FYI: Cal App Ct Affirms Dismissal of Panoply of Challenges to Foreclosure Under Civ Code 2923.5, Civ Code 2924, Bus and Prof Code 17200, and Other Allegations

The Court of Appeal of the State of California, Fourth Appellate District, recently affirmed the trial court's dismissal of a case involving the borrowers' default on two home mortgage loans, because the borrowers failed to adequately allege the existence of an enforceable agreement to modify their loans, and did not adequately allege that the lender defendants failed to comply with the statutory requirements for conducting a nonjudicial foreclosure.

 

The Court also affirmed the trial court's order denying leave to amend because the borrowers failed to specifically show how they could amend their pleading to state a cause of action. Finally, because the Court affirmed the dismissal of the action, it also dismissed as moot the borrowers' petition for writ of mandate to prevent the lender defendants from evicting them from their home during the appeal.

 

A copy of the opinion is available at: http://www.courts.ca.gov/opinions/documents/G047028.PDF.

 

Specifically, the Court of Appeal held:

 

(1) the borrowers failed to properly allege a claim under California Civil Code section 2923.5, because their own allegations indicated that the lender contacted them more than thirty days before the notice of default was recorded, as required;

 

(2) the borrowers failed to properly state a claim under California Civil Code section 2924, because a substitute trustee may record a notice of default before a notice of substitution of trustee is recorded, and furthermore the notice of default could not be considered invalid under section 2932.5 because this section only applies to mortgages, not deeds of trust; and the borrowers failed to properly state a claim under 2924 because they failed to allege not only that the substitute trustee was not the trustee under the applicable deed of trust, but also that it was not the agent of the trustee;

 

(3) the borrowers' purported fraud claim alleging the lender promised to modify their loan failed because the borrowers failed to allege that the parties entered into a loan modification agreement, as required under the statute of frauds, and because the borrowers failed to sufficiently allege reliance upon the lender's misrepresentations and that they were damaged based upon these misrepresentations; further, the Court of Appeal found that the exception to pleading fraud with specificity where the defendant had full information of the purported fraud did not apply with respect to the elements of reliance and damages, because the lender would have learned this information from the borrowers;

 

(4) the borrowers failed to state a claim under California's Unfair Competition Law ("UCL"), Business and Professions Code section 17200, because they cited no authority showing what is required to allege a fraud claim under the UCL and made no attempt to explain how their allegations adequately stated such a claim and were deemed waived;

 

(5) the borrowers' breach of contract claim failed as a matter of law because the borrower failed to allege the parties entered into a signed, written agreement to modify their loans, as required by the statute of frauds;

 

(6) the borrowers claims for declaratory relief failed to state a claim because the borrowers did not meet their burden, they did not address what was required to state a declaratory relief or quiet title claim, and the borrowers provided no explanation regarding how these cases show the trial court erroneously sustained the demurrer to these causes of action; and

 

(7) the borrowers' request for leave to amend was denied because the borrowers failed to "clearly and specifically" set forth the legal authority for their claims, the elements of those claims, and the facts supporting each of those elements.

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mwbllp.com

 

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FYI: Ala Fed Ct Holds Auto-Dialer Under TCPA Does Not Include Phone Systems Requiring Substantial Modification to Allow Auto-Dialing

The U.S. District Court for the Northern District of Alabama recently clarified the meaning of "automatic telephone dialing system" under the federal Telephone Consumer Protection Act, explaining that the TCPA applies only to telephone systems with the present capacity to dial automatically, at the time calls are made, but not to telephone systems requiring "substantial modification or alteration" to enable automatic dialing. 

 

A copy of the opinion is available at:  Link to Opinion.

 

Plaintiff consumer ("Consumer") brought an action under the federal Telephone Consumer Protection Act, 47 U.S.C. § 227 ("TCPA") and federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et. seq.("FDCPA"), alleging that defendant mortgage company ("Company") made harassing phone calls to him using an automated dialer and pre-recorded messages in violation of the TCPA and the FDCPA.  Days before Consumer filed his lawsuit and after Consumer's wife had filed a virtually identical suit in state court, Company switched over to a new phone system, replacing the old phone system used to place calls to Consumer and putting it in a storage closet on Company's premises.

