IN THE DISTRICT COURT OF APPEAL FIRST DISTRICT, STATE OF FLORIDA
NOT FINAL UNTIL TIME EXPIRES TO FILE MOTION FOR REHEARING AND DISPOSITION THEREOF IF FILED
CASE NO. 1D11-3356 _____________________________/ Opinion filed
WELLS FARGO BANK, N.A., AS TRUSTEE FOR OPTION ONE MORTGAGE LOAN TRUST 2005-5 ASSET-BACKED CERTIFICATES, SERIES 2005-5, Appellant,
v.
WILLIAM BOHATKA, ET AL., Appellee.
Opinion filed April 22, 2013.
An appeal from the Circuit Court for Santa Rosa County. Hon. Marci L. Goodman, Judge.
Jason F. Joseph and Danielle Delucca, Gladstone Law Group, P.A., Boca Raton, for Appellant.
Sharon Delene Regan, Regan & Roark, Pensacola, and Gregory B. Wilhelm, Law Offices of Martinez & Wilhelm, PA, Gulf Breeze, for Appellee. MAKAR, J.
EXCERPTS:
Based upon its inspection, the trial court found no indicia that an attachment to the original note had been made and therefore granted dismissal of the bank’s complaint with prejudice. It stated:
This is my ruling; Motion to Dismiss granted. Nothing was attached. There is no endorsement. There is no allonge, and there cannot be any allonge affixed before filing, so dismissal is with prejudice. I also suspect that this document [the allonge] was created to defeat the defendants’ motion. I want to preserve the originals by a separate order. … please draft a separate order that the original documents will remain in the court file and will not be removed without my authorization by anyone. I reserve the right to send them to the attorney general for investigation of this activity by plaintiff and its counsel. 6
[…]
but the Appeals Court found:
Finally, we do not suggest that it was improper for the court and the parties to address in a critical way how the bank was to establish its basis for standing to foreclose on the note at issue. Given the potential for fraud in post-dating addenda and other purported documents of transfer, it is laudable for courts and others to be sensitive to potential abuses. On the record before us, however, we see nothing—particularly at this initial stage of this litigation—that would justify the trial court’s reaction in commandeering the originals of the mortgage and the allonge for delivery to the Office of the Attorney General for its review.
Insider House Rules – C**t Punters Go to Washington Faced with the grim prospect of being held financially accountable, lawmakers come together and cripple a bill aimed at more transparent government.
A judge has denied Deutsche Bank AG’s bid to dismiss a lawsuit by the city of Los Angeles accusing it of letting hundreds of foreclosed properties fall into disrepair and illegally evicting low-income tenants, a representative for the city’s attorney said on Wednesday.
Los Angeles Superior Court Judge Elihu Berle allowed the 2011 civil enforcement action to proceed, according to the city attorney’s office. The ruling was made during an April 8 hearing and a written decision was issued late on Tuesday, the city said.
“This ruling will now allow our action to move forward to trial and ultimately to holding the bank accountable for its intolerable practice or perpetuating blight,” city attorney Carmen Trutanich said in a statement.
New Bipartisan Legislation, the Terminating Bailouts for Taxpayer Fairness Act, Would Eliminate Government Subsidies Enjoyed by Trillion-Dollar Megabanks, Help Community Banks Compete
WASHINGTON, D.C. – U.S. Sens. Sherrod Brown (D-OH) and David Vitter (R-LA) announced a new plan that would prevent any one financial institution from becoming so large and overleveraged that it could put our economy on the brink of collapse or trigger the need for a federal bailout.
“Five years ago, risky practices at Wall Street banks puts our economy on the brink of collapse – and jeopardized the savings and pensions of millions of Americans. Today, the nation’s four largest banks are nearly $2 trillion larger than they were then – aided by an implicit government guarantee awarded by virtue of their ‘too big to fail’ status. If big banks want to continue risky practices, they should do so with their own assets. Our bill will ensure a level playing field for all financial institutions by ending the subsidy for Wall Street megabanks and requiring banks to have adequate capital to back up their liabilities.”
“The truth, according to the markets, is that ‘too big to fail’ is alive and well with the Wall Street megabanks,” Vitter said. “Our number one goal is to protect the taxpayers from financial risks and the best way to do this is by implementing a systemic solution, increasing the minimum amount of capital the mega banks are required to have.”
Despite receiving assistance from taxpayers in 2008, today, the nation’s four largest banks—JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo—are nearly $2 trillion larger today than they were before the crisis. Their growth has been aided by an implicit guarantee—funded by taxpayers and awarded by virtue of their size—as the market knows that these institutions have been deemed “too big to fail.” This allows the nation’s largest megabanks to borrow at a lower rate than regional banks, community banks, and credit unions. This funding advantage, which has been confirmed by three independent studies in the last year, is estimated to be as high as $83 billion per year. Together, Brown and Vitter have successfully pressed the Government Accountability Office (GAO) to conduct a study of the economic benefits that the “too-big-to-fail” megabanks receive as a result of actual or perceived taxpayer funded support.
During a press conference in the U.S. Senate today, Brown and Vitter revealed the exact details of their legislation, the Terminating Bailouts for Taxpayer Fairness Act (TBTF Act), would ensure that financial institutions have adequate capital to protect against losses. Specifically, the TBTF Act would:
Set reasonable capital standards that would vary depending on the size and complexity of the institution. Economic and financial experts agree that adequate capital is critical to financial stability, reducing the likelihood that an institution will fail and lowering the costs to the rest of the financial system and the economy if it does.
Mid-sized and regional banks would be required to hold eight percent in capital to cover their assets
Megabanks – institutions with more than $500 billion in assets – would be required to meet a new 15 percent capital requirement
Community banks would remain unchanged by the legislation, as the market already requires them to maintain capital ratios approaching 10 percent of their assets
Limit the government safety net to traditional banking operations. When the government established the Federal Reserve in 1913 as a lender of last resort and created deposit insurance in response to the Depression, support was intended for commercial banks that provided savings products and loans to American consumers and businesses. At that time, most banks had enough shareholder equity equal to 15 to 20 percent of their assets. In the ensuing decades, the expanding federal safety net allowed financial institutions to depend less and less on their own capital. Federal support was stretched far beyond its original focus, particularly when financial institutions were permitted to enter into the business of insurance, securities dealing, and investment banking. Brown and Vitter’s bill would limit the government safety net to traditional banking operations, protecting commercial banks rather than risky, investment banking activities.
Provide regulatory relief for community banks. Byreducing regulatory burdens upon community banks, they can better compete with mega institutions. Because community institutions do not have large compliance departments like Wall Street institutions, this legislation provides commonsense measures to lessen the load on our local banks.
Expands the definition of “rural” lenders that can offer balloon mortgages
Reduces some impediments for small banks and thrifts to raise capital or pay dividends.
Creates an independent bank examiner ombudsman that institutions can appeal to if they feel that they have been treated unfairly by their examiner.
The result: Hundreds of thousands of homes are being withheld from the market, raising questions about whether the recent run-up in housing prices is artificial.
WASHINGTON — New York Attorney General Eric Schneiderman has privately criticized the Obama administration and the Department of Justice for not aggressively investigating dodgy mortgage deals that helped trigger the financial crisis, according to senators and congressional aides who met with him this month.
New York’s top prosecutor is co-chair of the administration’s year-old Residential Mortgage Backed Securities Working Group, an initiative that President Barack Obama called for in his State of the Union address last year. In a sign of Schneiderman’s importance to the group, the White House seated him behind Michelle Obama during the speech.
Schneiderman, a Democrat who has attempted to investigate Wall Street, expressed his frustrations with the administration earlier this month during private meetings with Democratic senators on Capitol Hill, arguing that he was “naive” when he first entered into the partnership with the Justice Department, lawmakers and their aides said.
If you’ve been watching any commercial television lately, you are well aware that the financial services industry is very busy running expensive ads imploring us to worry about our retirement futures. Open a new account today, they say.
They are not wrong that we should be doing something: America is facing a retirement crisis. One in three Americans has no retirement savings at all. One in two reports that they can’t save enough. On top of that, we are living longer, and health care costs, as we all know, are increasing.
But, as I found when investigating the retirement planning and mutual funds industries in The Retirement Gamble, which airs tonight on FRONTLINE, those advertisements are imploring us to start saving for one simple reason. Retirement is big business — and very profitable. It doesn’t take a genius to figure out that the more we save into the industry’s financial products, the more money they make in fees and commissions trading our hard-earned cash. And as long as they don’t run away with our money or invest it in a Ponzi scheme, they have little in the way of accountability to us when something goes wrong. And even then it can be hard to fight back.
Big banks, brokerages, insurance companies and other financial service providers operate under something called a suitability standard — which says they don’t have to give you the best advice, just advice that isn’t too egregiously terrible.
New California foreclosure actions posted a sharp plunge in the first quarter to levels not seen since the last housing boom.
Lenders filed 18,567 mortgage default notices on California houses and condominiums during the first three months of the year. That was a 51.4% drop from the previous quarter and a 67.0% drop from the first quarter of 2012, according to real estate firm DataQuick.
The filing of a notice of default is the first step in California’s formal foreclosure process.
The firm reported the numbers Tuesday. It attributed the drop to rising home prices, a stronger economy and government interventions designed to curtail foreclosures.
In particular, a series of new laws backed by state Atty. Gen. Kamala D. Harris that place new regulations on foreclosure practices appears to have played a big role in the sharp reduction, DataQuick reported.
Yesterday, Mary Jo White, the new Chair of the Securities and Exchange Commission, announced that a law partner from the firm she just left, Debevoise & Plimpton LLP, would become the new Co-Director of the SEC’s Division of Enforcement – the unit that decides who gets prosecuted and who gets a pass.
In making the announcement that Andrew Ceresney of Debevoise & Plimpton will share the post with the Acting Director, George Canellos, White called Ceresney a “former prosecutor.” That hardly does justice to the cozy ties between Ceresney and Wall Street. (Ceresney worked for the U.S. Attorney’s office in the Southern District of New York in a prior career but has been employed at Debevoise since 2003.)
This time last year, Ceresney was basking in the glow of a herculean accomplishment for JPMorgan Chase, Citigroup, Wells Fargo, Bank of America and Ally. While directly employed as counsel to JPMorgan Chase, Ceresney had played a pivotal role in directing the negotiations between the U.S. Justice Department, 49 state attorneys general and an array of Federal regulators to tie up with a neat little red ribbon charges of mortgage, foreclosure and servicing fraud into the infamous National Mortgage Settlement – a deal big on promises and short on cash.
Court of Appeals of California, Fourth District, Division Two.
Filed April 17, 2013.
Wilehado T. Cabanilla, in pro. per., for Plaintiff and Appellant.
Kutak Rock, Jeffrey S. Gerardo, Steven M. Dailey, and Antoinette P. Hewitt for Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
OPINION
RICHLI, Acting P. J.
Defendant Wells Fargo Bank, N.A., foreclosed on a trust deed after plaintiff allegedly defaulted on payment of a promissory note. Plaintiff Wilehado T. Cabanilla sued for wrongful foreclosure and intentional infliction of emotional distress. The trial court entered an order granting defendant’s demurrer to a second amended complaint. Plaintiff appeals from a judgment entered after the demurrer was sustained.
