Lender’s refusal to modify loan may have violated borrowers’ Fifth Amendment rights to due process.
LYNNE HUXTABLE and JEFFREY A. AGNEW, Plaintiffs, v. TIMOTHY F. GEITHNER, et al., Defendants.
Case No. 09cv1846 BTM(NLS)
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF CALIFORNIA
December 23, 2009, Decided
December 23, 2009, Filed
CORE TERMS: lender, public function, joint action, mortgage, factual allegations, private entities, modification, state action, state actors, quotations, guaranty, notice, home mortgage, mortgage loan, mere fact, federal program, summary judgment, fully developed, fact-bound, foreclosed, defaulted, federally, veteran’s, nexus, government officials, discovery, recorded
COUNSEL: [*1] For Lynne Huxtable, Jeffrey A Agnew, Plaintiffs: Jeffrey Alan Agnew, LEAD ATTORNEY, Jeffrey A Agnew, Attorney at Law, Ramona, CA.
For Timothy F. Geithner, as United States Secretary of the Treasury, United States Department of the Treasury, Defendants: Thomas C Stahl, LEAD ATTORNEY, U S Attorneys Office Southern District of California, San Diego, CA.
For The Federal Housing Finance Agency, as conservator for the Federal National Mortgage Association and for the Federal Home Loan Mortgage Corporation, doing business as Freddie Mac, doing business as Fannie Mae, Defendant: Christopher S Tarbell, LEAD ATTORNEY, Arnold & Porter LLP, Los Angeles, CA.
For National City Corporation, a Delaware corporation, PNC Financial Services Group, Inc, a Pennsylvania corporation, National City Mortgage, a division of National City Bank, National City Bank, a nationally chartered bank, Defendants: Cathy Lynn Granger, LEAD ATTORNEY, Wolfe & Wyman LLP, Irvine, CA.
For Cal-Western Reconveyance Corporation, a California corporation, Defendant: Thomas N Abbott, LEAD ATTORNEY, Pite Duncan LLP, San Diego, CA.
JUDGES: Honorable Barry Ted Moskowitz, United States District Judge.
OPINION BY: Barry Ted Moskowitz
ORDER DENYING MOTION TO DISMISS
On [*2] September 21, 2009, Defendants National City Bank and PNC Financial Services Group, Inc. (“Moving Defendants”) filed a motion to dismiss the Complaint for failure to state a claim. For the following reasons, the motion is DENIED.
Plaintiffs’ Complaint arises out of non-judicial foreclosure proceedings related to their home in Ramona, California. The following are factual allegations in the Complaint and are not the Court’s findings.
Plaintiffs defaulted on their home mortgage in November 2007. (Compl. P 26.) In February 2008, a notice of default was recorded and served. (Compl. P 27.) And in December 2008, a notice of sale was recorded and served, setting a date for the public auction of Plaintiffs’ home. (Compl. P 29.) Pursuant to a joint motion, the Court has enjoined the sale of Plaintiffs’ home during the pendency of this action. (September 29, 2009 Order, Doc. 25.)
Plaintiffs allege that they are eligible for a loan modification under the Home Affordable Modification Program (“HAMP”). (Compl. P 95.) HAMP is a federally funded program that allows mortgagors to refinance their mortgages and reduce their monthly payments. (Compl. P 66.) Despite their eligibility for HAMP, [*3] the loan servicer, Defendant National City Mortgage Company, twice denied their application for a loan modification. (Compl. PP 90, 93.) Plaintiffs did not receive a reason for the denial or an opportunity to appeal. (Compl. P 100.)
Plaintiffs’ Complaint contains two counts. Both are for violation of due process under the Fifth Amendment for failing to create rules implementing HAMP that comport with due process. (Compl. PP 114-27.)
Defendants National City Bank and PNC Financial Services Group, Inc. have moved to dismiss the Complaint on the grounds that Plaintiffs have failed to plead that they are state actors.
II. LEGAL STANDARD
Under Federal Rule of Civil Procedure 8(a)(2), the plaintiff is required only to set forth a “short and plain statement of the claim showing that the pleader is entitled to relief,” and “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007). When reviewing a motion to dismiss, the allegations of material fact in plaintiff’s complaint are taken as true and construed in the light most favorable to the plaintiff. See Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). [*4] But only factual allegations must be accepted as true–not legal conclusions. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. Although detailed factual allegations are not required, the factual allegations “must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. Furthermore, “only a complaint that states a plausible claim for relief survives a motion to dismiss.” Iqbal, 129 S.Ct. at 1949.
Plaintiffs have alleged that Defendants have violated their Fifth Amendment procedural due process rights. The Fifth Amendment, however, only applies to governmental actions, Bingue v. Prunchak, 512 F.3d 1169, 1174 (9th Cir. 2008), and the Moving Defendants are private entities. Therefore, the Moving Defendants argue, the Complaint fails to state a claim against them.
But in some circumstances the Fifth Amendment does apply to private entities. “In order to apply the proscriptions of the Fifth Amendment to private actors, there must exist a sufficiently close nexus between the (government) and the challenged action of the . [*5] . . (private) entity so that the action of the latter may be fairly treated as that of the (government) itself.” Rank v. Nimmo, 677 F.2d 692, 701 (9th Cir. 1982) (internal quotations omitted). There are four different tests used to determine whether private action can be attributed to the state: “(1) public function; (2) joint action; (3) governmental compulsion or coercion; and (4) governmental nexus. Satisfaction of any one test is sufficient to find state action, so long as no countervailing factor exists.” Kirtley v. Rainey, 326 F.3d 1088, 1092 (9th Cir. 2003). The application of these tests is a “necessarily fact-bound inquiry.” Lugar v. Edmondson Oil Co., Inc., 457 U.S. 922, 939, 102 S. Ct. 2744, 73 L. Ed. 2d 482 (1982).
Plaintiffs argue that two tests apply here: public function and joint action.
