April, 2015 | FORECLOSURE FRAUD | by DinSFLA

Archive | April, 2015

Ocwen, Assurant to pay $140 million to settle massive force-placed insurance suit

Ocwen, Assurant to pay $140 million to settle massive force-placed insurance suit

Housing Wire-

Ocwen Financial (OCN) and Assurant (AIZ) have agreed to pay $140 million to settle a massive class-action lawsuit, which accused Ocwen of artificially inflating the cost of force-placed insurance in exchange for kickbacks from Assurant.

The settlement agreement, which is awaiting final approval from federal court in Florida, resolves claims of 399,843 homeowners who took part in the class-action suit.

Under the terms of the settlement, Ocwen and Assurant will pay more than $140 million in monetary relief, which constitutes 50% to 100% of the “best-case scenario damages recoverable by the class had the parties proceeded to trial,” according to court documents obtained by HousingWire.

 [HOUSING WIRE]

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Lawsuit accuses Wells Fargo of profiting from foreclosure relief program

Lawsuit accuses Wells Fargo of profiting from foreclosure relief program

Reuters-

A new class action lawsuit filed on behalf of a Poughkeepsie, New York homeowner accuses Wells Fargo of feigning compliance with a federal program meant to help borrowers avoid foreclosure while the bank was profiting from federal bailout funds.

Filed last Thursday by Sultzer Law Group, the lawsuit said Wells intentionally dragged out modifying loans so it could collect more fees, penalties and interest from struggling homeowners trying to stay in their homes.

 [REUTERS]

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GOVERNOR CUOMO ANNOUNCES NEW REGULATIONS TO CRACK DOWN ON KICKBACKS AND IMPROPER EXPENSES IN THE TITLE INSURANCE INDUSTRY

GOVERNOR CUOMO ANNOUNCES NEW REGULATIONS TO CRACK DOWN ON KICKBACKS AND IMPROPER EXPENSES IN THE TITLE INSURANCE INDUSTRY

April 29, 2015

Contact: Matt Anderson, 212-709-1691

GOVERNOR CUOMO ANNOUNCES NEW REGULATIONS TO CRACK DOWN ON KICKBACKS AND IMPROPER EXPENSES IN THE TITLE INSURANCE INDUSTRY

“Anti-inducement” regulations and broader reforms expected to cut title insurance closing costs up to 20 percent for new purchases, up to 60 percent for refinances

Governor Andrew M. Cuomo today announced new regulations to crack down on kickbacks and other improper expenditures (such as excessive meal and entertainment expenses) in the title insurance industry, which a Department of Financial Services investigation uncovered are significantly inflating title insurance premiums for consumers. These new regulations, together with broader reform measures, are expected to reduce title insurance closing costs by up to 20 percent for new home purchases and up to 60 percent for refinancing transactions.

“New Yorkers should not have to foot the bill for outrageous or improper expenses made by title companies just to refinance or close on their home,” Governor Cuomo said. “Our administration will not stand for that kind of abuse in the title insurance industry, and these new regulations will help ensure that New Yorkers are protected from unfair charges and get the most bang for their buck.”

Benjamin M. Lawsky, Superintendent of Financial Services, said, “Our investigation uncovered that title insurance companies paid for lavish meals and entertainment on the dime of consumers, which inflated premiums. These new reforms will help significantly reduce costs for homeowners by trimming the fat and making sure that New Yorkers get what they pay for in the title insurance industry.”

The regulation outlines categories of expenditures which, when provided as an inducement for title insurance business, are improper and violative of the New York Insurance Law. These expenditures include meals, entertainment, vacations and gifts that are provided to attorneys, real estate professionals, and others, who represent consumers and order title insurance on their behalf.

The investigation revealed that these types of expenditures are routinely made by title insurance corporations and agents in an effort to secure title insurance business. These improper expenditures have been included in the calculation of title insurance rates and have saddled New York consumers with excessive title insurance premiums for years. The regulation mandates that these improper expenditures, which violate the anti-inducement provision of the Insurance Law, be eliminated from the rates, thereby resulting in lower title insurance premiums.

The regulation also imposes caps on ancillary charges, which are fees for additional searches and services that are provided in connection with the issuance of a title insurance policy, but not included in the title insurance premium. The investigation further revealed that some title insurers and title insurance agents mark up these searches three and four times their cost and otherwise charge consumers additional excessive fees. The regulation also precludes the payment of gratuities and pick-up fees to closers of real estate transactions, which add hundreds of dollar to consumers’ final closing bills.

In order to ensure continued compliance, the regulation mandates that at least once every three years a filing be made demonstrating that title insurance rates comply with the Insurance Law, and are not excessive, inadequate or discriminatory. The review of these filings is expected to help ensure that title insurance reforms result in lower premiums.

Today’s proposed regulations are part of a series of actions the Department of Financial Services is taking to lower premiums and improve accountability in the title insurance industry. The 2014-15 Enacted Budget provided the Department of Financial Services with the authority to issue licenses to title insurance agents for the first time, just as it licenses all other insurance agents and brokers. Licensing requires agents to meet qualification standards and undergo regular training. The Department of Financial Services will also have the authority to monitor abuse by agents and to revoke licenses accordingly, as well as help root out conflicts of interest that drive up costs for homeowners.

To view a copy of the proposed regulations, which are subject to public comment, please visit here.

###

source: http://www.dfs.ny.gov

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CFPB and State of Maryland Take Action Against “Pay-To-Play” Mortgage Kickback Scheme

CFPB and State of Maryland Take Action Against “Pay-To-Play” Mortgage Kickback Scheme

CFPB and State of Maryland Take Action Against “Pay-To-Play” Mortgage Kickback Scheme

Loan Officers and Former Title Company Executives Who Traded Cash and Marketing Services for Illegal Referrals Will Be Banned, Pay Redress and Penalties

WASHINGTON, D.C. — Today the Consumer Financial Protection Bureau (CFPB) and the Maryland Attorney General took action against the participants in a mortgage-kickback scheme. In a complaint filed in federal court, the CFPB and Maryland allege that the Maryland-based title company’s executives and the named loan officers traded cash and marketing services in exchange for mortgage referrals. Under proposed consent orders filed today, if entered by the court, five of the six individual defendants would be banned from the mortgage industry and required to pay a total of $662,500 in redress and penalties. The action will proceed against the remaining defendant. The announcement follows enforcement actions in January against Wells Fargo and JPMorgan Chase for their role in the scheme.

