Bank cannot foreclose if it fails to mediate in good faith as required by state law

Posted on May 9th, 2012 by Joseph William Singer.
Categories: Mortgages, Real estate transactions.

In Pasillas v. HSBC Bank USA, 255 P.3d 1281 (Nev. 2011), the Nevada Supreme Court held that a bank cannot foreclose if it fails to act in good faith to participate in state-mandated mediation with the borrower.

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New Jersey Supreme Court allows foreclosure despite faulty procedures

Posted on May 9th, 2012 by Joseph William Singer.
Categories: Mortgages, Real estate transactions.

In US Bank Nat’l Ass’n v. Guillaume, 38 A.3d 570 (N.J. 2012), the Supreme Court of New Jersey applied the equitable doctrine of substantial compliance to allow a bank to foreclose despite its failure to include the name and address of the actual lender on the notice of intent to foreclose as required by state law. The notice actually only included the name of the mortgage service, not the mortgage lender. Dismissal without prejudice is not the exclusive remedy for the service of a notice of intention to foreclose that does not satisfy Fair Foreclosure Act’s requirement that a notice of intention include the name and address of the actual lender. Instead, the trial court may dismiss the action without prejudice, order the service of a corrected notice, or impose another remedy appropriate to the circumstances of the case; overruling Bank of N.Y. v. Laks, 27 A.3d 1222 (N.J. Super. Ct. App. Div. 2011).

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Washington state requires mediation before foreclosure

Posted on February 26th, 2012 by Joseph William Singer.
Categories: Mortgages, Real estate transactions.

Washington state passed the Foreclosure Fairness Act, 2011 Wash. Legis. Serv. 58, requiring telephone notification and a 60-da6 opportunity to meet with the lender before foreclosure proceedings can begin. read article

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Banks as landlords

Posted on February 26th, 2012 by Joseph William Singer.
Categories: Consumer protection, Leaseholds, Mortgages, Real estate transactions.

Banks that have obtained title to foreclosed properties traditionally would sell them quickly but the current real estate malaise resulting from the subprime crisis has made it difficult for them to do so. The result is that many properties remain on the books of the banks. Under state property law, the banks have the obligations all landowners have to comply with housing codes and the warranty of habitability. But many banks do not have established procedures for keeping track of all the individual properties they own, especially when the mortgages to those properties were securitized, making the owner of the trust that owns those mortgages the effective landlord of thousands of homes. Both localities and tenants are having to deal with the failure of banks to comply with regulations mandating maintenance of rental properties. read article.

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Michigan Supreme Court holds that MERS has standing to foreclose

Posted on January 2nd, 2012 by Joseph William Singer.
Categories: Mortgages, Real estate transactions.

Contrary to the ruling of some other courts, the Michigan Supreme Court held that MERS (Mortgage Electronic Registration Systems) has standing to foreclose on properties for which it is the record holder of the mortgage even if it does not “own’ the note or the right to moneys under the note. The court held that because MERS is the “holder of the mortgage, MERS owned a security lien on the properties, the continued existence of which was contingent upon the satisfaction of the indebtedness.” The court concluded that the legislature would want the record mortgage holder to have the right to foreclose on the property. The case is Residential Funding Co. v. Saurman, 805 N.W.2d 183 (Mich. 2011).

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Massachusetts high court voids title when a buyer purchases property from an owner who obtained title through an improper foreclosure

Posted on October 19th, 2011 by Joseph William Singer.
Categories: Consumer protection, Mortgages, Real estate transactions, Statute of frauds.

In an important but almost inevitable case, Bevilacqua v. Rodriguez,  2011 WL 4908845 (Mass. 2011), the Supreme Judicial Court of the Commonwealth of Massachusetts held that a lender who does not follow proper procedures to foreclose on property cannot pass good title to a subsequent purchaser. The court’s earlier ruling in U.S. Bank Nat’l Ass’n v. Ibanez, 941 N.E.2d 40 (Mass. 2011) had held that a nonjudicial foreclosure cannot lawfully happen unless the party conducting the foreclosure can show requisite assignments of the mortgage given it the right to foreclose. In Bevilacqua, the original buyer Rodriguez granted a mortgage to MERS (Mortgage Electronic Registration Systems, Inc.) as nominee for the real lender Finance America, LLC. At the time of the private foreclosure proceedings, MERS had not formally assigned the mortgage from the original lender to U.S. Bank National Association (US Bank); for that reason, the foreclosure brought by US Bank was invalid. The buyer at the foreclosure sale (also US Bank as trustee for a securitized pool of mortgages) could not therefore transfer good title to the property. Thus the buyer Bevilacqua had no title to the property and no standing to bring a quiet title action against the original owner/borrower. The court did suggest that the buyer could sue the bank from whom he tried to obtain title in order to get relief either in the form of damages or actions would satisfy the statute of frauds and actually result in a clear transfer of title from the original owner to the subsequent buyer.