 

During discovery in his lawsuit, Consumer sought to inspect Company's facilities, telephones, telephone systems, and any computer software used in the collections process when Company made calls to Consumer.  Objecting to the requests, Company argued that it always used manual dialing in its communications with Consumer, that an inspection of its facilities would be fruitless because there was nothing for the Consumer to see since Company had replaced the phone system it previously used to make calls to Consumer, and that its phone system was not covered by the TCPA because it used a dialing system that lacked the "capacity" to dial numbers using a number generator.  Claiming spoliation and willful concealment of evidence, Consumer moved to compel inspection. 

 

Granting Consumer's motion to compel, the District Court ruled that an "automatic telephone dialing system" under the TCPA refers to the present capacity of a telephone system to store or produce and call numbers from a number generator, but does not include phone systems that require "substantial modification or alteration" to achieve that capability.

 

As you may recall, the TCPA prohibits certain businesses from "initiating any telephone call to any residential telephone line using an artificial or prerecorded voice to deliver a message without the prior express consent of the called party and the use of an "automatic telephone dialing system" in making calls.  The TCPA also provides: "(1) The term 'automatic telephone dialing system' means equipment which has the capacity – (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers."  47 U.S.C. § 227(a), (b).

 

Rejecting Company's assertion that there was nothing for Consumer to see because it had upgraded its phone system and the prior phone system was no longer in operation, the District Court pointed out that, although the former phone system used to place calls to Consumer had been dismantled and moved elsewhere on Company's premises, the prior phone system could be turned back on and inspected for its dialing and recording capabilities. 

 

Next, highlighting the fact that the case was only at the discovery stage, the court turned to Company's argument that the TCPA did not apply to its phone system because the phone system lacked the "capacity" to be an "automatic telephone dialing system."   Thus, focusing on the definition of "capacity" under the TCPA, the court took issue with Consumer's broad interpretation that even a manually-dialed phone system would be covered by the TCPA if the phone system could be modified, however extensively, to make automatic dialing possible.  

 

Illustrating how even cell phone users could be subject to TCPA requirements by using a number-generator "app," the court clarified that to be an "automatic telephone dialing system" under the TCPA, a phone system must have the present capacity, at the time calls are made, to store or produce and call numbers from a number generator. 

 

The court further explained that a defendant could not be liable under the TCPA for using an automated dialing system if "substantial modification or alteration" of the system were required to achieve that automatic dialing capability. 

 

Therefore, stressing that a phone system had  the "capacity" for such an automatic dialing system if such dialing system was either currently or easily installed in a phone system, the court granted Consumer's motion to compel, but, agreeing with Company that Consumer's request to inspect its entire collections facilities was too broad, imposed certain limitations on Consumer's discovery so as not to permit Consumer "to scour the entirety" of Company's premises and files.

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

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FYI: CFPB and Federal Banking Regulators Issue Interagency Statement on Fair Lending Compliance and the Ability-to-Repay and Qualified Mortgage Standards Rule

The Consumer Financial Protection Bureau (CFPB), Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (FRB), Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA) (collectively, the "Federal Regulators") issued an Interagency Statement regarding whether lenders would be liable under the disparate impact doctrine of the Equal Credit Opportunity Act, 15 U.S.C. 1691 et seq. (ECOA), by originating only Qualified Mortgages as defined under the Bureau's recent Ability-to-Repay and Qualified Mortgage Standards Rule.

 

In sum, the Federal Regulators state that they "do not anticipate that a creditor's decision to offer only Qualified Mortgages would, absent other factors, elevate a supervised institution's fair lending risk" under the disparate impact doctrine.

 

A copy of the Interagency Statement is available here:

http://occ.gov/news-issuances/news-releases/2013/nr-ia-2013-164a.pdf

 

The Federal Banking Agencies go on to state:

 

With respect to any fair lending risk, the situation here is not substantially different from what creditors have historically faced in developing product offerings or responding to regulatory or market changes. The decisions creditors will make about their product offerings in response to the Ability-to-Repay Rule are similar to the decisions that creditors have made in the past with regard to other significant regulatory changes affecting particular types of loans. Some creditors, for example, decided not to offer "higher-priced mortgage loans" after July 2008, following the adoption of various rules regulating these loans or previously decided not to offer loans subject to the Home Ownership and Equity Protection Act after regulations to implement that statute were first adopted in 1995. We are unaware of any ECOA or Regulation B challenges to those decisions. Creditors should continue to evaluate fair lending risk as they would for other types of product selections, including by carefully monitoring their policies and practices and implementing effective compliance management systems. As with any other compliance matter, individual cases will be evaluated on their own merits.

