Inc., 129 S. Ct. 365, 374 (2008).
“Under either formulation, the moving party must demonstrate a significant threat of irreparable injury. . . .” Id. “A plaintiff must do more than merely allege imminent harm sufficient to establish standing; a plaintiff must demonstrate immediate threatened injury as a prerequisite to preliminary injunctive relief.” Caribbean Marine Services Co. v. Baldridge, 844 F.2d 668, 674 (9th Cir. 1988) (emphasis in original). “Speculative injury does not constitute irreparable injury.” Goldie’s Book Store v. Super. Ct. of State of Cal., 739 F.2d 466, 472 (9th Cir. 1984). If the party seeking the injunction cannot demonstrate irreparable injury, then the district court need not address the merits and may deny the motion for an injunction. Oakland Tribune, Inc. v. Chronicle Pub. Co., 762 F.2d 1374, 1376 (9th Cir. 1985).
Defendants assert that plaintiff is not entitled to enjoin the foreclosure sale because (1) the issue is moot because the foreclosure sale was completed by delivery and recording of a Trustee’s Deed, prior to this court’s entry of the TRO on November 10, 2009; and (2) plaintiff’s preliminary injunction claim fails on the merits because plaintiff’s rescission claim is time barred.
Moot, Not Likely to Succeed on Merits and No Irreparable Harm
Defendants argue plaintiff’s claim for injunction is moot. The property at issue was sold at a foreclosure sale on October 27, 2009, and a Trustee’s Deed was recorded on November 6, 2009. This court entered a TRO on November 10, 2009. Justiciability requires the existence of an actual case or controversy. Plaintiff must meet the “case or controversy” requirements at all stages of the litigation and “not merely at the time” the lawsuit is instituted. Roe v. Wade, 410 U.S. 113, 125 (1973). A case becomes moot “if, at some time after the institution of the action, the parties no longer have a legally cognizable stake in the outcome.” Goodwin v. C.N.J., Inc., 436 F.3d 44, 49 (1st Cir. 2006).
Defendants also argue that plaintiff is not likely to succeed on the merits. Plaintiff agrees that the only claim supporting his motion for injunction is the rescission claim under TILA. Pursuant to 15 U.S.C. section 1635(f), “an obligor’s right of rescission . . . expires three years after the date of consummation of the transaction, . . . notwithstanding the fact that the information and forms required under this section or any other disclosures required under this chapter have not been delivered to the obligor.” Section 1635(f) represents an absolute limitation on rescission actions which bars any claim filed more than three years after consummation of the transaction. Miguel v. Country Funding Corp., 309 F.3d 1161 (9th Cir. 2002). This remains true regardless of a foreclosure. 15 U.S.C. section 1635(I); Beach v. Ocwen Federal Bank, 523 U.S. 410, 417-18 (1998).
The loan to plaintiff occurred on September 12, 2005. Defendants argue that any right to rescind that loan, including the trust deed given to secure it, timed out as of September 11, 2008.
Finally, defendants argue that there is no irreparable harm to plaintiff. Defendants assert that plaintiff will not suffer irreparable harm and instead will suffer only monetary injury. Monetary injury is not normally considered irreparable. LA Mem’l Coliseum Comm’n v. NFL, 634 F.2d 1197, 1202 (9th Cir. 1980). Defendants assert that the foreclosure is complete, therefore, the only possible remedy remaining is monetary damages.
I disagree and grant plaintiff’s motion for preliminary injunction. There is no dispute that the right of rescission on subsequent transactions applies only to the extent that the lender advances new funds to the obligor. 12 C.F.R. 226.23(f)(2). That section provides as follows:
(f) Exempt Transactions. The right to rescind does not apply to the following:
(2) A refinancing or consolidation by the same creditor of an extension of credit already secured by the consumer’s principal dwelling. The right of rescission shall apply, however, to the extent the new amount financed exceeds the unpaid principal balance, any earned unpaid finance charge on the existing debt, and amounts attributed solely to the costs of the refinancing or consolidation.
Therefore, for purposes of rescission, a new advance does not include amounts solely attributed to the cost of refinancing, including finance charges on the new transaction such as an extension fee.
Defendants argue that the only additional “credit” advanced in the first extension was for the extension fee, which is a finance charge and not part of the “amount financed” for purposes of Regulation Z.