 

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Register of Deeds in Essex County, Massachusetts refuses to record robo-signed documents

Posted on September 28th, 2011 by Joseph William Singer.
Categories: Mortgages, Real estate transactions, Statute of frauds, Title issues.

A dispute has arisen between South Essex Register of Deeds John O’Brien and the Massachusetts Real Estate Bar Association (REBA) over O’Brien’s refusal to allow seemingly “robo-signed” mortgage documents to be recorded in the Registry of Deeds. REBA contends that state law allows the recording of any document “purporting” to be signed by an authorized signatory to a mortgage or a mortgage assignment. Mass. Gen. Laws ch. 183, § 54B. But Register O’Brien points to 1,300 documents received that were signed “Linda Green” but which exhibit different handwriting styles and different titles, and some were filed after 2010 when it was believed that Green stopped working for a mortgage company. O’Brien takes the position that he will not record documents signed by “known robo-signers” and he will also forward suspicious documents to the Attorney General’s office for investigation of mortgage fraud. Scott Pitman & MIchael Pill, To record or not to record robo-signed documents? 40 Mass. Lawyers Weekly 9 (Sept. 26, 2011).

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Bank cannot suggest a homeowner stop mortgage payments as part of modification negotiations and then foreclose on the basis of that failure to pay

Posted on September 10th, 2011 by Joseph William Singer.
Categories: Mortgages, Real estate transactions, Statute of frauds.

A federal District Court judge in Massachusetts has ruled in the case of Dixon v. Wells Fargo Bank, 2011 WL 2945795 (D. Mass. 2011), that a ban cannot induce a homeowner to stop making mortgage payments as a prerequisite to negotiations to modify the mortgage and then use that failure to make the mortgage payments as a predicate for foreclosing on the property and evicting the owner. The bank’s representation that it would renegotiate following the borrower’s cessation of mortgage payments constituted a promise on which the borrower reasonably relied and that promise could be equitably enforced by denying the bank the right to foreclose in the circumstances. The court did not find a promise by the bank to modify the mortgage but it did have a duty to negotiate the modification in good faith before foreclosing.

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Massachusetts Attorney General settles lawsuit with subprime mortgage lender, requiring $115 million of loan modifications

Posted on August 10th, 2011 by Joseph William Singer.
Categories: Antidiscrimination law, Consumer protection, Fair Housing Act, Mortgages, Real estate transactions.

Attorney General Martha Coakley announced that the Commonwealth of Massachusetts settled a lawsuit with a subprime mortgage lender that originated subprime mortgages it knew were likely to fail and which not only targeted African American and Latino borrowers but gave its employees discretion to charge higher fees to such borrowers. The company will pay a penalty of almost $10 million to the Commonwealth and will direct its mortgage servicer to modify $115 million in loans either by writing down the principal balance of lowering interest rates. read article The settlement is based on the legal ruling in the earlier case of Commonwealth v. Fremont Inv. & Loan, 897 N.E.2d 548 (Mass. 2008), which held that it might violate the state consumer protection act to market mortgages that were almost certain to end in foreclosure.

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Massachusetts high court denies eviction from a home foreclosed in a private sale unless there is proof of a right to foreclose

Posted on August 9th, 2011 by Joseph William Singer.
Categories: Mortgages, Real estate transactions, Statute of frauds, Title issues.

In an extension of its earlier ruling in U.S. Bank Nat’l Ass’n v. Ibanez, 941 N.E.2d 40 (Mass. 2011) that a foreclosure is invalid unless the party seeking foreclosure proves that it owns the mortgage (has the right to foreclose) at the time of the foreclosure, the Supreme Judicial Court of the Commonwealth of Massachusetts ruled in the case of Bank of New York v. KV Bailey, 2011 WL 3307553 (Mass. 2011),  that a homeowner could challenge an eviction from his home even though it was foreclosed in a private sale to determine whether the mortgagor/lender had the power to foreclose. Because Massachusetts uses private foreclosure rather than court-supervised foreclosure, the ruling extends court supervision of foreclosure to homeowners by effectively requiring foreclosing parties to have proof of the right to foreclose before the foreclosure sale. It does so by denying power to evict an occupying homeowner without proof of the right to possession of the premises. Because the law generally protects a peaceable possessor of land unless the one seeking possession can show a better title denial of the right to evict has the effect of regulating the prior foreclosure process, which, in turn, will require that the market for transfers of mortgages comply with the requisite formalities of the statute of frauds.

