You can read about this from REUTERS

* Syncora can pursue claims based on entire loan pool

* Insurer need not show breaches of individual loans

NEW YORK, March 28 (Reuters) – JPMorgan Chase & Co (JPM.N) could be forced to repurchase thousands of home equity loans, after a judge ruled in favor of a bond insurer that argued it could build its case based on a sampling of loans.

The ruling against EMC Mortgage Corp, once a unit of Bear Stearns Cos, comes amid many lawsuits seeking to force banks to buy back tens of billions of dollars of mortgage and other home loans that went sour. JPMorgan bought Bear Stearns in 2008.

You may read the court Order below:

SYNCORA GUARANTEE INC., f/k/a XL Capital Assurance Inc.,
v.
EMC MORTGAGE CORP.,

No. 09 Civ. 3106 (PAC).

USDC, S.D. New York.

March 25, 2011.

OPINION & ORDER

HONORABLE PAUL A. CROTTY, United States District Judge.

This breach of contract lawsuit arises out of a securitization transaction (“Transaction”), involving 9,871 Home Equity Line of Credit (“HELOC”) residential mortgage loans, which were purchased and used as collateral for the issuance of $666 million in publicly offered securities (“Notes”). (Mem. in Supp. Mot. to Am. 3). Defendant EMC Mortgage Corp. (“EMC”) aggregated the HELOCs, sold the loan pool to the entity that issued the Notes, and contracted with Plaintiff Syncora Guarantee Inc., formerly known as XL Capital Assurance Inc., (“Syncora”) to provide a financial-guaranty insurance policy protecting the investors in the Note. (Id.) Syncora claims that EMC breached its representations regarding 85% of the loan pool. It now moves for partial summary judgment or, alternatively, a ruling in limine, that it was not required to comply with a repurchase protocol as the exclusive remedy for all such claims. The Court GRANTS the motion for partial summary judgment on the grounds that, in light of the broad rights and remedies for which Syncora contracted, any such remedial limitation would have to be expressly stated.

Continue below…

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March 28 (Bloomberg) — JPMorgan Chase & Co. sued the Florida law firm of Ben-Ezra & Katz to force it to return files of foreclosure cases in which the firm represented the bank.

JPMorgan said in a complaint filed March 25 in federal court in Miami that the files include thousands of original promissory notes, mortgages and other documents that “evidence and secure” loans worth more than $400 million. The New York- based bank seeks a court order forcing Ben-Ezra to return the files and unspecified damages.

Once again, how will the eMortgage and eNote business take off when they can’t even do these things right. This complaint probably has a lot of meat on it. Can’t wait to see it.

via BLOOMBERG

Bank of America “did not properly record many of its mortgages when originated or acquired, which severely complicated the foreclosure process when it became necessary,” according to the complaint filed today in New York state Supreme Court in Manhattan. The bank also concealed that it didn’t have adequate personnel to process the large numbers of foreclosed loans in its portfolio, the shareholders said.

Abigail Field’s latest article is a must read. Forget the energizer bunny, this just keeps going and going…it does not stop.

from DailyFinance

When an LPS client has a mortgage that goes into default, Lofton explains, LPS starts managing the loan. In order to do that, the appropriate LPS employees are given login information for the bank’s database. As a security measure, each login is unique. That login grants access to the bank’s entire database of current and defaulted loans, so that the employee can address whatever problem exists. For example, if a payment that should have been applied to a defaulted mortgage was accidentally credited to a current mortgage, the LPS employee needs access to the current mortgage to fix the error.

When an employee can’t fix or reconcile data in an account, she is supposed to enlist the help of her supervisor, and if needed, her supervisor’s supervisor. Each manager also has unique login information, and each bank apparently has additional security protocols that LPS employees are supposed to follow. If the employees and supervisors were following the rules, all would be relatively well. But according to Lofton, they were not:

“…109. …most of the [LPS] Associate Team members had gained unauthorized access to the logins and passwords of their team associates and supervisors for all of the bank servicers’ computers.

110. With this unauthorized access to the Bank’s computers, the [LPS] associates could go into the banks computer files and manipulate the data….

112. I was particularly concerned that during “crunch” times …Team Associates were cutting corners….

116. When an employee cut corners, the employee left out one or more steps that should have been performed and had to make something up.

117. The problem caused by cutting corners might not come to light until six months down the road when an attorney asks questions about the billing record.”

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Come hungry…close a loan electronically within 15 minutes and with doughnuts. Not like it took any longer the paper route!

Providing all the ‘errors’ and ‘mistakes’ currently happening in foreclosure land, just hope your eNote/eMortgage doesn’t get deleted by accident.

via Housing Wire:

Harry Gardner, president of SigniaDocs, said the perfect infrastructure is one that manages all mortgage documents electronically, but the number of loans in the Mortgage Electronic Registration Systems’ eRegistry is about 200,000, or “a small fraction of mortgages written in the last 10 years.”

“And by eMortgage, we mean truly paperless not some hybrid of some paper and some electronic documentation,” Gardener said. “Ten years ago, we were saying mainstream eMortgage documentation was three to five years away, and I’m happy to say that mainstream eMortgage documentation is now three to five years away.”

continue reading….  Housing Wire

While some lenders do utilize web-based proprietary systems (MortgageServ, Res.net, etc) for insurance and foreclosure tracking, the majority of the lenders in the US (including Bank of America, Aurora Loan Services, and OneWest) utilize the Fidelity LPS system, which is maintained by Fidelity National Financial. It seems almost impossible to believe all of our banks would allow a single point of failure in our nation’s financial systems, however a certain level of cockiness is certainly warranted after successfully pulling off the largest series of cons in our nation’s history.

The LPS system can be accessed several ways. Using Internet Explorer, Balboa and Assurant agents are able to query every field within the system via the web based Lending Portal Login for all of their clients. The information is then used to build all of the AxsPoint/Cool reports utilized to track Force Placed and REO information on the CCS & PAC systems. The tracker then places the information on Clientsource for the servicer to view.

These systems are all web-based, because while the banksters do practice “honor amongst thieves,” each individual banks still likes to hide a certain level of information from each other to allow the possibility of stealing from each other while stealing from you. Web-based systems allow them to control the information visible to each other.

The LPS System

CECIL BARRETT, JR., et al.
v.
H&R BLOCK, INC., OPTION ONE MORTGAGE CORPORATION and H&R BLOCK MORTGAGE CORPORATION n/k/a OPTION ONE MORTGAGE SERVICES, INC.^[1]

Civil Action No. 08-10157-RWZ.

United States District Court, D. Massachusetts.

March 21, 2011.

MEMORANDUM OF DECISION

RYA W. ZOBEL, District Judge.

Now pending before the court is Plaintiffs’ motion for class certification. Plaintiffs are African-American homeowners who bring suit on behalf of themselves and similarly situated homeowners against H&R Block, Inc. (“H&R Block”), and its wholly-owned subsidiaries, San Canyon Corp., f/k/a Option One Mortgage Corporation (“Option One”) and Ada Services Corporation, f/k/a H&R Block Mortgage Corporation (“H&R Block Mortgage”) (collectively, “Option One” or “Defendants”).^[2]

The gravamen of Plaintiffs’ complaint is that H&R Block and Option One violated the Equal Credit Opportunity Act, 15 U.S.C. §§ 1691-1691f (“ECOA”), and the Fair Housing Act, 42 U.S.C. §§ 3601-3619 (“FHA”),^[3] by giving its authorized brokers discretion to impose additional charges to the borrower’s wholesale mortgage loans unrelated to a borrower’s creditworthiness, a policy that had a disparate impact on African-American borrowers in that it resulted in their being charged higher rates than similarly situated whites.^[4]

Plaintiffs now move to certify a class of “[a]ll African-American borrowers who obtained a mortgage loan from one of the Defendants between January 1, 2001 and the [d]ate of [j]udgment” under Federal Rule of Civil Procedure 23(b)(3). See Docket # 74, Pl.’s Mem. in Support of Mot. for Class Certification at 17.

I. Background

Plaintiffs Cecil and Cynthia Barrett (“the Barretts”) purchased their home in 2004 for approximately $277,000. See Second Am. Compl. ¶ 76. They refinanced the mortgage on their home in Mattapan, Massachusetts, in 2005, taking out a $416,000 loan with a 30-year term and a disclosed Annual Percentage Rate, or “APR,” of 8.653 percent. Id. at ¶¶ 77-78. The Barretts were assisted by Money-Wise Solutions, a mortgage broker authorized to originate loans with Option One. Id. at ¶ 79. On April 6, 2006, they again refinanced. Id. at ¶ 81. That loan, also with Option One, was for $500,000, and had an adjustable rate with a balloon feature, providing for a final payment of $344,113.90. Id. at ¶ 82. The APR on the second loan was 10.536%. Id. The remaining plaintiffs similarly used brokers to obtain wholesale mortgage loans from Option One and allege that they were charged a higher APR than similarly-situated whites.

H&R Block made home mortgage loans to consumers through its subsidiaries, H&R Block Mortgage and Option One. See Second Am. Compl. ¶¶ 23, 49. Option One was primarily a wholesale mortgage lender and offered its services through its branches and a national network of mortgage brokers. Id. at ¶ 22.

In the wholesale mortgage lender market, independent mortgage brokers act as intermediaries between borrowers and lenders like Option One. A broker identifies prospective borrowers, facilitates the loan origination process, and transmits prospective borrowers’ respective applications to lenders for a determination of whether or not to grant the loan. This reliance on brokers enabled Option One to fund mortgages in areas where it had not established any retail presence of its own. Option One worked with numerous authorized brokers when it was in the wholesale mortgage business, which it abandoned in late 2007. Between 2001 and 2007, H&R Block Mortgage’s subprime retail originations represented approximately 10% of Option One’s overall loan origination volume.