“Paying kickbacks for mortgage referrals is illegal, and it has been illegal for decades,” said CFPB Director Richard Cordray. “Secret and unlawful payments keep consumers in the dark and put honest businesses at a disadvantage, and the Consumer Bureau will continue to take action against them.”

“This quid pro quo arrangement harmed homeowners as well as other businesses that play by the rules,” said Maryland Attorney General Brian E. Frosh. “Working with our federal partners, we’re determined to make sure these individuals pay the price for violating the law, just as we held mortgage banks accountable for their roles in the scheme.”

Genuine Title was a Maryland-based title company that offered real estate closing services from 2005 until it went out of business in April 2014. The CFPB and Maryland Attorney General’s complaint names Genuine Title, LLC; Jay Zukerberg; Brandon Glickstein; Gary Klopp; Adam Mandelberg; William Peterson; Angela Pobletts; and a number of limited-liability companies controlled by certain defendants. Zukerberg was the founder and sole owner of Genuine Title, and Glickstein was the company’s director of marketing. Klopp, Mandelberg, and Pobletts were loan officers working in the greater Baltimore area. Peterson was a loan officer and the president of a Maryland-based mortgage brokerage.

The CFPB and Maryland allege that Zukerberg and Glickstein developed and operated schemes to give loan officers marketing services and cash payments in exchange for referrals of mortgage business. The kickback schemes violated the Real Estate Settlement Procedures Act (RESPA), which prohibits giving a “fee, kickback, or thing of value” in exchange for a referral of business related to a real estate settlement service. Specifically, the Bureau and Maryland allege that the defendants:

  • Exchanged valuable marketing services for referrals: Genuine Title offered services, including purchasing, analyzing, and providing data on consumers, and creating letters with the loan officers’ contact information that the company printed, folded, stuffed into envelopes, and mailed. In return, the loan officers would refer homebuyers to the company for closing services. This scheme was especially profitable for the loan officers, who generally are paid by commission, because the marketing services increased the amount of business they generated.
  • Funneled illegal cash kickbacks through a network of companies: The four individual loan officers named in today’s filings allegedly received cash payments through companies they created and controlled. Zukerberg knew that it would look “fishy” if Genuine Title paid cash directly to the loan officers. So, instead, Genuine Title funneled the payments to loan officers through companies created by the loan officers. From 2009 to 2013, Zukerberg and Glickstein arranged for cash payments to the loan officers from Genuine Title in amounts ranging from about $130,000 to $500,000.

Enforcement Action

Under the consent orders filed today, if entered by the court, the individual defendants would be subject to the following sanctions:

  • Jay Zukerberg would be banned from the mortgage industry for five years, required to pay $130,000 in redress and penalties, and prohibited from further violations of RESPA.
  • Brandon Glickstein would be banned from the mortgage industry for five years, required to pay $400,000 in redress, and prohibited from further violations of RESPA.
  • Adam Mandelberg would be banned from the mortgage industry for two years, required to pay $30,000 in redress, and prohibited from further violations of RESPA.
  • William Peterson would be banned from the mortgage industry for two years, required to pay $65,000 in redress, and prohibited from further violations of RESPA.
  • Angela Pobletts would be banned from the mortgage industry for two years, required to pay $37,500 in redress, and prohibited from further violations of RESPA.
  • Genuine Title, LLC would be prohibited from further violations of RESPA.

Mandelberg, Peterson, and Pobletts also would be required to report this action to the Nationwide Mortgage Licensing System & Registry. The action will proceed against the remaining defendant, Gary Klopp.

Under the proposed consent orders, some consumers who obtained loans from the individual loan officers – or, in some cases, other loan officers they worked with – and paid fees for services where legal violations occurred would receive partial or complete refunds of those fees. The Bureau would determine who those consumers are, and would contact consumers who are eligible for relief.

Today’s actions are the result of a joint investigation by the CFPB, the State of Maryland, and the Maryland Insurance Administration, which regulates title-insurance providers such as Genuine Title.

A copy of the CFPB and Maryland’s complaint is available here:
http://files.consumerfinance.gov/f/201504_cfpb_complaint_genuine-title.pdf

The consent order filed with the court for Jay Zukerberg is available here:
http://files.consumerfinance.gov/f/201504_cfpb_proposed-order_zukerberg.pdf

The consent order filed with the court for Brandon Glickstein is available here:
http://files.consumerfinance.gov/f/201504_cfpb_proposed-order_glickstein.pdf

The consent order filed with the court for Adam Mandelberg is available here:
http://files.consumerfinance.gov/f/201504_cfpb_proposed-order_mandelberg.pdf

The consent order filed with the court for William Peterson is available here:
http://files.consumerfinance.gov/f/201504_cfpb_proposed-order_peterson.pdf

The consent order filed with the court for Angela Pobletts is available here:
http://files.consumerfinance.gov/f/201504_cfpb_proposed-order_pobletts.pdf

The consent order filed with the court for Genuine Title, LLC is available here:
http://files.consumerfinance.gov/f/201504_cfpb_proposed-order_genuine-title.pdf

More information about the January 2015 enforcement action against Wells Fargo and JPMorgan Chase is available here:
http://www.consumerfinance.gov/newsroom/cfpb-takes-action-against-wells-fargo-and-jpmorgan-chase-for-illegal-mortgage-kickbacks/

###
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.

Updated on April 29, 2015 to include a statement from Maryland Attorney General Brian E. Frosh.

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Nationstar Mtge., LLC v Dimura | NY APPELLATE 2nd DEPT. –  the plaintiff did not demonstrate that it complied with the condition precedent contained in the subject mortgage agreement

Nationstar Mtge., LLC v Dimura | NY APPELLATE 2nd DEPT. – the plaintiff did not demonstrate that it complied with the condition precedent contained in the subject mortgage agreement

Decided on April 29, 2015 SUPREME COURT OF THE STATE OF NEW YORK Appellate Division, Second Judicial Department
REINALDO E. RIVERA, J.P.
SHERI S. ROMAN
SANDRA L. SGROI
COLLEEN D. DUFFY, JJ.