1. Public Function
“Under the public function test, when private individuals or groups are endowed by the State with powers or functions governmental in nature, they become agencies or instrumentalities of the State and subject to its constitutional limitations. The public function test is satisfied only on a showing that the function at issue is both traditionally and exclusively governmental.” Kirtley, 326 F.3d at 1093 [*6] (internal quotations and citations omitted). Mortgage loan servicing is neither traditionally nor exclusively governmental, and Plaintiffs cannot show government action under this test.
2. Joint Action
Under the joint action test, the Court considers “whether the state has so far insinuated itself into a position of interdependence with the private entity that it must be recognized as a joint participant in the challenged activity. This occurs when the state knowingly accepts the benefits derived from unconstitutional behavior.” Kirtley, 326 F.3d at 1093 (internal quotations omitted). “A private party is liable under this theory, however, only if its particular actions are ‘inextricably intertwined’ with those of the government.” Brunette v. Humane Soc’y of Ventura County, 294 F.3d 1205, 1211 (9th Cir. 2002). “The mere fact that a business is subject to state regulation does not itself convert its action into that of the State . . . . Nor does the fact that the regulation is extensive and detailed . . . .” Jackson v. Metropolitan Edison Co., 419 U.S. 345, 350, 95 S. Ct. 449, 42 L. Ed. 2d 477 (addressing equivalent provision in Fourteenth Amendment).
The Court does not have sufficient facts before it to determine whether [*7] state action exists here. As the Supreme Court has stated, this is a “necessarily fact-bound inquiry.” Lugar, 457 U.S. at 939. Although the mere fact that a business is subject to extensive regulation is not sufficient to find joint action, here there may be more than just extensive regulation. Plaintiffs have pled that the HAMP program imposes affirmative duties on lenders, like the Moving Defendants, who participate in the program. If an applicant meets certain federally created criteria, then the lender has no discretion and must grant a loan modification. The federal program is completely administered by the Moving Defendants, and they are essentially acting as the government’s agents in executing HAMP. Making all reasonable inference in Plaintiff’s favor, the Court find that Plaintiff has stated a claim upon which relief can be granted.
Of course, facts developed through discovery may ultimately show that Plaintiff cannot establish state action. But at this stage in the litigation, the Court does not have the answers to several relevant issues, including (1) whether government officials were involved in the decision to deny Plaintiff’s request; (2) whether government officials [*8] provide guidance to the Moving Defendants regarding the administration of HAMP; (3) the extent of ongoing communication between the government and the Moving Defendants regarding HAMP; (4) and the financial arrangements between the government and the Moving Defendants regarding HAMP. This is not an exhaustive list and the course of discovery may yield other relevant facts not listed here.
Defendant’s best case–which it does not cite–in support of its motion to dismiss is Rank v. Nimmo, 677 F.2d 692 (9th Cir. 1982). In Nimmo, the Ninth Circuit held that a private mortgage lender who foreclosed on a plaintiff’s property was not a state actor. The plaintiff had obtained a mortgage loan through the VA Home Mortgage Guarantee Program, which was a federal program that guaranteed a portion of a qualifying veteran’s mortgage, enabling veterans to obtain mortgage loans without a substantial down payment. 677 F.2d at 693-94. A private commercial lender made a loan to the plaintiff under the program. Id. at 693. When the plaintiff defaulted, the lender foreclosed on the plaintiff’s property. Id. at 695-96. The Plaintiff sued the lender for depriving him of his entitlement to a federal-home-loan [*9] program without affording him due process under the Fifth Amendment. Id. at 696. The Ninth Circuit held that even though the private lender was subject to extensive federal regulation under the federal home loan guaranty program, the private lender was not a state actor. Id. at 702.
This case is different from Nimmo for at least two reasons. First, and most importantly, the Ninth Circuit decided Nimmo on cross motions for summary judgment and had the benefit of a more fully developed factual record. And second, the guaranty program at issue in Nimmo was very different from HAMP. Under the guaranty program, private lenders applied to the government for participation in the program and the government could deny their participation if the private lender failed to meet certain criteria. 677 F.2d 692, 694. But in this case, Plaintiffs contend that the government required private lenders to participate if they have received federal money, and the private lenders must administer HAMP on the government’s behalf. Whether this is correct or not is not an issue that can be determined on the record before the Court.
For the foregoing reasons, the Court DENIES the Motion to Dismiss (Doc. [*10] 21.) The Moving Defendants may raise their argument again on a motion for summary judgment once the record has been more fully developed.
IT IS SO ORDERED.