The pricing of Option One’s mortgage loans was comprised of an objective and a subjective component. According to Plaintiffs, when a proposed borrower applied for a loan, Option One first computed a risk-based financing rate (the “Par Rate”) based on objective criteria of creditworthiness, such as FICO score, property value, and loan-to-value ratio to determine credit parameters, and set prices for its loan products. This information was communicated to brokers on a rate sheet listing Option One’s “par” interest rate, which did not result in any broker compensation. That objective component of loan pricing is not at issue here.

Option One also authorized a subjective component in its credit pricing system (the “Discretionary Pricing Policy”), which governed brokers’ compensation for their services. This is the policy at issue. Under this policy, brokers were permitted to set interest rates higher than the par rate, as well as to charge loan origination and processing fees. Option One paid brokers a “yield spread premium” or “rebate” when they did so. Brokers were paid more for loans that cost the borrower more, though their total compensation was capped at 5 percent of the loan amount. As the name implies, there were no objective criteria for the imposition of these higher rates and fees, which were set by the brokers in their discretion. These discretionary charges were negotiated between the broker and borrower as part of the total finance charge (the “Contract APR”), without specific disclosure that a portion of the Contract APR was a non-risk related charge.

Option One, along with H&R Block and H&R Block Mortgage, jointly established the Discretionary Pricing Policy and participated in the decisions to grant credit to borrowers. (Id. ¶¶ 53-54.) Option One monitored the fees charged by its brokers to ensure they complied with its policies.

Plaintiffs allege that “by design,” the Discretionary Pricing Policy “caused persons with identical or similar credit scores to pay different amounts for the cost of credit.” (Id. ¶ 68.) Although facially neutral, the policy had an adverse effect on African-Americans in that they paid higher discretionary charges on their home loans than did similarly situated white borrowers. Plaintiffs bring these claims under a disparate impact theory, challenging “practices that are facially neutral in their treatment of different groups but that in fact fall more harshly on one group than another and cannot be justified by business necessity.” Int’l Bhd. of Teamsters v. United States, 431 U.S. 324, 335 n. 15 (1977).

II. Legal Standard

To obtain class certification, plaintiffs must satisfy four requirements of Federal Rule of Civil Procedure 23(a) as well as one of several requirements of Rule 23(b). Smilow v. Southwestern Bell Mobile Systems, Inc., 323 F.3d 32, 38 (1st Cir. 2003).

Rule 23(a) provides that a class may be certified only if “(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.” Fed. R. Civ. P. 23(a). Courts have characterized this rule to require plaintiffs to satisfy the requirements of numerosity, commonality, typicality, and adequacy. See Smilow, 323 F.3d at 38.

Rule 23(b) allows for several different types of class actions. Plaintiffs seek to certify the class under Rule 23(b)(3) which requires a showing “that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Fed. R. Civ. P. 23(b).

Before certifying a class, courts are required to engage in “a rigorous analysis of the prerequisites established by Rule 23.” In re New Motor Vehicles Canadian Export Antitrust Litigation, 522 F.3d 6, 17 (1st Cir. 2008). Accordingly, when considering disputed issues for class certification, a district court may “probe behind the pleadings to formulate some prediction as to how specific issues will play out.” DeRosa v. Massachusetts Bay Commuter Rail Co., 694 F. Supp. 2d 87, 95 (D. Mass. 2010) (citations omitted). However, the court may not consider whether the party seeking class certification has stated a cause of action or is likely to prevail on the merits. See In re Initial Public Offering Securities Litigation, 471 F.3d 24, 36-37 (2d Cir. 2006). A district court must certify a class if it concludes that the moving party has met its burden of proof on each element.

III. Analysis

A. Rule 23(a)

1. Numerosity

Under Rule 23(a)(1), the numerosity requirement is met if “the class is so numerous that joinder of all members is impracticable.”

From 2001 through 2007, Option One made at least 130,000 wholesale and retail loans to African-American borrowers located across the United States. Defendants do not dispute that the numerosity requirement has been met.

2. Commonality

To demonstrate commonality under Rule 23(a)(2), Plaintiffs must establish “common questions of law and fact.” Fed. R. Civ. P. 23(a)(2). It is not necessary that members of the proposed class share every fact in common or present identical legal issues. See In re Transkaryotic Therapies, Inc. Securities Litig., 03-cv-10165-RWZ, 2005 WL 3178162, at *2 (D. Mass. Nov. 28, 2005) (internal quotations omitted). Rather, the rule requires “a sufficient constellation of common issues [that] binds class members together.” Waste Mgmt. Holdings, Inc. v. Mowbray, 208 F.3d 288, 296 (1st Cir. 2000). In actions based on disparate impact, commonality is satisfied if the lawsuit “tend[s] to show the existence of a class of persons affected by a company-wide policy or practice of discrimination.” Attenborough v. Const. and General Bldg. Laborers’ Local 79, 238 F.R.D. 82, 95 (S.D.N.Y. 2006). Individual factual differences among the putative class members will not preclude a finding of commonality. See Armstrong v. Davis, 275 F.3d 849, 868 (9th Cir. 2001).

To make out a prima facie case of discrimination under the disparate impact theory, a plaintiff must (1) identify the specific practice being challenged; and (2) show that it effected different results in different populations. See Watson v. Ft. Worth Bank and Trust, 487 U.S. 977, 994-995 (1988). “[I]t is not enough to simply allege that there is a disparate impact on workers, or point to a generalized policy that leads to such an impact. Rather, the [plaintiff] is responsible for isolating and identifying the specific … practices that are allegedly responsible for any observed statistical disparities.” See Smith v. City of Jackson, 544 U.S. 228, 241 (2005) (internal quotations omitted). Moreover, “[p]roof of disparate impact is based not on an examination of individual claims, but on a statistical analysis of the class as a whole.” In re Wells Fargo Residential Mortg. Lending Discrimination Litigation, 08-md-01930, 2010 WL 4791687, *2 (N.D. Cal. 2010) (internal citations omitted).

Once the plaintiff has established a prima facie case of disparate impact, the burden of proof shifts to the defendant, who may either discredit the plaintiff’s statistics or proffer its own computations to demonstrate that no disparity exists. See Watson, 487 U.S. at 996-97.

First, Option One argues that the named Plaintiffs cannot satisfy the requirement of commonality because the results of an aggregated statistical regression cannot supply classwide proof of discrimination, particularly where individual Plaintiffs did receive a lower APR.^[5] It relies on its studies that the majority of putative class members paid an amount that was statistically the same as they would have paid had they been white, and that another 2.6% of class members paid an amount less than predicted. Defendants contend that such disparities as existed are explainable not by race but by factors such as geography and the individual broker. Second, Defendants contend that individualized pricing, changes in policy, and other practices preclude classwide adjudication of Plaintiffs’ claims.

Plaintiffs demonstrate common questions of fact and law through the expert report of Yale Law School Professor Dr. Ian Ayres (“Professor Ayres”), whose analysis of Option One’s mortgage data leads him to conclude that the Discretionary Pricing Policy did have a disparate impact on minority borrowers because “African Americans paid more for Option One mortgage loans than whites with similar risk-characteristics.” Docket # 89-3, Report of Professor Ayres (“Ayres Report”) at 6, ¶ 10. In his study, Professor Ayres compares the annual percentage rate, or “APR,” paid by white and minority borrowers for Option One wholesale loans originated from 2001 to 2007. He finds that the mean APR for African-Americans was 9.876%, as compared with a mean APR of 9.415% for whites, a difference of 0.461%. See Ayres Report at 7, ¶ 10.

To compare similarly situated whites and minorities, Professor Ayres also performed regression analysis, a statistical method that allows him to control for legitimate risk factors that may affect the cost of a loan. Controlling for such risk factors, he concluded that the APRs of African-Americans are 0.086% higher than those of similarly situated whites, resulting in an average payment of $134 more per year for each of the former group’s loans. Professor Ayres’ study relies entirely on evidence common to the class and does not require any individualized inquiry.

The central question of fact and law is common to the class. Plaintiffs assert that the discretionary pricing strategy they challenge was executed uniformly, and its adverse effects were felt in the same way by Plaintiffs and all class members. Therefore, common questions include whether Option One’s policy resulted in a pricing disparity between white and minority borrowers and whether those disparities are justified by legitimate risk factors.

Defendants dispute commonality through their own expert, Dr. Darius Palia (“Dr. Palia”), Professor of Finance and Economics at Rutgers Business School, who asserts that there is no evidence that there was “a commonly applied `Discretionary Pricing Policy’ that was the cause of a class-wide disparate impact on African-American borrowers.” See Docket # 89-1 (Rebuttal Report of Dr. Palia dated May 4, 2010, hereinafter “Palia Report”).

Using Professor Ayres’ numbers, Dr. Palia replicated Professor Ayres’ exact regression analysis to highlight alleged errors. Dr. Palia points to two major flaws in Professor Ayres’ analysis. First, he argues that the Ayres regression model was improperly applied to the aggregate, and not separately to the individual mortgage brokers that used the so-called “Discretionary Pricing Policy.” If such a policy had, in fact, been applied, “the disparate impact caused by the policy should be observed consistently across the various brokers that applied it”; if not, “that would suggest that loan pricing is the result of individualized decision-making rather than the result of a common policy.” Second, Dr. Palia contends that Professor Ayres’ failure to apply his regression model separately to local geographic markets in which borrowers applied for and obtained their mortgage loans renders his conclusions inaccurate. After completing his own analysis, Dr. Palia concluded: “(1) the statistical evidence does not show any common pattern of disparate impact against African-American borrowers either across the brokers that originated the loans or across the geographic markets in which the largest numbers of loans were originated; (2) even among the minority of brokers and geographic markets in which African-Americans experienced statistically higher APRs than similarly-situated whites, there is no common cause of such pricing differences; and (3) nine of ten loans extended to named plaintiffs had APRs that were not statistically different from the APR that would have been predicted had the borrowers been white.”