Similarly, defendants argue that the Second Amendment also did not include any advances which gave rise to the right of rescission. In the second extension, $6,673.23 was advanced to pay insurance premiums and property taxes both due. Defendants assert that these amounts are considered advances to protect the collateral, and could have been made by defendants under the existing trust deed without further action by plaintiff. Therefore, defendants assert, these amounts would also be considered part of the “costs” of refinancing. Further, the second extension included advances for $360 in attorney’s fees, $52.55 in prepaid interest, and $14,320.68 toward the extension fee. Defendants assert that all of these amounts are finance charges for the purposes of Regulation Z, and therefore, excluded from the amount financed in determining whether “new funds” have been advanced for rescission purposes.
Section 1635(e)(2), however, provides an express exemption for a “refinancing or consolidation (with no new advances) of the principal balance then due and any accrued and unpaid finance charges of an existing extension of credit by the same creditor secured by an interest in the same property.” 12 C.F.R. section 226.23(f). The regulation states that the right to rescind applies “to the extent the new amount financed exceeds the unpaid principal balance, any earned unpaid finance charge on the existing debt, and amount attributed solely to the costs of refinancing or consolidation.” Here, plaintiff’s refinancing of his original loan (second transaction) with defendant was exempt from rescission, except “to the extent the new amount financed exceeded the unpaid principal balance, any earned unpaid finance charge on the existing debt, and amounts attributed solely to the costs of refinancing or consolidation.” The second transaction signed on September 21, 2006, was for $184,400 and included $9,500 as an additional amount paid to defendants. The amount financed, $184,400, exceeded the balance of the first loan ($174,900); therefore, plaintiff had a right to rescind the second transaction (the First Amendment to the Promissory Note). Similarly, the third transaction also falls under the exemption as it was for the amount of $216,216 with finance charges of $17,078.81. The amount financed, $216,216 exceeded the balance of the second transaction ($184,400), and therefore plaintiff had a right to rescind the third transaction.
While true that section 1635(e)(2) limits a rescission of a refinance with no new advances, the Board’s regulation clearly states that new amounts financed that exceed the unpaid principal balance, any earned unpaid finance charge on the existing debt, and amounts attributed solely to the costs of refinancing or consolidation are rescindable under the TILA. The Board’s construction of section 1635(d)(2) is entitled to deference. See Household Credit Services, Inc. v. Pfennig, 541 U.S. 232 (2004) (recognizing the Board and its staff are designed by Congress as the primary source of interpretation of truth-in-lending law). Therefore, pursuant to section 12 C.F.R. 226.23(f)(2), the refinancing exemption applies to the additional amounts financed and renders both the second and third transactions subject to rescission under 15 U.S.C. section 1635.
Moreover, Official Staff Comment 4 to 12 C.F.R. section 226.23(f), holds that for purposes of the right of rescission, generally “a new advance does not include amounts attributed solely to the costs of refinancing[,]” however, those fees allocated to the borrower must be “bona fide and reasonable in nature.” Plaintiff paid lender fees in the amount of 5.63% of the loan amount in his first transaction with defendants. In his second transaction, he paid 5.15% of the loan amount in lender fees; and finally, in his third transaction, plaintiff paid 7.9% of the loan amount in lender fees. Plaintiff was charged a total of $36,418.81 in loan origination fees for three transactions. In a little over four years, from September 12, 2005, to October 27, 2009, plaintiff’s debt to defendants increased from $174,900 to $253,945.92, or $79,045.92. Given that the Federal Housing Administration (“FHA”) recently announced a limitation on loan origination fees charged to a borrower as no more than 1% of the loan, plaintiff’s loan fees of 5% and 7%, even considering the increased risk associated with a sub-prime loan, seems “unreasonable,” and runs counter to section 226.23(f)’s comment that borrower fees must be “bona fide and reasonable.”
Finally, due to the lack of disclosures including a Good Faith Estimate of costs, it is difficult to discern whether the fees paid by plaintiff were bona fide and reasonable real estate related fees that are nonrescindable as a new advance, or a finance charge that is rescindable under 15 U.S.C. section 1635; 12 C.F.R. section 226.23(f)(2). Given these circumstances, the court will construe the statute in the light most favorable to plaintiff, deeming the fees unreasonable finance charges, and therefore allowing plaintiff to rescind the second and third loan transactions.
The Home Ownership and Equity Protection Act, (“HOEPA”), an amendment to TILA, created a special class of regulated closed end loans made at high annual percentage rates or with excessive costs and fees. HOEPA prohibits balloon payments and early financing unless it is in the best interests of the borrower. The lender is required to verify the borrower’s ability to repay the loan before extending credit. 15 U.S.C. section 1639. Mandatory compliance for creditors began on October 1, 2002, and if creditors fail to comply with the HOEPA required disclosures and prohibitions, the consequence is rescission under section 1635. HOEPA rescission does not have a statute of limitations subject to tolling, but a statute of repose that creates a substantive right not subject to tolling. TILA section 130(e).
