Saturday, July 5, 2014

FYI: Cal App Ct Rejects Borrower's Allegations of Appraisal Fraud, Rules Borrower Has No Standing Under Nat'l Mortgage Settlement

The California Court of Appeal, Fourth Appellate District, recently affirmed the dismissal of a borrower’s allegations that he was defrauded into purchasing the house by statements concerning the property’s future value by the mortgage loan broker, an inflated appraisal, and an alleged scheme by various lenders to inflate real property asset prices.  The Court held that statements of future value or a high appraisal cannot form the basis of a cause of action for fraud or unfair competition. 

 

The borrower also alleged that the National Mortgage Settlement entitled him to declaratory relief and a refinance loan.  However, the Court held that the borrower, as an individual, did not have standing to enforce the National Mortgage Settlement, and declined to compel a loan refinancing under the National Mortgage Settlement.

 

A copy of the opinion is available at:  http://www.courts.ca.gov/opinions/documents/D063779.PDF

 

A borrower fell behind in his payments due under two mortgage loans, and foreclosure proceedings ensued.  In response, the borrower filed suit alleging  (1) fraud, negative fraud, and deceit; (2) a supposed right to declaratory relief for an order terminating foreclosure proceedings and cancellation of the notes, and (3) supposed violation of California’s Unfair Competition Law (“UCL”), California Business and Professions Code section 17200.

 

The borrower claimed that the defendants misrepresented the "true value of the home" by misrepresenting its future value and preparing an inflated appraisal.  The borrower also claimed that the defendants were required by the National Mortgage Settlement to "refinance the property with a fully amortized 30-year, or more, fixed interest rate loan in an amount [that] reflects the current, fair, and true market value of the real property ..."

 

As you may recall, California’s Unfair Competition Law (“UCL”)defines “‘unfair competition’ as ‘any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.’"  California appellate courts are currently split as to what constitutes “unfair business practices.”  The Fourth District applies a more rigorous test for unfairness in consumer UCL actions.  Under the Fourth District’s test, where a claim of an unfair act or practice is predicated on public policy, “the public policy which is a predicate to the action must be ‘tethered’ to specific constitutional, statutory or regulatory provisions.”  Wilson v. Hynek (2012) 207 Cal.App.4th 999, 1008, quoting Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1366.

 

Here, the Court of Appeal held that an actionable misrepresentation must be made about past or existing facts; statements regarding future events are merely deemed opinions.  The Court also relied upon Nymark v. Heart Fed. Savings & Loan Assn., 231 Cal.App.3d 1089, 1099 (1991), for the proposition that “the borrower should be expected to know that the appraisal is intended for the lender's benefit to assist it in determining whether to make the loan, and not for the purpose of ensuring that the borrower has made a good bargain, i.e., not to insure the success of the investment." 

 

Thus, the Court held that the alleged supposedly comments made by the defendants concerning the future value of the borrower’s property and the allegedly inflated appraisal ordered by the defendants as part of the loan origination process could not form the basis for a cause of action for fraud. 

 

The Court of Appeal rejected the borrower’s attempt to apply a more expansive test of unfair business practices which would have required the trial court to "weigh the utility of the defendant's conduct against the gravity of the harm to the alleged victim." The Court affirmed the dismissal because neither opinions about the possible future value of the home, nor statements about the appraisal, constituted conduct "tethered to a violation of a constitutional, statutory or regulatory provision."

 

The Appellate Court also affirmed the trial court’s ruling that the borrower, as an individual, did not have standing to enforce the National Mortgage Settlement.  The Court held that individual borrowers are merely incidental beneficiaries of the National Mortgage Settlement and have no right to bring third-party suits to enforce the Consent Judgment.

 

 

 

 

 

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

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

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Wednesday, July 2, 2014

FYI: 1st Cir Soundly Rejects Borrower's Challenges to MERS Assignments, "Robosigning," Securitization, and Under Eaton v. Fannie Mae

The U.S. Court of Appeals for the First Circuit recently affirmed the dismissal of a complaint alleging wrongful foreclosure, ruling that:  (1) MERS’s authority to transfer mortgages is well established under Massachusetts law;  (2) the borrower lacked standing to challenge the foreclosing party’s possession of the mortgage because violation of an asset securitization trust’s pooling and servicing agreement only renders an assignment voidable, not void; and  (3) the foreclosing party here was not required to have possession of both the note and mortgage at the time of foreclosure because Eaton v. Fed. Nat’l Mortg. Ass’n, 462 Mass. 569 (2012) does not allow for retroactive effect.