Although Defendants hotly dispute the merits of Professor Ayres’ analysis, it has long been the rule that disputes about the respective experts’ statistics are tantamount to disputes about the parties’ proof of the merits and are not grounds for denying class certification. See In re Initial Public Offerings Securities Litigation, 471 F.3d 24, 35 (2d Cir. 2006)^[6] Plaintiffs have satisfied the commonality requirement. (experts’ disagreement on whether a discriminatory impact could be shown is a disagreement as to the merits, and is not a valid basis for denying class certification). Statistical disputes in civil rights cases “encompass the basic merits inquiry and need not be proved to raise common questions and demonstrate the appropriateness of class resolution.” Id. at 594.

3. Typicality

A plaintiff may represent a class only if his or her claims are “typical” of those of the putative class. See Fed. R. Civ. P. 23(a)(3). In general, a plaintiff’s claim is typical if it “arises from the same event or practice or course of conduct that gives rise to the claims of other class members, and if his or her claims are based on the same legal theory.” In re Pharm. Indus. Average Wholesale Price Litig., 230 F.R.D. 61, 78 (D. Mass. 2005). Where, however, “a named plaintiff may be subject to unique defenses that would divert attention from the common claims of the class, that plaintiff cannot be considered typical of the class.” In re Bank of Boston Corp. Securities Litigation, 762 F.Supp. 1525, 1532 (D. Mass. 1991). While commonality “examines the relationship of facts and legal issues common to class members,” typicality “focuses on the relationship of facts and issues between the class and its representatives.” Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571, 613 n. 37 (9th Cir. 2010) (en banc).

Here, Plaintiffs contend that their claims are typical because Option One made loans to each Plaintiff under the same subjective Discretionary Pricing Policy to which the class was subjected.

Option One counters that the named Plaintiffs are not typical for two reasons: (1) some have suffered no injury in connection with their loans and therefore lack standing; and (2) individualized defenses demonstrate that there is no “typical” named plaintiff.

i. Standing

Defendants assert that certain Plaintiffs were not injured because they received loans that were priced more favorably than similarly situated white borrowers. Further they argue that Plaintiffs’ reliance on Dr. Ayres’ conclusions of disadvantage to African-American borrowers as a group does not support the inference that the named Plaintiffs were so disadvantaged. Absent such individualized evidence, the named Plaintiffs are not typical of the class they represent, and thus lack standing.

Plaintiffs have alleged that the disparate impact was the result of the Discretionary Pricing Policy, a common practice that governed the pricing of all class members’ mortgages. The named Plaintiffs were subject to that policy, and have advanced a viable theory showing that it produced harm. That is sufficient to satisfy the typicality requirement.

ii. Individualized Defenses

Next, Defendants contend that the individual circumstances surrounding each named Plaintiff’s loans expose each to individual defenses which defeat typicality. In particular, Defendants contend that several Plaintiffs submitted loan applications which contained false information, subjecting them to a defense of unclean hands. This argument is unavailing. The U.S. Supreme Court has held that because the purpose of the ECOA is to eradicate discrimination, the unclean hands defense is not available to question liability. See McKennon v. Nashville Banner Publishing Co., 513 U.S. 352, 356-57, 360 (1995) (holding that the unclean hands defense “has not been applied where Congress authorizes broad equitable relief to serve important national policies” including civil rights statutes such as the ADEA); see also Moore v. U.S. Department of Agriculture, 55 F.3d 991, 995-96 (5th Cir. 1995) (holding that an unclean hands defense did not defeat liability under the ECOA).

Finally, Defendants say that the necessity for an individualized statute of limitations defense determination defeats typicality. This, too, is without merit. First, this court has already ruled against Defendant’s statute of limitations defense with respect to the named Plaintiffs when it denied their motion to dismiss. Second, all named Plaintiffs but one filed within the requisite time. Third, at the class certification stage, a court’s analysis of unique defenses focuses on whether those defenses will “unacceptably detract from the focus of the litigation to the detriment of absent class members.” Baffa v. Donaldson, Lufkin & Jenrette Sec. Corp., 222 F.3d 52, 59 (2d Cir. 2000). Here, any statute of limitations defense will not do so.

4. Adequacy

Rule 23(a)(4) requires that the proposed class representatives “fairly and adequately protect the interests of the class.” This requirement has two parts. Plaintiffs must first demonstrate that “the interests of the representative party will not conflict with the interests of any of the class members,” and second, that “counsel chosen by the representative party is qualified, experienced and able to vigorously conduct the proposed litigation.” In re M3 Power Razor System Marketing & Sales Practice Litigation, 270 F.R.D. 45, 55 (D. Mass. 2010) (citing Andrews v. Bechtel Power Corp., 780 F.2d 124, 130 (1st Cir. 1985)).

Option One does not dispute the adequacy of these class representatives, and the court discerns no conflicts between Plaintiffs and any members of the class. Accordingly, all four requirements of Rule 23(a) have been met.

B. Rule 23(b)(3)

As they request certification under Rule 23(b)(3), Plaintiffs must present evidence showing the predominance of common issues and the superiority of a class action. The court now turns to these two requirements.

1. Predominance

Rule 23(b)(3) requires the court to find “that the questions of law or fact common to class members predominate over any questions affecting only individual members.” This predominance requirement “tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation” and is a “far more demanding” standard than Rule 23(a)’s commonality requirement. Amchem Prod., Inc. v. Windsor, 521 U.S. 591, 623-24 (1997). The Rule is intended to ensure “that common issues predominate, not that all issues be common to the class.” In re Transkaryotic Therapies, Inc. Securities Litigation, 2005 WL 3178162, *2 (D. Mass. 2005) (citations omitted).

Option One disputes predominance by reiterating its arguments against commonality. The disparity in APR is explained not by race, Option One argues, but by other legitimate variables.

The key question again is whether Option One’s Discretionary Pricing Policy had a disparate impact, that is, whether it fell “more harshly on one group than another and cannot be justified by business necessity.” Int’l Bhd. of Teamsters v. United States, 431 U.S. 324, 335 n. 15 (1977). Since the claim is disparate impact, the relevant evidence will focus on “statistical disparities, rather than specific incidents, and on competing explanations for those disparities.” Watson v. Ft. Worth Bank & Trust, 487 U.S. 977, 987 (1988).

Professor Ayres’ analysis provides evidence of the disparate impact on a class-wide basis. Competing explanations for those disparities are examined by way of regression analyses that assess the effect of competing variables. Option One can defend against Plaintiffs’ case either by demonstrating that its discretionary policy had a valid business justification, or by challenging the statistical basis for Plaintiffs’ claim. In either case, the legal contention applies across the class. Thus, Plaintiffs have carried their burden of showing the predominance of common questions.

2. Superiority

The final requirement for class certification is “that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Fed. R. Civ. P. 23(b)(3). The pertinent factors in assessing superiority are “the class members’ interests in individually controlling the prosecution or defense of separate actions” and “the likely difficulties in managing a class action.” Id. Superiority exists where “there is a real question whether the putative class members could sensibly litigate on their own for these amounts of damages, especially with the prospect of expert testimony required.” Gintis v. Bouchard Transp. Co., Inc., 596 F.3d 64, 68 (1st Cir. 2010).

It would be neither economically feasible nor efficient for class members to pursue these claims against Option One individually. The amounts recoverable for individual class members are too low for class members to bring individual claims. The class action is manageable because liability will be determined based on statistical proof, and remedies can be calculated on a class-wide basis. A class is therefore superior to other methods for adjudicating these claims.

C. Class Period

While the result on the merits is by no means certain, the proposed class satisfies the requirements of Rule 23, and class certification is appropriate. However, several questions remain unresolved. Most notably, the proposed dates of the beginning and end of the class period are left singularly unsubstantiated. Moreover, it is unclear how and when Option One began to identify loan applicants by race.

D. Rule 23(g)

Since the court has determined that Plaintiffs have met Rule 23’s requirements for class certification, the court must appoint class counsel. See Fed. R. Civ. P. 23(g). On or before April 11, 2011, any counsel who wishes to serve as class counsel shall file the requisite motions and documentation to support his/her request.

IV. Conclusion

Plaintiffs’ motion for class certification (Docket # 72) is ALLOWED, subject to limitation by time. A class of “[a]ll African-American borrowers who obtained a mortgage loan from one of the Defendants” is hereby certified.

[1] H&R Block Bank, a Federal Savings Bank, Member FDIC, was named as a defendant but has since been voluntarily dismissed from the action. H&R Block, Inc. was dismissed for lack of personal jurisdiction. The only defendants remaining are Option One Mortgage Corporation and Option One Mortgage Services, Inc., which became the new name of H&R Mortgage Services in July 2007.

[2] Plaintiffs are Cecil Barrett, Jr., Cynthia Barrett, Jean Blanco Guerrier, Angelique M. Bastien, Jacqueline Grissett, Craig Grissett, Steven Parham, Betty and Edward Hoffman, Doris Murray, Joslyn Day and Keisha Chavers (collectively “Plaintiffs”),

[3] The ECOA provides that it is unlawful “for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction-(1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract).” 15 U.S.C. § 1691(a). Similarly, the FHA makes it unlawful “for any person or other entity whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin.” 42 U.S.C. § 3605(a).