2014-04314
(Index No. 2455/09)

[*1]Nationstar Mortgage, LLC, respondent,

v

Michael Dimura, et al., appellants, et al., defendants.

John M. Schwarz, Jr., Chestnut Ridge, N.Y., for appellants.

Sandelands Eyet, LLP, New York, N.Y. (Chen Kasher and Geoffrey C. Jacobson of counsel), for respondent.

DECISION & ORDER

In an action to foreclose a mortgage, the defendants Michael Dimura and Jacqueline Dimura appeal from an order of the Supreme Court, Orange County (Slobod, J.), dated April 1, 2014, which, upon a decision of the same court also dated April 1, 2014, granted the plaintiff’s motion, inter alia, for summary judgment on the complaint insofar as asserted against them.

ORDERED that the order is reversed, on the law, with costs, and the plaintiff’s motion, inter alia, for summary judgment on the complaint insofar as asserted against the defendants Michael Dimura and Jacqueline Dimura is denied.

The plaintiff failed to establish its prima facie entitlement to judgment as a matter of law. In support of its motion, the plaintiff did not demonstrate that it complied with the condition precedent contained in the subject mortgage agreement, which required that it provide the defendants Michael Dimura and Jacqueline Dimura (hereinafter together the defendants) with a notice of default prior to demanding payment of the loan in full. The evidence did not establish that the required notice was mailed by first class mail or actually delivered to the notice address if sent by other means, as required by the terms of the mortgage agreement (see Wells Fargo Bank, N.A. v Eisler, 118 AD3d 982, 982-983; HSBC Mtge. Corp. [USA] v Gerber, 100 AD3d 966, 966-967; Norwest Bank Minn. v Sabloff, 297 AD2d 722, 723). The plaintiff’s failure to make a prima facie showing required the denial of its motion, regardless of the sufficiency of the defendants’ opposition papers (see Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853).

The parties’ remaining contentions either are without merit or need not be reached in light of our determination.

RIVERA, J.P., ROMAN, SGROI and DUFFY, JJ., concur.
ENTER:

Aprilanne Agostino

Clerk of the Court

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COLEMAN vs DISTRICT OF COLUMBIA | Class Action – Benjamin Coleman brought this lawsuit to challenge a District of Columbia law that directed the sale of a lien on his home after he failed to pay a $133.88 property-tax bill.

COLEMAN vs DISTRICT OF COLUMBIA | Class Action – Benjamin Coleman brought this lawsuit to challenge a District of Columbia law that directed the sale of a lien on his home after he failed to pay a $133.88 property-tax bill.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________

BENJAMIN COLEMAN, through his
Conservator, ROBERT BUNN, et al.,

Plaintiffs,

v.

DISTRICT OF COLUMBIA,

Defendant.
__________________________________

MEMORANDUM OPINION

Benjamin Coleman brought this lawsuit to challenge a District
of Columbia law that directed the sale of a lien on his home
after he failed to pay a $133.88 property-tax bill. That law
permitted the private purchaser of the lien to add $4,999 in
interest, costs, and fees to Mr. Coleman’s bill and, when Mr.
Coleman could not pay, to institute a foreclosure proceeding.
After the foreclosure proceeding, the private purchaser obtained
title to Mr. Coleman’s home. Mr. Coleman, however, received
nothing, although the amount of equity he had in his home far
surpassed the amount he admittedly owed in taxes, interest,
costs, and related fees. Because the loss of this surplus equity
was dictated by District of Columbia law, Mr. Coleman sued to
challenge that law. His claim is that the taking of his excess
equity—the amount of equity minus the taxes and related costs he
admits that he owed—violated his constitutional rights under the
Takings Clause of the Fifth Amendment to the United States
Constitution. As a remedy for the alleged constitutional
violation, Mr. Coleman asked this Court to award him monetary
damages and to issue a declaratory judgment. Mr. Coleman brought
this case not only on his own behalf, but also as a
representative of all District property owners who suffered a
loss of excess equity due to the District’s tax-sale law.

[…]

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NY Lawmakers Want Banks Held Accountable For ‘Zombie Properties’

NY Lawmakers Want Banks Held Accountable For ‘Zombie Properties’

CBS New York-

Officials are warning the foreclosure crisis in the boroughs isn’t over and are taking aim at so-called “zombie properties.”

Although many people might think the crisis is abating, there has actually been a sharp increase in abandoned and foreclosed homes in the last year, state Attorney General Eric Schneiderman said Monday.

“Last year in the Bronx there was a 45 percent increase in the number of ‘zombies,’”Schneiderman said.

Bronx state Sen. Jeff Klein is introducing a bill that would let homeowners stay in the homes as long as possible and hold the banks accountable for the disrepair.

 [CBS NEW YORK]

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Colorado AG sends checks for $7.7M in foreclosure overcharge settlement an enforcement action against the Denver firm of Aronowitz & Mecklenburg LLP

Colorado AG sends checks for $7.7M in foreclosure overcharge settlement an enforcement action against the Denver firm of Aronowitz & Mecklenburg LLP

The Denver Post-

Homeowners victimized by a law firm’s alleged overcharging of foreclosure fees are receiving restitution of $7.7 million.

The money comes from an enforcement action against the Denver firm of Aronowitz & Mecklenburg LLP, initiated by the Colorado Attorney General’s office.

A lawsuit filed last year by regulators alleges that principals in Colorado’s two largest foreclosure law firms — Aronowitz & Mecklenburg and Castle Law Group, plus some smaller firms — inflated fees charged to homeowners who were trying to save their homes from foreclosure proceedings.

Aronowitz & Mecklenburg agreed to settle the lawsuit without admitting guilt. Castle Law Group is fighting the charges.

[THE DENVER POST]

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New HUD rules delay some foreclosures for a year

New HUD rules delay some foreclosures for a year

HUD No. 15-048
Cameron French
(202) 708-0980
FOR RELEASE
Friday
April 24, 2015
 

 

HUD ANNOUNCES CHANGES TO DISTRESSED ASSET STABILIZATION PROGRAM
HUD requires Investors to delay foreclosure for a year and offers a non-profit only pool sale
 .