 

A copy of the opinion is available at:  http://media.ca1.uscourts.gov/pdf.opinions/12-2108P-01A.pdf

 

On January 31, 2007, borrower (“Borrower”) obtained a $370,000 loan secured with a promissory note and mortgage on the Borrower’s home.  The mortgage listed MERS as the mortgagee and nominee for the lender and lender’s successors and assigns. 

 

On December 1, 2009, MERS assigned the mortgage to Deutsche Bank Trust Company Americas as Trustee for an unspecified trust.  Six days later, Deutsche Bank, acting as trustee for the unspecified trust, filed suit in Massachusetts Land Court to foreclose on the property.

 

Subsequently, MERS again assigned Borrower’s mortgage, this time to Deutsche Bank Trust Company Americas as Trustee for a specified trust (“Trustee”).  Thereafter, on July 15, 2010, Trustee against sought authority to foreclose from the Massachusetts Land Court.

 

On March 2011, Borrower’s mortgage was assigned a third time.  Deutsche Bank Trust Company Americas as Trustee for the unspecified trust assigned the mortgage to Trustee (which was named as trustee for a specified trust).  This assignment was labeled “confirmatory” and recorded.

 

Trustee conducted a foreclosure sale on May 25, 2011, ultimately purchasing the Borrower’s property.  After filing a foreclosure deed, Trustee determined that the first foreclosure sale may have been void for failure to provide Borrower with the required fourteen days’ notice required under Mass. Gen. Laws ch. 244, § 14.  Trustee conducted a second foreclosure sale on March 8, 2012, and was again the highest bidder.  Trustee recorded its deed of foreclosure on April 18, 2012.

 

Borrower filed suit in state court, asserting claims for: (1) unfair and deceptive business practices pursuant to Mass. Gen. Laws § 93A (“Chapter 93A”); (2) wrongful foreclosure based on the May 25, 2011 foreclosure sale; (3) wrongful foreclosure based on the March 8, 2012 foreclosure sale; and (4) slander of title.  The district court dismissed the Borrower’s suit because his theories as to why Trustee supposedly lacked authority to foreclose failed to state a claim capable of relief.

 

On appeal, Borrower argued that Trustee lacked authority to foreclose because: (1) MERS lacked legal authority to transfer his mortgage because it only “tracks” the sale of mortgage notes and did not undertake assignments; (2) the assignments were executed by a “robo-signer” without proper authority; (3) the assignments violated the trust’s pooling and servicing agreement (“PSA”); (4) Trustee did not legally possess Butler’s promissory note at the time of foreclosure; and (5) Trustee admitted that the first foreclosure was invalid.

 

The First Circuit rejected Borrower’s contention that MERS, as “nominee” for the noteholder, could not independently undertake a mortgage transfer.   This argument had been previously raised and repeatedly rejected by the First Circuit previously.  See Culhane v. Aurora Loan Servs. of Neb., 708 F.3d 282, 291-93 (1st Cir. 2013) (MERS possesses the ability to transfer its interest in a mortgage); Woods v. Wells Fargo Bank, N.A., 733 F.3d 349, 355 (1st Cir. 2013) (“Culhane made clear that MERS’s status as an equitable trustee does not circumscribe the transferability of its legal interest.”).

 

In addition, the First Circuit also rejected the Borrower’s argument that MERS only “tracks” the assignments but did not undertake assignments.  Borrower relied on the 2011 “MERS Case Law Outline” – a document prepared by MERS to familiarize users with its legal structure – and argued that MERS itself disclaimed any role as an assignor.  The argument failed because the fact that MERS separately tracked the transfers of promissory notes does not call into question the sufficiency of written assignments duly recorded in county records, much less its ability to make assignments.