[4] This court previously concluded that disparate impact claims are cognizable under both the FHA and ECOA. See Order Denying Mot. to Dismiss (Docket # 45) at 3-5; see also Langlois v. Abington Hous. Auth., 207 F.3d, 43, 49 (1st Cir. 2000) (disparate impact claims allowable under FHA); and Miller v. Countrywide Bank, N.A., 571 F. Supp. 2d 251, 256-257 (D. Mass. 2008) (disparate impact claims allowable under ECOA).

[5] Citing Stastny v. Southern Bell Tel. & Tel. Co., 628 F.2d 267 (4th Cir. 1980), Defendants further contend that delegation of discretion cannot, as a matter of law, form the policy required to make out a claim of disparate impact discrimination. This argument is unavailing. It is not the delegation of discretion that constitutes the policy, but rather the existence of a commonly applied practice that satisfies the requirement. See Watson v. Fort Worth Bank, 487 U.S. 977 (1988) (policies which designate discretionary authority to individual actors are actionable if they have a verifiable discriminatory impact on a protected class); see also Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571, 612 (9th Cir. 2010) (en banc) (same).

Moreover, this court previously held that Plaintiffs adequately identified the practice at issue, namely “establishing a par rate keyed to objective indicators of creditworthiness while simultaneously authorizing additional charges keyed to factors unrelated to those criteria.” Barrett v. H & R Block, 08-cv-10157-RWZ (Docket # 45) at 7.

[6] Defendants contend that arguments that one party’s statistics are “unreliable or based on an unaccepted method” must be resolved at the certification stage. See Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571, 591-592 (9th Cir. 2010) (en banc). Here, however, Defendants do not contend that the statistical analysis was based on an unaccepted method. Rather, they contend that Dr. Ayres’ model produces results which do not prove a disparate impact caused by any policy.

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from REUTERS

O. Max Gardner III, a lawyer and expert on foreclosure cases handled in bankruptcy courts, said that the OCC must have used an unfairly narrow definition of a wrongful sale.

He said that in most of the hundreds of cases he has handled, banks misstated the amounts homeowners actually owed, failed to record or properly allocate mortgage payments, and tacked on thousands of dollars in unauthorized and excessive fees.

“We see a problem with the dollars and cents in almost every single bankruptcy case that I file,” Gardner said.

For you to understand the plan the financial institutions have you need to grasp the following. Will MERS patterns continue? Imagine the price you will pay when these files are hacked or manipulated.

Everyone knows by now that MERS was ‘invented’ to keep costs low for the banks, reduce the risk of record-keeping errors and make it easier to keep track of loans for the banks not the borrowers. By these actions, not only has MERS eliminated crucial chain in title documents, has proven in many court cases to assign absolutely nothing because it had no power to negotiate the note but also eliminated an enormous amount of county revenues.

Last week SFF wrote about the latest invention planned to coexist with MERS called SmartSAFE, which will be used for creating, signing, storing, accessing and managing the lifecycle of electronic mortgage documents. According to Wave’s eSignSystems Executive VP Kelly Purcell, “Mortgages are sold several times throughout the life of a loan, and electronic mortgages address the problem of the ‘lost note,’ while improving efficiency in the process.”

This goes a step forward of what MERS can do today.

Will this process eliminate recording paper mortgages/deeds from county records? Eliminate fees that counties in trouble desperately need? THIS IS VERY DANGEROUS.

Still with me? Finally, according to CUinsight, a sample eNote in the form of a MRG Category 1 classified SMARTDoc, was successfully delivered to Xerox’s BlitzDocs eVault, a virtual repository that connects directly to the MERS^® eRegistry and eDelivery systems, where it was electronically signed and registered.

Adding the finishing touches to permit MERS access to future eNotes? I say this is the master plan.

Looking forward to what MA John O’Brien, the Essex County register of deeds, NC Register of deeds Jeff Thigpen and NY Suffolk County, former county clerk Ed Romaine’s approach is after they read what they plan on doing to land records. If they thought it was limited to the elimination of recording fees for assignments of mortgage, they are mistaken.

Questions remain as to why replace something that has been working for so long? Why continue with MERS, a system which has failed in many ways? MERS is under investigation for fraud is it not? Why in a time where mortgage fraud is wide spread, will anyone even trust using electronic devices to manage possibly future trillions of dollars worth?

Say farewell to a tradition that has been here for well over 300 years. Eliminating ‘paper’ will put promissory notes and  mortgage related documents in great jeopardy. No computer system in the world is secure [PERIOD].

Elizabet Warren and Jamie Dimon will go toe to toe later on this week at the U.S. Chambers of Commerce.

From REUTERS

The remarks by Warren and Dimon will generate headlines, although analysts said other financial regulation news this week will have more impact on banks and the markets.

“The big event next week in Washington is the long-anticipated release of the rules implementing the Dodd-Frank risk retention requirement,” said Brian Gardner, a senior policy analyst at investment firm Keefe Bruyette & Woods.

Joe’s article is a must read. It will leave you both furious and relieved that this story was told. Name says it all.

No Mortgage Lenders in Jail, but a Borrower Lands There.

This is a very important bill to start cleaning up the mess created by the banks in the foreclosure crisis that is sweeping MA and the rest of the country.

Highlights include the elimination of MERS’s ability to “hide” transactions and avoid recording fees, defining what a mortgagee is in MA, requiring that all notary acknowledgements be completed in accordance with the requirements for notaries laid down by the Governor and others.

PLEASE forward this to as many people as you know that can contact their MA state Senator AND Rep. and send in written support for it.

Your support for HR2766 can be mailed (addresses below) or e-mailed to anthony.petruccelli@masenate.gov AND michael.costello@mahouse.gov.

Please CC your support to timothy.madden@mahouse.gov

It should be addressed to the Chairmen (please do not send any packages other than an envelope as it might get rejected):

Senator Anthony Petruccelli, Chairman

State House
Room 424
Boston, MA 02133

Representative Michael A. Costello, Chairman

State House
Room 254
Boston, MA 02133

Click For Summary of HR 2766

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According to the Chicago Tribune

A Cook County Circuit Court judge has taken the unusual step of temporarily halting at least 1,700 mortgage foreclosures after a law firm told the court that the cases contained altered documents, the Tribune has learned.

Fisher and Shapiro LLC, one of the top three law firms used by mortgage servicers to handle their local foreclosure actions, reported to the court that, in a breach of protocol, affidavits in the cases were changed. Among other things, fees were added after the documents were signed by servicers.

[…]

“It’s similar to robo-signing in that it’s a high-volume pattern and practice of cutting corners, expediting the process through making false representations,” said Daniel Lindsey, an attorney at the Legal Assistance Foundation of Metropolitan Chicago, which is not directly involved in the matter. “The fallout is this order and some delay, and maybe (it will) help some people figure out some alternatives.”

Deutsche Bank National Trust Company as Trustee under the Pooling and Servicing Agreement Dated as of February 1, 2007, GSAMP TRUST 2007-FM2, Plaintiff,

against

Walter Francis a/k/a Walter J. Francis, et. al., Defendants

Decided on March 25, 2011

TALLAHASSEE, FL – Today Florida Attorney General Pam Bondi announced a first-of-its-kind settlement against attorney Marshall C. Watson and his law firm, one of the largest foreclosure firms in Florida, for alleged improprieties in the prosecution of foreclosure cases throughout Florida. This settlement, which calls for a $2 million payment and imposition of certain requirements to conduct business, is the first stemming from numerous investigations into Florida foreclosure law firms.

“We are aggressively investigating these law firms in order to protect the interests of everyone involved in foreclosure proceedings. Homeowners, lending institutions and the courts deserve to know that the law is being followed and all documentation is true and accurate,” stated Attorney General Pam Bondi. “Anything short of total assurance of complete accuracy during such serious situations is unacceptable.”

Florida led the nation in the investigation of law firms engaged in the improper production and filing of foreclosure documents. The Marshall Watson firm fully cooperated with the investigation since its inception. Half of the $2 million payment from Marshall Watson’s firm to the Attorney General’s Office will be contributed to the Florida Bar Foundation to continue the Florida Attorney General Mortgage Foreclosure Grant Program. This grant program provides for the funding of Legal Aid attorney positions throughout Florida specifically devoted to the representation of low-income individuals facing foreclosure actions.

The investigations into the practices of several other Florida law firms are ongoing. To access the Assurance of Voluntary Compliance, please click here: http://myfloridalegal.com/webfiles.nsf/WF/SKNS-8FAHED/$file/WatsonAVC.pdf

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Before StopForeclosureFraud puts up posts it tries its best to research sources and is not quick to rush to post what may not seem right for its readers. SFF had several tips of such Mass Joinder request to post but refrained from doing so for the following reasons and please make sure you read both articles below to fully understand.

Martin who runs Mandelman Matters was first to post an alert warning homeowners about Mass Joinder lawsuits in which he states

Last week I posted a “Homeowner Warning” about a mailer I’d received from a homeowner promoting participation in a lawsuit, referred to as a “Mass Joinder” lawsuit, being filed against several major banks on behalf of homeowners by the law firm of Kramer & Kaslow.  Before I posted the “warning” I spoke with several attorneys I know that are well-versed in law firm marketing compliance, and I made two attempts to contact the Kramer & Kaslow attorneys at the number provided on the mailer, but received no response.

Everyone who follows Mandelman Matters knows Martin puts an enormous amount of effort into his investigative reports. 

Today Reuters is reporting the same, warning homeowners

The scam is particular elaborate since a federal ban went into effect earlier this year against requiring up-front payments to those offering mortgage relief. Rules being what they are, there is an exception to it — for lawyers. While the terms are a bit more specific than that, it opened the door to people supposedly working on behalf of lawyers to still preying on those whose homes are being foreclosed.

“Those who continue to prey on and victimize vulnerable homeowners have not given up,” the warning by Wayne S. Bell, chief counsel of the California Department of Real Estate, says. “They just change their tactics and modify their sales pitches to keep taking advantage of those who are desperate to save their homes. And some of the frauds seeking to rip off desperate homeowners are trying to use the lawyer exemption above to collect advance fees for mortgage assistance relief litigation.”