WASHINGTON – Today, HUD announced significant changes to its Distressed Asset Stabilization Program (DASP). In an effort to better serve homeowners looking to avoid foreclosure, loan servicers will now be required to delay foreclosure for a year and to evaluate all borrowers for the Home Affordable Modification Program (HAMP) or a similar loss mitigation program. HUD is making additional improvements to the Neighborhood Stabilization Outcome (NSO) sales portion of DASP which are aimed at increasing non-profit participation. Updates include giving non-profits a first look at vacant properties, allowing purchasers to re-sell notes to non-profits, and offering a non-profit only pool.Previously, loan servicers could foreclose 6 months after they received the loan and were encouraged, though not required to assess a borrower’s qualifications for loss mitigation programs. Purchasers of the geographically targeted neighborhood stabilization pools have always been required to ensure that at least 50 percent of the loans in a pool achieve outcomes that help areas hardest hit by foreclosure avoid the neighborhood decline associated with numerous vacant properties.

“These changes reflect our desire to make improvements that encourage investors to work with delinquent borrowers to find the right solutions for dealing with the potential loss of their home and encourage greater non-profit participation in our sales,” said Genger Charles, Acting General Deputy Assistant Secretary, Office of Housing. “The improvements not only strengthen the program but help to ensure it continues to serve its intended purposes of supporting the MMI Fund and offering borrowers a second chance at avoiding foreclosure.”

All of these changes will be subject to stronger reporting requirements including tougher penalties for not complying with quarterly reporting responsibilities and a new requirement to report on borrower outcomes, even when a note is sold after the original purchase.

HUD plans to hold its first sale of 2015 in June.
 

Distressed Asset Stabilization Program

FHA’s note sales program was resumed in 2010 as a direct sale pilot program that allows pools of mortgages headed for foreclosure to be sold to qualified bidders and encourages them to work with borrowers to help bring the loan out of default. In many cases, this is a less expensive alternative to foreclosure and sale as a real estate-owned (REO) property.  An FHA servicer can place a loan into the loan pool if the following criteria are met:

  • The borrower is at least six months delinquent on their mortgage
  • The servicer has exhausted all steps in the FHA loss mitigation process

In 2012, as part of an effort to address its seriously delinquent loan portfolio, FHA announced that, over the next several years, it would significantly increase the number of loans it makes available for purchase as well as add a new neighborhood stabilization pool to encourage investment in communities hardest hit by the foreclosure crisis. The “Neighborhood Stabilization Outcome” (NSO) pools, as an additional safeguard in distressed communities requires that 50 percent of the loans within a purchased pool achieve a neighborhood stabilizing outcome.  If the servicer and borrower are unable to avoid taking the loan through foreclosure, the servicer must achieve some other neighborhood stabilizing outcome, which may include holding the property for rental for at least three years.

Typically, HUD’s Distressed Asset Stabilization Program sales are broken into two or more sales, consisting of at least one “National Sale” featuring loans from a diversified cross -section of the country, and a “Neighborhood Stabilizing Outcome” or “NSO” Sale featuring loans drawn from specifically targeted geographic areas. 

###

HUD’s mission is to create strong, sustainable, inclusive communities and quality affordable homes for all.
More information about HUD and its programs is available on the Internet
at www.hud.gov and http://espanol.hud.gov.

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Russell v. Aurora Loan Services, LLC, 2D14-3166 (Fla. Dist. Ct. App. 2015) | We reverse because Nationstar failed to establish that the original plaintiff, Aurora Loan Services, LLC (Aurora), had standing to foreclose at the time Aurora filed the foreclosure complaint.

Russell v. Aurora Loan Services, LLC, 2D14-3166 (Fla. Dist. Ct. App. 2015) | We reverse because Nationstar failed to establish that the original plaintiff, Aurora Loan Services, LLC (Aurora), had standing to foreclose at the time Aurora filed the foreclosure complaint.

 

WILLIAM CRAIG RUSSELL, Appellant,
v.
AURORA LOAN SERVICES, LLC; NATIONSTAR MORTGAGE, LLC; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INCORPORATED AS NOMINEE FOR FIRST NATIONAL BANK OF ARIZONA; RL JAMES, INC.; and SUNDIAL OF SANIBEL CONDOMINIUM ASSOCIATION, INC., Appellees.

Case No. 2D14-3166.
District Court of Appeal of Florida, Second District.
Opinion filed April 24, 2015.
Richard Johnston Jr., of Johnston Champeau, LLC, Fort Myers, for Appellant.

Nancy M. Wallace of Akerman LLP, Tallahassee; William P. Heller of Akerman LLP, Fort Lauderdale; and Celia C. Falzone of Akerman LLP, Jacksonville, for Appellees Aurora Loan Services, LLC and Nationstar Mortgage, LLC.

No appearance for remaining Appellees.

BLACK, Judge.

William Russell appeals a final judgment of foreclosure entered in favor of Nationstar Mortgage, LLC (Nationstar), following a bench trial. We reverse because Nationstar failed to establish that the original plaintiff, Aurora Loan Services, LLC (Aurora), had standing to foreclose at the time Aurora filed the foreclosure complaint.

On February 25, 2011, Aurora filed a single-count, verified complaint for foreclosure. In the complaint, Aurora alleged both that it was the servicer of the loan, authorized to bring the lawsuit, and that it held the note and mortgage. Attached to the complaint were a note payable to First National Bank of Arizona with no indorsements, an allonge containing three indorsements, a mortgage naming Mortgage Electronic Registration Systems, Inc. (MERS), as nominee for First National Bank of Arizona, and a corporate assignment of mortgage.

The assignment reflects that the mortgage was assigned from MERS as nominee for First National Bank of Arizona and its successors and assigns to Aurora on November 23, 2010, prior to the initiation of the lawsuit. The note with attached allonge contains three undated special indorsements. The first indorsement is from First National Bank of Arizona to First National Bank of Nevada. The second is from First National Bank of Nevada to Residential Funding Company, LLC. And the third indorsement is from Residential Funding Company, LLC, to Deutsche Bank Trust Company Americas as Trustee (Deutsche Bank). Deutsche Bank is not a party to the action nor was it served.