Further, home equity loans that exceed either an APR trigger of 8% or a points and fees trigger of 8% are subject to additional consumer protections, including: three day advance disclosures regarding the high cost of the loan; and prohibitions on abusive loan terms and creditor practices. As calculated by plaintiff, the September 12, 2005, transaction has an APR rate spread of 9.06% and a 6.45% points and fees. The second transaction from September 21, 2006, has an APR rate spread of 8.021% and 5.43% points and fees. The final transaction from December 19, 2009 has an APR rate spread of 4.475% and 8.12% points and fees. All three transactions fall under HOEPA as high rate loans that required additional disclosures to plaintiff not less than three business days before closing the loan. Plaintiff maintains the required disclosures were never provided to him by defendants.
Besides regulating the cost of a home loan, HOEPA prohibits balloon payments, early refinancing also knows as “loan flipping,” and making unaffordable loans without verifying the borrower’s ability to repay the loan. All three transactions at issue here contained balloon payments in violation of HOEPA. The first two transactions contained a term of five years or less along with a balloon payment.
HOEPA and TILA. provide the authority for this court to allow plaintiff to rescind both the second and third transactions with defendant. Pursuant to King v. State of California, 784 F.2d 910, 915 (9th Cir. 1986), cert. denied, 484 U.S. 802 (1987), this court also has authority to allow plaintiff to rescind the first transaction under the doctrine of equitable tolling. King held, “the doctrine of equitable tolling may, in the appropriate circumstances, suspend the limitations period until the borrower discovers or had reasonable opportunity to discover the fraud or nondisclosures that form the basis of the TILA action[.]” Pursuant to the Ninth Circuit’s ruling in King, supra, it is permissible for district courts to evaluate specific claims of fraudulent concealment and equitable tolling to determine if the general rule would be unjust or frustrate the purpose of the Act. I find those circumstances exist here and therefore adjust the Limitations period accordingly to allow plaintiff to rescind the first transaction.
Finally, defendants argue that regardless of plaintiff’s ability to rescind the transactions, plaintiff is still not likely to succeed on the merits of his recession claim because plaintiff is unable to repay the loan proceeds. Plaintiff’s loan has been in default status for several years. He obtained protection of the bankruptcy court and then defaulted on the Loan post-petition, thus causing the bankruptcy court to order relief from the stay. The burden of proof that plaintiff can repay the loan proceeds rests with plaintiff, without such a showing, plaintiff cannot prove that he is likely to succeed on the merits. See Yamamoto v. Bank of New York, 329 F.3d 1167, 1172 (9th Cir. 2003)(when lender contests notice of rescission, the security interest is not extinguished upon giving the notice and instead occurs only when the court so orders, and upon terms the court deems just, including conditioning rescission on the repayment of the loan proceeds).
Plaintiff represents to this court that he intends to modify his current bankruptcy plan to make monthly adequate protection payments toward tender through his Chapter 13 plan in a manner similar to making payments on secured personal property under 11 U.S.C. section 11326. The tender, including the interest rate of 7.547%, would be amortized over 30 years. Defendant would file an amended proof of claim using the tender amounts as the secured debt. Brian Lynch, the Chapter 13 trustee, is agreeable to working with plaintiff in putting together a proposal to pay the tender requirement. A comparative market analysis of the property estimates the property’s current value ranging from $200,000 to $225,000 considering the economy, sales, and market trends. Plaintiff is currently residing in his home with his children. He intends to make a monthly payment through his chapter 13 bankruptcy plan as adequate protection to defendants. Plaintiff has current homeowner’s insurance and he will be responsible for maintaining the property taxes with the county. Further, I find that plaintiff will suffer irreparable harm if he and his children are rendered homeless by the sale of his home. I find that plaintiff is likely to succeed on the merits, he is likely to suffer irreparable harm in the absence of the injunction; the balance of equities tip in his favor; and an injunction is in the public interest.
Plaintiff’s motion for a preliminary injunction (doc. 5) is granted. Defendants’ motion to strike plaintiff’s exhibits (doc. 27) is denied.
IT IS SO ORDERED.Read Full Post | Make a Comment ( 1 so far )
On March 30, 2010, in the case of Ohlendorf v. Am. Home Mortg. Servicing, (2010 U.S. Dist. LEXIS 31098) on Defendants’ 12(B)(6) Motion, United States District Court for the Eastern District of California denied the motion to dismiss Plaintiffs wrongful foreclosure claim on grounds that the assignment of mortgage was backdated and thus may have been invalid.