Plaintiff contends the trial court erred because (1) the original promissory note was extinguished by a modified loan agreement; (2) the notice of default on the original promissory note was void; (3) the trustee had no authority to foreclose the trust deed for nonpayment of the original note; (4) the notice of default was in violation of Civil Code section 2923.5[1]; and (5) the foreclosure sale was void, and the court therefore lacked authority to require plaintiff to tender past due payments and to post a bond.
In addition, plaintiff argues that the trial court erred in sustaining a demurrer to a second cause of action for intentional infliction of emotional distress.
We reverse the judgment from the order granting the demurrer on the wrongful foreclosure cause of action, and we affirm the trial court’s order granting the demurrer on the intentional infliction of emotional distress cause of action.
I
STANDARD OF REVIEW
A demurrer is used to test the sufficiency of the factual allegations of the complaint to state a cause of action. (Code Civ. Proc., § 430.10, subd. (e).) The facts pled are assumed to be true, and the only issue is whether they are legally sufficient to state a cause of action.
“In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. `We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.’ [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff. [Citation.]” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)
II
ALLEGATIONS OF THE SECOND AMENDED COMPLAINT AND PROCEDURAL HISTORY
The second amended complaint attempts to state a cause of action for wrongful foreclosure and a cause of action for intentional infliction of emotional distress. As noted above, we assume the facts stated in the complaint are true.[2] The only question is the legal sufficiency of the facts pleaded.
Plaintiff borrowed $364,000 from “First Franklin, a Division of Nat. City Bank of In” [sic] on May 10, 2006. The note was an adjustable rate note, payable with interest only for the first two years. It was secured by a deed of trust on plaintiff’s residence.
At some point, defendant became the beneficiary of the note and deed of trust. By letter dated August 5, 2009, defendant, doing business as America’s Servicing Company, formally offered to modify and restructure the loan. A proposed loan modification agreement was enclosed with the letter. The primary change was from an adjustable interest rate of 7.25 percent to a fixed rate of 5 percent.
Plaintiff signed and returned the loan modification agreement on August 26, 2009. He paid the first payment on the due date, October 1, 2009. He also made the November payment, on October 30, 2009. The payments were accepted by defendant.
Nevertheless, in November 2009, NDEx West LLC (NDEx), acting on behalf of defendant, dba America’s Servicing Company, notified plaintiff that he was in default on the original 2006 loan. NDEx requested payment of $42,838.94 within 30 days. Plaintiff responded by forwarding a copy of the modification agreement. NDEx forwarded the response to defendant. Plaintiff then made the December 2009 and January 2010 payments.
Despite the payments, defendant recorded a notice of default and election to sell under the deed of trust on January 12, 2010. The notice contained a declaration pursuant to section 2923.5. The trustee’s sale was set for May 6, 2010.
We will continue with the procedural history, although not all of it is included in the complaint. The court file in our record shows that plaintiff filed suit on May 4, 2010. Plaintiff also requested a preliminary injunction. The preliminary injunction was granted on September 13, 2010, on condition that plaintiff post a bond and deposit funds totaling $34,517.88. The order stated that if the deposit and monthly payments were not made, defendant could proceed with foreclosure. On October 19, 2010, the preliminary injunction order was vacated because the required sums had not been deposited.
Defendant demurred to plaintiff’s complaint on grounds of uncertainty on August 31, 2010. The first amended complaint was filed on October 29, 2010, and another demurrer was filed on November 18, 2010. The demurrer to the first amended complaint was heard on February 9, 2011, and decided March 7, 2011. The demurrer was sustained as to the emotional distress cause of action and overruled as to the wrongful foreclosure cause of action. The court’s minute order states, “court deems the original notice of default null and void” and “court finds plaintiff was not in default at the time the original notice of default was recorded. Defendant bank should start the foreclosure process again and comply with Civil Code [section] 2923.5.”[3] (Capitalization omitted.)
Despite the court’s order, a trustee’s sale was held two days later, on March 9, 2011. The property was conveyed to Deutsche Bank National Trust. A notice to vacate property was then sent to plaintiff, together with a three-day notice to quit.
Plaintiff filed his second amended complaint on April 7, 2011. Defendant filed another demurrer on May 12, 2011. Hearing was held on June 23, 2011. The court sustained the demurrer on the emotional distress cause of action without leave to amend and continued the hearing for further briefing on the wrongful foreclosure cause of action.
The continued hearing was held on July 27, 2011. The court ruled: “The court does find that tender is required based on the California `Aceves’ case. Plaintiff states that his last payment was 1-4-2010 and defendant confirms that there have been no payments for the last 18 months. [¶] The court determines that the loan modificati[o]n is part of the original note/loan agreement. [¶] Plaintiff is ordered to post a bond in the amount of $50,000.00 within 30 days.”
A subsequent hearing was held on September 14, 2011. The court found that plaintiff had failed “to tender and, for that reason, sustained the Demurrer to this cause of action without leave [to] amend.” A motion for reconsideration was heard and denied on October 13, 2011. Notice of appeal was filed on November 10, 2011, and an amended notice of appeal was filed on November 18, 2011.
III
ISSUES
Two primary issues are apparent from the allegations of the complaint and the procedural history.
First, we note that the trustee’s sale occurred on March 9, 2011, only two days after the court had found the notice of default to be void and ordered defendant to “start over” with a notice of default that complied with section 2923.5.[4] The question presented is whether these alleged facts are by themselves sufficient to support a cause of action for wrongful foreclosure.
The second issue is whether, based on the facts alleged in the complaint, the trial court abused its discretion in ordering plaintiff to deposit substantial sums in court and to post a $50,000 bond. Having made such orders, the trial court sustained the demurrer without leave to amend when the deposits were not made.
After considering these issues, we will discuss the sustaining of the demurrer as to the intentional infliction of emotional distress cause of action.
IV
DISCUSSION
“`A nonjudicial foreclosure sale is accompanied by a common law presumption that it “was conducted regularly and fairly.” [Citations.] This presumption may only be rebutted by substantial evidence of prejudicial procedural irregularity. [Citation.] The “mere inadequacy of price, absent some procedural irregularity that contributed to the inadequacy of price or otherwise injured the trustor, is insufficient to set aside a nonjudicial foreclosure sale. [Citations.]” [Citations.] It is the burden of the party challenging the trustee’s sale to prove such irregularity and thereby overcome the presumption of the sale’s regularity.’ [Citation.] In addition, under section 2924, there is a conclusive statutory presumption created in favor of a bona fide purchaser who receives a trustee’s deed that contains a recital that the trustee has fulfilled its statutory notice requirements. [Citation.]” (Lona v. Citibank, N.A. (2011) 202 Cal.App.4th 89, fn. omitted.)
In discussing its earlier case of Nguyen v. Calhoun (2003) 105 Cal.App.4th 428, the Lona court said, “In that case, we addressed two grounds for setting aside the trustee’s sale: (1) alleged irregularity in the procedure coupled with inadequate price and (2) the lender’s alleged breach of an oral agreement to postpone the trustee’s sale. [Citation.] Other grounds for setting aside a trustee’s sale in the case law include assertions that no breach occurred, that the borrower was not in default, that the deed of trust was void, that the sale was the result of sham bidding or an attempt to restrict competition in bidding, or that the trustee did not have the power to foreclose. [Citations.]” (Lona v. Citibank, N.A., supra, 202 Cal.App.4th at p. 106, italics added.) Of significance here, the court also held that “no tender will be required when the trustor is not required to rely on equity to attack the deed because the trustee’s deed is void on its face. [Citation.]” (Id. at p. 113.)
At the hearing of July 27, 2011, after obtaining further briefing on the issue, the trial court apparently decided that the deed obtained through the foreclosure sale was voidable, not void, and it therefore decided that tender was required, citing Aceves v. U.S. Bank, N.A. (2011) 192 Cal.App.4th 218. Since tender had not been made, the demurrer was sustained.
In Aceves, the bank foreclosed on plaintiff’s home. Plaintiff sued the bank, and the bank demurred. (Aceves v. U.S. Bank, supra, 192 Cal.App.4th at p. 224.) The trial court sustained the demurrer, and the appellate court reversed in part. (Id. at p. 225.) It held that plaintiff had pleaded causes of action based on collateral estoppel and fraud. Plaintiff’s other claims, based on alleged irregularities in the foreclosure process, were rejected. (Id. at pp. 232.) The court found no irregularities justifying relief and thus did not reach the issue of whether the sale was void or voidable. (Id. at p. 231.) Nor did the court discuss the issue of tender. Accordingly, the case is not helpful on the issues presented here.
Plaintiff contends that the foreclosure sale was void, and tender is only required when the sale is voidable, not when it is void.
Plaintiff cites Dimock v. Emerald Properties (2000) 81 Cal.App.4th 868. In that case, decided on summary judgment, the plaintiff claimed a foreclosure sale by a prior trustee was void because of an earlier substitution of trustee. (Id. at p. 871.) The trial court granted defendants’ summary judgment motion. (Id. at p. 873.) The appellate court reversed. Since defendant failed to follow the statutory procedure for the substitution of trustees, the sale was void. The case was reversed with directions to quiet title in plaintiff. (Id. at pp. 878-879.)
The court commented that Dimock was not required to rely on equity in seeking to set aside a voidable deed. “Because Dimock was not required to rely upon equity in attacking the deed, he was not required to meet any of the burdens imposed when, as a matter of equity, a party wishes to set aside a voidable deed. [Citation.] In particular, contrary to the defendants’ argument, he was not required to tender any of the amounts due under the note.” (Dimock v. Emerald Properties, supra, 81 Cal.App.4th at p. 878.)
Plaintiff argues that the foreclosure sale in this case is also void because it failed to comply with statutory procedures: it was not supported by a valid notice of default, and it was conducted in violation of the trial court’s order to “start over.”
Defendant distinguishes Dimock by arguing that the sale here was voidable, not void, and that tender is therefore required. It cites Little v. CFS Service Corp. (1987) 188 Cal.App.3d 1354, 1358. That case helpfully discusses the meaning of “void” and “voidable” and collects the various cases. Defendant quotes the following passage: “. . . `[Defects] and irregularities in a sale under a power render it merely voidable and not void . . . . However, substantially defective sales have been held void where the defect lay in a particular as to which the statutory provision was regarded as mandatory . . . .’ [Citation.]” (Id. at p. 1358.)
The Little court concluded: “In sum, this case involves a serious notice defect which was directly prejudicial to individuals who could reasonably have relied on the statutory notice requirements for protection of their interests; a prompt halt to completion of the transaction as soon as the notice defect became evident; and an immediate restoration of the parties to the status quo, including payment of interest to the purported buyer for the time during which his money was unavailable to him for his use. No conclusive presumption has arisen which would prevent any party from challenging the giving of proper notice. Under all these circumstances, the trial court properly declared the purported sale to be void.” (Little v. CFS Service Corp., supra, 188 Cal.App.3d at p. 1361; see generally 1 Bernhardt, Cal. Mortgages, Deeds of Trust and Foreclosure Litigation (Cont.Ed.Bar) §§ 7.67-7.67C.)
Turning to plaintiff’s argument in the present case, there are at least two prejudicial defects in the sale.[5] First, there was no notice of default to support the sale. As noted above, the trial court found that the prior notice of default was “null and void,” that defendant should “start over” in the foreclosure process by filing a new notice of default, and that compliance with section 2923.5 was recommended.