DATED: December 23, 2009
/s/ Barry Ted Moskowitz
Honorable Barry Ted Moskowitz
United States District JudgeRead Full Post | Make a Comment ( 7 so far )
|||UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE|
|||Civil No. 07-cv-074-JD|
|||July 23, 2007|
|||ROSEMARY A. GILROY
AMERIQUEST MORTGAGE COMPANY, ET AL.*FN1
|||The opinion of the court was delivered by: James R. Muirhead United States Magistrate Judge|
|||Pro se plaintiff Rosemary A. Gilroy brings this diversity action against Ameriquest Mortgage Company (“Ameriquest”) and AMC Mortgage Services, Inc. (“AMC”), alleging that defendants engaged in predatory lending activities in violation of New Hampshire state law (document no. 1). The complaint is before me for preliminary review to determine, among other things, whether plaintiff has properly invoked the subject matter jurisdiction of this court. See United States District Court of the District of New Hampshire Local Rules (“LR”) 4.3(d)(1)(B)(I). For the reasons stated below, I order the complaint served on the defendants.|
|||Standard of Review|
|||In reviewing a pro se complaint, this court must construe the pleading liberally. See Ayala Serrano v. Gonzalez, 909 F.2d 8, 15 (1st Cir. 1990)(following Estelle v. Gamble, 429 U.S. 97, 106 (1976) and construing pro se pleadings liberally in favor of that party). At this preliminary stage of review, all factual assertions made by plaintiff and inferences reasonably drawn therefrom must be accepted as true. See Aulson v. Blanchard, 83 F.3d 1, 3 (1st Cir. 1996)(explaining that all well-pleaded factual averments, not bald assertions, must be accepted as true). This review ensures that pro se pleadings are given fair and meaningful consideration. See Eveland v. Director of CIA, 843 F.2d 46, 49 (1st Cir. 1988). I apply this standard in reviewing plaintiff’s complaint.|
|||Plaintiff resides at 107 Ponemah Road, Unit 1, Amherst, New Hampshire. Ameriquest allegedly is a mortgage company located in the State of Delaware with its principal place of business in Orange, California, and AMC is a debt servicing corporation located in the State of California with its principal place of business in Orange, California. This action arises out of defendants’ alleged predatory lending practices in connection with plaintiff’s purchase and subsequent refinance of five commercial condominiums located at 107 Ponemah Road, Amherst, New Hampshire (“Units 1-5″). Plaintiff purchased the premises on March 1, 2000 with the intent of receiving rental income to support a $600,000 mortgage. Subsequently, she converted Unit 1 from a commercial condominium to a residential condominium, where she has resided since May 1, 2000. Unable to lease the remaining condominiums, plaintiff decided to convert them to residential condominiums. She received zoning approval for the site plan review in March 2004.|
|||In order to complete the conversion, plaintiff refinanced the premises with Ameriquest. In July 2004, Ameriquest refinanced Units 1, 2 and 4 in the amount of $790,000, thereby increasing her mortgage in the amount of approximately $190,000.*fn2|
|||Plaintiff repeatedly advised Ameriquest that she did not want to encumber her residence, Unit 1, and that she was unwilling and unable to repay the increased mortgage amount. As a condition of the refinance, however, Ameriquest allegedly insisted on including Unit 1 in the refinance and increasing plaintiff’s mortgage amount. By including Unit 1, Ameriquest allegedly charged her $15,000 in additional points and closing costs. Further, by refinancing three condominiums instead of two, Ameriquest allegedly forced plaintiff to incur an additional debt of approximately $65,000. At all relevant times, Ameriquest allegedly knew that plaintiff’s sole source of income was $697.00 per month (or $9,000 per year) in social security benefits and that her low income was insufficient to support the debt.|
|||According to plaintiff, Ameriquest provided mortgages to her with the sole intention of foreclosing on her property and acquiring $500,000 that she had invested in the property prior to refinancing with Ameriquest. From July 2004 through March 2007, plaintiff allegedly paid in interest to Ameriquest, or owed in arrears, the sum of $225,000. She alleges that as a result of Ameriquest’s predatory lending practices, she will lose $500,000 that she had invested in her property. Plaintiff further alleges that Ameriquest increased her mortgage payments to an amount greater than that required to successfully complete the conversion of her property, thereby unnecessarily increasing her mortgage and interest payments. According to plaintiff, Ameriquest “repeated the same illegal actions in March 2005,” when it again refinanced Unit 2 in the amount of $375,000, thereby increasing her total indebtedness to $937,000.|
|||When plaintiff contacted another mortgage company in 2005 to refinance Units 3 and 5, the lender refused on the basis that the units were encumbered and plaintiff was unable to provide clear title. Plaintiff then refinanced Units 3 and 5 with Ameriquest in October 2005, at which point Ameriquest allegedly increased her original mortgage of $600,000 to $1,114,000, an increase of more than $500,000. Because of Ameriquest’s practices in excessively financing plaintiff’s property, she allegedly was unable to obtain additional financing in 2006 and “lost equity and cash in the approximate amount of $200,000 in carrying costs.” As a result, plaintiff was unable to complete the improvements required for an occupancy certificate and therefore unable to sell the condominiums. Because of Ameriquest’s alleged predatory lending practices, plaintiff is in danger of losing her equity in her property, amounting to approximately $1,200,000.|
|||Plaintiff now brings the instant complaint, alleging that defendants’ actions violate New Hampshire state law. She alleges the following theories of recovery: (1) fraud; (2) intentional infliction of emotional distress; (3) unfair debt collection practices; and (4) unfair and deceptive lending practices.*fn3 She seeks, among other things, $937,000 in damages, plus treble damages and attorneys’ fees and costs. She also seeks reimbursement or wavier of all arrears paid and/or owed to the defendants.|
|||I. Diversity Jurisdiction|
|||A party seeking relief in district court must at least plead facts which bring the suit within the court’s jurisdiction. See Fed. R. Civ. P. 8(a)(1)(requiring a plaintiff to set forth in the complaint “a short and plain statement of the grounds upon which the court’s jurisdiction depends”). For the reasons stated below, plaintiff has properly invoked diversity jurisdiction pursuant to 28 U.S.C. § 1332.|
|||To establish diversity jurisdiction, a complaint must allege complete diversity of citizenship between plaintiff and defendants as well as an amount in controversy in excess of $75,000, exclusive of interests and costs. See 28 U.S.C. § 1332. See also Straughn v. Delta Air Lines, Inc., 170 F. Supp. 2d 133, 146 (D.N.H. 2000)(citations omitted). “Diversity jurisdiction exists only when there is complete diversity, that is, when no plaintiff is a citizen of the same state as any defendant.” Gabriel v. Preble, 396 F.3d 10, 13 (1st Cir. 2005). “For diversity purposes, a corporation is a citizen of both the state where it is incorporated and the ‘State where it has its principal place of business.’” Diaz-Rodriguez v. Pep Boys Corp., 410 F.3d 56, 58 (1st Cir. 2005)(citing 28 U.S.C. § 1332(a)).|