During the course of litigation Aurora moved to have Nationstar substituted as plaintiff, and the court granted the motion. Aurora attached to its motion an assignment of mortgage from Aurora to Nationstar. An amended complaint was not filed. In his answer, Mr. Russell raised standing as an affirmative defense, alleging that Aurora lacked standing to foreclose and that Nationstar, as substituted party plaintiff, also lacked standing.

 

A bench trial was held on June 20, 2014. Nationstar called Jose Perez as its sole witness. Mr. Perez testified that he was a default specialist for Nationstar and had previously worked in the same capacity for Aurora. The original note and mortgage were admitted into evidence along with the assignment of mortgage. However, the assignment did not purport to assign or transfer the note, and as previously observed, the note was not indorsed to Aurora nor was it indorsed in blank. See Lindsey v. Wells Fargo Bank, N.A., 139 So. 3d 903, 904-05 (Fla. 1st DCA 2013); see also Bristol v. Wells Fargo Bank, Nat’l Ass’n, 137 So. 3d 1130, 1133 (Fla. 4th DCA 2014) (disapproving the bank’s argument that the assignment of mortgage, reflecting only transfer of the mortgage and not the note, supported its standing to foreclose). In addition to those documents, a limited power of attorney (POA) executed by Deutsche Bank and evidencing Nationstar’s designation as loan servicer was admitted over objection. The POA identified Nationstar as the successor servicer to Aurora, which was a successor servicer to Residential Funding Company, LLC. The POA, dated August 6, 2012, does not indicate when Nationstar became the successor servicer to Aurora or when Aurora succeeded Residential Funding Company.

Mr. Russell moved for involuntary dismissal based on Aurora’s and Nationstar’s lack of standing. He argued that neither Aurora nor Nationstar was the holder of the note and that there was a total lack of evidence establishing Aurora’s authority to bring the foreclosure action as servicer. He further argued that the best evidence of standing that Nationstar presented was the POA which was signed well after the suit was commenced and was unclear as to whether it even applied to Mr. Russell’s loan.

The court did not expressly deny Mr. Russell’s motion. And despite expressing concerns regarding standing, the court ultimately entered the final judgment of foreclosure in favor of Nationstar.

“A plaintiff alleging standing as a holder must prove it is a holder of the note and mortgage both as of the time of trial and also that the (original) plaintiff had standing as of the time the foreclosure complaint was filed.” Kiefert v. Nationstar Mortg., LLC, 153 So. 3d 351, 352 (Fla. 1st DCA 2014). Under this theory, a plaintiff must establish more than just physical possession of the original note. If the plaintiff is not the payee of the original note, the plaintiff must also prove that the original note contains an indorsement in favor of the plaintiff (special indorsement) or an indorsement in blank. Id. at 353. In either case, the indorsement must have been made prior to the filing of the lawsuit in order to establish the plaintiff’s standing. Id. A substituted plaintiff acquires only the standing of the original plaintiff. Fla. R. Civ. P. 1.260; Kiefert, 153 So. 3d at 353 n.4.

Here, the only note in evidence was payable to First National Bank of Arizona and specially indorsed, ultimately, to Deutsche Bank as trustee. Nationstar’s witness, Mr. Perez, testified that Deutsche Bank was the holder of the note. Thus, Nationstar failed to establish that Aurora had standing to bring the foreclosure suit as a holder. See Lacombe v. Deutsche Bank Nat’l Trust Co., 149 So. 3d 152, 155 (Fla. 1st DCA 2014) (“[N]one of Deutsche Bank’s exhibits qualifies as an indorsement from [the note holder] to Deutsche Bank, an assignment from [the note holder] to Deutsche Bank, or an affidavit otherwise proving the plaintiff’s standing to bring the foreclosure action on the note and mortgage at issue as a matter of law.”).

“In the mortgage foreclosure context, `standing is broader than just actual ownership of the beneficial interest in the note.'” Elston/Leetsdale, LLC v. CWCapital Asset Mgmt. LLC, 87 So. 3d 14, 16-17 (Fla. 4th DCA 2012) (quoting Mortg. Elec. Registration Sys., Inc. v. Azize, 965 So. 2d 151, 153 (Fla. 2d DCA 2007)). Florida Rule of Civil Procedure 1.210(a), the real party in interest rule, “`permits an action to be prosecuted in the name of someone other than, but acting for, the real party in interest.’ ” Azize, 965 So. 2d at 153 (quoting Kumar Corp. v. Nopal Lines, Ltd., 462 So. 2d 1178, 1183 (Fla. 3d DCA 1985)). Thus, “a servicer may be considered a party in interest to commence legal action as long as the trustee joins or ratifies its action.” Elston/Leetsdale, 87 So. 3d at 17 (emphasis omitted).

In this case, as in Elston/Leetsdale, Aurora alleged and verified as true that it was the loan servicer and had authority to bring the foreclosure action. Aurora did not allege upon what authorization it acted. Nor did Aurora attach to the complaint or file of record “any evidence, affidavits[,] or other documents, supporting its allegation that it was authorized to prosecute the action on behalf of the trust.” See Elston/Leetsdale, 87 So. 3d at 17. And, as in Elston/Leetsdale, the complaint was verified by an employee of Aurora and not by the real party in interest—Deutsche Bank.

 

Nationstar contends, as it did at trial, that the POA sufficiently establishes Aurora’s standing at the time the foreclosure suit was filed. However, as previously noted, the POA is dated some eighteen months after the complaint was filed, grants limited powers to Nationstar only, and does not indicate the dates which Aurora previously acted as servicer for Deutsche Bank. Nor does it indicate that Aurora held a similar POA or was otherwise given the same limited powers granted to Nationstar. Cf. One W. Bank, F.S.B. v. Bauer, 39 Fla. L. Weekly D1160 (Fla. 2d DCA May 30, 2014) (granting petition for writ of certiorari and noting that powers of attorney for both the original servicer and successor servicer were introduced into evidence), rev. denied, 157 So. 3d 1041 (Fla. 2014). Nationstar’s evidence established that it was the current loan servicer for Deutsche Bank; it did not prove that Aurora had standing as a prior servicer. See Murray v. HSBC Bank USA, 157 So. 3d 355, 358-59 (Fla. 4th DCA 2015).