“On or about June 23, 2009, defendant T.D. Service Company [(a foreclosure processing service)] filed a notice of default in Placer County, identifying Deutsche Bank as beneficiary and AHMSI as trustee. In an assignment of deed of trust dated July 15, 2009, MERS assigned the deed of trust to AHMSI. This assignment of deed of trust purports to be effective as of June 9, 2009. A second assignment of deed of trust was executed on the same date as the first, July 15, 2009, but the time mark placed on the second assignment of deed of trust by the Placer County Recorder indicates that it was recorded eleven seconds after the first. In this second assignment of deed of trust, AHMSI assigned the deed of trust to Deutsche. This assignment indicates that it was effective as of June 22, 2009. Both assignments were signed by Korell Harp. The assignment purportedly effective June 9, 2009, lists Harp as vice president of MERS and the assignment purportedly effective June 22, 2009, lists him as vice president of AHMSI. Six days later, on July 21, 2009, plaintiff recorded a notice of pendency of action with the Placer County Recorder. In a substitution of trustee recorded on July 29, 2009, Deutsche, as present beneficiary, substituted ADSI as trustee.”
The court stated that “while California law does not require beneficiaries to record assignments, see California Civil Code Section 2934, the process of recording assignments with backdated effective dates may be improper, and thereby taint the notice of default.”
Plaintiff’s argument was interpreted by the court to be that the backdated assignments were not valid or at least were not valid on June 23, 2009, when the notice of default was recorded. As such the court assumed Plaintiff argued that MERS remained the beneficiary on that date and therefore was the only party who could enforce the default.
Judge Lawrence K. Karlton invited Defendants to file a motion to dismiss as to plaintiff’s wrongful foreclosure claim insofar as it is premised on the backdated assignments of the mortgage. You can read the full Opinion here.Read Full Post | Make a Comment ( 1 so far )
By PAM MARTENS
The financial tsunami unleashed by Wall Street’s esurient alchemy of spinning toxic home mortgages into triple-A bonds, a process known as securitization, has set off its second round of financial tremors.
After leaving mortgage investors, bank shareholders, and pension fiduciaries awash in losses and a large chunk of Wall Street feeding at the public trough, the full threat of this vast securitization machine and its unseen masters who push the levers behind a tightly drawn curtain is playing out in courtrooms across America.
Three plain talking judges, in state courts in Massachusetts and Kansas, and a Federal Court in Ohio, have drilled down to the “straw man” aspect of securitization. The judges’ decisions have raised serious questions as to the legality of hundreds of thousands of foreclosures that have transpired as well as the legal standing of the subsequent purchasers of those homes, who are more and more frequently the Wall Street banks themselves.
Adding to the chaos, the Financial Accounting Standards Board (FASB) has made rule changes that will force hundreds of billions of dollars of these securitizations back onto the Wall Street banks balance sheets, necessitating the need to raise capital just as the unseemly courtroom dramas are playing out.
The problems grew out of the steps required to structure a mortgage securitization. In order to meet the test of an arm’s length transaction, pass muster with regulators, conform to accounting rules and to qualify as an actual sale of the securities in order to be removed from the bank’s balance sheet, the mortgages get transferred a number of times before being sold to investors. Typically, the original lender (or a sponsor who has purchased the mortgages in the secondary market) will transfer the mortgages to a limited purpose entity called a depositor. The depositor will then transfer the mortgages to a trust which sells certificates to investors based on the various risk-rated tranches of the mortgage pool. (Theoretically, the lower rated tranches were to absorb the losses of defaults first with the top triple-A tiers being safe. In reality, many of the triple-A tiers have received ratings downgrades along with all the other tranches.)
Because of the expense, time and paperwork it would take to record each of the assignments of the thousands of mortgages in each securitization, Wall Street firms decided to just issue blank mortgage assignments all along the channel of transfers, skipping the actual physical recording of the mortgage at the county registry of deeds.
Astonishingly, representatives for the trusts have been foreclosing on homes across the country, evicting the families, then auctioning the homes, without a proper paper trail on the mortgage assignments or proof that they had legal standing. In some cases, the courts have allowed the representatives to foreclose and evict despite their admission that the original mortgage note is lost. (This raises the question as to whether these mortgage notes are really lost or might have been fraudulently used in multiple securitizations, a concern raised by some Wall Street veterans.)