|||Here, plaintiff alleges that she is a resident of New Hampshire. She further alleges that Ameriquest is a Delaware corporation with its principal place of business in Orange, California, and AMC is a California corporation with its principal place of business in Orange, California. Accordingly, she has alleged diversity of citizenship between the parties. Plaintiff also alleges an amount in controversy in excess of $937,000, therefore, the amount in controversy exceeds the minimum required for diversity jurisdiction. I conclude, therefore, that plaintiff has pled diversity jurisdiction under 28 U.S.C. § 1332.|
|||II. State Law Claims|
|||Plaintiff alleges that Ameriquest and AMC’s predatory lending practices constitute fraud under New Hampshire law (Count 1). Defendants’ actions allegedly caused, or will cause, her to lose $500,000 in cash that she had invested into her property prior to financing the property with Ameriquest in July 2004 (Count 4). Plaintiff further alleges that as a result of defendants’ actions, she is at risk of losing “hundreds of thousands of dollars of accumulated equity” that she accrued as a result of the condominium conversion.|
|||To establish fraud under New Hampshire law, “a plaintiff must prove that the defendant made a representation with knowledge of its falsity or with conscious indifference to its truth with the intention to cause another to rely upon it.” Snierson v. Scruton, 145 N.H. 73, 76, 761 A.2d 1046, 1049 (2000)(citations omitted). A plaintiff must also establish justifiable reliance. Id. “A plaintiff cannot allege fraud in general terms, but must specifically allege the essential details of the fraud and the facts of the defendants’ fraudulent conduct.” Id.|
|||Here, the complaint alleges that Ameriquest committed fraud by:|
|||* providing plaintiff with three mortgages on Units 1, 2 and 4 in July 2004 in the amount of $794,000;|
|||* refinancing Unit 2 in March 2005, thereby increasing plaintiff’s indebtedness to $949,000;|
|||* refinancing Unit 2 as plaintiff’s residence when she resided in Unit 1;|
|||* completing plaintiff’s mortgage application to falsely state her income as $9000 per month rather than $675 per month;|
|||* subsequently refinancing plaintiff’s two remaining unencumbered condominiums, Units 3 and 5, on or about October 2005, thereby increasing her original mortgage of $600,000 to $1,114,000, an increase of more than $500,000;|
|||* providing the aforementioned mortgages to plaintiff while knowing that she lacked the requisite income to support the debt and lacked the experience to convert commercial property;|
|||* financing plaintiff’s premises, consisting of five condominiums, when Ameriquest’s license permitted the company to mortgage properties with no more than three condominiums;|
|||* illegally causing a cloud to appear on the title to plaintiff’s premises when it financed her premises in July 2004 and March 2005;|
|||* illegally encumbering plaintiff’s premises, Units 1-5;|
|||* employing Advent Appraisal Company to appraise plaintiff’s property and provide fraudulent appraisals that were in excess of market value;|
|||* causing plaintiff to rely of the fraudulent appraisals and preventing her from selling the condominiums at a time when market values were at an historic high; and|
|||* charging plaintiff excessively high interest rates with regard to Unit 1, plaintiff’s residence, when residential mortgage rates were at an historic low.|
|||The complaint further alleges that AMC committed fraud by:|
|||* placing plaintiff at risk of foreclosure by initially financing her premises as described above, subsequently refinancing Unit 2 and collecting escalated interest payments from her;|
|||* escalating plaintiff’s mortgage payments, thereby causing her to use the cash she had received from refinancing to pay AMC interest payments in order avoid going into arrears;|
|||* causing plaintiff to pay AMC $150,000 in interest payments from July 2004 through February 2006;|
|||* causing plaintiff to incur a debt of $340,000 in order to obtain only $64,000 in cash for purposes of completing the condominium conversions and improvements;|
|||* financing plaintiff’s premises, consisting of five condominiums, when AMC’s license permitted the company to mortgage properties with no more than three condominiums;|
|||* financing plaintiff’s premises in July 2004 and March 2005, when Advent Appraisal Services informed AMC and Ameriquest that the premises were vacant;|
|||* charging plaintiff excessive closing costs;|
|||* providing mortgages to plaintiff with the sole intention of foreclosing on her property and obtaining $500,000 that she had invested in the property; and|
|||* providing mortgages to plaintiff and obligating her to pay $7500 or nearly 100% in interest payments.|
|||Based on the foregoing and accepting plaintiff’s allegations as true, I conclude that she has alleged the elements of fraud under New Hampshire law by specifically alleging the essential details of the fraud and the facts surrounding defendants’ alleged fraudulent actions. In addition, plaintiff has alleged reasonable reliance on defendants’ alleged misrepresentations. Accordingly, for purposes of preliminary review, I conclude that plaintiff has stated cognizable state law claims for fraud against Ameriquest and AMC.|
|||B. Intentional Infliction of Emotional Distress|
|||Plaintiff alleges that Ameriquest intentionally inflicted emotional distress on her by subjecting her to predatory lending practices and causing her to experience emotional distress and related physical harm (Count 3).|
|||“The New Hampshire Supreme Court has adopted the provisions of section 46 of the Restatement (Second) of Torts and recognized that ‘one who by extreme and outrageous conduct intentionally causes severe emotional distress to another is subject to liability for that emotional distress.’” Amatucci v. Hamilton, Civil No. 05-cv-259-SM, 2007 WL 1825177 at *6 (D.N.H. June 25, 2007)(quoting Konefal v. Hollis/Brookline Coop. Sch. Dist., 143 N.H. 256, 260, 723 A.2d 30, 33 (1998)). A plaintiff must “point to conduct on the part of the defendant that is ‘so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community.’” Id. (citing Restatement (Second) of Torts § 46, cmt.d.).|
|||Here, plaintiff alleges that Ameriquest’s predatory lending practices caused her to experience emotional and physical harm, including three strokes that required hospitalization, and related leg pain, an inability to walk, memory problems and high blood pressure. To the extent she alleges that defendant’s actions were extreme and outrageous and caused her emotional distress and related physical harm, I conclude that plaintiff has stated a cognizable state law claim against Ameriquest.|
|||C. Unfair Collection Practices|