Perhaps more importantly, even if the POA could in some way be evidence of Aurora’s authority to bring the foreclosure action, the POA merely references agreements which identify mortgage loans serviced by Nationstar and those agreements identify loans not by loan number or name but rather by “series” numbers which do not correlate to any of Mr. Russell’s loan documents in evidence. When questioned about the agreements referenced in the POA, Mr. Perez was unable to state what loans were included in the various series identified. Nationstar failed to present any evidence that Mr. Russell’s loan was among those included in the agreements referenced in the POA. Thus, Nationstar failed to establish that it—and its predecessor Aurora—had standing to foreclose the note and mortgage at issue. See Lacombe, 149 So. 3d at 154-55.

Because Nationstar failed to adduce any evidence of its predecessor’s standing to bring the foreclosure suit, we must consider what relief may be afforded to Mr. Russell on remand. Rule 1.420(b) provides that “[a]fter a party seeking affirmative relief in an action tried by the court without a jury has completed the presentation of evidence, any other party may move for a dismissal on the ground that on the facts and the law the party seeking affirmative relief has shown no right to relief.” Here, Mr. Russell moved for involuntary dismissal based on Nationstar’s lack of standing and contends on appeal that he is entitled to dismissal of the action. We agree. See, e.g., May v. PHH Mortg. Corp., 150 So. 3d 247, 249 (Fla. 2d DCA 2014); Lacombe, 149 So. 3d at 156.

Accordingly, we reverse the final judgment of foreclosure and remand with directions that the trial court enter an order of involuntary dismissal.

CASANUEVA and SALARIO, JJ., Concur.

NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION AND, IF FILED, DETERMINED.

 

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BofA ‘Hustle’ appeal tests Justice’s novel use of old S&L statute

BofA ‘Hustle’ appeal tests Justice’s novel use of old S&L statute

Reuters-

In successive rulings in 2013, three well-regarded federal judges in Manhattan endorsed the Justice Department’s creative adaptation of an old law from the savings and loan crisis of the 1980s to cases against banks involved in the financial crisis of the 2000s. That April, U.S. District Judge Lewis Kaplan refused to dismiss the government’s civil suit against Bank of New York Mellon. Similar rulings followed in August from U.S. District Judge Jed Rakoff in the so-called “Hustle” case against Bank of America and in September from U.S. District Judge Jesse Furman in a Justice Department civil suit against Wells Fargo.

All three banks had argued that the statute at the heart of the government suits, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, was intended to protect financial institutions from self-dealing insiders – and not to enable the government to bring suits against the banks themselves. FIRREA permits Justice to bring civil cases against defendants that engage in mail or wire fraud “affecting a federally insured financial institution.” The government said in the BNY Mellon, BofA and Wells Fargo cases that the banks had affected themselves by committing fraud. The banks, as you can imagine, said that was a perverse way to read the statute.

The judges all agreed with the government’s “self-affecting” theory. As Charles Michael of Brune & Richard (and the indispensable S.D.N.Y. Blog) wrote for Columbia’s securities litigation blog, “The upshot is that the government will likely be able to pursue civil charges against federally insured financial institutions (whose misconduct in most cases would affect themselves) for conduct going back 10 years (the limitations period. Conduct leading into or during the financial crisis could be the subject of FIRREA claims for several more years to come.”

[REUTERS]

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NYDFS ANNOUNCES DEUTSCHE BANK TO PAY $2.5 BILLION, TERMINATE AND BAN INDIVIDUAL EMPLOYEES, INSTALL INDEPENDENT MONITOR FOR INTEREST RATE MANIPULATION

NYDFS ANNOUNCES DEUTSCHE BANK TO PAY $2.5 BILLION, TERMINATE AND BAN INDIVIDUAL EMPLOYEES, INSTALL INDEPENDENT MONITOR FOR INTEREST RATE MANIPULATION

April 23, 2015

Contact: Matt Anderson, 212-709-1691

NYDFS ANNOUNCES DEUTSCHE BANK TO PAY $2.5 BILLION, TERMINATE AND BAN INDIVIDUAL EMPLOYEES, INSTALL INDEPENDENT MONITOR FOR INTEREST RATE MANIPULATION

Widespread Effort by Bank Employees to Manipulate Benchmark Interest Rate Submissions for LIBOR, EURIBOR, TIBOR

Deutsche Bank Employee: This “is a corrupt fixing and DB is part of it!”

Deutsche Bank Employee Seeking to Obtain Lower Rate: “I’m begging u, don’t forget me… pleassssssssssssssseeeeeeeeee… I’m on my knees…”

Benjamin M. Lawsky, Superintendent of Financial Services, announced today that Deutsche Bank will pay $2.5 billion, terminate and ban individual employees who engaged in misconduct, and install an independent monitor for New York Banking Law violations in connection with the manipulation of the benchmark interest rates, including the London Interbank Offered Bank (“LIBOR”), the Euro Interbank Offered Rate (“EURIBOR”) and Euroyen Tokyo Interbank Offered Rate (“TIBOR”) (collectively, “IBOR”).

The overall $2.5 billion penalty Deutsche Bank will pay includes $600 million to the New York State Department of Financial Services (NYDFS), $800 million to the Commodities Futures Trading Commission (CFTC), $775 million to the U.S. Department of Justice (DOJ), and 227 million GBP (approximately $340 million) to the United Kingdom’s Financial Conduct Authority (FCA).

Superintendent Lawsky said: “Deutsche Bank employees engaged in a widespread effort to manipulate benchmark interest rates for financial gain. While a number of the employees involved in misconduct have already left the bank, those that remain are being terminated or banned from the New York banking system. We must remember that markets do not just manipulate themselves: It takes deliberate wrongdoing by individuals.”