Nevertheless, the defendant proceeded with a foreclosure sale only two days after the March 7 hearing. No new notice of default was recorded, and the statutory three-month waiting period was ignored. (§ 2924, subd. (c).) The plaintiff therefore had no opportunity to make a presale attack on a new notice of default. The purpose of the waiting period is to allow opportunity for just such an attack.
“A foreclosure sale must be predicated on a valid, material default in the obligation secured. It is axiomatic that the breach for which a lender seeks to foreclose must in fact constitute a default under the terms of the note and the deed of trust. The trustor’s failure to make timely payments of principal and interest, as and when due under the terms of the promissory note, ordinarily constitutes a sufficiently material default under the deed of trust to permit foreclosure. However, particular attention must be given to any notice or grace periods provided by the deed of trust before declaring the obligation to be in default.” (2 Bernhardt, Cal. Mortgages, Deeds of Trust and Foreclosure Litigation, supra, § 12.141.)
The primary problem in the present case is that the defendant did not comply with statutory procedures for a foreclosure action. The sale lacked a valid notice of default, as required by section 2924, and the defendant did not give plaintiff the requisite statutory time to attack the proposed foreclosure sale as required by section 2924, subdivision (c). These were clearly prejudicial statutory violations that voided the foreclosure sale. The lack of compliance with section 2935.5 is an additional but less clear statutory violation.
The leading case on section 2935.5 is Mabry v. Superior Court (2010) 185 Cal.App.4th 208. The case generally held that section 2935.5 may be enforced by a private right of action, but the remedy is limited to obtaining a postponement of an impending foreclosure sale to permit the lender to comply with section 2935.5. It also held that tender is not required in an action under section 2923.5. (Mabry, at pp. 225-226.)
However, lack of compliance with section 2923.5 does not give rise to a private cause of action when the foreclosure sale has already been held. (Mabry v. Superior Court, supra, 185 Cal.App.4th at pp. 214-215.) Obviously, this holding gives the lender some incentive to hold the sale promptly after the expiration of the notice period and before an action based on section 2923.5 has been filed in order to eliminate the possibility of such an action. In our case, the sale, which was held two days after the court ruling, did not give plaintiff any opportunity to challenge the sale under section 2923.5.
The Mabry court said, “If section 2923.5 is not complied with, then there is no valid notice of default and, without a valid notice of default, a foreclosure sale cannot proceed.” (Mabry v. Superior Court, supra, 185 Cal.App.4th at p. 223.) The court further stated that “[t]here is nothing in section 2923.5 that even hints that noncompliance with the statute would cause any cloud on title after an otherwise properly conducted foreclosure sale. We would merely note that under the plain language of section 2923.5, read in conjunction with section 2924g, the only remedy provided is a postponement of the sale before it happens.” (Id. at p. 235, first italics added.) But a foreclosure sale without a notice of default is simply not a properly conducted foreclosure sale.
A secondary problem with the foreclosure sale is that defendant, for whatever reason,[6] violated the court’s ruling, which invalidated the notice of default and required defendant to “start over” with a new notice of default. Despite the order, the foreclosure sale was held two days later. This clear disregard of the court order was an additional statutory violation reason for setting aside the sale as void. (§ 2924g, subd. (c)(1) [“[t]he trustee shall postpone the sale . . . [¶] . . . [u]pon the order of any court of competent jurisdiction”].)
If the rule were otherwise, lenders could simply ignore presale procedures, hold the sale as quickly as possible, and then contend that tender of all sums due was required to challenge the sale. This would be a heavy burden on most borrowers, who are in a foreclosure situation simply because they lack the funds to cure a default.
Postsale remedies are extremely limited, especially when the property was sold at the foreclosure sale to a bona fide purchaser for value. (See generally Melendrez v. D&I Investment, Inc. (2005) 127 Cal.App.4th 1238, 1249-1250; 1 Bernhardt, Cal. Mortgages, Deeds of Trust and Foreclosure Litigation, supra, § 7.60.) But such remedies do exist when the sale is void and when, as here, there is no allegation that the buyer was a bona fide purchaser.
For these reasons, we find that the trial court erred in sustaining defendant’s demurrer to the wrongful foreclosure cause of action. The complaint states facts which are legally sufficient to state a cause of action. As discussed above, the trial court based its decision on a lack of tender of funds, but tender was not required because plaintiff was relying on a void foreclosure sale, not a voidable sale.[7]
V
INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS
“The elements of a cause of action for intentional infliction of emotional distress are well settled. A plaintiff must allege that (1) the defendant engaged in extreme and outrageous conduct with the intention of causing, or reckless disregard of the probability of causing, severe emotional distress to the plaintiff; (2) the plaintiff actually suffered severe or extreme emotional distress; and (3) the outrageous conduct was the actual and proximate cause of the emotional distress. [Citation.] `”Whether treated as an element of the prima facie case or as a matter of defense, it must also appear that the defendants’ conduct was unprivileged.”‘ [Citation.]” (Ross v. Creel Printing & Publishing Co., Inc. (2002) 100 Cal.App.4th 736, 744-745, fn. omitted.)
Plaintiff’s original complaint was for “severe mental suffering damages.” After a demurrer for uncertainty, plaintiff filed an amended complaint for intentional infliction of emotional distress. Defendant filed another demurrer, and hearing was held on March 7, 2011. The court sustained the demurrer to the intentional infliction of emotional distress cause of action, finding that the facts alleged were not sufficient to sustain a cause of action. Leave to amend was granted, and plaintiff filed his second amended complaint on April 7, 2011.
In his second amended complaint, plaintiff alleges that the facts stated in support of his first cause of action were outrageous acts done with the intent to cause plaintiff to suffer severe mental distress. He further alleges that he did suffer severe mental distress and that the acts were authorized or ratified by corporate officers. Finally, he requests punitive damages from defendant.
Defendant’s demurrer to the second amended complaint was heard on June 23, 2011. The court sustained the demurrer to the emotional distress cause of action without leave to amend “on the grounds that plaintiff after three attempts is unable to plead the requisite outrageous and intent elements, and any claim is subject to Well Fargo litigation and economic interest privileges.” (Capitalization omitted.)
Plaintiff now argues that he satisfied the factual elements of the cause of action because defendant “is the only bank to have foreclosed a trustor’s property for the non-payment of a non-existing note. . . . [Defendant] is the only bank who proceeded to sell in a foreclosure sale of a trustor’s property barely two days after a superior court ruled that its notice of default is null and void; that the trustor is not in default; and that it must start the foreclosure anew to comply with section 2923.5.”
Defendant contends that its actions were not sufficient to constitute outrageous conduct, that the element of intent was not alleged, and that the litigation and economic interest privileges apply.
We agree with defendant that creditors in pursuit of debtors may use permissible legal remedies to pursue their economic interests in collecting a debt or foreclosing on their security for their loan regardless of the distress caused by their legal actions.
“Undoubtedly an insurance company is privileged, in pursuing its own economic interests, to assert in a permissible way its legal rights and to communicate its position in good faith to its insured even though it is substantially certain that in so doing emotional distress will be caused. [Citations.] . . . [¶] Nevertheless, the exercise of the privilege to assert one’s legal rights must be done in a permissible way and with a good faith belief in the existence of the rights asserted. [Citations.] It is well established that one who, in exercising the privilege of asserting his own economic interests, acts in an outrageous manner may be held liable for intentional infliction of emotional distress. [Citations.] [¶] Even if it could be said that defendants were asserting their legal rights in good faith, they were not privileged to do so in an outrageous manner.” (Fletcher v. Western National Life Ins. Co. (1970) 10 Cal.App.3d 376,395-396.)
Defendant relies on Ross v. Creel Printing & Pub. Co., Inc., supra, 100 Cal.App.4th 736. In that case, the court said, “In the context of debt collection, courts have recognized that the attempted collection of a debt by its very nature often causes the debtor to suffer emotional distress. [Citation.] `Frequently, the creditor intentionally seeks to create concern and worry in the mind of the debtor in order to induce payment.’ [Citation.] Such conduct is only outrageous if it goes beyond `”all reasonable bounds of decency.”‘ [Citation.]” (Id. at p.745.) The court noted: “The assertion of an economic interest in good faith is privileged, even if it causes emotional distress. [Citation.] In debtor/creditor cases, the privilege is qualified, in that it can be vitiated where the creditor uses outrageous and unreasonable means in seeking payment. [Citation.]” (Id. at p.745, fn. 4.)
Thus, the existence of a qualified privilege to use normal means to collect a debt does not answer the key question of whether the conduct here was so outrageous as to go “beyond `”all reasonable bounds of decency.”‘” (Ross v. Creel Printing & Pub. Co., Inc., supra, 100 Cal.App.4th at p. 745.)
Defendant also cites the litigation privilege of section 47, subdivision (b). In this regard, section 2924, subdivision (d) states, “All of the following shall constitute privileged communications pursuant to Section 47: [¶] (1) The mailing, publication, and delivery of notices as required by this section. [¶] (2) Performance of the procedures set forth in this article. [¶] (3) Performance of the functions and procedures set forth in this article if those functions and procedures are necessary to carry out the duties described in Sections 729.040, 729.050, and 729.080 of the Code of Civil Procedure.”
Thus, when a plaintiff fails to pay amounts due on a deed of trust, a defendant may pursue its remedies by foreclosing on its security knowing that tort actions for intentional infliction of emotional distress are barred by the litigation privilege. In this case, plaintiff has not alleged any outrageous conduct “beyond all reasonable bounds of decency” outside the nonjudicial foreclosure process. We therefore agree with the trial court that plaintiff’s factual allegations were insufficient to state a tort cause of action for intentional infliction of emotional distress. The trial court properly sustained the demurrer to plaintiff’s second cause of action.
VI
DISPOSITION
The portion of the judgment sustaining defendant’s demurrer to the first cause of action for wrongful foreclosure is reversed. The portion of the judgment sustaining defendant’s demurrer to the second cause of action for intentional infliction of emotional distress is affirmed. Plaintiff shall recover costs on appeal.
MILLER, J. and CODRINGTON, J., concurs.
[1] Unless otherwise indicated, all further statutory references are to the Civil Code.
[2] A number of documents were attached to the second amended complaint. We also consider them to be factually true for purposes of the demurrer.
[3] The court said, “The Court further finds that the plaintiff was not in default at the time the original notice of default was recorded, therefore, the notice of default is void in this matter. . . . [¶] . . . [¶] I will go on further to say in this matter that the plaintiff is basically in default now of the loan in this matter. The bank is going to have to start the foreclosure process again. And I would recommend that the bank comply with Civil Code 2923.5 in this matter.”
[4] By its terms, the statute was repealed as of January 1, 2013. The fact of repeal does not excuse the alleged failure of the defendant to follow the statute while it was in effect.
[5] Since we find that the sale here was void, not voidable, a showing of prejudice was not necessary. However, prejudice was clearly present in this case. (Knapp v. Doherty (2004) 123 Cal.App.4th 76 [premature notice of sale did not result in prejudice and did not invalidate the foreclosure sale].)
[6] Defendant’s counsel stated at the hearing, “. . . I didn’t even really know the trustee sale was in two days. I reported on that hearing and reported everything the Court said, but it happens.”