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NY court holds that MERS cannot bring foreclosure actions

Posted on June 24th, 2011 by Joseph William Singer.
Categories: Mortgages, Real estate transactions, Statute of frauds.

An appellate court in New York has held that MERS (Mortgage Electronic Registration Systems) cannot file foreclosure lawsuits in its own name because it does not “own” the mortgage, having neither the right to payment under the note nor the right to foreclose. Bank of N.Y. v. Silverberg, 2011 WL 2279723 (N.Y. App. Div. 2011). Despite the fact that the parties put MERS’s name on the mortgage, it is not the real party in interest, having no right to payment under the note

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NY and Delaware AGs investigate mortgage bundling for requisite written documentation of the chain of title

Posted on June 24th, 2011 by Joseph William Singer.
Categories: Mortgages, Statute of frauds.

The New York and Delaware Attorneys General have asked for information from two trustees of mortgage bundles (Bank of New York Mellon and Deutsche Bank) to determine whether they complied with all contractual obligations in the process of bundling the mortgages and selling shares to investors. The trusts that bundled the mortgages were supposed to ensure that proper paperwork was completed in transferring “ownership” of  the mortgages to the trust to ensure that the investors were actually investing in something that the trust owned. Many of the bundling contracts required the trust to examine the individual mortgages to ensure a proper chain of title and failure to do so would constitute a breach of contract that could lead to the whole thing unraveling. Read article

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Maine Supreme Court denies foreclosure when the lender filed fraudulent affidavits

Posted on June 2nd, 2011 by Joseph William Singer.
Categories: Mortgages, Real estate transactions, Statute of frauds.

On May 19, 2011, the Maine Supreme Court denied summary judgment on a foreclosure claim when it found that affidavits filed by the lender were suspect and possibly fraudulent. HSBC Mortgage Services, Inc. v. Murphy, 2011 Me. LEXIS 59, 2011 ME 59 (Me. 2011). The question was whether the note had been validly assigned from the original lender to the entity now seeking to foreclose. The court found the affidavits testifying to that effect to be inherently untrustworthy because (1) one affidavit swearing that a mortgage assignment had been recorded was signed before the assignment was recorded, (2) another affidavit and assignment suggested the same person was simultaneously the vice president of both the assignor and the assignee, (3) an affidavit’s jurat was dated four days before the affidavit was signed, and (4) an affidavit in support of a summary judgment motion that was denied provided information vital to the entry of a judgment that was unavailable until over four months after the affidavit was signed. The court remanded for further proceedings.

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Massachusetts Supreme Judicial Court requires lawyers for the lender to be present and active at real estate closings

Posted on April 26th, 2011 by Joseph William Singer.
Categories: Mortgages.

In answer to two certified questions from the First Circuit the Massachusetts high court has ruled that Massachusetts law requires the presence and substantive participation by a lawyer on behalf of the mortgage lender but that routine title examination does not constitute the unauthorized practice of law. The case is Real Estate Bar Assn for Mass. Inc. (REBA) v. National Real Estate Information Services (NREIS), 2011 Mass. LEXIS 244 (Mass. 2011).

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No foreclosure if notice does not include the name of the lender

Posted on April 25th, 2011 by Joseph William Singer.
Categories: Mortgages, Statute of frauds.

A New Jersey trial court has interpreted a state statute, N.J. Stat.. §2A:50-56,  to require mortgage foreclosure notices to include the name of the lender (the current holder of the mortgage) as well as contact information. Because a notice included only the name of the mortgage servicer, the court dismissed the foreclosure complaint. read article

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Banks charged with failing to maintain foreclosed properties

Posted on April 15th, 2011 by Joseph William Singer.
Categories: Mortgages, Nuisance, Zoning.

When banks foreclose on property and then purchase the property at the foreclosure sale, they become the new owners of the property. They would like to resell the property as soon as possible. But in a recession, that is not always possible and when banks retain title to those foreclosed properties, they are subject to local law regulations to maintain the property and ensure that it does not become dilapidated. But many banks have been failing in that regard. They are in the business of financing the sale of property not in managing it. That has prompted the City of Boston to impose more than $80,000 in fines on Wells Fargo & Co and Bank of America for allowing many vacant properties in their possession ‘to fall into disrepair and blight neighborhoods.” Megan Woolhouse, Banks high on list of delinquent property owners, Boston Globe, Apr. 15, 2011.