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

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FYI: Md Ct of Appeals Permits Assessment of $750 fee Against Defaulting Foreclosure Purchaser, but Allows Review of F/C Advertisement Even After Sale

The Court of Appeals of Maryland recently held that a trial court improperly denied ratification of a foreclosure sale, in which the advertisement provided for a $750 fee against a defaulting purchaser, who failed to settle within 10 days of ratification of the sale. 

 

In doing so, the Court determined that the trial court was authorized to review the advertisement of sale sua sponte under Maryland Rule 14-207.1, but that it erred in its interpretation of Maddox v. Cohn, 424 Md. 379, 36 A.3d 426 (2012), in which the Appellate Court determined improper a term of sale requiring a prospective purchaser to agree to pay a settlement fee to review title.

 

A copy of the reported opinion is available at: http://www.mdcourts.gov/opinions/coa/2013/89a12.pdf.

 

Following an uncontested foreclosure sale to a third-party purchaser, the circuit court's administrative judge issued a "notice of noncompliance" determining that the advertisement of sale which imposed a $750 fee against a defaulting purchaser, was impermissible in light of the Court's holding in Maddox.  The substitute trustee and purchaser filed exceptions, and the hearing judge expressly deferred to the administrative judge, and ordered a resale.

 

The Substitute Trustees petitioned for a direct writ of certiorari, which was granted. Upon review, the Court of Appeals determined that, although the circuit court was empowered authorized to review the advertisement sua sponte, the hearing judge abused her discretion by deferring to the administrative judge's position without considering the parties' arguments.  Further, finding the record sufficient to decide the issue, the Appellate Court held that the $750 fee was not impermissible, in light of its narrow interpretation of Maddox. 

 

Specifically, the Appellate Court held that Maryland Rule 14-207.1(a)'s "plain language expresses nothing that might limit the court's authority to review the pleadings and papers sua sponte after the foreclosure sale."  Slip. Op. at 14. 

 

Moreover, the Appellate Court held that advertisements constituted "papers," noting that the Maryland Rules and "common practice in foreclosure proceedings [do] not distinguish between the advertisement of sale and other papers filed in the action."  Slip Op. at 16. 

 

In addition, the Appellate Court determined that the circuit court properly placed the burden of compliance on the Substitute Trustees (and purchaser), and that the circuit court's sua sponte post-sale screening of the advertisement did not infringe impermissibly upon the Substitute Trustees' fiduciary duties.

 

Nevertheless, in rejecting the trial court's interpretation of Maddox, the Appellate Court characterized Maddox as a narrow holding and distinguished it from the advertisement of sale at issue.  In particular, the Court emphasized that the following factors which were present in Maddox did not exist in the case at hand: "(1) the lender bought-in the subject residential property at the foreclosure sale; (2) the fee was not subject to court review for reasonableness; and (3) . . . [t]he possible imposition of the advertised fee likely had a chilling effect on both potential bidders and the maximum sum to be obtained at the foreclosure."  Slip Op. at 20-21.       

 

As to the first factor, the Appellate Court explained that, because the property was purchased by a third-party rather than the lender, "[t]he concerns of front-loading and shifting of the expenses of the secured party, with attendant exposure to the defaulting borrower, . . . are inapplicable," and hence heightened judicial scrutiny was not warranted.  Slip Op. at 21.  The second factor was also missing, because Maryland Rule 14-305(g) specifically authorizes the trial court, on application and after notice to a defaulting purchaser, to order a resale at the risk and expense of the purchaser. 

 

Finally, the Appellate Court emphasized that the imposition of the fee at issue in Maddox "could divert money from the successful bid price of the sale of the subject property" and thereby "'cost the mortgagor 'the benefit of the extra sum . . . either as part of a surplus or as a reduction in the deficiency for which the mortgagor might be liable.'"  Slip Op. at 23 (quoting Maddox). 

 

In contrast, the imposition of the $750 fee plus costs on defaulting purchasers was not improper because "a 'prudent and careful man' may be well-advised to utilize a conditional fee-shifting reimbursement . . . to discourage bidders from default," and because the fee would not apply automatically but rather only if a successful bidder defaults.  Slip Op. at 24. 