Long story short do your homework so you don’t fall victim to scams.

In the crazy days of 2005 and 2006, when home prices were soaring and mortgage underwriting standards were crumbling, it took foresight and judgment to see that it was all a bubble.

As it happens, there was a bank chief executive whose internal forecasts now seem prescient. “I have never seen such a high-risk housing market,” he wrote to the bank’s chief risk officer in 2005. A year later he forecast the housing market would be “weak for quite some time as we unwind the speculative bubble.”

In re: KATHLEEN THOMAS, Chapter 7, Debtor.
KATHLEEN THOMAS, Plaintiff
v.
CITIMORTGAGE, INC., FLAGSTAR BANK, FSB and ALLIED HOME MORTGAGE CAPITAL CORPORATION, Defendants.

Case No. 10-40549-MSH, Adv. Pro. No. 10-04086.

United States Bankruptcy Court, D. Massachusetts, Central Division.

February 9, 2011.

MEMORANDUM OF DECISION ON THE MOTION TO COMPEL ARBITRATION OF ALLIED HOME MORTGAGE CAPITAL CORPORATION, THE MOTION TO DISMISS OF FLAGSTAR BANK, FSB AND THE MOTION FOR JUDGMENT ON THE PLEADINGS OF FLAGSTAR BANK, FSB AND CITIMORTGAGE, INC.

MELVIN S. HOFFMAN, Bankruptcy Judge.

Before me is a motion of defendant Allied Home Mortgage Capital Corporation (“Allied”) to compel arbitration, a motion of defendant Flagstar Bank, FSB (“Flagstar”) to dismiss this adversary proceeding pursuant to Fed. R. Civ. P. 12(b)(6), made applicable to this proceeding by Fed. R. Bankr. P 7012 and a motion of Flagstar and CitiMortgage, Inc. (“CitiMortgage”) for judgment on the pleadings pursuant to Fed. R. Civ. P. 12(c), made applicable by Fed. R. Bankr. P. 7012. Because the motions involve the same facts and underlying transaction, I will address them together.

Background

In 2006, the plaintiff, who is the debtor in the main bankruptcy case, engaged Allied to assist her in refinancing the mortgage on her home. On April 26, 2006, the plaintiff signed an arbitration agreement in which she agreed that any disputes with Allied would be resolved through arbitration. The refinancing transaction occurred on May 8, 2006, at which time the plaintiff executed a promissory note payable to Allied in the amount of $153,000, and a mortgage to secure her obligations under the note. Mortgage Electronic Registration Systems, Inc. (“MERS”), acting solely as a nominee for Allied and its successors and assigns, was named as mortgagee. The note was subsequently indorsed to defendant Flagstar. Flagstar and CitiMortgage claim that Flagstar indorsed the note in blank by way of an allonge and sold the plaintiff’s loan to CitiMortgage. CitiMortgage attached a copy of the note to its motion for judgment on the pleadings to support this claim.^[1] The last page of the note is blank except for the following legend:

PAY TO THE ORDER OF WITHOUT RECOURSE FLAGSTAR BANK, FSB

There are two entirely illegible signatures under this legend. On August 3, 2009, MERS executed an instrument entitled “Assignment of Mortgage” which purported, inter alia, to assign to CitiMortgage the “mortgage and the note and claim secured thereby.”

The plaintiff eventually fell behind in her mortgage payments and CitiMortgage began foreclosure proceedings. On February 2, 2010, the plaintiff filed a petition for relief under Chapter 7 of the Bankruptcy Code, 11 U.S.C. §§ 101-1532, in this court. On February 12, 2010, CitiMortgage filed a motion for relief from the automatic stay provisions of the Bankruptcy Code in order to proceed to foreclose its mortgage on the plaintiff’s property. At a hearing on the motion for relief, I ordered the plaintiff to make adequate protection payments of $925 per month to CitiMortgage and upon the plaintiff’s filing of her complaint, consolidated the motion for relief with this adversary proceeding.

The plaintiff alleges that the May 8, 2006 loan transaction violated the Massachusetts Predatory Home Loan Practices Act, Mass. Gen. Laws. ch. 183C (“Chapter 183C”). The plaintiff also alleges that the promissory note was never properly negotiated to CitiMortgage and that CitiMortgage may not assert a secured claim in her bankruptcy case.

On July 1, 2010, Flagstar filed a motion to dismiss the adversary proceeding. On July 2, 2010, Allied filed a motion to compel arbitration and to dismiss, arguing that pursuant to the arbitration agreement signed by the plaintiff, she is required to submit to arbitration with respect to her claims against Allied. On October 4, 2010, CitiMortgage filed a motion for judgment on the pleadings. On October 7, 2010, I held a hearing on Flagstar’s motion to dismiss and Allied’s motion to compel arbitration. On December 1, 2010, I held a hearing on CitiMortgage’s motion for judgment on the pleadings. Flagstar subsequently moved to join CitiMortgage’s motion and on December 23, 2010, I entered an order allowing Flagstar to do so.

Analysis

Allied’s Motion to Compel Arbitration

Allied argues that the arbitration agreement of April 20, 2006 obligates the plaintiff to submit her claims against Allied to binding arbitration and, therefore, seeks dismissal and an order compelling arbitration. Through the affidavit of Joseph James, Allied’s senior counsel, Allied submitted a copy of the agreement on which it relies. The plaintiff has contested the enforceability of the agreement. The agreement is signed by the plaintiff only and not by Allied. In fact, there is no reference to Allied by name anywhere in the agreement. Rather than identifying Allied by name, the agreement consistently refers to the plaintiff’s counterparty obscurely using the pronouns “we”, “our” and “us.” The second paragraph of the agreement states that “[t]his Agreement is effective and binding on both you and your heirs, successors and assigns and us when it is signed by both parties.”

Allied correctly observes that in Massachusetts a contract may be enforceable if signed by only one party if the other party manifests acceptance. Haufler v. Zotos, 446 Mass. 489, 498-99, 845 N.E.2d 322, 331(2006). Allied also notes specific cases in which courts enforced arbitration agreements lacking one party’s signature. Samincorp South American Minerals & Merchandise Corp. v. Lewis, 337 Mass. 298, 302-03, 149 N.E.2d 385, 388 (1958); Gvonzdenovic v. United Airlines, Inc., 933 F.2d 1100, 1105 (2d Cir. 1991).

While the law in Massachusetts may permit the enforcement of an arbitration agreement that is not signed by both parties, such would not be the case when the express language of the agreement requires the signature of both parties. In All State Home Mortgage, Inc. v. Daniel, 187 Md. App. 166, 977 A.2d 438 (2009), the Court of Special Appeals of Maryland addressed this issue with respect to a form of agreement nearly identical to the one in the present case. The court held that while a signature may not always be required for an arbitration agreement to be enforceable, an arbitration agreement that specifically provided for it to be “effective and binding to [sic] you and your heirs, successors and assigns and us when both parties sign it” established that execution by both parties was a condition precedent to enforcement of the contract. Id. at 171. Because the language of the arbitration agreement was unambiguous and because it was not signed by the lender, the court refused to enforce it. Id. at 183. Massachusetts contract law appears to be no different than Maryland’s in this regard. See Tilo Roofing Co. v. Pellerin, 331 Mass. 743, 7456, 122 N.E.2d 460, 462 (1954) (holding that if a condition precedent to the enforcement of a contract is “shown not to have been performed, the writing does not become a binding obligation.”). The arbitration agreement between the plaintiff and Allied is explicit—both parties must sign before the agreement is “effective and binding.” Because Allied did not sign the agreement, it never became binding on the parties and is unenforceable.

Flagstar’s Motion to Dismiss

In deciding a motion to dismiss under Fed. R. Civ. P. 12(b)(6), made applicable here by Fed. R. Bankr. P. 7012, a court must review the complaint and the documents attached to it to determine if the complaint contains sufficient facts, accepted as true, to state a claim to relief that is plausible on its face. Bell Atlantic v. Twombley, 550 U.S. 544, 570, 127 S. Ct. 1955, 1966, 167, L. Ed. 2d 929 (2007); Rederford v. U.S. Airways, Inc., 589 F.3d 30, 35 (1st Cir. 2009). A court must accept as true the factual allegations of the complaint but not the legal conclusions, even if couched as facts. Ashcroft v. Iqbal, — U.S. –, 129 S. Ct. 1937, 1947, 173 L. Ed.2d 868 (2009). Recitations of the elements of a cause of action supported only by legal conclusions are insufficient to withstand a motion to dismiss. Id.

In its motion, Flagstar seeks dismissal of Count I (violation of Chapter 183C) and Count II (determination of extent of mortgage lien due to Chapter 183C violation) of the plaintiff’s complaint on the grounds that Chapter 183C is preempted by federal law because Flagstar is a federal savings bank. Flagstar notes that the Home Owners’ Loan Act, 12 U.S.C. §§ 1461-70 (2009) (“HOLA”), authorized the Office of Thrift Supervision (“OTS”) (formerly the Federal Home Loan Bank Board) to promulgate regulations providing “for the organization, incorporation, examination, operation, and regulation” of federal savings associations and federal savings banks (collectively referred to as “federal thrifts”) such as Flagstar. Id. § 1464(a).