But, at last, some astute judges have done more than take a cursory look and render a shrug. In a decision handed down on October 14, 2009, Judge Keith Long of the Massachusetts Land Court wrote:
“The blank mortgage assignments they possessed transferred nothing…in Massachusetts, a mortgage is a conveyance of land. Nothing is conveyed unless and until it is validly conveyed. The various agreements between the securitization entities stating that each had a right to an assignment of the mortgage are not themselves an assignment and they are certainly not in recordable form…The issues in this case are not merely problems with paperwork or a matter of dotting i’s and crossing t’s. Instead, they lie at the heart of the protections given to homeowners and borrowers by the Massachusetts legislature. To accept the plaintiffs’ arguments is to allow them to take someone’s home without any demonstrable right to do so, based upon the assumption that they ultimately will be able to show that they have that right and the further assumption that potential bidders will be undeterred by the lack of a demonstrable legal foundation for the sale and will nonetheless bid full value in the expectation that that foundation will ultimately be produced, even if it takes a year or more. The law recognizes the troubling nature of these assumptions, the harm caused if those assumptions prove erroneous, and commands otherwise.” [Italic emphasis in original.] (U.S. Bank National Association v. Ibanez/Wells Fargo v. Larace)
A month and a half before, on August 28, 2009, Judge Eric S. Rosen of the Kansas Supreme Court took an intensive look at a “straw man” some Wall Street firms had set up to handle the dirty work of foreclosure and serve as the “nominee” as the mortgages flipped between the various entities. Called MERS (Mortgage Electronic Registration Systems, Inc.) it’s a bankruptcy-remote subsidiary of MERSCORP, which in turn is owned by units of Citigroup, JPMorgan Chase, Bank of America, the Mortgage Bankers Association and assorted mortgage and title companies. According to the MERSCORP web site, these “shareholders played a critical role in the development of MERS. Through their capital support, MERS was able to fund expenses related to development and initial start-up.”
In recent years, MERS has become less of an electronic registration system and more of a serial defendant in courts across the land. In a May 2009 document titled “The Building Blocks of MERS,” the company concedes that “Recently there has been a wave of lawsuits filed by homeowners facing foreclosure which challenge MERS standing…” and then proceeds over the next 30 pages to describe the lawsuits state by state, putting a decidedly optimistic spin on the situation.
MERS doesn’t have a big roster of employees or lawyers running around the country foreclosing and defending itself in lawsuits. It simply deputizes employees of the banks and mortgage companies that use it as a nominee. It calls these deputies a “certifying officer.” Here’s how they explain this on their web site: “A certifying officer is an officer of the Member [mortgage company or bank] who is appointed a MERS officer by the Corporate Secretary of MERS by the issuance of a MERS Corporate Resolution. The Resolution authorizes the certifying officer to execute documents as a MERS officer.”
Kansas Supreme Court Judge Rosen wasn’t buying MERS’ story. In fact, Wall Street was probably not too happy to land before Judge Rosen. In January 2002, Judge Rosen had received the Martin Luther King “Living the Dream” Humanitarian Award; he previously served as Associate General Counsel for the Kansas Securities Commissioner, and as Assistant District Attorney in Shawnee County, Kansas. Judge Rosen wrote:
“The relationship that MERS has to Sovereign [Bank] is more akin to that of a straw man than to a party possessing all the rights given a buyer… What meaning is this court to attach to MERS’s designation as nominee for Millennia [Mortgage Corp.]? The parties appear to have defined the word in much the same way that the blind men of Indian legend described an elephant — their description depended on which part they were touching at any given time. Counsel for Sovereign stated to the trial court that MERS holds the mortgage ‘in street name, if you will, and our client the bank and other banks transfer these mortgages and rely on MERS to provide them with notice of foreclosures and what not.’ ” (Landmark National Bank v. Boyd A. Kesler)
Lawyers for homeowners see a darker agenda to MERS. Timothy McCandless, a California lawyer, wrote on his blog as follows:
“…all across the country, MERS now brings foreclosure proceedings in its own name — even though it is not the financial party in interest. This is problematic because MERS is not prepared for or equipped to provide responses to consumers’ discovery requests with respect to predatory lending claims and defenses. In effect, the securitization conduit attempts to use a faceless and seemingly innocent proxy with no knowledge of predatory origination or servicing behavior to do the dirty work of seizing the consumer’s home. While up against the wall of foreclosure, consumers that try to assert predatory lending defenses are often forced to join the party — usually an investment trust — that actually will benefit from the foreclosure. As a simple matter of logistics this can be difficult, since the investment trust is even more faceless and seemingly innocent than MERS itself. The investment trust has no customer service personnel and has probably not even retained counsel. Inquiries to the trustee — if it can be identified — are typically referred to the servicer, who will then direct counsel back to MERS. This pattern of non-response gives the securitization conduit significant leverage in forcing consumers out of their homes. The prospect of waging a protracted discovery battle with all of these well funded parties in hopes of uncovering evidence of predatory lending can be too daunting even for those victims who know such evidence exists. So imposing is this opaque corporate wall, that in a ‘vast’ number of foreclosures, MERS actually succeeds in foreclosing without producing the original note — the legal sine qua non of foreclosure — much less documentation that could support predatory lending defenses.”
