Tag Archives: void

The Sloppy State of the Mortgage Market

Posted on by

photo by Badagnani

I published a short article in the California Real Property Law Reporter, Sloppy, Sloppy, Sloppy: The State of the Mortgage Market, as part of a broader discussion of Foreclosures Following Problematic Securitizations.  The other contributors were Roger Bernhardt, who organized the discussion,  as well as Dale Whitman, Steven Bender, April Charney and Joseph Forte.  My article opens,

Much of the discussion about the recent California Supreme Court case Yvanova v New Century Mortgage Corp. (2016) 62 C4th 919  has focused on the scope of the Court’s narrow holding, “a borrower who has suffered a nonjudicial foreclosure [in California] does not lack standing to sue for wrongful foreclosure based on an allegedly void assignment merely because he or she was in default on the loan and was not a party to the challenged assignment.” 62 C4th at 924. This is an important question, no doubt, but I want to spend a little time contemplating the types of sloppy behavior at issue in the case and what consequences should result from that behavior.

Sloppy Practices All Over

The lender in Yvanova was the infamous New Century Mortgage Corporation, once the second-largest subprime lender in the nation.  New Century was so infamous that it even had a cameo role in the recently released movie, The Big Short, in which its 2007 bankruptcy filing marked the turning point in the market’s understanding of the fundamentally diseased condition of the subprime market.

New Century was infamous for its “brazen” behavior.  The Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States (Jan. 2011) (Report) labeled it so because of its aggressive origination practices.  See Report at page 186. It noted that New Century “ignored early warnings that its own loan quality was deteriorating and stripped power from two risk-control departments that had noted the evidence.” Report at p 157. And it quotes a former New Century fraud specialist as saying, “[t]he definition of a good loan changed from ‘one that pays’ to ‘one that could be sold.”  Report at p 105.

This type of brazen behavior was endemic throughout the mortgage industry during the subprime boom in the early 2000s.  As Brad Borden and I have documented, Wall Street firms flagrantly disregarded the real estate mortgage investment conduit (REMIC) rules and regulations that must be complied with to receive favorable tax treatment for a mortgage-backed security, although the IRS has let them dodge this particular bullet.  Borden & Reiss, REMIC Tax Enforcement as Financial-Market Regulator, 16 U Penn J Bus L 663 (Spring 2014).

The sloppy practices were not limited to the origination of mortgages. They were prevalent in the servicing of them as well. The National Mortgage Settlement entered into in February 2012, by 49 states, the District of Columbia, and the federal government, on the one hand, and the country’s five largest mortgage servicers, on the other, provided for over $50 billion in relief for distressed borrowers and in payments to the government entities. While this settlement was a significant hit for the industry, industry sloppy practices were not ended by it. For information about the Settlement, see Joint State-Federal National Mortgage Servicing Settlements and the State of California Department of Justice, Office of the Attorney General, Mortgage Settlements: Homeowners.

As the subprime crisis devolved into the foreclosure crisis, we have seen those sloppy practices have persisted through the lifecycle of the subprime mortgage, with case after case revealing horrifically awful behavior on the part of lenders and servicers in foreclosure proceedings.  I have written about many of these Kafka-esque cases on REFinBlog.com.  One typical case describes how borrowers have “been through hell” in dealing with their mortgage servicer. U.S. Bank v Sawyer (2014) 95 A3d 608, 612 n5.  Another typical case found that a servicer committed the tort of outrage because its “conduct, if proven, is beyond the bounds of decency and utterly intolerable in our community.” Lucero v Cenlar, FSB (WD Wash 2014) 2014 WL 4925489, *7.  And Yvanova alleges more of the same.