The OTS received broad rulemaking authority to preempt state laws that would otherwise govern the banking activities of federal thrifts. Id. § 1465; Fidelity Fed. Say. & Loan Ass’n v. de la Cuesta, 458 U.S. 141 (1982). Accordingly the OTS promulgated a regulation, 12 C.F.R. § 560.2, occupying the field in connection with the lending operations of federal thrifts. This regulation expressly preempts state laws like Chapter 183C which regulate loan-related fees.^[2] The OTS has issued interpretive letters concluding that the anti-predatory lending laws of New York, New Mexico, New Jersey, and Georgia are preempted by the federal scheme,^[3] and courts have generally adopted the preemption approach. See, e.g., Jarbo v. BAC Home Loan Servicing, 2010 WL 5173825, (E.D. Mich.); Coppes v. Wachovia Mortg. Corp., 2010 WL 4483817 (E.D. Cal.). It is clear, therefore, that federal thrifts are not subject to Chapter 183C with respect to loans they originate.

The calculus changes, however, when a federal thrift does not originate a loan but merely acquires it from a non-federal thrift lender. If a non-federal thrift lender could “cleanse” a predatory loan by selling it to a federal thrift, a vital component of many states’ consumer protection regimes would be undermined. The OTS could not have intended this result when it promulgated its preemption regulation. See, e.g. Viereck v. Peoples Sav. & Loan Ass’n., 343 N.W.2d 30 (Minn. 1984) (preemption does not apply when a federal thrift purchases a loan from an institution not subject to preemption); Garrison v. First Fed. Sav. & Loan Ass’n of S.C., 402 S.E.2d 25 (Va. 1991) (a federal thrift, as assignee of mortgage company which originated loan, is not entitled to preemption even though loan was one of large pool sold to it).

So if Flagstar were the originator of the plaintiff’s loan, then federal preemption would dispossess the plaintiff from her Chapter 183C claims against it, but if Flagstar were an assignee who purchased the loan, then the plaintiff’s state law claims against Flagstar survive preemption.

The loan documents attached to the plaintiff’s complaint indicate that Allied, not Flagstar, was the lender in this transaction. In its motion to dismiss Flagstar supports this characterization stating that there “are no allegations that Flagstar originated the loan.” Mot. to Dismiss at 4. Surprisingly, however, at one of the hearings on defendants’ motions, Flagstar’s counsel seemed to take a contrary position. He indicated that the loan had been “table-funded,” meaning that Allied was the lender in name only, but really acted as the broker in the transaction on behalf of Flagstar, who actually funded the loan. Loans which are table-funded by federal thrifts would be subject to the federal preemption scheme of HOLA. See, e.g., Comptroller of the Currency, Interpretive Letter # 1002 (May 13, 2004) (finding that a national bank would be considered the lender, and not subject to state anti-predatory lending laws, in a loan transaction table-funded by the national bank with a non-national bank broker listed as the lender).^[4] Flagstar’s curious inconsistencies notwithstanding, my field of vision with respect to a motion to dismiss is confined to the pleadings and the attachments thereto. Reviewing these in the light most favorable to the plaintiff, I conclude that the plaintiff has stated a claim that Flagstar was an assignee of the plaintiff’s lender, Allied. Therefore, Chapter 183C is not preempted with respect to this transaction and I must deny Flagstar’s motion to dismiss Counts I and II of the complaint.

CitiMortgage and Flagstar’s Motion for Judgment on the Pleadings

Having declined to grant Flagstar’s motion to dismiss on preemption grounds, I turn to the motion for judgment on the pleadings.^[5] The standard in deciding a motion for judgment on the pleadings under Rule 12(c) is similar to that applied to a motion to dismiss under Rule 12(b)(6). Gray v. Evercore Restructuring L.L.C., 544 F.3d 320, 324 (1st Cir. 2008) (noting that the standard is the same for Rule 12(b)(6) and 12(c) motions).

Counts I and II of the Complaint

Chapter 183C, §§ 2 and 3 categorize certain consumer home mortgage loans as high cost home mortgage loans (“high cost loans”) and render them unenforceable unless an approved housing agency certifies to the lender or broker that the borrower received pre-closing counseling on the advisability of the transaction. The plaintiff alleges that her loan is unenforceable because it is a high cost loan made in the absence of the required counseling.

The defendants do not dispute the fact that the plaintiff received no counseling. Rather, the dispute is over whether the loan is a high cost loan. The plaintiff argues that her mortgage loan meets the definition of a high cost loan because the “points and fees” associated with the loan, as defined by Chapter 183C, § 2,^[6] net of up to two bona fide discount points, exceeded five percent of the total loan amount. To support this allegation, the plaintiff included in her complaint a list of charges from the loan settlement statement that she argues qualify as points and fees. The total of these charges is $10,446.44, which exceeds five percent of the $153,000 loan. CitiMortgage and Flagstar argue that many of these charges do not qualify as points and fees, and the ones that do total significantly less than $7650, which is five percent of the loan amount.^[7]

There is no dispute that $4879 of charges constitute points and fees under the statute. If the pleadings support a minimum of $2772 in additional points and fees then the plaintiff will have stated a claim which survives the defendants’ motion.

Line 802 of the settlement statement reflects a charge in the amount of $2255.22 described as “Loan Discount to Allied Home Mortgage Capital Corp.” All compensation to a lender or mortgage broker, “including a broker that originates a home loan in its own name in a table funded transaction,” is included in the definition of points and fees under the statute, with the exception of up to two “bona fide discount points.” Chapter 183C, § 2. The defendants argue that the $2255.22 loan discount charge, which amounts to 1.474% of the loan, or 1.474 discount points, falls within the exception. The plaintiff argues that whether these discount points are bona fide is a question of fact that may not be decided as part of a motion for judgment on the pleadings.

To be a bona fide discount point, a charge must be “(1) knowingly paid by the borrower; (2) paid for the express purpose of lowering the benchmark [interest] rate; and (3) in fact reduc[es] the interest rate or time-price differential applicable to the loan from an interest rate which does not exceed the benchmark rate.” Chapter 183C, § 2. Nothing in the record indicates whether the plaintiff was aware of the loan discount charge, whether she knowingly paid the fee for the purpose of getting a discounted interest rate, or, most significantly, whether the interest rate reflected in the note was in fact discounted from the benchmark rate in effect at the time. For the purpose of the motion for judgment on the pleadings, therefore, I must find that the loan discount fee is not excluded from the points and fees used in determining whether the loan is a high cost loan.

Line 1107 reflects a $460 charge described as “Attorney’s fees to Viera & DiGianfilippo, Ltd.” While Chapter 183C, § 2 provides that certain fees commonly charged by closing attorneys, defined as “real-estate related fees” by 12 C.F.R. § 226.4(c)(7) and 209 Mass. Code Regs. § 32.04(3)(g), are not counted as points and fees, legal fees generally are included in the definition of points and fees. Cf. Official Staff Interpretations to 12 C.F.R. § 226.4(c)(7), 12 C.F.R. Pt. 226, Supp. I (explaining that for the purpose of calculating a loan’s finance charge under the federal Truth in Lending Act, if a settlement statement includes a single line item representing attorney’s fees where only a portion of the services rendered were real-estate related fees as defined by § 226.4(c)(7), the portion of the fees not covered by § 226.4(c)(7) must be included in the finance charge.). In addition to the $460 attorney’s fee, the settlement statement includes charges for “Document preparation” and “Title examination,” both of which are clearly real-estate related fees that are excluded from the points and fees calculation. The fact that these charges have been listed separately on the settlement statement is evidence that the generic attorney’s fee charge is not a real-estate related fee. The defendants argue unconvincingly that because attorneys are officers of the court, their fees fall under the statutory exclusion for “fees paid to or to be paid to a public official for determining the existence of or for perfecting, releasing or satisfying a security interest.” 12 C.F.R. § 226.4(e)(1). While attorneys are officers of the court, they are not public officials nor are the fees paid to them for legal services merely for perfecting, releasing or satisfying a security interest. Thus I find that the entire $460 charge for attorney’s fees constitutes points and fees.

Line 1205 of the settlement statement includes a $65 charge to “Record Municipal Lien Certif[icate] to Commonwealth of MA.” The complaint alleges that no municipal lien certificate was ever recorded with respect to this transaction. Thus, at this stage of the proceeding, this charge too must be included in points and fees.

The sum of the loan discount charge, the attorney’s fees and lien certificate recording fee is $2780.22. Adding this to the undisputed charges of $4879 brings the total points and fees to $7659.22, which is more than five percent of the total loan amount. Thus, I need not determine whether any of the remaining charges alleged by the plaintiff qualify as points and fees. The plaintiff has stated a prima facie claim that her loan is a high cost loan made in violation of Chapter 183C, and, therefore, I must deny the motion for judgment on the pleadings with respect to Counts I and II of the complaint.

Count III of the Complaint

In Count III of the complaint, the plaintiff alleges that her promissory note payable to Allied was never properly transferred to CitiMortgage, and as a result, CitiMortgage has no valid secured claim against her bankruptcy estate. The allegation is based on the fact that the copy of the note attached to CitiMortgage’s motion for relief from stay in the main bankruptcy case includes no indorsement transferring the note CitiMortgage. CitiMortgage attached a different version of the note to its motion for judgment on the pleadings, which includes an additional page containing the “pay to the order” language quoted at the outset of this memorandum. CitiMortgage and Flagstar claim that the last page is an “allonge” by which Flagstar indorsed the note in blank and then transferred the note to CitiMortgage, giving CitiMortgage the right to enforce it. The Plaintiff argues that the existence of this second copy of the note raises the question as to whether the allonge effectively transferred Flagstar’s rights in the note to CitiMortgage.