One of the first judges to hand Wall Street a serious slap down was Christopher A. Boyko of U.S. District Court in the Northern District of Ohio. In an opinion dated October 31, 2007, Judge Boyko dismissed 14 foreclosures that had been brought on behalf of investors in securitizations. Judge Boyko delivered the following harsh rebuke in a footnote:
“Plaintiff’s ‘Judge, you just don’t understand how things work,’ argument reveals a condescending mindset and quasi-monopolistic system where financial institutions have traditionally controlled, and still control, the foreclosure process…There is no doubt every decision made by a financial institution in the foreclosure is driven by money. And the legal work which flows from winning the financial institution’s favor is highly lucrative. There is nothing improper or wrong with financial institutions or law firms making a profit – to the contrary, they should be rewarded for sound business and legal practices. However, unchallenged by underfinanced opponents, the institutions worry less about jurisdictional requirements and more about maximizing returns. Unlike the focus of financial institutions, the federal courts must act as gatekeepers…” (In Re Foreclosure Cases)
While the illegal foreclosure filings, investor lawsuits over securitization improprieties, and predatory lending challenges play out in courts across the country, a few sentences buried deep in Citigroup’s 10Q filing for the quarter ended June 30, 2009 signals that we’ve seen merely a few warts on the head of the securitization monster thus far and the massive torso remains well hidden in murky water.
Citigroup tells us that the Financial Accounting Standards Board (FASB) has issued a new rule, SFAS No. 166, and this is going to have a significant impact on Citigroup’s Consolidated Financial Statements “as the Company will lose sales treatment for certain assets previously sold to QSPEs [Qualifying Special Purpose Entities], as well as for certain future sales, and for certain transfers of portions of assets that do not meet the definition of participating interests. Just when might we expect this new land mine to go off? “SFAS 166 is effective for fiscal years that begin after November 15, 2009.” There’s more bad news. The FASB has also issued SFAS 167 and, long story short, more of those off balance sheet assets are going to move back onto Citi’s books.
Bottom line says Citi:
“… the cumulative effect of adopting these new accounting standards as of January 1, 2010, based on financial information as of June 30, 2009, would result in an estimated aggregate after-tax charge to Retained earnings of approximately $8.3 billion, reflecting the net effect of an overall pretax charge to Retained earnings (primarily relating to the establishment of loan loss reserves and the reversal of residual interests held) of approximately $13.3 billion and the recognition of related deferred tax assets amounting to approximately $5.0 billion….” [Emphasis in original.]
I’m trying to imagine how the American taxpayer is going to be asked to put more money into Citigroup as it continues to bleed into infinity.
Citigroup is far from alone in financial hits that will be coming from the Qualifying Special Purpose Entities. Regulators are receiving letters from Citigroup and other Wall Street firms pressing hard to rethink when this change will take effect.
Putting aside for the moment the massive predatory lending frauds bundled into mortgage securitizations, inadequate debate has occurred on whether securitization of home mortgages (other than those of government sponsored enterprises) should be resuscitated or allowed to die a welcome death. If we understand the true function of Wall Street, to efficiently allocate capital, the answer must be a resounding no to this racket.
Trillions of dollars of bundled home mortgage loans and derivative side bets tied to those loans were being manufactured by Wall Street without any one asking the basic question: why is all this capital being invested in a dormant structure? Houses don’t think and innovate. Houses don’t spawn new technologies, patents, new industries. Houses don’t create the jobs of tomorrow.
Also, by acting as wholesale lenders to the unscrupulous mortgage firms (some in house at Wall Street firms), Wall Street was not responding to legitimate consumer demand, it was creating an artificial demand simply to create mortgage product to feed its securitization machine and generate big fees for itself. Now we see the aftermath of that inefficient allocation of capital: a massive glut of condos and homes pulling down asset prices in neighborhoods as well as in those ill-conceived securitizations whose triple-A ratings have been downgraded to junk.
There’s no doubt that one of the contributing factors to the depression of the 30s and the intractable unemployment today stem from a massive misallocation of capital to both bad ideas and fraud. Today’s Wall Street, it turns out, is just another straw man for a rigged wealth transfer system.