Challenging Wrongful Foreclosures

Posted on by

photo by Oparvez

The California Supreme Court issued an opinion a few days ago that has been getting a lot of attention, Yvanova v. New Century Mortgage Corp., S218973 (Feb. 18, 2016). The opinion opens by noting that

The collapse in 2008 of the housing bubble and its accompanying system of home loan securitization led, among other consequences, to a great national wave of loan defaults and foreclosures. One key legal issue arising out of the collapse was whether and how defaulting homeowners could challenge the validity of the chain of assignments involved in securitization of their loans. (1)

The Court concludes that

a home loan borrower has standing to claim a nonjudicial foreclosure was wrongful because an assignment by which the foreclosing party purportedly took a beneficial interest in the deed of trust was not merely voidable but void, depriving the foreclosing party of any legitimate authority to order a trustee’s sale. (30)

First, let us be clear what it is NOT saying: “We do not hold or suggest that a borrower may attempt to preempt a threatened nonjudicial foreclosure by a suit questioning the foreclosing party’s right to proceed.” (2) This is an important distinction between challenging a nonjudicial foreclosure and having standing to bring a wrongful foreclosure tort action.

And let us be clear as to what it is saying: if a homeowner argues that that an assignment of a deed of trust is void, that can provide the basis for a wrongful foreclosure action because it “is no mere ‘procedural nicety,’ from a contractual point of view, to insist that only those with authority to foreclose on a borrower be permitted to do so.” (22) Quoting Adam Levitin, the Court finds that

“Such a view fundamentally misunderstands the mortgage contract. The mortgage contract is not simply an agreement that the home may be sold upon a default on the loan. Instead, it is an agreement that if the homeowner defaults on the loan, the mortgagee may sell the property pursuant to the requisite legal procedure.” (23, italics changed)

Sounds like common sense to me.

 

Court Finds that Bank was Entitled to Enforce the Instrument Under R.C. 1303.31

Posted on by

The court in deciding M & T Bank v. Strawn, 2013-Ohio-5845 (Ohio Ct. App., Trumbull County 2013) affirmed the lower court’s decision and found that appellant’s argument was without merit.

Appellant framed three issues for this court’s review. First, appellant contended that the trial court erred in relying upon the affidavit of Mr. Fisher to demonstrate that appellant had possession of the promissory note and that the copies were true and accurate. Second, appellant questioned whether appellee fulfilled the condition precedent of providing notice of the default and notice of acceleration. Third, appellant argued that there was a genuine issue of material fact as to whether appellee was the real party in interest possessing an interest in the promissory note and mortgage.

The court found that the bank’s possession of the note was shown by an affidavit, along with attached copies of the note endorsed to the bank, and one in possession of a note endorsed to that party was a holder, for purposes of R.C. 1301.201(B)(21)(a), and thus entitled to enforce the instrument under R.C. 1303.31.

The court also found that the affidavit for the bank clearly stated that the bank had been in possession of the original promissory note, and the affidavit was sufficient for the trial court to have held that the affiant had personal knowledge. Lastly, the court found that nothing suggested that voided endorsements affected the bank’s status as a holder, and thus it did not create an issue of fact and that the bank acquired an equitable interest in the mortgage when it became a holder of the note, regardless of whether the mortgage was actually or validly assigned or delivered.

Appellate Court of Illinois Awarded Summary Judgment to Plaintiff Where Defendant Failed to Show That Plaintiff was an Unlicensed Debt Collector Under the Collection Agency Act

Posted on by

The Illinois court in deciding Kondaur Capital Corp. v. Sreenan, 2013 Ill. App. (Ill. App. Ct. 1st Dist. 2013) affirmed the judgment of the circuit court granting summary judgment for the plaintiff.

In the summary judgment motion, the plaintiff asserted that it was the legal holder and in possession of the note at issue pursuant to the assignment from PNC.

The court held that the circuit court did not err in awarding summary judgment to the plaintiff where the defendant failed to demonstrate that the plaintiff was an unlicensed debt collector under the Collection Agency Act (225 ILCS 425/1 et seq.).

The court also held that there was no abuse of discretion in refusing to strike affidavits in support of the plaintiff’s motion for summary judgment where the affidavits were premised upon documents that qualified as “business records” under Supreme Court Rule 236 (Ill. S. Ct. R. 236).

Lastly, the court held that any error in allowing the plaintiff to respond to the defendant’s affirmative defenses in the context of the plaintiff’s summary judgment motion was harmless.