Under Mass. Gen. Laws ch. 106, the Massachusetts version of the Uniform Commercial Code (the “UCC”), for a negotiable instrument to be transferred by indorsement, the indorsement must be on the instrument itself. UCC § 3-204(a). A “paper affixed to the instrument” is considered to be part of the instrument for purposes of § 3-204(a). Id.affixed to a promissory note. See, e.g., In re Shapoval, 2010 WL 4811786, *2 (Bankr. D. Mass. 2010). If the purported allonge signed by Flagstar is not affixed to the note, then despite having possession of the note, CitiMortgage lacks the status of “holder” as defined by UCC § 1-201(20).^[8] Given that CitiMortgage has produced two different copies of the note—one with and one without the purported allonge—the plaintiff argues that there is a question of fact as to whether the allonge is affixed to the note, and therefore whether CitiMortgage has a valid claim in her bankruptcy case. To be effective, therefore, an allonge must be

Even if it is not the “holder” of the note, however, CitiMortgage may be entitled to enforce the note. UCC § 3-203(2) provides that the transfer of a negotiable instrument, “whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument.” The official commentary to this section explains that while the transferee of an instrument may enforce the instrument without being its holder, the transferee, unlike a holder, is not entitled to the presumption of the right of enforcement, and must prove the transaction through which the instrument was acquired. UCC § 3-203, § 2, cmt. 1 (1999).^[9]

In its answer, CitiMortgage asserts that it has physical possession of the note indorsed in blank by Flagstar. If the allonge is not effective because it was not affixed to the note, CitiMortgage must then prove the transaction through which it acquired the note from Flagstar. It did not plead any facts about this transaction in its answer, however. With no allegation in the pleadings to support how CitiMortgage acquired the note, I must rely on the plaintiff’s well-pleaded allegations that the note was not properly transferred to CitiMortgage.^[10]

Furthermore, CitiMortgage may not rely on the recorded assignment of the plaintiff’s mortgage from MERS to CitiMortgage as evidence that the note was transferred to it. While the assignment purports to assign both the mortgage and the note, MERS, which is a registry system that tracks the beneficial ownership and servicing of mortgages, was never the holder of the note, and therefore lacked the right to assign it. While MERS was the mortgagee of record, it was acting only as nominee for Allied, its successors and assigns. MERS is never the owner of the obligation secured by the mortgage for which it is the mortgagee of record. See, e.g., Landmark Nat. Bank v. Kesler, 289 Kan. 528, 536, 216 P.3d 158, 164 (2009) (providing a profile of MERS).

The plaintiff’s claim that CitiMortgage lacks a valid secured claim, therefore, survives the motion for judgment on the pleadings.

Conclusion

Based on the foregoing, I will deny the motion to compel arbitration, the motion to dismiss and the motion for judgment on the pleadings. Separate orders shall enter.

[1] This copy differs from the copy attached to CitiMortgage’s motion for relief from stay. See discussion below.

[2] The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203 (2010) considerably reduced the degree to which HOLA and its regulations may preempt state consumer financial protection laws. See Dodd-Frank §§ 1044, 1046 (providing that HOLA preemption no longer occupies the field of banking regulation, and limiting preemption to specific conflicts between state and federal law). Because the plaintiff’s loan was consummated before Dodd-Frank was enacted, the new preemption standard is inapplicable to this case.

[3] See generally Legal Opinions, Office of Thrift Supervision, available at http://www.ots.treas.gov/?p=LegalOpinions.

[4] National banks are established by the National Bank Act, 12 U.S.C. §§ 21-216d (2009), which has a similar preemption regime to that of HOLA, which applies to federal thrifts. See, e.g., Aguayo v. U.S. Bank, 658 F.Supp.2d 1226, 1234 (S.D. Cal. 2009) (quoting the Office of the Comptroller of the Currency’s view that the similarity between the preemption regimes of the National Bank Act and HOLA “warrants similar conclusions about the applicability of state laws to the conduct of the Federally authorized activities of both types of entities.” 69 Fed. Reg. at 1912 n. 62). In light of the OTS’ policy of maximizing the preemptive effect of its regulations, it follows that the OTS, like the Comptroller of the Currency, would conclude that a federal thrift in a table-funded transaction is considered to be the lender for purposes of preemption analysis.

[5] In doing so, I will address Flagstar’s arguments from its motion to dismiss with respect to Count III of the complaint together with those of CitiMortgage.

[6] Section 2 provides as follows:

“Points and fees”, (i) items required to be disclosed pursuant to sections 226.4 (a) and 226.4 (b) of Title 12 of the Code of Federal Regulations or 209 CMR 32.04(1) and 209 CMR 32.04(2) of the Code of Massachusetts Regulations, as amended from time to time, except interest or the time-price differential; (ii) charges for items listed under sections 226.4 (c) (7) of Title 12 of the Code of Federal Regulations or 209 CMR 32.04(3)(g) of the Code of Massachusetts Regulations, as amended from time to time, but only if the lender receives direct or indirect compensation in connection with the charge, otherwise, the charges are not included within the meaning of the term “points and fees”; (iii) the maximum prepayment fees and penalties that may be charged or collected under the terms of the loan documents; (iv) all prepayment fees of [sic] penalties that are incurred by the borrower if the loan refinances a previous loan made or currently held by the same lender; (v) all compensation paid directly or indirectly to a mortgage broker, including a broker that originates a home loan in its own name in a table-funded transaction, not otherwise included in clauses (i) or (ii); (vi) the cost of all premiums financed by the creditor, directly or indirectly for any credit life, credit disability, credit unemployment or credit property insurance, or any other life or health insurance, or any payments financed by the creditor directly or indirectly for any debt cancellation or suspension agreement or contract, except that insurance premiums or debt cancellation or suspension fees calculated and paid on a monthly basis shall not be considered financed by the creditor. Points and fees shall not include the following: (1) taxes, filing fees, recording and other charges and fees paid to or to be paid to a public official for determining the existence of or for perfecting, releasing or satisfying a security interest; and, (2) fees paid to a person other than a lender or to the mortgage broker for the following: fees for flood certification; fees for pest infestation; fees for flood determination; appraisal fees; fees for inspections performed before closing; credit reports; surveys; notary fees; escrow charges so long as not otherwise included under clause (i); title insurance premiums; and fire insurance and flood insurance premiums, if the conditions in sections 226.4 (d) (2) of Title 12 of the Code of Federal Regulations or 209 CMR 32.04(4)(b) of the Code of Massachusetts Regulations, as amended from time to time, are met. For open-end loans, the points and fees shall be calculated by adding the total points and fees known at or before closing, including the maximum prepayment penalties that may be charged or collected under the terms of the loan documents, plus the minimum additional fees the borrower would be required to pay to draw down an amount equal to the total credit line.

[7] In her complaint, the plaintiff incorrectly calculated that five percent of the loan amount is $7950.

[8] The “holder” of a negotiable instrument is “the person in possession if the instrument is payable to bearer or, in the case of an instrument payable to an identified person, if the identified person is in possession. UCC § 1-201(20).

[9] The commentary states:

Subsection (b) states that transfer vests in the transferee any right of the transferor to enforce the instrument “including any right as a holder in due course.” If the transferee is not a holder because the transferor did not indorse, the transferee is nevertheless a person entitled to enforce the instrument under Section 3-301 if the transferor was a holder at the time of transfer. Although the transferee is not a holder, under subsection (b) the transferee obtained the rights of the transferor as holder. Because the transferee’s rights are derivative of the transferor’s rights, those rights must be proved. Because the transferee is not a holder, there is no presumption under Section 3-308 that the transferee, by producing the instrument, is entitled to payment. The instrument, by its terms, is not payable to the transferee and the transferee must account for possession of the unindorsed instrument by proving the transaction through which the transferee acquired. it. Proof of a transfer to the transferee by a holder is proof that the transferee has acquired the rights of a holder. At that point the transferee is entitled to the presumption under Section 3-308.

[10] Flagstar filed the affidavit of Sharon Morgan, its assistant vice president, in support of its motion to dismiss. In the affidavit, Ms. Morgan claims that the plaintiff’s loan was sold to CitiMortgage on September 16, 2006. I note that Fed. R. Civ. P. 12(d), made applicable by Fed. R. Bankr. P. 7012, provides that when matters outside the pleadings are presented to the court, and not excluded, a motion for judgment on the pleadings is to be treated as a motion for summary judgment. CitiMortgage waived this right, however, at the hearing on the motion for judgment on the pleadings by declining my offer to treat the motion as one for summary judgment. Given that I am limited on a motion for judgment on the pleadings to reviewing the pleadings and documents attached thereto, I have not considered Ms. Morgan’s affidavit in this analysis.

[ipaper docId=51535817 access_key=key-10r94qo87j3jfsonoop height=600 width=600 /]

AURORA LOAN SERVICES LLC,

PLAINTIFF-RESPONDENT,

V.

DAVID J. CARLSEN AND NANCY L. CARLSEN,

DEFENDANTS-APPELLANTS.

APPEAL from a judgment of the circuit court for Rock County:

JAMES WELKER, Judge. Reversed.

Before Vergeront, P.J., Lundsten and Blanchard, JJ.

¶1 LUNDSTEN, J. This appeal involves a foreclosure action initiated
by Aurora Loan Services against David and Nancy Carlsen. Following a court
trial, the circuit court granted judgment of foreclosure in favor of Aurora, finding
that Aurora is the holder of the note and owner of the mortgage and that the
Carlsens were in default. We conclude that the circuit court’s finding that Aurora
was the holder of the note, a finding essential to the judgment, is not supported by
admissible evidence. We therefore reverse the judgment.

Background

¶2 Aurora Loan Services brought a foreclosure suit against David and
Nancy Carlsen, alleging that Aurora was the holder of a note and owner of a
mortgage signed by the Carlsens encumbering the Carlsens’ property. The
Carlsens denied several allegations in the complaint and, especially pertinent here,
denied that Aurora was the holder of the note. Aurora moved for summary
judgment, but that motion was denied.