Pam Martens worked on Wall Street for 21 years; she has no security position, long or short, in any company mentioned in this article other than that which the U.S. Treasury has thrust upon her and fellow Americans involuntarily through TARP. She writes on public interest issues from New Hampshire. She can be reached at email@example.comRead Full Post | Make a Comment ( None so far )
The entire finance and real-estate “industry” is filled with massive, pernicious fraud, and we now have only one question remaining – will The Government do its lawful and mandated job, that of prosecuting the bad actors, or has it joined with the fraudsters, become one with them, and thus, declare itself as a gang of mobsters rather than a legitimate government? The latter, of course will beg only the question of what should be an ordinary American’s response.
Let’s start with what may be one of the most outrageous yet least-actionable examples: Alan Greenspan.
Alan Greenspan, the former Federal Reserve chairman, said Thursday that banking regulators should consider breaking up large financial institutions considered “too big to fail.”
Those banks have an implicit subsidy allowing them to borrow at lower cost because lenders believe the government will always back them up. That squeezes out competition and creates a danger to the financial system, Mr. Greenspan told the Council on Foreign Relations in New York, according to Bloomberg News.
This is the “former Fed President” who winked and nodded at what he knew was an unlawful merger of Citibank and Travelers, then personally advocated and lobbied for the passage of Gramm-Leach-Bliley – the law that not only tore down Glass-Steagall but retroactively made that merger legal.Read Full Post | Make a Comment ( None so far )
The foreclosure crisis has resulted in a lot of work for lawyers hired to try to help struggling owners hang onto their homes.
But it has also resulted in a record number of complaints concerning claimed unscrupulous practices, some of which have already led to disciplinary action, according to a Daily Business Review article reprinted in New York Lawyer (reg. req.).
“There has definitely been a trend in the last six months or year where attorneys are having some involvement in loan modification scams,” says Arne Vanstrum of the Florida Bar.
He says the Florida Bar received 100 complaints in the last six months concerning lawyers involved in loan modifications, many of them in South Florida. Meanwhile, the state attorney general’s office got 756 complaints through August, a record. In all of 2008, the AG’s office got only 61 such complaints, the business publication recounts in a lengthy article.
Meanwhile, the California State Bar has taken the unusual step of making public the names of 16 attorneys accused of misconduct concerning loan modification matters.
Attorneys often get into trouble because of fee issues. Clients should be charged based on the amount of time it takes to handle their matter, not the size of the mortgage, says George Castrataro. He formerly worked for the Legal Aid Service of Broward County and is now in private practice. Clients also need to be clearly informed if representation will not begin until they have made a number of monthly payments to cover a required minimum retainer, he tells the Daily Business Review.
Another potential ethical pitfall is presented if a lawyer is too closely involved with a non-law-firm loan modification company, says Ryan Wiggins, who serves as deputy director of the state AG’s office.
Under a 2008 federal law that doesn’t apply to attorneys, loan modification companies can’t charge upfront fees, he explains to the business publication. This has led a number of firms to affiliate with attorneys, but unless the attorney is acting as a lawyer and actually representing company clients he or she is then in violation of the federal law, too, according to Wiggins.
Many complainants also contend that lawyers take their money and then do little or no worRead Full Post | Make a Comment ( None so far )
Fight Club entered popular culture in 1999 when director David Fincher adapted Chuck Palahniuk’s novel into a film that reflected the zeitgeist of modern America with its empty culture, obsession with aesthetic beauty, and slavish under and middle classes.
Warning: Decade-old spoiler coming up.
The film ends with the agents of “Project Mayhem,” protagonist Tyler Durden’s followers, destroying the headquarters of the major credit card companies with many tons of explosives. Durden’s theory is that without the records of debt, everyone gets a fresh start. They are no longer slaves to the banks, and they are free.
This concept resonated hugely with Americans, and not just the douche bag frat boys who taped Brad Pitt’s six-pack to their dorm walls. Citizens are working harder for less these days, and the American ennui originating from Reagan’s tyrannical reign of deregulation, union busting, and middle-class rape has now exploded into severe disillusionment and anger. Americans are being crushed by debt, can’t afford health care, and have less job security than ever.
Even the dimmest Americans know they’re getting screwed by Wall Street fat cats, and nothing could have made that reality clearer than the bailouts: $1 trillion dollars of taxpayer money that went to line the pockets of the guys and gals who crashed the economy.
And if that wasn’t bad enough, once the fat cats and credit card companies’ armies of Repo Men were through collecting the contents of the houses, they came back for the houses themselves. The banks tried to sell the old, familiar lie that “irresponsible people” i.e. “black people” went and got themselves into a mess they couldn’t dig themselves out of, which was almost always a lie. Subprime lenders issued mortgages in a predatory fashion, frequently lied, and used creative math to convince people they could afford mortgages with hidden, adjustable interest rates.