The London Interbank Offered Rate (“LIBOR”) is a benchmark interest rate used in financial markets around the world.  It is the primary benchmark for short term interest rates globally, written into standard derivative and loan documentation, used for a range of retail products, such as mortgages and student loans, and the basis for settlement of interest rate contracts on many of the world’s major futures and options exchanges.  It is also used as a barometer to measure the health of the banking system and as a gauge of market expectation for future central bank interest rates.

From approximately 2005 through 2009, certain Deutsche Bank traders frequently requested that certain submitters submit rate contributions that would benefit the traders’ trading positions, rather than the rates that complied with the IBOR definitions. For example, on February 21, 2005, a trader requested of another trader who performed submitter duties on a back-up basis, “can we have a high 6mth libor today pls gezzer?”  The trader/submitter agreed, “sure dude, where wld you like it mate ?”  The trader replied, “think it shud be 095?”  The trader/submitter replied, “cool, was going 9, so 9.5 it is.”  The trader joked, “super – don’t get that level of flexibility when [the usual submitter] is in the chair fyg!” Similarly, on December 29, 2006, a trader wrote to a submitter, “Come on 32 on 1. Mth… Cu my frd.”  The submitter agreed, “ok will try to give you a belated Christmas present…!”

Deutsche Bank also communicated and coordinated with employees of other banks and financial institutions regarding their respective rate contributions in advance of an IBOR submission. On September 7, 2006, a London desk head attempted to obtain a low EURIBOR submission from an external banker at Barclays, “I’m begging u, don’t forget me… pleassssssssssssssseeeeeeeeee… I’m on my knees…”  The external banker replied, “I told them 1 m up is that right?”  The London desk head continued, “please pal, insist as much as you can… my treasury is taking it to the sky… we have to counter balance it… I’m beggin u… can u beg the [a panel bank] guy as well?”   The external banker agreed, “ok, I’m telling him.”

As a bank’s IBOR rates are intended to correspond to the cost at which the bank concludes it can borrow funds, the rates are an indicator of a bank’s financial health.  If a bank’s submission is high, it suggests that the bank is, or would, pay a high amount to borrow funds.  This could indicate a liquidity problem and, thus, that the bank is experiencing financial difficulty.

Traders and submitters at Deutsche Bank were aware that the IBOR rates did not accurately reflect their definitions.  On August 21, 2008, a vice president wrote to an external banker employed at Merrill Lynch, “tibor going down or not?”  The external banker replied, “tibor will go down slightly but not much… euroyen tibor isn’t really reflective of actual money market condition in japan… people just randomly make those numbers up… pretty much like libors tho!”

On July 16, 2009, a managing director and the Head of the London Money Market Derivatives desk discussed the strength and accuracy of the Euro LIBOR panel in comparison to the EURIBOR panel.  The managing director asked, “u think the quality of the euro-libor panel is 4.5bps better than euribor?”  The Head of the London Money Market Derivatives desk responded yes, and the managing director replied, “not so sure, i have a hard time to believe if so many banks say they can better than the market while they are a part of it.”  The Head of the London Money Market Derivatives desk stated, “theyre all lying anyway.”  The managing director replied, “there is a philosophical saying: ‘one greek says: “all greeks are lying” who do u trust?”

On September 4, 2009, a vice president wrote to a trader regarding LIBOR and TIBOR, stating, “am purring 34 for 3m libor and I think am far too high… JPM [JP Morgan Chase] is putting 41 for tibor… I do not understand how come we can have 3m tibor/cash at 56 at DB… DB is the among the lowest libor contribution in all ccys… UBS is corrup/manipulator in tibor fixing… i think putting such a high tibor damage the reputation of deutsche bank… Second, It is not because all the tibors setters are corrupt/manipulators that deutsche bank has to be aswell… It is not because the japanese banks are manipulating the tibor fixing that DB has to do it as well… Tibor is a corrupt fixing and DB is part of it!”

From approximately 2007 through 2009, a number of large international banks were receiving negative press coverage concerning their high and potentially inaccurate LIBOR submissions.  Certain articles questioned particular banks’ liquidity position regarding the high LIBOR submissions and, as a result, the banks’ share prices fell.  Various Deutsche Bank senior managers circulated and discussed these articles.

On October 4, 2007, the Head of Short Term Interest Rate Trading in Australia and New Zealand forwarded an article, which reported a rumor that a large European bank was struggling for financing, including to senior management, commenting on the instability of the market, specifically in regards to bank illiquidity, and commented, “This market has the feel that we are about to have another run and panic on funding in my opinion just a gut feeling looking at the behavior of LIBORS if we look at the 3mth fix over the lst few days since we have gone over the TURN of the year there has been a bit of pressure… this feels like the period where we were edging up ever so slight back in early august where we fixed at 5.36 for months on end and then started edging up before the panic set in.” Later that day, a group head within the Global Finance and Foreign Exchange Unit forwarded the email to  a London desk head, directing, “Make sure our libors are on the low side for all ccys.”

Terminations and Bans of Individual Deutsche Bank Employees

As a result of the investigation, numerous employees that were involved in the wrongful conduct discussed in this Order, including those in management positions, have been terminated, disciplined or are otherwise no longer employed by the Bank, as a result of their misconduct.

However, certain employees involved in the wrongful conduct remain employed at the Bank.  The Department orders the Bank to take all steps necessary to terminate seven employees, who played a role in the misconduct but who remain employed by the Bank: one London-based Managing Director, four London-based Directors, one London-based Vice President, and one Frankfurt-based Vice President.

Additionally, ten of the individuals centrally involved in the misconduct were previously terminated as a result of the investigation.  Four of these employees were reinstated pursuant to a German Labour Court determination, and two of them remain at the Bank. Those employees that were reinstated due to the German Labour Court decision who remain at the Bank shall not be allowed to hold or assume any duties, responsibilities, or activities involving compliance, IBOR submissions, or any matter relating to U.S. or U.S. Dollar operations.

Superintendent Lawsky thanks the U.S. Department of Justice, the Commodities Futures Trading Commission, and the U.K. Financial Conduct Authority for their work and cooperation in this investigation.

To view a copy of the NYDFS order regarding Deutsche Bank, please visit, link.