 

The First Circuit next considered the Borrower’s “robo-signing” allegations.  Critically, the Court noted that Borrower neither defined the term “robo-signer” nor advanced any particular legal theory as to why a “robo-signed” document is necessarily invalid.  Despite these deficiencies, the Court had previous rejected a nearly identical claim and held that “the bare allegations of ‘robo-signing’ does nothing to undermine the validity” of an assignment.  See Wilson v. HSBC Mortg. Servs., Inc., 2014 WL 563457, at *10 (1st Cir. 2014).

 

Moreover, the precise requirements for a valid mortgage assignment are set forth by statute in Massachusetts:

 

Notwithstanding any law to the contrary … [an] assignment of [a] mortgage … executed before a notary public … by a person purporting to hold the position of president, vice president, … or other officer … of the entity holding such mortgage, or otherwise purporting to be an authorized signatory for such entity … shall be binding upon such entity …

 

Mass. Gen. Laws ch. 183, § 54B.

 

MERS’s assignments in this case conformed to the statutory requirements:  the signatory to the assignments was identified as a vice president of MERS, and signed both assignments in the presence of a notary public.  Therefore, Borrower failed to allege any cognizable theory as to how his “robo-signer” allegations would invalidate the mortgage transfer under Massachusetts law.

 

Next, the First Circuit turned to the argument that Trustee lacked valid possession of Borrower’s mortgage because it had received the assignment of the mortgage without first passing through three predetermined parties, and the assignment was made two years after the trust’s closing date, both of which allegedly violated the trust’s PSA. 

 

Borrower relied on an unpublished case, Wells Fargo Bank, N.A. v. Erobobo, 2013 WL 1831799 (N.Y. Sup. Ct. 2013) which ruled that contravention of a trust’s PSA rendered a mortgage assignment void.  However, the Borrower had made no mention of the applicability of New York state law in the lower court and therefore the First Circuit determined that Borrower waived this unseasonably late argument. 

 

Moreover, the First Circuit held that Massachusetts law is clear that claims alleging disregard of a trust’s PSA are considered voidable, not void.  Because Borrower only presented facts to show the assignment may be voidable under Massachusetts law, the Court held that he lacks standing to challenge Trustee’s possession of the mortgage on this ground.

 

Similarly, Borrower’s argument that Trustee admittedly lacked possession of the note at the time of foreclosure also failed to state a claim.  Borrower relied on Eaton v. Fed. Nat’l Mortg. Ass’n, 462 Mass. 569 (2012), which established that a party must possess both the mortgage and underlying note to foreclose on real property in Massachusetts.  However, Eaton does not allow for retroactive effect other than for individuals with cases on appeal at the same time as Eaton.  See e.g., Galiastro v. Mortg. Elec. Reg. Sys., Inc., 467 Mass. 160 (2014).  The Court held that, because the Notice of Foreclosure was provided to Borrower years before Eaton, the Borrower could not rely on Eaton to challenge the foreclosure here.

 

Finally, the First Circuit turned to the argument that there was a judicial admission as to the invalidity of the first foreclosure because Trustee stated that the “the [first] foreclosure sale may have been void because [Borrower] may not have received the fourteen (14) days’ notice of sale required.”  In rejecting the argument, the Court explained that a judicial admission must be clear.  A statement that a foreclosure sale “may” be void cannot be treated as an unambiguous admission of the validity of the sale.

 

Accordingly, the First Circuit affirmed the judgment of dismissal.

 

 

 

 

 

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

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

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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Tuesday, July 1, 2014

FYI: 2nd Cir Confirms Servicer May Designate QWR Address, Upholds Dismissal of FDCPA Claim Due to Absence of Allegation Loan Was In Default Prior to Acquisition

The U.S. Court of Appeals for the Second Circuit recently held that a borrower’s improperly addressed requests for information failed to trigger a mortgage servicer’s duties under the federal Real Estate Settlement Procedures Act (“RESPA”) and N.Y. General Business Law § 349.

 

The Court also held that the servicer’s direct communication to the borrower who was represented by an attorney did not violate the federal Fair Debt Collection Practices Act (“FDCPA”), as the borrower failed to plausibly allege that the servicer started servicing the loan after it was already in default.