Bank officials deny they own some of the properties, sometimes on the ground that they are merely the loan servicer or the trustee for securitized mortgages. This illustrates a problem with the securitization process and the practice of not recording the name of the bank that actually “owns” the mortgage. The city is using public records to contact the owner of record; if that institution is not the one who is the real owner, the fault lies not in the city but the failure of the banks to follow the requirements of the state recording laws which are designed to allow public identification of those with property interests in each parcel of real estate in the city.

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Alabama judge denies foreclosure of securitized mortgage for failure to comply with the formalities of loan transfers

Posted on April 6th, 2011 by Joseph William Singer.
Categories: Mortgages, Real estate transactions.

An Alabama judge refused to allow a trustee to foreclose on a mortgage that had been made part of a securitized package of loans because there was no signed endorsement on the note (the contract creating the original loan) when the mortgage was transferred to the trust that held the securitized mortgages. Because the parties did not strictly adhere to the writing requirement in the state version of the UCC (Uniform Commercial Code) — a particularized version of the statute of frauds — the transfer of the mortgage never occurred and the trustee has no power to foreclose. Nor did the trustee have the rights of a “holder” of the note under the UCC because it did not acquire the note in a manner that complied with the rules in its foundational documents. In effect the party bringing the foreclosure action could not show that it had acquired the right to foreclose through properly executed documents evidencing the transfers of the mortgage from the original lender down the chain of title. see article

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Bank not liable for fraud when it loaned money it knew the borrower could not repay

Posted on March 20th, 2011 by Joseph William Singer.
Categories: Consumer protection, Mortgages.

In Perlas v. GMAC Mortgage, 113 Cal. Rptr. 3d 790 (Ct. App. 2010), a bank made $417,000 worth of loans to borrowers with a gross income of only $50,000. Although that income was inadequate to make the mortgage payments, and the bank found that the borrower “qualified” for the loan, the court held that the bank did not engage in fraud. Qualification, the judge noted, does not imply affordability and the bank had no duty to the borrower to disclose the fact that the borrowers could not afford to make the loan payments. Contract this case with Commonwealth v. Fremont, 897 N.E.2d 548 (Mass. 2008) which held that granting such a loan might constitute an “unfair” practice in violation of the state consumer protection statute.

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Another court refuses to allow a bank to foreclose when it cannot produce authenticated proof of the assignments of the mortgage that give it a right to foreclose

Posted on February 11th, 2011 by Joseph William Singer.
Categories: Mortgages, Statute of frauds.

In the case of Wells Fargo Bank, N.A. v. Ford, 2011 N.J. Super. LEXIS 13 (N.J. Super. Ct. App. Div. 2011), the court remanded to allow the bank to provide proof that it had a right to foreclose through authenticated writings proving that it was assigned the mortgage and note by the prior holder of the mortgage and that it had the right to foreclose at the time the foreclosure action was brought.

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A New Jersey trial judge allows foreclosure to proceed even though the bank cannot produce the mortgage note

Posted on February 3rd, 2011 by Joseph William Singer.
Categories: Mortgages, Statute of frauds.

A bank lost the mortgage note and thus could not pass it along when it assigned the mortgage to the Bank of America, preventing the Bank of America from producing the note to prove that it had the right to foreclose on the property. The loan in question had been securitized and transferred from the original mortgagee, Washington Mutual Bank, to LaSalle Bank (the holder of the securitized and pooled loans) which was then acquired by Bank of America. Because Bank of America could show evidence of the assignment (but not written proof of the original mortgage), the trial court allowed it to foreclose on the ground that the mortgagor/homeowner would otherwise be unjustly enriched. In effect, the court used equitable principles to create an exception to the applicable statute of frauds which requiring a writing for the mortgage to be enforceable via foreclosure. The case is Bank of America, N.A. v. Alvarado, (N. J. Ch. Ct. 2011). See Mary Pat Gallagher, Judge Finds Equity Allows Foreclosure to Proceed Though Mortgage Note Lost, 203 N.J. L.J. 1 (Jan 24, 2011).

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Invalid foreclosure cannot be cured by quiet title action

Posted on February 2nd, 2011 by Joseph William Singer.
Categories: Mortgages, Real estate transactions, Title issues.