|||Plaintiff alleges that Ameriquest harassed her by repeatedly telephoning her to collect late mortgage payments (Count 5). Construed liberally, the complaint alleges a violation of New Hampshire’s Unfair Collection Practices Act, RSA Ch. 358-C (1995 & Supp. 2006).|
|||RSA-C:3, I(a) provides that “any debt collection or attempt to collect a debt shall be deemed unfair, deceptive or unreasonable” where the debt collector “[c]ommunicates or attempts to communicate with the debtor, orally or in writing” by “causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously or at unusual times or at times to be inconvenient with the intent to abuse or harass any person at the called number.”|
|||Here, plaintiff alleges that Ameriquest repeatedly harassed her to collect late mortgage payments. Construed liberally, the complaint alleges that Ameriquest attempted to collect payments in an unfair, deceptive and unreasonable manner. For purposes of preliminary review, I conclude that plaintiff has stated a cognizable state law claim against Ameriquest based on unfair debt collection practices.|
|||D. Unfair and Deceptive Lending Practices|
|||Plaintiff alleges that Ameriquest and AMC engaged in a pattern of unfair and deceptive practices in violation of the New Hampshire Consumer Protection Act (“CPA”), N.H. Rev. Stat. Ann. (“RSA”) Ch. 358-A (1995 & Supp. 2006) (Count 6 ).|
|||“RSA 358-A:2 declares it ‘unlawful for any person to use any unfair method of competition or any unfair or deceptive act or practice in the conduct of any trade or commerce in this state.’”|
|||Hughes v. DiSalvo, 143 N.H. 576, 577, 729 A.2d 422, 424 (1999). The CPA defines trade and commerce:|
|||“Trade” and “commerce” shall include the advertising, offering for sale, sale, or distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value wherever situate, and shall include any trade or commerce directly or indirectly affecting people of this state.|
|||Id. “A practice is unfair if (1) it is ‘within at least the penumbra of some common-law, statutory, or other established concept of unfairness,’ (2) ‘it is immoral, unethical, oppressive, or unscrupulous,’ or (3) it causes substantial injury to consumers.’” Chroniak v. Golden Inv. Corp., 983 F.2d 1140, 1146 (1st Cir. 1993).|
|||Here, plaintiff alleges that Ameriquest and AMC violated the CPA by engaging in predatory lending practices, as described more fully above, when it mortgaged and refinanced her property. Specifically, she alleges that defendants’ actions were “deceptive, willful, fraudulent, [in bad faith and used] unfair and illegal practices against the plaintiff.” For purposes of preliminary review, I conclude that plaintiff has stated cognizable state law claims under the CPA against Ameriquest and AMC.|
|||For the reasons stated above, I conclude that plaintiff has invoked this court’s subject matter jurisdiction. Accordingly, I order the complaint to be served on defendants Ameriquest and AMC. See LR 4.3(d)(1)(B)(iii).|
|||As plaintiff has completed a summons form for each defendant, the Clerk’s Office shall issue the summonses against the defendants and forward to the United States Marshal for the District of New Hampshire (“U.S. Marshal’s Office”) the summonses, copies of the complaint (document no. 1) and this order. Upon receipt of the necessary documentation, the U.S. Marshal’s Office shall effect service upon the defendants. See id.; Fed. R. Civ. P. 4.(c)(2) and (h).|
|||Defendants are instructed to answer or otherwise plead within twenty days of service. See Fed. R. Civ. P. 12(a)(1)(A).|
|||Plaintiff is instructed that all future pleadings, written motions, notices, or similar papers shall be served directly on the defendants by delivering or mailing the materials to them or their attorney(s), pursuant to Fed. R. Civ. P. 5(b).|
|||*fn1 This court notes that Ameriquest is a defendant to five actions and six potential tag-along actions pending in seven district courts and alleging predatory lending practices by Ameriquest, or a related entity, in the solicitation and closing of residential mortgage transactions. See In re Ameriquest Mortg. Co. Mortg. Lending Practices Litig., 408 F. Supp. 2d 1354 (J.P.M.L. 2005).|
|||*fn2 Without providing specific dates, plaintiff alleges that Ameriquest employed Advent Appraisal Company to appraise Units 1, 2 and 4 and provide quotes that exceeded the market value of the property.|
|||*fn3 In addition, plaintiff broadly alleges that defendants discriminated against her on the basis of marital status and age, however, she fails to identify any federal or state law basis for her claims (Count 2). It is unclear whether she intends to allege a violation of the Equal Credit Opportunity Act, 15 U.S.C. § 1691, et seq., making it unlawful for a creditor to discriminate against any applicant, with respect to any aspect of a credit transaction on the basis of race, color, religion, national origin, sex or marital status, or age.|
Federal regulators seized three banks last night, including Downey Savings and Loan Association, a large California mortgage lender, expanding what is by far the most expensive crop of bank failures in modern American history and indicating that the pace of failures is increasing.
The Federal Deposit Insurance Corp., which took control of the banks, said holders of about $1.9 billion in Downey mortgage loans who have fallen behind on their payments would now be eligible for reduced monthly payments to help them avoid foreclosure. The unprecedented move in connection with a bank failure expands the agency’s controversial loan-modification program, which is opposed by other parts of the Bush administration.
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Which homeowners qualify for LOAN MODIFICATION and how can you improve your chances of success? While each lender has their own unique guidelines for acceptance, there are some general requirements that borrowers must meet if they hope to get their loan modified to a new, lower monthly payment. Knowing this information ahead of time will help borrowers submit their application properly and increase their chances of getting the help they need and deserve. Further more a forensic loan audit will help uncover Truth in Lending Act and RESPA violations by the lender, which can provide leverage when negotiating a loan modification.
Tags: information | Time | Hope | lending | help | TRUTH | FOR | TO | LOAN | audit | application | GENERAL | A | modification | will | PAYMENT | FORENSIC | BORROWERS | modified | need | Increase | monthly | further | some | lower | meet | must | Lender | violations | getting | ahead | provide | negotiating | uncover | properly | their | submit | requirements | chances | qualify | they | knowing | This | more | there | That | deserve | leverage | How | acceptance | When | which | Tech & Biz | RespaRead Full Post | Make a Comment ( None so far )
Federal regulators seized three banks last night, including Downey Savings and Loan Association, a large California mortgage lender, expanding what is by far the most expensive crop of bank failures in modern American history and indicating that the pace of failures is increasing.