[7] Even if the sale was voidable and equitable principles applied, defendant could not complain about plaintiff’s failure to do equity by not tendering funds as ordered by the trial court when defendant did not follow equitable principles in the conduct of the foreclosure sale in disregard of the trial court’s order.
…
This isn’t a slide show about foreclosure, it’s an active session where we discuss the documents you just got served with. We talk about what the documents are and what they mean. More importantly, we discuss how these are treated in court and what homeowners must do to protect valuable legal rights.
AFTER receiving unanimous support from the United States Senate, Mary Jo White was confirmed last week as the new head of the Securities and Exchange Commission. At her swearing-in, she praised S.E.C. officials for “vigorously enforcing the securities laws.”
Doubts remain, however, about how potent the S.E.C.’s enforcement has been, especially in the aftermath of the mortgage mania. So Ms. White has some work to do.
She surely has a long list of ideas for her S.E.C. stewardship. Here’s hoping that one priority is to determine, and ramp up, investigations and whistle-blower complaints that are approaching their five-year statute of limitations. For a lot of cases involving questionable practices and disclosures arising from the mortgage bust of 2008, time is running out.
FIRST HORIZON HOME LOAN CORPORATION; MORTGAGE ELECTRONIC REGISTRATION SYSTEM, INC.; JAMES WOODALL; THE MORTGAGE LAW FIRM, PLC; MAX DEFAULT SERVICES CORPORATION; FEDERAL NATIONAL MORTGAGE ASSOCIATION; CARMEN RIVERA,
Defendants.
Before the Court is a wrongful foreclosure action alleging deceptive foreclosure practice by parties not authorized to foreclose on Plaintiffs’ property. Plaintiffs now motion the Court for partial summary judgment (ECF No. 39), and Defendants countermotion for summary judgment (ECF No. 41). For the reasons stated herein, the Court denies Plaintiffs’ and Defendants’ Motions for Summary Judgment.
I. FACTS AND PROCEDURAL HISTORY On April 11, 2007, Plaintiffs Mark and Rebecca Phillips executed a note in the amount of $266,840 secured by a deed of trust (the “Deed of Trust”) to the property located at 2185 Evergreen Park Drive, Reno, Nevada 89521 (the “Property”). (Deed of Trust, ECF No. 40-4, at 1-2). The Deed of Trust listed First Horizon Home Loan Corporation as lender. Capital Title Company of Nevada as trustee, and MERS as nominee. {Id. at 1-2).
Plaintiffs were unable to make the payments due on the loan secured by the Deed of Trust on or about March 2010. (Amended Compl., ECF No. 28, at 5). Max Default Services Corporation (“Max Default”) then recorded a notice of default on July 1, 2010, claiming to be the trustee of the Deed of Trust. (Notice of Default, ECF No. 40-5, at 2-4). On July 8, 2010, Federal National Mortgage Association (“Fannie Mae”) substituted Max Default as trustee. (Appt. Successor Trustee, ECF No. 40-5, at 5-6). On July 30, 2010, MERS assigned all beneficial interest in the Deed of Trust to Fannie Mae. (Assignment, ECF No. 40-6, at 1-2). However, this assignment was not recorded with the Washoe County Recorder until June 10, 2011 . {Id.).
On November 1, 2010, a certificate from the State of Nevada Foreclosure Mediation Program was issued. (Certificate, ECF No. 40-7, at 1). This certificate was recorded a year later on November 14, 2011. {Id.). James Woodall executed a notice of trustee’s sale on November 1, 2011, which was recorded on November 14, 2011. (Notice of Sale, ECF No. 40-7, at 2-3). On November 7, 2011, Fannie Mae executed a substitution of trustee, formally substituting James Woodall, The Mortgage Law Firm, and Max Default as trustees of the Deed of Trust. (Sub. Trustee, ECF No. 40-6, at 3-4). On November 28, 2011 , the Property was sold to Fannie Mae in satisfaction of the unpaid debt on the loan, which amounted to $289,472.56. (Deed Upon Sale, ECF No. 40-8).
Plaintiffs filed a pro se complaint in Nevada state court on November 28, 2011 against First Horizon Home Loan Corporation, MERS, James Woodall, The Mortgage Law Firm, Max Default, Fannie Mae, and Carmen Rivera. (Compl., ECF No. 1-1, at 1). The complaint asserted two causes of action, the first for quiet title and the second for intentional interference with a prospective economic advantage. {Id. at 8-10). The dispute was then removed to this Court on January 9, 2012 under diversity jurisdiction. (Pet. for Removal, ECF No. 1, at 2).
Defendants Fannie Mae and MERS filed a motion to dismiss the complaint for failure to state a claim along with a motion to expunge the lis pendens on the Property on January 19, 2012. (Mot. to Dismiss, ECF No. 5; Mot. to Expunge ECF No. 6). Plaintiffs then filed three motions on January 27, 2012: (1) a motion to amend the complaint; (2) a motion for partial summary judgment; and (3) a motion to remand the action to state court. (Mot. to Amend, ECF No. 11; Mot. for Partial Summ. J., ECF No. 12; Mot. to Remand, ECF No. 13). The amended complaint alleges four causes of action, including: (1) quiet title; (2) wrongful foreclosure; (3) negligence; and (4) deceit. (Am. Compl., ECF No. 28, at 10-13). The amended complaint further removes First Horizon Home Loan Corporation and Carmen Rivera as defendants. {Id.).
The Court denied Defendants’ motions to dismiss and to expunge lis pendens on the basis they were moot as Plaintiffs had amended the Complaint. (Order, ECF No. 27). The Court also denied Plaintiffs’ motions for partial summary judgment and to remand, but granted their motion to amend the Complaint. {Id.).
Before the Court now are Plaintiffs’ Motion for Partial Summary Judgment, and Defendants Motion for Summary Judgment.
II. LEGAL STANDARDS A motion for summary judgment is a procedure that terminates, without a trial, actions in which “there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Federal Rule of Civil Procedure 56(a). The party seeking summary judgment always bears the initial burden of persuasion to the court. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The moving party must identify those parts of the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact. Id. “The court need consider only cited material, but it may consider other materials in the record.” Fed. R. Civ. P. 56(c)(3). The principal purpose of summary judgment is “to isolate and dispose of factually unsupported claims.” Id. at 324. Material facts are those which may affect the outcome of the case. See Anderson v. Liberty Lobby, Inc., All U.S. 242, 248 (1986). A dispute as to a material fact is genuine if there is sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. See Id.
In determining summary judgment, a court uses a burden-shifting scheme: When the party moving for summary judgment would bear the burden of proof at trial, it must come forward with evidence which would entitle it to a directed verdict if the evidence went uncontroverted at trial. In such a case, the moving party has the initial burden of establishing the absence of a genuine issue of fact on each issue material to its case. C.A.R. Transp. Brokerage Co. v. Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir. 2000)(citation and internal quotation marks omitted). In contrast, when the nonmoving party bears the burden of proving the claim or defense at trial, the moving party can meet its burden in two ways: (1) by presenting evidence to negate an essential element of thenonmoving party’s case; or (2) by demonstrating that the nonmoving party failed to make a showing sufficient to establish an element essential to that party’s case on which that party will bear the burden of proof at trial. See Celotex Corp., 477 U.S. at 323-24. If the moving party fails to meet its initial burden, summary judgment must be denied and the court need not consider the nonmoving party’s evidence. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 159-60 (1970).
If the moving party meets its initial burden, the burden then shifts to the opposing party to establish a genuine issue of material fact. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). To establish the existence of a factual dispute, the opposing party need not establish a material issue of fact conclusively in its favor. It is sufficient that “the claimed factual dispute be shown to require a jury or judge to resolve the parties’ differing versions of the truth at trial.” T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass’n, 809 F.2d 626, 631 (9th Cir. 1987). In other words, the nonmoving party cannot avoid summary judgment by relying solely on conclusory allegations that are unsupported by factual data. See Taylor v. List, 880 F.2d 1040, 1045 (9th Cir. 1989).
Instead, the opposition must go beyond the assertions and allegations of the pleadings and set forth specific facts by producing competent evidence that shows a genuine issue for trial. See Fed. R. Civ. P. 56(e); Celotex Corp., 477 U.S. at 324. At the summary judgment stage, a court’s function is not to weigh the evidence and determine the truth, but to determine whether there is a genuine issue for trial. See Anderson, 477 U.S. at 249. The evidence of the nonmovant is “to be believed, and all justifiable inferences are to be drawn in his favor.” Id. at 255.
III. DISCUSSION
In their amended Complaint, the Phillips allege four claims: 1) a wrongful foreclosure claim against Fannie Mae; 2) A quiet title claim against Fannie Mae; 3) a negligence claim against Woodall, the Law Firm, and Max Default; and 4) a Fraud claim against Max Default and MERS.
Plaintiffs move for partial summary judgment on their claims of Wrongful Foreclosure and Eviction and Quite Title of Declaration of Rights, “but only where those causes of action rely on the deficiency of status of Max Default Services Corporation as trustee.” (Mot. Partial Summary J., ECF No. 39, at 2). Plaintiffs posit to the Court “whether a non judicial foreclosure can validly be effectuated by a party who is not trustee, but who is legally a stranger to the note and deed of trust.” {Id.). The applicable statutes on foreclosure in 2010 provide that “The power of sale must not be exercised, however, until: [t]he beneficiary, the successor in interest of the beneficiary or the trustee first executes and causes to be recorded .. . a notice of a breach and the election to sell . . . .” N.R.S. § 107.080 (2)(c). Thus, the beneficiary, the trustee, or a successor in interest may commence a non-judicial foreclosure proceeding provided other notice requirements are met. The statutes specifically state “to secure the performance of an obligation or the payment of any debt, a power of sale is hereby conferred upon the trustee to be exercised after a breach of the obligation ” N.R.S. § 107.080 (1). Therefore, it is typically the trustee who executes the NOD and NOS in a non-judicial foreclosure.
Plaintiffs correctly assert that a party must first ascend to the position of trustee before it can exercise the rights of a trustee. Because the NOD was filed by Max Default on July 1, 2010, which was arguably prior to the notarized substitution of trustee dated July 8, 2010, Plaintiffs argue Max Default had no authority to execute the NOD. Defendants assert the trustee. Max Default, was the properly appointed trustee at the time of the foreclosure proceedings because the substitution was dated June 28, 2010. However, the Court finds conflicting dates in the notarizing and recording of the substitution of trustee in relation to this purported substitution date of June 28, 2010. Defendants assert that the notarization, which occurred more than a week later, is simply a memorial of the actual appointment on June 28, 2010. The Court does not agree, and finds that the signature of the beneficiary authorizing the substitution is the legally recognized execution of the substitution that the notary is swearing to have witnessed under penalty of perjury. The signature within the document purporting the authority to appoint a substituted trustee is the effective instrument which provides the rights and powers to that newly appointed entity.
Regarding the appointment or substitution of a trustee, the signatures in the document represent the legal authority to its time and contents, and the notary is the legal recognition of the signatures therein. This issue is of no small consequence due to all the recent foreclosures which have and are occurring in an automated fashion in Nevada. The substitutions of trustees and assignments of beneficiaries of deeds often occur several times in the course of a foreclosure. Due to the often conflicting dates of these substitutions, and whether the trustee was in authority to proceed with a non-judicial foreclosure, Nevada legislators recently added a statutes addressing the problem. Nevada Revised Statute § 107.028 details qualifications, limitations on powers, and the required notice of substituted trustees and became effective July 1, 2011. Although not relevant to this first NOD in this action, its language is applicable to the latter substitution which will be analyzed in this Order. Among other requirements, it specifically states that the appointment or substitution of a trustee is not effective until it is recorded in the county in which the real property is located. N.R.S. 107.028(4).