In the case of Bevilacqua v. Rodriguez, 2010 WL 3351481 (Mass. Land Ct. 2010), the court held that parties cannot cure an invalid foreclosure by a quiet title action.The bank that brought the foreclosure action had no proof at the time of the foreclosure that it owned the mortgage (the right to foreclose) because it had no written assignment from the prior mortgagee. For that reason, the foreclosure was invalid under the rule adopted by the Supreme Judicial Court of the Commonwealth of Massachusetts in U.S. Bank National Ass’n v. Ibañez, 458 Mass. 637 (2011). Ibañez held that foreclosures are invalid if the mortgagee bringing the foreclosure action cannot (at the time the foreclosure action) produce a written document proving that it was assigned the benefit of the mortgage from the prior mortgage holder. Thus when the bank sought a declaratory judgment that the foreclosure was valid, the court rejected its claim. That meant that a subsequent purchase of the property by a third party did not convey good title to the third party. Bevilacqua restates the Ibañez rule but goes further and holds that the third party cannot bring a quiet title action to seek a judgment that it has title to the property. Because it has a quitclaim deed from a seller who has no valid title, it cannot legitimately argue a basis for a quiet title action, leaving title with the party who held it prior to the invalid foreclosure.

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Court finds credit card interest rate above 18% to be unconscionable

Posted on January 26th, 2011 by Joseph William Singer.
Categories: Mortgages.

A trial judge in Massachusetts has ruled in Citibank (South Dakota) v. DeCristoforo, (Mass. Super. Ct. 2011), 39 Mass. Lawyers Weekly 1 (Jan. 19, 2011), that a South Dakota based credit card company’s interest rates above 18 percent charged to a defaulting credit card borrower in Massachusetts were unconscionable. The judge applied Massachusetts common law to protect the borrower from interest rates deemed to be onerous even though the bank that issued the credit card was located in another state whose law would have allowed the interest rate. The contract presumably contained a choice-of-law clause for South Dakota law and if such a clause were in the contract, the judge overrode it in deciding to apply Massachusetts law to protect a Massachusetts domiciliary. The case is of interest because it may be used as precedent in subprime mortgage case involving borrowing from out-of-state banks.

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New Jersey Supreme Court may stop all foreclosures in the state

Posted on December 21st, 2010 by Joseph William Singer.
Categories: Mortgages, Statute of frauds.

The Supreme Court of New Jersey has issued an order setting a hearing for January 19, 2011, asking all mortgage loan servicers in the state to explain why the state should not stop all foreclosures for irregularities. A lower court judge had issued a more limited administrative order involving loan servicers who had filed more than 200 foreclosure actions in 2010. The Supreme Court is concerned about recent disclosure of serious flaws in recent foreclosures, especially since most foreclosures in the state are uncontested.

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No standing to foreclose without proof of physical possession of the note at the time the foreclosure claim was brought

Posted on November 30th, 2010 by Joseph William Singer.
Categories: Mortgages.

A New Jersey trial court has held that a lender cannot bring a foreclosure action unless it can prove standing to sue. That requires proof that it owns the note and the mortgage giving it the power to foreclose on the property to pay off the debt evidenced by the note. Physical possession of the note is requried at the time the foreclosure action is filed; possession at the time of appeal was not sufficient to allow the foreclosure to go forward. Bank of New York v. Raftogianis, F-7356-09 (N.J. Super. Ct. Ch. Div. 2010).

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Banks stop foreclosures because of flaws in proof of standing

Posted on October 4th, 2010 by Joseph William Singer.
Categories: Mortgages, Statute of frauds.

Three large lenders, GMAC Mortgage, JPMorgan Chase, and Bank of America, have all suspended foreclosures because of irregularities in documents used to proof that they are entitled to foreclose. Various newspaper articles have talked about “technical” problems or “paperwork” problems but the real issue is that banks have obligations to prove they “own” the mortgage and have a right to foreclose, at least in states that require court proceedings for foreclosure. The problem is that many lenders did not keep accurate written records of all the assignments of these mortgages.

The statute of frauds in every state requires mortgages to be in writing and some states require them to be recorded. In lieu of providing a paper trail, some lenders have provided courts with affidavits that swear that the signing party has seen proof that the lender owns the mortgage and is entitled to foreclose. But some of the affiants now admit that they “signed” hundreds or thousands of affidavits a day, obviously with no knowledge of the underlying facts. If this is true, it is a fraud on the court and may have resulted in foreclosures when the bank was not legally entitled to foreclose. In addition, notaries often approved signed affidavits even though they did not witness the signatures as required by law.

Attorneys General in several states are now investigating these practices to see if they violate state consumer protection or property laws or if they are actionable violations of court rules. See article.

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