 

A copy of the opinion is available at:  http://www.ca2.uscourts.gov/decisions/isysquery/911abdbf-149e-4ae4-bc7a-7c192cbd4c8b/1/doc/13-3839_opn.pdf

 

Since September 2008, the plaintiff borrower (“Borrower”) has been in default and made no payments on her second residential mortgage serviced by Defendant Loan Servicer (“Servicer”).  In April 2011, Borrower’s lawyer sent two letters to Servicer requesting information under the federal Real Estate Settlement Procedures Act (“RESPA”). Servicer acknowledged the “numerous questions about the origination and/or servicing of [the] mortgage loan,” but noted that “it appears [Borrower’s] immediate concern is obtaining financial assistance.”

 

An identical follow-up request was sent from Borrower’s counsel to Servicer, which also alleged that the Servicer had not complied with RESPA. The three letters to Servicer were sent to addresses in O'Fallon, Missouri, and Des Moines, Iowa, rather than Servicer’s designated address for borrowers’ “qualified written requests” (“QWR”) in Gaithersburg, MD.

 

Servicer subsequently sent three letters directly to Borrower providing: (1) a financial information form to determine her eligibility for loan modification programs; (2) a response to a complaint Borrower filed with the N.Y. Department of Financial Services, stating that her allegations of improper servicing of her loan were “unsubstantiated” but Servicer would research and respond to any specific servicing questions; and, (3) a notice that Borrower’s loan was 1322 days in default and that Servicer might commence legal action if the matter was not resolved within ninety days.

 

Borrower filed suit against Servicer alleging that Servicer violated RESPA, FDCPA, and N.Y. GBL § 349.  The district court dismissed Roth's complaint for failure to state a claim.  The borrower appealed.

 

As you may recall, RESPA's implementing regulations allow (but do not require) servicers to establish a designated address for QWRs, such that if a servicer establishes a designated address for QWRs, “then the borrower must deliver its request to that office in order for the inquiry to be a ‘qualified written request.’”

 

Borrower did not dispute that each of her mortgage statements from Servicer designated a QWR address, or that her lawyer failed to use these addresses.  Borrower instead argued that Servicer’s QWR address failed to comply with the obligations of Regulation X in three ways: (1) Borrower argued that Servicer may not have had just one “separate and exclusive office and address for the receipt and handling” of QWRs as required by 24 C.F.R. § 3500.21(e)(1); (2) Borrower argued that the notice on the back of her mortgage statements was not “separately delivered,” and; (3) Borrower argued that notice of Servicer’s QWR address was insufficient because it was “buried in fine print.”

 

The Second Circuit rejected the Borrower’s arguments, affirming the lower court’s ruling that the improperly addressed letters were not valid QWR’s under RESPA, and therefore did not trigger Servicer’s RESPA obligations.

 

Borrower also alleged that Servicer’s direct correspondence to Borrower violated FDCPA provisions that prohibit a “debt collector” from “communicat[ing] with a consumer in connection with the collection of any debt if the debt collector knows the consumer is represented by an attorney.” 

 

However, the amended complaint did not allege that Servicer acquired Borrower’s debt after it was in default, and therefore failed to plausibly allege that Servicer qualifies as a debt collector under FDCPA.  Thus, the Second Circuit affirmed the dismissal of Borrower’s FDCPA allegations.

 

The final count of Borrower’s complaint alleged inadequate notice to Borrower of Servicer’s QWR address in supposed violation of N.Y. GBL § 349, which prohibits “[d]eceptive acts or practices in the conduct of any business.”   The Second Circuit concluded that, for the same reasons that Borrower’s RESPA allegations fail, her allegations under New York law also fail.

 

The Court also held that the lower court properly rejected the Borrowers request for leave to amend, thus affirming the judgment of the lower court in all respects.

 

 

 

 

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

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

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FYI: 11th Cir Upholds Federal Preemption as to Out-of-State State Banks

The U.S. Court of Appeals for the Eleventh Circuit recently held that the federal regulations promulgated by the Office of Comptroller of the Currency ("OCC") pursuant to the National Bank Act also applied with respect to out-of-state state banks, to preempt a state “par value” check settlement law.  This expands upon a prior ruling of the Court with respect to national banks.