Nevada law requires that the beneficiary or trustee first executes and records a Notice of Default and of the Election to Sell prior to a trustee exercising its power of sale.
As mentioned above. Defendant, Max Default, filed the NOD on July 1, 2010. (NOD, ECF No. 40-5, at 2-3). The first Appointment of Successor Trustee was executed on July 8, 2010. (Appt. Succ. Trustee, ECF No. 40-5, at 4). Thus, Max Default was not legally authorized to execute the NOD, as it was not as yet the trustee. Further, the Court finds even more conflicts regarding the assignment of the deed of trust and who was the actual beneficiary at this time. In both the NOD and the Appointment of Successor Trustee, Max Default is named as the trustee who is acting for the benefit of Fannie Mae. The NOD was executed by Max Default on July 1, 2010. The Appointment of Successor of Trustee was executed on July 8, 2010 by Fannie Mae. However, contrary to Defendants claims, but according to documentation in exhibits, Fannie Mae was not assigned the deed of trust until July 30, 2010. (Corporate Assign. Deed Trust, ECF No. 40-6, at 1-2). Thus, Max Defaults substitution as trustee was not executed by the beneficiary of the deed.
At some point, it appears Fannie Mae began the foreclosure process anew. As mentioned above, the foreclosure statutes have been amended and even some additional requirements are required in a non-judicial foreclosure. On November 7, 2011, Fannie Mae executed another Substitution of Trustee naming Max Default and James Woodall, The Mortgage Law Firm, LLC, as trustee. (Sub. Trustee, ECF No. 40-6, at 3-4). The addition of James Woodall is likely due to NRS 107.028 which mandates “The trustee under a deed of trust must be: An attorney licensed to practice law in this state; . . . .” NRS 107.028(1 )(a).
On November 14, 2011, Max Default recorded the certificate of the state mediation foreclosure program purporting to indicate that no request for mediation was made by Plaintiffs. (Certificate, ECF No. 40-7, at 1). However, this certificate was more than a year old and dated November 1, 2010. The same day, November 14, 2011, Max Default recorded the Substitution of Trustee and a Notice of Trustees Sale. (Notice of Sale, ECF No. 40-7, at 2-3). The NOS stated that the Property would be sold at public auction on November 28, 2011 . The property was sold to Fannie Mae on November 28, 2011.
Defendants failed to execute a valid NOD prior to the NOS. The statutes are very clear about required notice prior to foreclosure. “The power of sale shall not be exercised until: the beneficiary, the successor in interest of the beneficiary, or the trustee first executes and causes to be recorded .. . a notice of the breach and of the election to sell . . . .” N.R.S. § 107.080; see also N.R.S. § 107.086 (additional requirements for owner24 occupied housing). In other words, the steps in a non-judicial foreclosure sale commence with the execution of a NOD. See Id. Then, depending on whether mediation is requested, the NOS may be executed, followed by the actual auction and sale of the property. The Court finds Defendants did not follow statutory procedures in their attempt to foreclose on Plaintiffs mortgage. Defendants assert there was no wrongful foreclosure. Citing to an order from this Chamber, Defendants claim, “[a]s long as the note is in default and the foreclosing trustee is either the original trustee or has been substituted by the holder of the note or the holder’s nominee, there is simply no defect in foreclosure.” Gomez v. Countrywide Bank, FSB, No. 09-1489, 2009 WL 3617650, at *2 (D. Nev. October 26, 2009). This is true, but Plaintiffs’ contention is with the unauthorized trustee, not whether the note was in default.
The facts support the allegation that Plaintiffs have defaulted on their mortgage note. And, Plaintiffs have not contented otherwise. Plaintiffs have continually remained in possession of the Property since the commencement of these foreclosure proceedings and, apparently, have not made any payments towards the debt on the Property since March of 2010. Clearly there is a note that is in default and a beneficiary that is entitled to the security of the mortgage, or payment of the note. Defendants have failed to provide any evidence to prove they were authorized to proceed with the foreclosure in July of 2010.
Yet, the fact remains that Plaintiffs have not disputed the allegations of their default for non payment. A foreclosure is not wrongful if the note was in default. See Gomez, FSB, No. 09-1489, 2009 WL 3617650, at *2. The Court finds that at some time during the process Defendants had the authority to foreclose, they just didn’t follow the rules. What remains to be determined is if there are any damages, statutory or otherwise, that Plaintiffs are entitled to for Defendants wrongful actions. If so, are any of those damages offset by Plaintiffs continued possession and use of the Property during the past three years?
For the reasons stated above, at this time the Court denies Plaintiffs Motion for Partial Summary Judgment and denies Defendants Countermotion for Summary Judgment.
CONCLUSION
For the foregoing reasons, IT IS ORDERED Plaintiffs’ Motion for Partial Summary Judgement (ECF No. 39) is DENIED. It is further ORDERED Defendants Countermotion for Summary Judgment (ECF No. 41) is DENIED.
Donovan now serves as secretary of housing, where media reports say he’s pushing hardest to preserve Fannie and Freddie and its “affordable housing mission.” He believes the mortgage giants facilitate “an important democratization of credit” benefiting “underserved groups.”
Hedge fund manager and famed short seller David Einhorn is right: no matter how bad you think it is, it’s worse.
Consider this pious statement by David Holland of Rust Consulting, the firm responsible for sending out settlement checks, at the Senate Banking subcommittee hearings on the Independent Foreclosure Review earlier this week:
Mr. Holland, Rust: We have a call center and we’re taking calls, you know, currently from people who have received the postcard notice as part of the settlement and now our first wave of checks that went out on Friday. So we do have a phone bank ready to answer any and all questions that we get from affected borrowers. We have on-site Spanish-speaking operators that can assist Spanish-speaking people, and there is a process by where we can use a third party to help translate I believe it’s up to 200 languages if somebody calls, you know, and has a language that we’re not supporting live with Spanish or English, and we can get an operator on the phone that can help them. In terms of the – your other question about, you know, are we making efforts to reach out to people? You know, we’ve had the data, the mailing data, for this group of people going back to the IFR and it went through several levels of mailing address correction that we performed. So when we had the settlement, we started with that address information and once again ran it through the national change of address database, and we’re mailing checks, you know, to the best address that we have currently. Some of those will be returned as undeliverable, and we will make other attempts to find better address information for those that are undeliverable. And there’s nothing in place yet, but we’ve had conversations about taking additional steps beyond what we’ve done in terms of address trace. We could implement an outbound calling program, e-mail blasts. There’s all sorts of things that may be available to us. Nothing’s set yet, but those discussions are happening.
We’ll not trouble ourselves with how a call center that handles only two languages can have a backup service that can correctly determine which of the 200 other languages it professes to be able to handle can determine accurately which one is actually being spoken.
NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION AND, IF FILED, DETERMINED
IN THE DISTRICT COURT OF APPEAL OF FLORIDA SECOND DISTRICT
BRANCH BANKING AND TRUST COMPANY, successor in interest to Colonial Bank by asset acquisition from the FDIC as receiver for Colonial Bank,
Appellant,
v. Case No. 2D12-3051
KRAZ, LLC; BING CHARLES KEARNEY, JR.; TRACY L. HARRIS, JR.; and UNKNOWN TENANTS #1-25,
Appellees.
Opinion filed April 17, 2013.
Appeal from the Circuit Court for Hillsborough County; William P. Levens, Judge.
John A. Anthony, Kristi Neher Davisson, Frank A. LaFalce, J. Wade Stidham, and Cheryl Thompson of Anthony & Partners, LLC, Tampa, for Appellant.
Jesse L. Ray of Jesse Lee Ray Attorney at Law, P.A., Tampa; and Steven L. Brannock of Brannock & Humphries, Tampa, for Appellees.
VILLANTI, Judge.
Branch Banking & Trust Co. (BB&T) seeks review of the final judgment entered in favor of Kraz, LLC, Bing Charles Kearney, Jr., and Tracy L. Harris, Jr., (collectively Kraz) in this commercial foreclosure case. Of the twelve issues raised by BB&T, only one has merit, and we reverse the final judgment solely to the extent that it awarded a credit against Kraz’s loan principal for amounts BB&T may have received during the pendency of the foreclosure proceedings pursuant to a Commercial Shared Loss Agreement with the Federal Deposit Insurance Corporation (FDIC). In all other respects, we affirm.
This case comes to us with a lengthy record. However, for purposes of this opinion, the relevant facts are fairly straightforward. BB&T purchased Kraz’s $5,182,128 commercial construction loan, along with numerous other assets, from the FDIC after Colonial Bank, which originated the loan, was closed by the FDIC. The purchase agreement between BB&T and the FDIC included a provision called a Commercial Shared Loss Agreement, which set forth the means by which BB&T and the FDIC would share in any losses that arose from the Colonial loans1 that BB&T purchased. Under the Commercial Shared Loss Agreement, BB&T was required to submit a quarterly report listing the losses it had sustained during that quarter due to charge-offs taken on the entire pool of Colonial loans, and the Commercial Shared Loss Agreement required the FDIC to pay BB&T a stated percentage of those losses. BB&T was also required to submit a second report detailing any “recoveries,” which were defined as collections received during the quarter on the entire pool of shared loss loans that had been previously charged off. If the amount of net recoveries was positive, BB&T was required to pay a stated percentage of those recoveries to the FDIC.2 Thus, if BB&T charged off a loan in one quarter, it could include that loan in the charge-off pool for the quarter and it would be paid a portion of that loss by the FDIC. However, if BB&T made a recovery on that charged-off loan in a subsequent quarter, BB&T would essentially have to reimburse the FDIC for the earlier payment by including that recovery on its quarterly report and paying a portion of the recovery to the FDIC.
Shortly after BB&T purchased Colonial’s assets, it declared the Kraz loan to be in default and it filed a foreclosure action against Kraz. During the foreclosure proceedings, a court-appointed receiver collected tenant rents, paid certain expenses, and managed the property in consultation with BB&T. The receiver transmitted the net collected rents to BB&T after the receiver himself was paid, and presumably BB&T applied these funds to reduce Kraz’s indebtedness.
At the trial on the foreclosure complaint, BB&T’s corporate representative, Oscar Bruni, admitted that BB&T “may have” received payment under the Commercial Shared Loss Agreement as a result of the default declared on the Kraz loan. Bruni testified that he would have to make a telephone call to BB&T’s accounting department to determine for sure whether any such payment had been received and the exact amount of the payment; however, no one asked Bruni to make this call. Kraz’s banking expert, James Howard, testified that BB&T’s shared loss payment on the loan could be “as much as $1.8 million.” However, neither Bruni nor any other witness testified as to whether, in fact, BB&T had received such a payment and, if so, what the exact amount of the payment was.
At the conclusion of the foreclosure trial, the trial court found that Kraz had not been in default under the terms of the loan when BB&T declared the default.