The Federal Deposit Insurance Corp., which took control of the banks, said holders of about $1.9 billion in Downey mortgage loans who have fallen behind on their payments would now be eligible for reduced monthly payments to help them avoid foreclosure. The unprecedented move in connection with a bank failure expands the agency’s controversial loan-modification program, which is opposed by other parts of the Bush administration.Read Full Post | Make a Comment ( None so far )
Below is a rather typical process wherein a promissory note is NEGOTIATED and the mortgage ASSIGNED.
Step 0 – Delivery of the Promissory Note to Corresonding Institution
[This step may be OMITTED in the instance that a mortgage is originated by the primary mortgage servicer actually funding the loan at the table]
The mortgage loan is closed in the name of a small correspondent mortgage lender making the loan pursuant to a written commitment by the corresponding lender to purchase the loan immediately after closing. The corresponding lender FUNDS the loan at the table, usually by wiring the funds for the loan to the closing agent, typically a real estate attorney or a title company (this practice varies across the country). The corresponding lender is funding the particular loan it has agreed to purchase and the purchase price of the loan is set forth in the written commitment.
At the closing the borrower — the mortgagor — executes the promissory note and a mortgage or deed of trust security instrument.
Immediately following the closing the deed (if a purchase) and mortgage or deed of trust are RECORDED in the county records.
The promissory note is immediately ENDORSED over to the correspondent lender with an endorsementby the closing lender “Pay To [Name of Corresponding Lender]” signed [person] [Title] [Name of Closing Lender (Mortgagee)]. This endorsement is typically UNDATED.
The smaller lender also executes a mortgage assignment (UNLESS the mortgagee is MERS) and this assignment is typically contemporaneously recorded together with the mortgage or deed of trust.
The ENDORSED promissory note is delivered by overnight courier to the corresponding institution.
NEGOTIATION of a Promissory Note under the UCC is by ENDORSEMENT and DELIVERY.
At the conclusion of step ZERO, the Corresponding Lender OWNS the loan and has custody of the promissory note. The originating lender has fully disposed of all of its interest and has delivered both the promissory note and a recorded mortgage or deed of trust and assignment of that instrument.
Step 1 – Delivery of the Promissory Note to the Warehousing Lender
Where there is NOT a small originator making the loan and the mortgage servicer makes the loan ITSELF, the process BEGINS HERE. In this instance, the borrower is the maker of a promissory note and the grantor of a mortgage or deed of trust in favor of the originating servicer instead of the smaller correspondent.
The Corresponding Lender typically funds these loans using a revolving “warehousing line of credit” with a commercial bank. The corresponding lender gives the warehousing bank a security interest in the loans it is funding. The warehousing bank therefor typically expects to HOLD the promissory note as collateral for this warehousing loan.
Accordingly, the Corresponding Lender ENDORSES THE PROMISSORY NOTE IN BLANK and forwards the actual promissory note to EITHER the warehousing bank OR forwards the promissory note to an Institutional CUSTODIAN. In either case, the Corresponding Lender remains the OWNER of the promissory note pending its sale to a mortgage investor and the warehousing bank is the holder of the promissory note, which serves as collateral for its loan to the Corresponding Lender.
Step 2 – Delivery of the Promissory Note to a Mortgage Investor
At this point in the process there are four rather distinct paths that the mortgage ownership may take.
Variant A – Portfolioing the Loan
If the corresponding lender is a depository institution, particularly a thift institution, the corresponding institution may elect toportfolio the loan. That is the lender may choose to hold the closed loan as an investment. But this is VERY UNUSUAL in the case of fixed rate mortgages. Usually, depository institutions are gathering liabilities — deposits — with fairly SHORT maturities (e.g. 6 month CDs, 1 Year CDs, 2 Year CDs). There exists a great deal of interest rate pricing peril in funding long term maturities with short term deposits. It is BETTER to fund an asset with liabilities which reprice at intervals similar to the interest rate repricing characteristics of the asset.
As a consequence, ONLY adjustable rate mortgages tend to be portfolioed. Everything else is SOLD. And many adjustable rate mortgages are sold, as well.
In a portfolio situation, the corresponding institution may very well be also funding its own loans WITHOUT a warehousing lender. In this circumstance, the promissory notes MAY remain in the vaults of the corresponding institution.
Variant B – Selling the Whole Loan To Another Depository Institution
A second variant is similar to the first, however, the corresponding lender may SELL the loan to another depository entity that desires to portfolio this loan. The sale may be either servicing retained or servicing released. When servicing is retained, there will be a servicing agreemetn between the seller and the purchaser. With the sale, the corresponding lender would either deliver the promissory note to the purchaser OR have the warehousing lender deliver the promissory note to the purchaser OR have the institutional custodian EITHER deliver the promissory note to the purchaser OR deliver a custodial receipt to the purchaser and continue to act as custodian for the new entity.
A mortgage assignment would also need to be executed. At one time, ALL such assignments would have been recorded, but this no longer seems to be the case. When MERS is the nominee, this somewhat obviates the need to RECORD the assignment, but it does NOT absolve the seller of the need to timely execute an assignment.
Variant C – Sale or Exchange of the Mortgage for MBS with a GSE
A third variant is the sale or exchange of the mortgage for mortgage backed securities to a GSE (FNMA or FHLMC). In this instance, the promissory note is delivered either by the corresponding lender, the warehousing lender or the institutional cusdian directly to either FNMA or FHLMC or their designated custodian. Again, the institutional custodian holding the promissory note for either the corresponding lender OR the warehousing lender may effect delivery by simply delivering a custodial receipt to the GSE and then continue to hold the promissory note as custodian for the GSE.