 

A copy of this opinion is available at: http://www.ca11.uscourts.gov/opinions/ops/201310458.pdf

 

As you may recall, Florida Statute § 655.85 provides, in part, that "an institution may not settle any check drawn on it otherwise than at par."  The Eleventh Circuit held in 2011 (Baptista v. JP Morgan Chase Bank, N.A.) that the National Bank Act preempted Florida Statutes with respect to national banks.

 

In the instant matter, the Court was asked to consider whether federal law also preempted Florida Statute §655.85 with respect to out-of-state state banks. 

 

In July 2012, the plaintiffs presented a check at a branch of an out-of-state state bank, which assessed a check-cashing fee.  The plaintiffs brought this action against the bank, alleging that they received "less than par value," in violation of Florida Statute § 655.85, and that the assessment of the check-cashing fee unjustly enriched the bank. 

 

The lower court dismissed the complaint, concluding that federal law preempts § 655.85 and, because the unjust enrichment claims were premised on the same facts, those claims were also preempted.

 

As you may recall, 12 U.S.C. §1831a(j) provides that "the laws of a host State… shall apply to any branch in the host State of an out-of-state state bank to the same extent as such State laws apply to a branch in the host State of an out-of-State national bank." 

 

Based upon the federal statute and the precedent set in Batista, the Eleventh Circuit concluded that the federal law preemption would apply "to the same extent" that it applies to out-of-state banks.  Although it was unnecessary to resolve the issue at hand, the Court also noted that the legislative history surrounding §1831a(j) supports their reading that Florida Statute  §655.85 is preempted.

 

Accordingly, the Eleventh Circuit affirmed the District Court’s order of dismissal.

 

 

 

 

 

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

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

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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Sunday, June 29, 2014

FYI: 11th Cir Reiterates Auto-Dialed Calls Inadvertently Placed to Non-Customer Cell Phone Subscriber Without Consent Violates TCPA

The U.S. Court of Appeals for the Eleventh Circuit recently held that auto-dialed telephone calls intended for a former customer but received by a cellular telephone subscriber without their prior express consent constituted a violation of the federal Telephone Consumer Protection Act of 1991 (“TCPA”).

 

Specifically, the Court held that a “called party” for purposes of § 227(b)(1)(A)(iii) is the subscriber to the cell phone service, and rejected the defendant’s contention that “called party” meant the intended recipient of the call.

 

A copy of the opinion is available at: http://www.ca11.uscourts.gov/opinions/ops/201214564.op2.pdf

 

As you may recall, the TCPA generally prohibits making any call using an automatic telephone dialing system to a cellular telephone without the prior express consent of the “called party.” 47 U.S.C. § 227(b)(1)(A)(iii) (2006).   In this matter, the Court was asked to determine the proper interpretation of the term “called party.”

 

The defendant bank made multiple calls using an autodial system to a cell phone number assigned to the plaintiff, and used exclusively by her minor daughter. The plaintiff, individually, and on behalf of her minor daughter, filed suit alleging that the bank’s calls violated the TCPA’s prohibition on autodialing cell phones without the express consent of the called party.

 

The defendant bank filed an affidavit of one of its employees, who testified that the calls were placed to collect a debt from a former customer who had listed the phone number on an account application, and that the bank was unaware that the cell phone number was no longer assigned to the former customer. 

 

The bank argued that the former customer — the intended recipient of the autodial calls — was the “called party” for purposes of  §227(b)(1)(A)(iii), and because he had consented to being called via automatic dialing system, the TCPA’s prohibition did not apply.  The lower court rejected the bank’s argument and granted partial summary judgment in the plaintiff’s favor, concluding that the “called party” for purposes of §227(b)(1)(A)(iii) was not the former customer, but the plaintiff.

 

During the pendency of this appeal, another panel of the Eleventh Circuit was faced with the same question.  In Osorio v. State Farm Bank, the Eleventh Circuit defined a “called party,” for purposes of § 227(b)(1)(A)(iii) as the subscriber to the cell phone service, and rejected the defendant’s contention that “called party” could mean intended recipient.

 

Thus, the Court indicated it was bound by the ruling of the panel in Osorio, and affirmed the lower court’s order of partial summary judgment to the plaintiff who did not consent to the bank’s auto-dialed cell phone calls.

 

 

 

 

 

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

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

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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