Having reached this conclusion, the trial court denied BB&T’s request to foreclose on the property, and it set about creating an equitable remedy that would return the parties to the financial positions they would have been in had the improper default not been declared. As part of that remedy, the trial court reinstated the loan, ordered BB&T to write off the default interest and late fees it had charged, and ordered an accounting of the funds turned over to BB&T by the receiver during the course of the foreclosure proceedings. In addition, the court ordered BB&T to credit the principal of the Kraz loan with the shared loss payment that BB&T had allegedly received on this loan pursuant to the Commercial Shared Loss Agreement. Specifically, the trial court ordered
that [BB&T] shall, within thirty (30) days of the entry of this Final Judgment, credit the principal of the Note with all payments received by [BB&T] from the FDIC concerning this loan per Mr. Bruni’s and Mr. Howard’s testimony. . . . No payments shall be due from [Kraz] until [BB&T] credits all such payments it has received against the principal. . . .
The stated purpose of this credit was to prevent BB&T from “double-dipping” by receiving payments on the loan both from the FDIC and Kraz. In this appeal, BB&T argues, among other things,3 that the credit ordered for the alleged shared loss payment constituted an abuse of discretion. On this single issue, we agree because Kraz presented no evidence to establish that BB&T actually received any payment under the Commercial Shared Loss Agreement based on a charge-off of the Kraz loan. Instead, the only testimony was that it was possible that BB&T may have received a payment of as much as $1.8 million from the FDIC but that further evidence would be needed to be sure. This testimony is legally insufficient to support a finding that BB&T had, in fact, received a payment of $1.8 million as a result of charge-offs on the Kraz loan. See, e.g., Taylor v. Lee, 884 So. 2d 222, 224 (Fla. 2d DCA 2004) (” ‘[T]here must be some reasonable basis in the evidence to support the amount [of damages] awarded.’ ” (quoting Camper Corral, Inc. v. Perantoni, 801 So. 2d 990, 991 (Fla. 2d DCA 2001)) (alteration in original)); Schimpf v. Reger, 691 So. 2d 579, 580 (Fla. 2d DCA 1997) (“Damages cannot be based upon speculation and guesswork, . . . but must have some reasonable basis in fact.”). Thus, in the absence of any legally sufficient evidence to support this credit against the principal of Kraz’s loan, we must reverse this portion of the final judgment and remand for correction.
While we base our reversal on the lack of evidence to support this credit, we also note that even if Kraz had presented additional evidence concerning BB&T’s receipt of funds from the FDIC, the terms of the Commercial Shared Loss Agreement would not support the trial court’s decision to award a credit based on that payment because the Commercial Shared Loss Agreement specifically requires BB&T to reimburse the FDIC if it makes any recovery on the note from Kraz. As discussed above, the Commercial Shared Loss Agreement requires BB&T to reimburse the FDIC for recoveries it makes on loans that were charged off in prior quarters. Thus, if Kraz makes payments on the reinstated loan, those payments would constitute “recoveries” under the Commercial Shared Loss Agreement, and BB&T would be required to repay the FDIC based on those recoveries. Hence, even assuming that BB&T in fact received $1.8 million from the FDIC for charge-offs on the Kraz loan, BB&T will not receive a windfall when Kraz makes payments on the loan because BB&T will be required to reimburse the FDIC to the extent of those payments. The trial court’s rationale for ordering this credit—to prevent BB&T from “double-dipping”—is erroneous because the Commercial Shared Loss Agreement prevents such double-dipping by its own terms.
Moreover, we agree with BB&T that if a borrower could have the principal of his or her loan reduced due to a shared loss payment received from the FDIC during the course of foreclosure proceedings, then FDIC-regulated sales of closed banks’ assets would come to a halt. If the possibility existed that a trial court, using its legal or equitable powers, could grant the relief given Kraz in this case, no bank purchasing a closed bank’s loans would take seriously its responsibility to attempt to collect on those loans. Ironically, the relief afforded to Kraz by the trial court actually results in doubledipping in reverse—with the purchasing bank being compelled to both forgive the debtor for that portion of the debt paid by the FDIC and also repay the FDIC for the forgiven amount. Such a result turns the concept of equity on its head.
In sum, we hold that to the extent that the final judgment ordered BB&T to reduce the principal balance due from Kraz by any shared loss payment BB&T allegedly received from the FDIC, that judgment constituted an abuse of discretion. Accordingly, we reverse on this basis and remand for correction of this portion of the final judgment. In all other respects, we affirm.
Affirmed in part, reversed in part, and remanded for further proceedings. CASANUEVA and KELLY, JJ., Concur.
foot notes:
1The Commercial Shared Loss Agreement, which is a complex twentyseven- page document, applies to residential and commercial loans, real estate, and certain securities purchased by BB&T from the FDIC. For purposes of this opinion, however, we focus solely on the provisions relating to BB&T’s purchase of residential and commercial loans from the FDIC.
2Because the Commercial Shared Loss Agreement allowed BB&T to deduct the expenses incurred in obtaining quarterly recoveries from the amount of gross recoveries received in the same quarter, it was possible that net recoveries in any one quarterly period could be negative.
3In addition to its initial brief and reply brief, BB&T submitted a fourteenpage “Motion to Certify Question” approximately one week before oral argument. This motion, which included two exhibits as additional evidence, included numerous arguments raised for the first time concerning the impropriety of the credit for the alleged shared loss payment. Because these arguments were not raised in BB&T’s initial brief, they are not properly before this court. Cf. Polyglycoat Corp. v. Hirsch Distribs., Inc., 442 So. 2d 958, 960 (Fla. 4th DCA 1983) (“When points, positions, facts and supporting authorities are omitted from the brief, a court is entitled to believe that such are waived, abandoned, or deemed by counsel to be unworthy.”). Further, the exhibits attached to this motion as additional evidence are not properly before this court. See, e.g., Supinski v. Omni Healthcare, P.A., 853 So. 2d 526, 532 n.2 (Fla. 5th DCA 2003) (“It is elemental that appellate courts will not consider evidence that was not presented to the trial court for its consideration in making its decisions.”); Hillsborough Cnty. Bd. of Cnty. Comm’rs v. Pub. Employees Relations Comm’n, 424 So. 2d 132, 134 (Fla. 1st DCA 1982) (same). Thus, while we have read these materials, they have played no part in our decision.
CONTACT: Curtis Hertel Jr., Ingham County Register of Deeds, Ph: 517-281-3574
Ingham courts overturn Fannie Mae evictions of County homeowners
Ingham County Register of Deeds Curtis Hertel Jr. praised two recent court decisions against mortgage giants Fannie Mae and Freddie Mac in Ingham County that will overturn the eviction of local residents from their homes, while offering similar hope for citizens across Michigan.
“Fannie Mae and Freddie Mac have been shamelessly manipulating our state’s property laws for years at the expense of innocent citizens,” Hertel Jr. said. “They continue to try and exempt themselves from important local and state taxes by claiming a government exemption, but have continued to foreclose on individuals and families using procedures that are only available to private corporations. I’m thrilled that we now the opportunity to protect our residents from future deceitful foreclosure practices.”
Hertel Jr. has been pleading for the courts to clarify Fannie Mae’s status, as it has positioned itself as a government agency to avoid taxes, but also as a private organization in order to avoid foreclosure regulation. The cases were won against mortgage giant Fannie Mae – one in Ingham County Circuit Court, the other in its District Court.
One of the cases is now being sent to the Michigan Court of Appeals and has the potential to change the way that thousands of foreclosures are handled throughout Michigan. The court case specifically addresses foreclosures that are executed by Fannie Mae, the federally-controlled mortgage corporation that has foreclosed on thousands of Michigan residents since the housing crisis began in 2007.
Both of the overturned evictions were residents who called in to Hertel’s Foreclosure Fraud Hotline, a service he arranged with help from the Ingham County Commissioners. The purpose of the hotline is to obtain legal assistance for citizens who are facing illegal foreclosures, but cannot afford representation. The hotline is active – Ingham County residents may call 517-676-7210 to leave their information.
State of New York | Executive Chamber Andrew M. Cuomo | Governor
Cuomo Administration Settles With Country’s Second Largest ‘Force-Placed’ Insurer, Leading Nationwide Reform Effort And Saving Millions For Homeowners And Investors
New York Settlement with QBE Includes Restitution for Homeowners, a $10 Million Penalty, and Industry-leading Reforms
Settlement Comes On Heels of Deal with Assurant, the Nation’s Largest Force Placed Insurer. Companies Responsible for More than 90 Percent of the ‘Force-placed’ Market in New York Have Now Signed onto Reforms
New York, NY – Governor Andrew M. Cuomo today announced that a New York State Department of Financial Services (DFS) investigation has produced an additional settlement with a major force-placed insurer, QBE, which requires the company to implement New York’s nation-leading reforms to help better protect homeowners from abuse in this industry.
The QBE settlement includes restitution for homeowners who were harmed, a $10 million penalty paid to the State of New York, and a set of reforms – first agreed to last month by Assurant, Inc., the nation’s largest force-placed insurer, in a DFS settlement – that will save homeowners, taxpayers, and investors millions of dollars going forward through lower rates.
Together with DFS’s previous settlement with Assurant, today’s agreement with QBE means that companies responsible for at least 90 percent of the force-placed insurance market in New York have signed onto the Cuomo Administration’s nation-leading reforms. (QBE has been the second-largest force-placed insurer both nationally and in New York since it acquired Balboa Insurance Company’s — a subsidiary of Bank of America – force-placed insurance business in 2011. Bank of America insurance holding company is also a signatory to the settlement.)
“The kickbacks and payoffs in the force-placed insurance industry used to be a dirty little secret that pushed far too many families off the foreclosure cliff, but my Administration’s investigation is helping put a stop to those abuses,” said Governor Cuomo. “The nation-leading reforms that we’re putting in place will mean lower home insurance costs and better protections for many working New Yorkers.”
Benjamin M. Lawsky, Superintendent of Financial Services, said: “The momentum behind New York’s force-placed insurance reforms is continuing to build. We urge other regulators to pick up the ball and run with it by implementing New York’s reforms nationwide – so that all homeowners, regardless of where they live, are better protected from abuse.”
Earlier this month, Superintendent Lawsky sent a letter to other state insurance commissioners urging them to implement New York’s force-placed insurance reforms nationwide. The letter is available here.
The Findings of DFS’s Investigation of QBE
In October 2011, DFS launched an investigation into the force-placed insurance industry, including QBE and its subsidiaries. Force-placed insurance is insurance taken out by a bank, lender, or mortgage servicer when a borrower does not maintain the insurance required by the terms of the mortgage. This can occur if the homeowner allows their policy to lapse (often due to financial hardship), if the bank or mortgage servicer determines that the borrower does not have a sufficient amount of coverage, or if the homeowner is force-placed erroneously.
The DFS investigation revealed that the premiums charged to homeowners for force-placed insurance can be two to ten times higher than premiums for voluntary insurance — despite the fact that force-placed insurance provides far less protection for homeowners than voluntary insurance.
Indeed, even though banks and servicers are the ones who choose which force-placed insurance policy to purchase, the high premiums are ultimately charged to homeowners, and, in the event of foreclosure, the costs are passed onto investors. And when the mortgage is owned or backed by a government-sponsored enterprise, such as Fannie Mae or Freddie Mac, those costs are ultimately borne by taxpayers.