Again, this transaction requires a written mortgage assignment. This assignment is typically NOT recorded and the corresponding lender would usually continue to act as a servicer for FNMA or FHLMC. Neither FNMA nor FHLMC services its own mortgages. All sales or excchanges with either of these GSE involve servicing retained transactions. The seller has entered into a seller – servicers agrreement with FNMA and FHLMC.
With the SALE or exchange of the promissory note, either the GSE or a TRUST set up by the GSE is the owner of the promissory note. Usually an institutional cusdian is the holder of the promissory note. The seller-servicer would almost NEVER be the holder during the routine servicing of the mortgage loan.
Variant D – Sale or Exchange of the Mortgage To a Private Conduit
Each of the major Wall Street investment banking concerns operates its own “private conduit” to purchase mortgage product for securitization. The larger mortgage companies therefore typically sell some of their production directly to these private conduits.
The private conduits traditionally served as outlet for so-called non-conforming mortgage product. These used to be mostly jumbo mortgages in excess of the FNMA and FHLMC loan limits OR loans that otherwise did not meet FNMA and FHLMC underwriting standards.
The Subprime and Alt-A markets emerged as these Wall Street conduits developed a larger appetite for non-conforming mortgage product. As various petroleum exporting countries and national sovereign wealth funds accumulated dollars due to the balance of payments imbalance, these funds needed a place to INVEST their dollars. Wall Street encouraged them to invest in mortgage securities and mortgage derivatives. Wall Street also sold this paper to many commercial banks and various other institutional investors.
A sale to the private conduits tends to be a little different than the sale to the GSEs. The private conduits tended to work on an epic scale and therefore tended to only buy the production of larger enterprises. These enterprises often gathered and aggregated mortgage debt through both corresponding activities (Step 0) and whole loan purchases (Step 1, Variant B).
The larger entities typically SOLD their production to a bankruptcy remote corporate affiilate. For example, New Century Mortgage sold its production to NC Capital Corporation (The “A” to “B” transaction).
In turn, these aggregating affiiliates would accumulate a vast pool of mortgage debt and then sell it to a Wall Street aggregator. These aggregators tend to have names like “Morgan Stanley Mortgage Capital, Inc.” (the “B” to “C” transaction).
The Wall Street investment banking concern would then prepare a registration statement for a securitization. Most of the time, there was a preliminary registration statement and then a supplemental registration statement that had the specific detailed quantative information about the mortgages going into the pool.
Each of these trusts typically called for the Wall Street investment bank’s aggregator to act as the “depositor” for a trust that was stood up as of the closing date set forth in the registration statement. Upon that closing, the aggregator sold or exchanged the mortgages to the institutional trustee for the trust being created (e.g. Deutsche Bank).
Upon closing, the Wall Street aggregator would deliver the promissory notes OR the custodial receipts for these promissory notes to the institutional trustee (the “C” to “D” transaction). In turn, the institutional trustee would issue trust certificates with characteristics and rights as set forth in the trust indenture and the registration statement. The registration statement would also specify the identity of the institutional custodian and the master servicer. The institutional custodian would then hold the promissory notes and the master servicer would handle the borrower interactions, servicing these loans.
Note that in this variant, the ownership of the promissory notes shifts from A to B to C to D. Negotiation of a promissory note is by endoresment and delivery. Since ALL of the notes are endorsed in BLANK, negotiation is by PHYSICAL DELIVERY. So the promisssory notes OR custodial receipts evidencing and entitling the holder to custody rights must be transferred from A to B to C to D to effect this type of transaction.
Also, under the statutes of frauds of most states, a written assignment from A to B to C to D is also required.
The Location of the Promissory Note Under Routine Servicing
The vast bulk of new mortgage originations are handled using variants C (GSE) and D (private conduits). Note that in EITHER instance, the promissory note is NOT typically in the hands of the servicer. Neither is it in the hands of either the GSE or the institutional trustee. The promissory note is in the hands of the institutional custodian.
Because the promissory note is endorsed IN BLANK, it is a negotiable bearer intrument. It is like holding a BLANK CHECK (which is also a negotiable bearer instrument).
Accordingly, the institutional investors and the custodians GET NERVOUS about having these outside of their vaults.
When a Default and Foreclosure Take Place
When a mortgage goes into default (or when a servicer PRECIPITATES a default by fraud), the servicer typically orchestrates the foreclosure. But very often the servicer does this by engaging the servicers of national “foreclosure specialists”, such as Fidelity, FANDO, and or NDex. These institutional “foreclosure specialists” take charge and call the shots.
There is also some indication that some foreclosure specialists and/or servicers begin fabircating documents in support of the foreclosure.
Bear in mind that the Servicer is SELDOM the owner of the mortgage debt except in variant “A” or “B” where whole loan ARMs are held by depository institutions. (The portfolio loans are mostly Treasury Indexed or Cost of Funds Indexed. The LIBOR indexed ARMs are mostly for securitization and sale to foreign investors.)
As explained above, the servicer is also not typically the HOLDER of the promissory note.
But servicers are in a hurry to initiate foreclosure and rely upon the fact that most borrowers do NOT defend against the foreclosure suit. So the servicer never bothers to obtain the promissory note before initiating foreclosure.
Instead, they simply rely upon fabricated documents and false and perjured affidavits as evidence in their premature foreclosures.
Federal standing rules require that a plaintiff have a pecuniary interest in the subject matter of the suit.
The Promissory Note as Evidence
One of the problems presented by this process is that even when a plaintiff appears in court with a promissory note, the promissory does NOT actually show WHEN a particular entity came into ownership OR custody of the promissory note.
As explained above, ENDORSEMENT — like your endorsement on a check — is UNDATED. And there is NO INDICATION on the promissory note as to the date of DELIVERY or of any negotiation or exchange of the promissory note by DELIVERY of the promisrry note endorsed in BLANK.
Once upon a time, many whole loan assignments were RECORDED. Moreover, the GSEs were pretty good about INSISTING that mortgages sold to the GSEs were assigned in favor of the GSEs, even if this assignment was never recorded.