¶3 A trial to the court was held on June 9, 2010. Aurora called one of
its employees, Kelly Conner, as its only witness. Aurora attempted to elicit
testimony from Conner establishing a foundation for the admission of several
documents purportedly showing that Aurora was the holder of a note that
obligated the Carlsens to make payments and that the Carlsens were in default. It
is sufficient here to say that the Carlsens’ attorney repeatedly objected to questions
and answers based on a lack of personal knowledge and lack of foundation, and
that the circuit court, for the most part, sustained the objections. Aurora’s counsel
did not move for admission of any of the documents into evidence. After the
evidentiary portion of the trial, and after hearing argument, the circuit court made
findings of fact and entered a foreclosure judgment in favor of Aurora. The
Carlsens appeal. Additional facts will be presented below as necessary.

Discussion

¶4 It is undisputed that, at the foreclosure trial, Aurora had the burden
of proving, among other things, that Aurora was the current “holder” of a note
obligating the Carlsens to make payments to Aurora. Because Aurora was not the
original note holder, Aurora needed to prove that it was the current holder, which
meant proving that it had been assigned the note. There appear to be other failures
of proof, but in this opinion we focus our attention solely on whether Aurora
presented evidence supporting the circuit court’s findings that “the business
records of Aurora Loan Services show … a chain of assignment of that … note”
and that “Aurora is the holder of the note.”

¶5 As to assignment of the note, the Carlsens’ argument is simple: the
circuit court’s findings are clearly erroneous because there was no admissible
evidence supporting a finding that Aurora had been assigned the note. The
Carlsens contend that, during the evidentiary portion of the trial, the circuit court
properly sustained objections to Aurora’s assignment evidence, but the court then
appears to have relied on mere argument of Aurora’s counsel to make factual
findings on that topic. We agree.

¶6 We focus our attention on a document purporting to be an
assignment of the note and mortgage from Mortgage Electronic Registration
Systems to Aurora. At trial, this document was marked as Exhibit D. Although
Aurora’s counsel seemed to suggest at one point that certain documents, perhaps
including Exhibit D, were certified, the circuit court determined that the
documents were not certified. Under WIS. STAT. § 889.17,1 certified copies of
certain documents are admissible in evidence based on the certification alone.
Aurora does not contend that Exhibit D is admissible on this basis.

¶7 Aurora argues that Conner’s testimony is sufficient to support the
circuit court’s finding that Aurora had been assigned the note. Our review of her
testimony, however, reveals that Conner lacked the personal knowledge needed to
authenticate Exhibit D. See WIS. STAT. § 909.01 (documents must be
authenticated to be admissible, and this requirement is satisfied “by evidence
sufficient to support a finding that the matter in question is what its proponent
claims”). Relevant here, Conner made general assertions covering several
documents. Conner either affirmatively testified or agreed to leading questions
with respect to the following:

• · She works for Aurora.

• · She “handle[s] legal files” and she “attend[s] trials.”

• · “Aurora provided those documents that are in [her] possession.”

• · She “reviewed the subject file” in preparing for the hearing.

• · She declined to agree that she is the “custodian of records for

Aurora.”

• · She “look[s] at documentation … [does] not physically handle

original notes and documents, but [she does] acquire
documentation.”

• · “Aurora [is] the custodian of records for this loan.”

• · She is “familiar with records that are prepared in the ordinary course
  of business.”

• · She has “authority from Aurora to testify as to the documents, of
  [Aurora’s] records.”

As it specifically pertains to Exhibit D, the document purporting to evidence the
assignment of the note and mortgage from Mortgage Electronic Registration
Systems to Aurora, Conner testified:

• · Aurora has “possession of Exhibit D.”
• · Exhibit D is “an assignment of mortgage.”

With respect to possession of Exhibit D, Conner did not assert that Exhibit D was
an original or that Aurora had possession of the original document. For that
matter, Conner did not provide a basis for a finding that any original document she
might have previously viewed was what it purported to be.2

¶8 Thus, Conner did no more than identify herself as an Aurora
employee who was familiar with some unspecified Aurora documents, who had
reviewed some Aurora documents, and who had brought some documents,
including Exhibit D, to court. Although Conner was able to say that Exhibit D, on
its face, was an assignment, she had no apparent personal knowledge giving her a
basis to authenticate that document. See WIS. STAT. § 909.01.

¶9 Aurora points to various provisions in WIS. STAT. chs. 401 and 403,
such as those relating to the definition of a “holder” (WIS. STAT.
§ 401.201(2)(km)), to a person entitled to enforce negotiable instruments (WIS.
STAT. § 403.301), and to the assignment of negotiable instruments (WIS. STAT.
§§ 403.203, 403.204, and 403.205). This part of Aurora’s argument addresses the
underlying substantive law regarding persons entitled to enforce negotiable
instruments, such as the type of note at issue here, but it says nothing about
Aurora’s proof problems. That is, Aurora’s discussion of the underlying law does
not demonstrate why Exhibit D was admissible to prove that Aurora had been
assigned the note and was, under the substantive law Aurora discusses, a party
entitled to enforce the note.

¶10 Similarly, Aurora discusses the relationship between a note and a
mortgage and, in particular, the equitable assignment doctrine. But here again
Aurora’s discussion fails to come to grips with Aurora’s failure to authenticate
Exhibit D, the document purporting to be an assignment of the note to Aurora.
Aurora points to testimony in which Conner asserted that Aurora acquired and
possessed Exhibit D, but possession of Exhibit D is meaningless without
authentication of the exhibit.

¶11 Aurora argues that we may look at the “record as a whole,”
including summary judgment materials, to sustain the circuit court’s factual
findings. Thus, for example, Aurora asks us to consider an affidavit filed with its
summary judgment motion. In that affidavit, an Aurora senior vice-president
avers that the note was assigned to Aurora, that the assignment was recorded with
the Rock County Register of Deeds, and that Aurora is the holder of the note. This
argument is meritless. Aurora was obliged to present its evidence at trial. It could
not rely on the “record as a whole” and, in particular, it could not rely on summary
judgment materials that were not introduced at trial. See Holzinger v. Prudential
Ins. Co., 222 Wis. 456, 461, 269 N.W. 306 (1936). For that matter, even if Aurora
had, at trial, proffered the affidavit of its senior vice-president, the affidavit would
have been inadmissible hearsay. See WIS. STAT. § 908.01(3) (“‘Hearsay’ is a
statement, other than one made by the declarant while testifying at the trial or
hearing, offered in evidence to prove the truth of the matter asserted.”).

¶12 In sum, Aurora failed to authenticate Exhibit D, the document
purporting to be an assignment of the note. Thus, regardless of other alleged proof
problems relating to that note and the Carlsens’ alleged default, the circuit court’s
finding that Aurora was the holder of the note is clearly erroneous—no admissible
evidence supports that finding. Aurora failed to prove its case, and it was not
entitled to a judgment of foreclosure.

By the Court.—Judgment reversed.

Not recommended for publication in the official reports.

_______________________________________

1All references to the Wisconsin Statutes are to the 2009-10 version unless otherwise noted.

 2 Our summary of Conner’s testimony omits several assertions Conner made that were
stricken by the circuit court. Similarly, we have not included examples of the circuit court
repeatedly sustaining hearsay and foundation objections. For example, the court repeatedly
sustained objections to Aurora’s attempts to have Conner testify that Aurora “owns” the note.
Aurora does not and could not reasonably argue that the Carlsens have not preserved their
authentication objections. The Carlsens’ attorney repeatedly and vigorously objected on hearsay,
foundation, and authentication grounds. The record clearly reflects that the Carlsens were
objecting to the admission of all of Aurora’s proffered documents on the ground that Conner
lacked sufficient knowledge to lay a foundation for admission.

[ipaper docId=51510952 access_key=key-2dcpf4gvzz30kaf45tk height=600 width=600 /]

BY CARRICK MOLLENKAMP AND NICK TIMIRAOS

Fannie Mae was warned in a 2006 internal report of abuses in the way lenders and their law firms handled foreclosures, long before regulators launched investigations into the mortgage industry’s practices.

The report said foreclosure attorneys in Florida had “routinely made” false statements in court in an effort to more quickly process foreclosures and raised questions about whether some mortgage servicers or another entity had the legal standing to foreclose.

We give up…you dead beats really caught us this time. We can’t take any more punishment. You’re destroying our BONUSES!! We just want you ouuut…ouuut…OUT!

Us EMPERORS really don’t have any clothes.

Does any of this make sense? NO. Why don’t we just help you stay in your home? Why not give a principal reduction or anything else other but… like the price we would sell your home for at short sale?? Usually 50% or more of the amount owed.

According to secret spies (joke this has not been confirmed) rumor has it that the five largest US mortgage servicers were told this week at a confidential meeting with regulators  to consider paying delinquent borrowers up to $21,000 each as part of a broader settlement of the foreclosure quandary.

Just as Reuters reported today

The main regulator for the largest U.S. banks is preparing to break from state authorities and settle with lenders over their foreclosure practices, according to a source familiar with the process, dashing hopes for a comprehensive settlement

[SNIP]

The Office of the Comptroller of the Currency, impatient with infighting over the structure and shape of a coordinated settlement, is preparing to move on its own set of fines and business-practice fixes for banks, according to a source, who was not authorized to speak publicly.

The OCC’s settlement could come in the next couple weeks, the source said.

According to DBR:

The Federal Home Loan Mortgage Corp. was sued by Florida attorney David Stern, who claims he is owed $1.3 million for legal services, according to a complaint filed today.

The government-run mortgage company breached its contract with Stern’s law firm by failing to pay, according to the complaint filed in federal court in Miami.

Recap of previous stunners [links]:

David Stern Sues Lenders That Once Hired Him

FORECLOSURE MILLS: SHAPIRO & FISHMAN V. LAW OFFICES OF DAVID J. STERN