 

Further, such a fee would not have a chilling effect, as the Appellate Court "could not 'see how discouraging bidders who never intended to complete settlement on their bids could be against public policy' because 'the exclusive purpose of a foreclosure sale is to timely and efficiently recoup the balance remaining on the mortgage account.'"  Slip Op. at 25 (quoting White v. Simard, 152 Md. App. 228, 252, 831 A.2d 517, 531 (2003) (emphasis in original).  

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

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FYI: 1st Cir Rejects Borrower's Challenge to Assignment of Mortgage, But Holds Borrower Had Standing to Raise Challenges

Affirming the lower court's dismissal of the borrower's action, the U.S. Court of Appeals for the First Circuit recently rejected a borrower's assertion that MERS could not validly assign her mortgage, although the Court did rule that the borrower had standing to challenge the assignment. 

 

A copy of the opinion is available at:  http://media.ca1.uscourts.gov/pdf.opinions/12-1942P-01A.pdf

 

A borrower ("borrower") took out a loan secured by a mortgage on her home.  That mortgage indicated that Mortgage Electronic Registration Systems ("MERS") was the lender's nominee, and the mortgagee of record.  The lender had previously reached a consent agreement with the State of Massachusetts, whereby it agreed to notify the Attorney General prior to initiating a foreclosure in that state (the "consent agreement"). 

 

MERS assigned the borrower's mortgage and note to a bank, which filed a notice of its intended foreclosure.  Shortly thereafter, the mortgage was again assigned, this time to a securitized trust.  The trustee of that trust notified the borrower that it intended to foreclose.  The borrower filed a complaint, making various allegations in connection with her claim that MERS did not possess a legally transferable interest in her mortgage, and therefore could not assign the mortgage. 

 

The trustee removed the case to federal court, and filed a motion to dismiss for failure to state a claim.  The district court granted the trustee's motion, and the borrower appealed. 

 

On appeal, the First Circuit noted that although the borrower's arguments were "not always clear," it read her brief as pressing the following claims, among others: (1) that the borrower had standing to challenge the assignments of her mortgage; (2) that the assignments were void, and accordingly that the attempted foreclosure was illegal; (3) the trust did not possess both the note and mortgage at the time of attempted foreclosure; and (4) the attempted foreclosure violated the terms of the lender's consent agreement. 

 

The First Circuit considered each argument in turn, beginning with the borrower's standing to challenge the assignments of the mortgage and note.  The Court observed that although the lower court had determined that the borrower did not have standing -- inasmuch as she was not a party to the trust agreement -- a recent First Circuit case held that a standing may be appropriate even where a mortgagor is not a party to, nor beneficiary of, the challenged assignments.  Culhane v. Aurora Loan Servs. of Neb., 708 F.3d 282, 290 (1st Cir. 2013). 

 

More specifically, the First Circuit noted that under Culhane, "claims that merely assert procedural infirmities in the assignment of a mortgage...are barred for lack of standing," whereas "standing exists for challenges that contend that the assignment party never possessed legal title..."  Id. at 291. 

 

The First Circuit applied that framework to the matter at hand, and determined that because the borrower appeared to contend that MERS never had legal title to her mortgage, she had standing to challenge "whether the assignments of her mortgage were legally valid." 

 

Next, the Court turned to the merits of the borrower's claims as to MERS -- specifically, her claim that MERS runs counter to the "title theory nature" of Massachusetts law.  The First Circuit found little merit in this argument, noting that it had previous been "resoundingly rejected by this court." 

 

The First Circuit did acknowledge that the borrower was correct that in Massachusetts, "an entity that holds a mortgage but not the associated promissory note holds that mortgage in an equitable trust for the benefit of the noteholder."  However, the Court explained that "MERS's status as an equitable trustee does not circumscribe the transferability of its legal interest." 

 

Finally, the First Circuit considered and rejected the borrower's contentions concerning the lender's consent agreement.  It noted that the trust did notify the Attorney General of its foreclosure, as required.  Although the borrower argued that the foreclosure could not proceed without return correspondence from the Attorney General, the First Circuit was not convinced.  Specifically, the Court held that the consent decree "unambiguously requires return correspondence only if the Attorney General wishes to preclude foreclosure."  The Court also emphasized that "nothing in the consent agreement appears to create a private right of action..." 

 

Accordingly, the First Circuit affirmed the lower court's dismissal of the borrower's complaint.   

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

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