But in the rush to securitization, the subprime lenders and the Wall Street investment banking concerns GOT GREEDY and cut a few corners. One of the corners they often cut was the creation of contemporaneous A to B, B to C and C to D assignments.
While the ENDORSEMENTS were UNDATED, the assignments traditionally were not only DATED, but also NOTARIZED to assure that the assignment was eligible for recording in the public land records for a county. So the assignment has often been the BEST EVIDENCE as to the date that a transaction took place.
But when the assignment was NOT properly executed, the mortgage investor is WITHOUT good evidence as to the DATE each transaction took place.
To overcome this problem, some mortgage servicers, “foreclosure specialists” and/or their law firms have been engaging in fabrication of assignments to use in support of their foreclosure suits. These fabrications can be readily identified and PROVEN by those experienced in mortgage practice.
Aggressive discovery is a big help in detecting and PROVING evidence fabrication.
Who Owns the Promissory Note and Who Owns the Securities?
The question as to WHO owns the promissory note is one that actually doesn’t necessarily have to be answered, though you need to aggressively press for an answer in discovery. It is the PLAINTIFF’s burden of proof to demonstrate standing and authority to institute the foreclosure suit.
You need to learn the identity of the holder primarily to DEFEAT the allegations and assertions of the plaintiff.
The owenrship of the underlying mortgage securities is COMPLETELY irrelevant. Owners of the mortgage securities issued by a trust do NOT have the authority to foreclose. The institutional trustee acts on behalf of the holders of the trust certificates. That is how a trust works. But the trust cannot act without proving that it is either the owner or the holder of the promissory note.
Bear in mind that the institutional custodian typically has the promissory note. The servicer is orchestrating the foreclosure, usually through a foreclosure specialist. The institutional trustee acting on behalf of the mortgage trust is very passive in this process EXCEPT as regards interactions with the certificate holders. The institutional trustee is usually the owner. The custodian is theholder. The sevicer is neither the owner nor the holder.
In a contested foreclosure case, the servicer will usually ultimately locate and obtain the promissory note. But this usually doesn’t happen until AFTER the institution of the suit. The servicer will then seek to use fabricated evidence or perjured affidavits to PROVE that it was the holder at the institution of the suit.
Similarly, the servicer often causes the creation of a fabricated assignment.
Aggressive discovery can often PROVE that allegations made in the servicer’s pleadings are false, that affidavits contain false and perjured statements and that evidence presented to the court has been fabricated.
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If you’ve fallen behind in your house payments and you are worried about a possible foreclosure – there may be an answer.
If you can currently make your regular payment, but you can’t catch up with the past-due amount – you might be able to negotiate with your lender to fold any past-due amounts, including interest and escrow, into the unpaid principal balance and then having this new amount will be re-amortized over a new period of time.
This type of an agreement is called a loan modification.
There are many reasons that you may want to look into loan modification – although this is not a process that you will want to consider for just any reason, it is one that offers some benefits if you find yourself in a dicey situation.
For many people, the process of loan modification never comes to mind. But on the other side of things, there are some people who have had to deal with this in order to get their life back on track.
So what are the benefits of loan modification? Here are three that you should keep in mind if you find yourself staring this scenario in the eye.
- If you have missed mortgage payments in the past, but are now back on track, loan modification can help you to keep things this way. Generally speaking, your lender will allow you to roll your missed payments into a modified loan. For this reason, you will be back on track with the ability to pay the money that you missed out on in the past.
- Simply put, loan modification can help you to keep your home if you are facing foreclosure. As you can imagine, this is one of the biggest benefits of this process. If you have found yourself with foreclosure closing in, loan modification could help you to escape just in time. This is not always the case, but you should at least look into loan modification if you think that it has the chance to help you out.
- Although the loan modification process is long and drawn out, if it is something that you need to do, it is not nearly as hard as you may think. You will have a lot of help along the way, and if you are willing to make it work, you will definitely want to consider moving through the many steps with speed and precision.
These are only three of the main benefits of loan modification and as you can imagine, there are many others that you will also come across if you are ever faced with this situation.
But remember, the loan modification process is not all fun and games. It would be much better on you and your home if you never have to consider looking into this process.
Even though there are companies out there that will help you negotiate your loan modification – you may be better off in the long run if you try to do it yourself. And in spite of what you might think – mortgage companies handle loan modification requests every day.
Just contact your mortgage company and explain your situation. You might be surprised at how helpful they can be.
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While the U.S is currently in the midst of the largest bout of home foreclosures in at least 30 years, at least one economist says two more ‘waves’ are likely on the way.
Patrick Newport, a housing economist at Global Insight, said the next round of foreclosures could come over the next several months as a result of continued job losses in the U.S.
In addition to the nearly 660,000 U.S. jobs lost since December, Global Insight is currently forecasting another 600,000 jobs lost over the rest of 2008 and into the first quarter of 2009.Read Full Post | Make a Comment ( None so far )
Homeowners fearful of losing their homes because of looming defaults and foreclosures could get help through a new state initiative.
Called Homeowners Preserving Equity, the HOPE program offers a commitment of $100 million in private capital to help about 500 homeowners to refinance and switch adjustable-rate mortgages to fixed-rate mortgages.
The state also plans to use $10 million from the state’s mortgage insurance program as an incentive to encourage lenders to provide another $200 million to refinance another 1,000 homeowners.
The goal is to prevent an expected wave of foreclosures due to the recent proliferation of “exotic” loans which include adjustable rate, balloon payment and negative amortization loans.
“The HOPE initiative is an innovative package of foreclosure prevention measures, combining refinancing, mortgage insurance, incentives and homeownership counseling to make sure Maryland families can preserve the equity they have built up in their homes,” said Ray Skinner, secretary of the state Department of Housing and Community Development, in a statement after a June 13 press conference in Dundalk.Read Full Post | Make a Comment ( None so far )