Troubling Relationships, Reverse Competition
DFS’s investigation revealed that QBE competed for business from the banks and mortgage servicers through what is known as “reverse competition.” That is, rather than competing by offering lower prices, the insurers competed by offering what is effectively a share in the profits. This profit sharing pushed up the price of force-placed insurance by creating incentives for banks and mortgage servicers to buy force-placed insurance with high premiums. That’s because the higher the premiums, the more that the insurers paid to the banks.
In some cases, QBE paid commissions to insurance agencies and brokers that are affiliates of mortgage servicers. Typically, the commissions are ten to twenty percent of the premium written on the servicer’s mortgage loan portfolio. The evidence from the Investigation indicates that the affiliated agencies and brokers do little or no work for the commissions QBE had paid them.
In June 2011, QBE acquired from Bank of America (BOA) the force-placed insurance business of a BOA subsidiary named Balboa Insurance Company. Balboa provided force-placed insurance on Countrywide and BOA-serviced mortgages (many of which were owned by investors) during the period that Countrywide and BOA owned Balboa, as well as on mortgages for other servicers. This arrangement was highly profitable for Countrywide and BOA because of the low loss ratios for force-placed hazard insurance. In addition, the arrangement created a potential conflict of interest insofar as Countrywide’s and BOA’s bottom line could improve as their Balboa subsidiaries force placed more policies.
Inappropriately Sky-high Premiums That Cost Homeowners, Taxpayers, and Investors
One measure of how profitable force-placed insurance has been for QBE is how little the company has paid in claims as compared to premiums taken in—what is known as the loss ratio. From 2009 to 2011 respectively, QBE Insurance’s actual loss ratios for force-placed hazard insurance in New York were 18.2 percent, 18.5 percent, and 13.5 percent. These loss ratios are substantially below the 55 percent expected loss ratio QBE filed with the Department.
In addition, QBE Insurance has paid contingent “profit” commissions to its affiliated program manager, QBE FIRST when loss ratios were kept below a certain figure, which has ranged from 35 percent to 40 percent — both significantly below the expected loss ratios QBE Insurance filed with the Department. This creates a troubling incentive for QBE FIRST to keep loss ratios as low as possible.
Key Terms of the Settlements
The settlement signed today includes restitution for homeowners who were harmed by QBE and Balboa, a $10 million penalty to be paid by QBE, and a set of major reforms.
Superintendent Lawsky said, “QBE has done the right thing by adopting these reforms. We now need to ensure that the entire industry in New York – 100 percent of it – is subject to our reforms.”
The key terms of today’s settlement include:
To lower the cost of force-placed insurance going forward for all non-flood business:
QBE shall file with DFS a premium rate with a permissible loss ratio of 62 percent, supported by the required data and actuarial analysis that is acceptable both professionally and to DFS. This will substantially reduce homeowners’ premiums.
Every three years, QBE will be required to re-file its rates with DFS for review.
If QBE’s actual rates in any year result in an actual loss ratio of less than 40 percent for the immediately preceding calendar year, QBE will be required to re-file its rates for the next year for DFS review in order to bring the loss ratio back up.
QBE must report annually to DFS on its actual loss ratio, earned premiums, itemized expenses, losses, and reserves.
To put a stop to the improper practices found in DFS’s investigation, many of which helped QBE support inflated premiums:
QBE shall not issue force-placed insurance on mortgaged property serviced by a bank or servicer affiliated with QBE.
QBE shall not pay commissions to a bank or servicer or a person or entity affiliated with a bank or servicer on force-placed insurance policies obtained by the servicer.
QBE shall not reinsure force-placed insurance policies with a person or entity affiliated with the banks or servicer that obtained the policies.
QBE shall not pay contingent commissions based on underwriting profitability or loss ratios.
QBE shall not provide free or below-cost, outsourced services to banks, servicers or their affiliates.
QBE shall not make any payments, including but not limited to the payment of expenses, to servicers, lenders, or their affiliates in connection with securing business.
The above reforms will also apply to Balboa as its policies are run-off and should they write new force-placed policies in the future.
To provide restitution to those who were harmed:
Refunds will be provided to consumers through a claims process and a third-party administrator selected by DFS and paid for by QBE for homeowners who have been force-placed at any time after January 1, 2008 and meet the eligibility criteria for one of the following three categories of claimants:
Homeowners who defaulted on their mortgage or were foreclosed because of force placement.
Homeowners who were charged for force placement at a coverage amount higher than permitted by their mortgage.
Homeowners who were erroneously charged for force-placed insurance: either because they had voluntary insurance in effect, or they were charged commercial rates for a residence.
Additionally, under the terms of the settlements, QBE will provide improved disclosures and notices to homeowners; and ensure that the amount of coverage force placed on any homeowner shall not exceed the last known amount of coverage, provided that if the last known amount of coverage did not comply with the mortgage, then the amount of coverage shall not exceed the replacement cost of improvements on the property.
We’ve come a verrrry looong way from this video I posted on youtube wayyy back on 2/27/2010. Now read the complaint highlights below.
COUNT II [The Florida Bar File Nos. 2011-50,154(17I); 2011-50,216(17I); and 2011-50,511(17I)]
23. During all times material, Cheryl Samons was the office manager for the foreclosure department and/or manager of operations of the Law Offices of David J. Stern, P.A., among other things.
24. During all times material, Cheryl Samons occupied a desk and/or office in close proximity to respondent’s office.
25. Respondent, David J. Stern, was regularly present in the Law Offices of David J. Stern, P.A.
26. In the hierarchy of the staff of the Law Offices of David J. Stern, P.A., Cheryl Samons answered directly to respondent.
27. Cheryl Samons and respondent communicated openly during regular working hours.
28. During all times material, Cheryl Samons, as Assistant Secretary of Mortgage Electronic Registration Systems (c/k/a MERS), or in some other official capacity, did execute thousands of documents, including assignments of mortgage, which were filed in courts throughout the state of Florida in foreclosure cases or recorded in the public record.
29. Associate attorneys in the Stern firm utilized those assignments through filings in courts throughout the state of Florida in the firm’s endeavor to foreclose these properties on behalf of the firm’s lender clients.
30. On a given day, Cheryl Samons executed approximately 500 documents which were either filed in courts throughout the state of Florida or recorded in the public record.
31. Each assignment indicated that it was prepared by David J. Stern, Esq.
32. Numerous assignments were not executed by Cheryl Samons on the date reflected on the document.
33. The false representation of the execution of the assignment is evidenced by the date of the expiration of the notary commission. (Attached hereto and incorporated herein as The Florida Bar Composite Exhibit A are copies of some of the assignments of mortgage.)
34. A review of the first document in The Florida Bar Composite Exhibit P reflects, as an example, that Cheryl Samons executed an assignment of mortgage regarding Lots 9 and 10, Block 4461, Unit 63, Cape Coral, Lee County, Florida on May 25, 2007. Said document reflects it was notarized by another individual, Michelle Camacho, whose notary commission expires on March 24, 2012. A notary term is four years. As such, Michelle Camacho possessed that stamp from March 25, 2008 to March 24, 2012, making it impossible to have notarized the document on May 25, 2007, nearly a year before.
35. Although the documents Cheryl Samons executed, which were filed in courts throughout the state of Florida or filed in the public record, indicated that they were signed in the presence of a notary, in truth and in fact many of the documents were not executed in the presence of a notary.
36. Although the documents Cheryl Samons executed, which were filed in courts throughout the state of Florida or filed in the public record, indicated that they were executed in the presence of a notary, in truth and in fact many of the documents were not necessarily notarized by the reflected notary as the notaries in the office routinely exchanged their notary stamps to accomplish mass notarizing.
37. Many of the documents purported to be executed by Cheryl Samons were in truth and in fact executed by others mimicking Cheryl Samons’ signature, at Cheryl Samons’ instructions and directive. Those documents did not indicate for the reader that Cheryl Samons was not the signatory. Those documents were filed in courts throughout the state of Florida or filed in the public record.
38. Although the documents Cheryl Samons executed, which were filed in the courts throughout the state of Florida or filed in the public record, included witnesses’ signatures which indicated that they witnessed Cheryl Samons as the signatory, many witnesses did not actually observe Cheryl Samons sign the document.
39. The documents heretofore mentioned were stacked side by side on long conference room tables on each of the four floors of the space occupied by the Law Offices of David J. Stern, P.A. 40. On a daily basis during the material times, Cheryl Samons would approach each conference room table, generally twice a day, morning and midafternoon, and execute each document.
41. Respondent knew or should have known that the aforementioned improprieties and irregularities committed by his office manager and other staff occurred on a regular basis.
42. Cheryl Samons was rewarded for her loyalty and malfeasance.
43. The rewards to Cheryl Samons included payment of many of Cheryl Samons’ household bills and the purchase and/or lease of new automobiles.
44. Wherefore, by reason of the foregoing, respondent has violated the following Rules Regulating The Florida Bar: 3-4.2 [Violation of the Rules of Professional Conduct as adopted by the rules governing The Florida Bar is a cause for discipline.]; 3-4.3 [The standards of professional conduct to be observed by members of the bar are not limited to the observance of rules and avoidance of prohibited acts, and the enumeration herein of certain categories of misconduct as constituting grounds for discipline shall not be deemed to be all-inclusive nor shall the failure to specify any particular act of misconduct be construed as tolerance thereof. The commission by a lawyer of any act that is unlawful or contrary to honesty and justice, whether the act is committed in the course of the attorney’s relations as an attorney or otherwise, whether committed within or outside the state of Florida, and whether or not the act is a felony or misdemeanor, may constitute a cause for discipline.]; 4-5.3(b) [With respect to a nonlawyer employed or retained by or associated with a lawyer or an authorized business entity as defined elsewhere in these Rules Regulating The Florida Bar: (1) a partner, and a lawyer who individually or together with other lawyers possesses comparable managerial authority in a law firm, shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that the person’s conduct is compatible with the professional obligations of the lawyer; (2) a lawyer having direct supervisory authority over the nonlawyer shall make reasonable efforts to ensure that the person’s conduct is compatible with the professional obligations of the lawyer; and (3) a lawyer shall be responsible for conduct of such a person that would be a violation of the Rules of Professional Conduct if engaged in by a lawyer if: (A) the lawyer orders or, with the knowledge of the specific conduct, ratifies the conduct involved; or (B) the lawyer is a partner or has comparable managerial authority in the law firm in which the person is employed, or has direct supervisory authority over the person, and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action.]; 4-5.3(c) [Although paralegals or legal assistants may perform the duties delegated to them by the lawyer without the presence or active involvement of the lawyer, the lawyer shall review and be responsible for the work product of the paralegals or legal assistants.]; 4-8.4(a) [A lawyer shall not violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another.]; 4-8.4(c) [A lawyer shall not (c) engage in conduct involving dishonesty, fraud, deceit, or misrepresentation ….]; and 4-8.4(d) [A lawyer shall not engage in conduct in connection with the practice of law that is prejudicial to the administration of justice, including to knowingly, or through callous indifference, disparage, humiliate, or discriminate against litigants, jurors, witnesses, court personnel, or other lawyers on any basis, including, but not limited to, on account of race, ethnicity, gender, religion, national origin, disability, marital status, sexual orientation, age, socioeconomic status, employment, or physical characteristic.].