Those that can afford to play Capitalism: The Game prosper, while the rest of society suffers. Of course, those of us who don’t work for the Big 4 banks in the Too Big To Fail gang, wither and die. Today, The New York Times announced the 100th small bank failure of 2009. Don’t expect any mourning. The bank isn’t named “JPMorgan Chase.”
It’s projected that by 2012, there will be eight million home foreclosures in the United States. Lots of politicians are siding with the banks during the foreclosure epidemic, but a few brave souls are standing up to the Wall Street criminals.Read Full Post | Make a Comment ( 1 so far )
WASHINGTON — Billions of dollars that the government is spending to help financially pressed homeowners avert foreclosure are passing through — and enriching — companies accused of preying on the people they are supposed to help, an Associated Press investigation has found.The companies, known as mortgage servicers, collect monthly payments from homeowners and funnel the money to the banks or investors who hold the loans. As the link between borrowers and lenders, they’re in the best position to rework the terms of loans under the government’s$50 billion mortgage-modification program.The servicers are paid by the government if the changes keep home-owners from falling behind on payments for at least three months.But the industry has a checkered history. At least 30 servicers have been accused in lawsuits of harassing borrowers, imposing illegal fees and charging for unnecessary insurance policies. More recently, the companies also have been criticized for not helping homeowners quickly enough.The biggest players in the servicing industry — Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc. — all face litigation.But the industry’s smaller players, which specialize in riskier subprime loans and loans already in default, face harsher accusations that they systematically abused borrowers.Read Full Post | Make a Comment ( None so far )
At the request of the Federal Trade Commission, a federal court has halted a bogus mortgage foreclosure prevention operation that misrepresented both the “loss mitigation” services it offered and the earnings potential of the business opportunity it sold. The FTC seeks to end this deceptive scheme and make the defendants give up their ill-gotten gains.
According to the FTC’s complaint, the defendants sold “loss mitigation” services to homeowners at risk of foreclosure, falsely claiming they could prevent foreclosure in 97 percent of cases and misrepresenting that they would make a full refund if they failed. Before performing any loss mitigation services, the defendants required homeowners to pay the equivalent of one month’s mortgage payment. Their contracts instructed homeowners not to contact lenders or their contract and its money-back guarantee would be voided. In some cases the defendants’ consultants told homeowners to stop making their mortgage payments while the defendants were working on their cases.
The FTC alleged that, contrary to the defendants’ claims, they completed loan modification in only about 6 percent of cases and routinely failed to return consumers’ repeated telephone calls. In numerous instances, the defendants had not contacted the consumers’ lenders or had made only non-substantive contacts with them, resulting in late fees, penalties, and other costs for the homeowners. After failing to secure loan modifications, the defendants also failed to honor their refund policies.
The FTC’s complaint also alleges that the defendants sold a “loss mitigation consultant” business opportunity for up to $1,500, falsely claiming that purchasers (consultants) could earn various amounts, including up to $6,000 per week, by referring homeowners to them and by recruiting new consultants. In fact, throughout the defendants’ entire operation, no consultant has earned that much money.Read Full Post | Make a Comment ( None so far )
The FTC filed an amended complaint adding several new defendants in the action currently pending against Federal Loan Modification Law Center, LLP, and six related defendants. The original complaint, filed on April 3, 2009, charged the defendants with misrepresenting that in exchange for a large up-front fee, they will obtain a mortgage loan modification or stop foreclosure in all or virtually all cases, and by misrepresenting that they are affiliated with or endorsed by the U.S. government.
The amended complaint adds the following defendants to the case: Venture Legal Support, PLC; Federal Loan Modifications; SBSC Corporation; and Steven Oscherowitz. The Commission alleges that the additional defendants participated in the challenged practices independently and as part of a common business enterprise. The amended complaint also adds MGO Capital and Legal Turn, LLC as relief defendants. Relief defendants are individuals or entities that did not participate in the alleged deceptive practices, but financially benefitted as a result.
The Commission vote authorizing the staff to file the amended complaint was 4-0. (FTC File No. X090041, the staff contact is Laura M. Sullivan, Bureau of Consumer Protection, 202-326-3327; see press release dated April 6, 2009, at http://www.ftc.gov/opa/2009/04/hud.shtm.)
Copies of the documents mentioned in this release are available from the FTC’s Web site at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W ., Washington, DC 20580. Call toll-free: 1-877-FTC-HELP.
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