COUNT III
[The Florida Bar File No. 2011-50,695(17I)]
45. On or about July 29, 2008, an assignment of mortgage prepared by David J. Stern, Esq. was filed in the public records in Citrus County, Florida on behalf of Mortgage Electronic Registration Systems (c/k/a MERS) concerning property described as a portion of Section 35, Township 20 South, Range 20 East, Citrus County, Florida. (Attached hereto and incorporated herein as The Florida Bar Exhibit B is a copy of the assignment of mortgage.)
46. The assignment was executed by Cheryl Samons, as Assistant Secretary, on behalf of MERS. 47. Cheryl Samons, as previously referenced and during all times material, was the office manager for the foreclosure department and/or manager of operations of the Law Offices of David J. Stern, P.A.
48. The assignment contained a false representation as to the date it was executed since the witnessing notary’s term could not have been in existence on September 18, 2007, the date Cheryl Samons executed the assignment.
49. The notary’s term of four years ran from March 25, 2008 until March 24, 2012. The purported date of the execution of the assignment was on September 7, 2007.
50. On or about September 8, 2009, a corrected assignment of mortgage prepared by David J. Stern, Esq. was filed in the public records in Citrus County, Florida on behalf of MERS, as to the same property referenced above. (Attached hereto and incorporated here as The Florida Bar Exhibit C is a copy of the corrected assignment of mortgage.)
51. The “corrected” assignment did not appear to contain any false representations. 52. The corrected assignment was respondent’s attempt to conceal and correct the prior fraudulent assignment filed in the Citrus County public records on July 29, 2008. 53. The respondent knew or should have known that the aforementioned improprieties and irregularities committed by his office manager and others occurred.
4-8.4(c) [A lawyer shall not engage in conduct involving dishonesty, fraud, deceit, or misrepresentation ….]
IN THE SUPREME COURT OF FLORIDA
THE FLORIDA BAR, Complainant,
v.
DAVID JAMES STERN, Respondent.
COMPLAINT OF THE FLORIDA BAR
The Florida Bar, complainant, files this Complaint against David James Stern, respondent (also referred to as David J. Stern), pursuant to the Rules Regulating The Florida Bar and alleges:
1. Respondent is, and at all times mentioned in the Complaint was, a member of The Florida Bar, admitted on November 27, 1991 and is subject to the jurisdiction of the Supreme Court of Florida.
2. Respondent’s law office was located in Broward County, Florida, at all times material.
3. The Seventeenth Judicial Circuit Grievance Committee “I” found probable cause to file this Complaint pursuant to Rule 3-7.4, of the Rules Regulating The Florida Bar, and this Complaint has been approved by the presiding member of that committee.
4. During all times material, respondent was the managing attorney and sole shareholder of the Law Offices of David J. Stern, P.A. (also referred to as the Stern law firm or Stern firm).
If you’re curious to see and read what this all looks like and for a grand total of $300.00 for having your life savings literally stolen from you…. And remember “The Payment is Final. There is no process to appeal the payment”.
The Bank of New York, as successor to JP MORGAN CHASE BANK, N.A., as Trustee for Bear Stearns Asset Backed Securities Trust 2006-SD2, Asset Backed Certificates, Series 2006-SD2, Plaintiff, .
against
Tania Waters, ISMAILA IBRAHIM; NATIONAL CITY BANK, and “JOHN DOE No.1” through “JOHN DOE #10”, the last ten names being fictitious and unknown to the Plaintiff, if any, having or claiming an interest in or lien upon the mortgaged premises described in the complaint, Defendants.
2283/2008
Plaintiffs Attorney –
Shapiro, DiCaro & Barak, LLP
250 Mile Crossing Boulevard, suite 1
Rochester, New York 14624
John A. Dicaro, Esq.
Defendants Pro-se –
Tania Waters & Ismaila Ibrahim
906 East 49th Street
Brooklyn, New York 11203
Wayne P. Saitta, J.
Plaintiff in this action to foreclose on a mortgage on real property located at 906 East 49th Street, Brooklyn New York, THE BANK OF NEW YORK, moves this Court ex-parte for an Order appointing a referee to compute.
Upon reading the Summons, Verified Complaint and Notice of Pendency filed in this action on January 22, 2008 and exhibits annexed thereto, the Affirmation of John A. DiCaro, [*2]Esq. Of Shapiro, DiCaro & Barak, LLC, counsel for Plaintiff, dated October 11 2011, the Affidavit of Marc J. Hinkle sworn to March 1, 2001, and after due deliberation thereupon, the motion for an Order of Reference is denied for the reasons set forth below.
Defendants TANIA WATERS and ISMAILA IBRAHIM, are owners of the property located at 906 East 49th Street, Brooklyn, New York. On September 21, 2005, Defendants executed a note for the sum of $350,000 which they borrowed from PHH Mortgage Corp., (hereinafter “PHH”). On the same date they also entered into a mortgage on the property with PHH.
The mortgage was purportedly assigned to THE BANK OF NEW YORK, as successor to JP MORGAN CHASE BANK , N.A., as Trustee for Bear Stearns Asset
Backed Securities Trust 2006-SD2LT loan, Asset Backed Certificates, Series 2006-SD2,
by a written assignment dated January 3, 2008. The assignment covered the mortgage but did not include the note.
The assignment was executed by Andrea Kanopka, an Assistant Vice President of MERS.
Plaintiff, served a summons and complaint on the mortgagors TANIA WATERS and ISMAILA IBRAHIM, neither of whom appeared or filed an answer.
The complaint states in paragraph 6 “If Plaintiff is not the original mortgagee then the information regarding the chain of title will be contained in Schedule D.” In turn, Schedule D states that ” The Plaintiff became the owner of the note and mortgage as a result of a purchase thereof for valuable consideration prior to the commencement of this action. The Assignment of mortgage memorializing Plaintiff’s interest has not yet been recorded; however, plaintiff has standing to prosecute the foreclosure action in its capacity as beneficial owner and holder of the note and mortgage.”
Paragraph 11 of the complaint alleges that the Plaintiff is the true and lawful owner of said bond/note and mortgage . . .”
The Court denied a previous motion for a referee by Plaintiff, on August 10, 2010 on the grounds that Plaintiff has submitted no evidence that the purported assignor had authorized MERS to assign the mortgage.
On this application Plaintiff has still not submitted any proof that PHH authorized MERS to assign this mortgage. Plaintiff instead argues that the note contains an allonge and blank indorsement and is a negotiable instrument. Plaintiff further argues that the note was negotiated to Plaintiff by delivery, and that as a result of its being in possession of the note, the mortgage was transferred to it as in incident of the negotiation of the note.
However, the pleadings in this case are vague and conclusory as to how Plaintiff came into possession of the note. Schedule D annexed to the complaint simply states that Plaintiff became the owner of the note and mortgage as a result of a purchase thereof for valuable consideration prior to the commencement of this action and that it is the beneficial owner and holder of the note and mortgage. It does not state that the note was negotiated by delivery, or the date of any delivery.
Paragraph 11 of the complaint alleges, in a similarly conclusory manner, that Plaintiff is the true and lawful owner of the said note and mortgage..
Plaintiff’s attorney alleges in his affirmation that “a complete copy of the fully indorsed note was inadvertently excluded from the Plaintiff’s Summons and Complaint at the time of filing” and annexes what he claims to a complete copy of the note. [*3]
The copy of the note submitted with this new motion does contain an indorsement on page five of the note as well a separate page title “Allonge” with an indorsement. Both indorsements are undated.
The copy of the note submitted with the new motion raises serious questions. The copy of the note originally submitted with the summons and complaint contains no indorsement on page 5 whereas the copy submitted with this motion contains on the face of page 5 an indorsement by Janice Grant, who held herself out as Assistant Vice president of PHH. Over that indorsement is stamped the words “Endorsement Deleted”.
The purported allonge is signed by Derrick Downs, who is also listed as an Assistant Vice President of PHH.
This is not merely a matter of having submitted an incomplete copy of the note with the summons and complaint. The copy of page 5of the note has clearly been altered to add an indorsement after filing the summons and complaint. Plaintiff’s counsel has not offered an adequate or credible explanation as to how there was no indorsement on page 5 of the copy of the note at the time it was submitted with the summons and complaint.
This raises serious issues as to whether the Plaintiff was in fact the holder of the note at the commencement of the action. If in fact the indorsement was added to page 5 after the summons and complaint were filed then the note was not a negotiable instrument at the time this action was commenced, and could not be transferred by mere delivery.
Further, the fact the page 5 of the note was altered casts doubt as to whether the purported allonge was part of the note at the commencement of the actions. Plaintiff has offered no explanation as to how the allonge page was not included in the copy of the note submitted with the summons and complaint, if it was securely fastened to the note .
Additionally, the purported assignment by MERS assigns the mortgage to ” The Bank of New York, as successor to JP Morgan Chase Bank , N.A., as Trustee for Bear Stearns Asset Backed Securities Trust 2006-SD2 LT loan, Asset Backed Certificates, Series 2006-SD2,” (emphasis added) not to Plaintiff THE BANK OF NEW YORK, as successor to JP MORGAN CHASE BANK , N.A., as Trustee for Bear Stearns Asset Backed Securities Trust 2006-SD2, Asset Backed Certificates, Series 2006-SD2.
On its face it appears that the mortgage was assigned to a different entity than the Plaintiff. The Court has no way of determining whether these are two distinct entities created for two different securitizations or what the relationship between the entities might be.
The issue of standing is an affirmative defense which is deemed waived if not raised in an answer. However, ownership of the note is part of a Plaintiff’s prima facie case and its burden of proof. In a foreclosure case, the Plaintiff must plead and prove as part of its prima facie case that it owns the note and mortgage and has the right to foreclose. Wells Fargo Bank, N.A., v Cohen, 80 AD3d 753, 915 N.Y.S.2d 569 (2d Dept 2011); Argent Mtge. Co., LLC v. Mentesana, 79 AD3d 1079, 915 N.Y.S.2d 591 (2d Dept 2010); Campaign v Barba, 23 AD3d 327, 805 NYS2d 86 (2nd Dept 2005).It is proper for the court to deny an application for a default judgement and order of reference where the underlying papers presented to the court are defective on their face or do not contain sworn or affirmed allegations demonstrating the merit of the claims. Crain AG v 206 West 41st St. Hotel Assoc. LP, 87 AD3d 174, 926 NYS2d438 (1st Dept 2011); Beltre v. Babu, 32 AD3d 722, 821 N.Y.S.2d 69 (1st Dept 2006); State v Williams, 44 AD3d 1149, 843 NYS2d 722 (3rd Dept 2007).
Conclusory statements that Plaintiff became owner of the note prior to the [*4]commencement of the action alone are insufficient. Plaintiff has not submitted a statement from anyone with knowledge that the note was in fact physically delivered to Plaintiff or when it was delivered. Nor was there submitted any books or records of the Plaintiff indicating that the note was negotiated or physically delivered to the Plaintiff or when it was negotiated or delivered.
Most disturbingly, Plaintiff presents the Court with two different versions of the note, one of which was altered and is not a true copy. Plaintiff does not even attempt to offer an explanation for why an altered document was submitted to the Court.
Additionally, in this case, the purported assignment presented indicates that the mortgage was assigned to a different entity.
The Court can not turn a blind eye to the alteration of documents submitted or documents which on their face indicate another entity may own the mortgage, simply because the application is on default.
WHEREFORE, the ex parte application for an order of reference is denied.
Recent Comments