###

Source: http://www.dfs.ny.gov

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United States Files Lawsuit Alleging that Quicken Loans Improperly Originated and Underwrote Federal Housing Administration-Insured Mortgage Loans

United States Files Lawsuit Alleging that Quicken Loans Improperly Originated and Underwrote Federal Housing Administration-Insured Mortgage Loans

Department of Justice
Office of Public Affairs

FOR IMMEDIATE RELEASE
Thursday, April 23, 2015
United States Files Lawsuit Alleging that Quicken Loans Improperly Originated and Underwrote Federal Housing Administration-Insured Mortgage Loans

 

The United States has filed a complaint in the U.S. District Court for the District of Columbia against Quicken Loans Inc. under the False Claims Act for improperly originating and underwriting mortgages insured by the Federal Housing Administration (FHA), the Justice Department announced today.  Quicken is a mortgage lender headquartered in Detroit.

“Those who do business with the United States must act in good faith, including lenders that participate in the FHA mortgage insurance program,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division.  “To protect the housing market and the FHA fund, we will continue to hold responsible lenders that knowingly violate the rules.”

Quicken participated in the FHA insurance program as a direct endorsement lender (DEL).  As a DEL, Quicken had the authority to originate, underwrite and certify mortgages for FHA insurance.  If a DEL such as Quicken approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to the U.S. Department of Housing and Urban Development (HUD), FHA’s parent agency, for the losses resulting from the defaulted loan.  Under the DEL program, neither the FHA nor HUD reviews the underwriting of a loan before it is endorsed for FHA insurance.  HUD therefore relies on DELs to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance. And, to that end, a DEL must certify that every loan endorsed for FHA insurance is underwritten according to the applicable FHA standards.

The government’s complaint alleges that, from September 2007 through December 2011, Quicken knowingly submitted, or caused the submission of, claims for hundreds of improperly underwritten FHA-insured loans. The complaint further alleges that Quicken instituted and encouraged an underwriting process that led to employees disregarding FHA rules and falsely certifying compliance with underwriting requirements in order to reap the profits from FHA-insured mortgages.  For example, Quicken allegedly had a “value appeal” process where, when Quicken received an appraised value for a home that was too low to approve a loan, Quicken often requested a specific inflated value from the appraiser with no justification for the increase– even though such a practice was prohibited by the applicable FHA requirements.  Quicken also allegedly granted “management exceptions” whereby managers would allow underwriters to break an FHA rule in order to approve a loan.

The government’s complaint alleges that Quicken’s senior management was aware of these and other problems.  The complaint alleges that Quicken’s Divisional Vice President for Underwriting, the second most senior executive in Quicken’s Operations Department, wrote in an email discussing the value appeal process that “I don’t think the media and any other mortgage company (FNMA, FHA, FMLC) would like the fact we have a team who is responsible to push back on appraisers questioning their appraised values.”  In another email, the same Divisional Vice President for Underwriting wrote to a group of Quicken executives stating that 40 percent of the management exceptions on FHA’s early payment defaults should not have been granted, adding: “we make some really dumb decisions when it comes to client service exceptions.  Example, purchase loan we pulled new credit and the client stopped paying on almost everything and the scores fell by 100 points, we [still] closed it.”  In yet another email discussing an FHA loan, the Operations Director, a senior level executive, explained that the loan was approved based on “bastard income,” which he described as “trying to put some kind of income together that is plausible to the investor even though we know its creation comes from something evil and horrible.”

The government’s complaint alleges that as a result of Quicken’s knowingly deficient mortgage underwriting practices, HUD has already paid millions of dollars of insurance claims on loans improperly underwritten by Quicken, and that there are many additional loans improperly underwritten by Quicken that have become at least 60 days delinquent that could result in further insurance claims on HUD.  For example, the government’s complaint identifies a borrower whose bank account statement showed overdrafts in multiple months and during the loan application process requested a refund of the $400 mortgage application fee so that the borrower would be able to feed the borrower’s family.  Nevertheless, Quicken allegedly approved the loan.  The borrower made only five payments before becoming delinquent and as a result, HUD ultimately paid an FHA insurance claim of $93,955.19.  In another example, the complaint identifies a loan where the borrower was cashing out equity through a cash-out refinance.  Allegedly, Quicken originally received an appraised value of $180,000, but because the borrower wanted to receive more cash, Quicken requested the appraiser to inflate the value by $5,000.  The appraiser allegedly provided Quicken’s requested value of $185,000 even though the only difference between the two appraisals was the appraised value – the comparable sales analysis, and even the date of the appraiser’s signature, remained the same.  Quicken allegedly used the inflated appraisal value to approve the loan.  The borrower was delinquent on his first payment and as a result, HUD ultimately paid an FHA insurance claim of $204,208. 

The complaint further alleges that Quicken failed to implement an adequate quality control program to identify deficient loans, and that Quicken failed to report to HUD the loans it did identify.  In particular, according to the government’s complaint, despite its obligation to report to HUD all materially deficient loans, during the period from September 2007 to December 2011, Quicken concealed its deficient underwriting practices and failed to report a single underwriting deficiency to the agency. 

“As the complaint alleges, Quicken violated HUD’s quality standards when obtaining HUD insurance for mortgage loans,” said U.S. Attorney John Walsh of the District of Colorado, whose office helped to lead the investigation.  “Quicken issued hundreds of defective mortgage loans, and left HUD – and the taxpayer – to pay for the loans that defaulted.  Quicken’s alleged fraudulent conduct affected communities nationwide.  This case is the latest step in our commitment to hold accountable mortgage lenders who profit by taking advantage of HUD insurance and issuing defective loans that do not meet HUD’s standards.”

“Quicken needs to be held accountable for violations of HUD requirements in the origination of FHA loans, as alleged in the complaint,” said HUD General Counsel Helen R. Kanovsky.  “HUD will continue to take action to protect the FHA and American homebuyers.”

“The complaint alleges that Quicken approved loans that should not have been approved and submitted them for FHA insurance,” said HUD Inspector General David A. Montoya.  “The alleged cost to the FHA insurance fund was millions of dollars and hopefully this serves as reinforcement to Quicken that doing the wrong thing really never is worth it.”

The investigation of this matter was a coordinated effort among HUD-Office of Inspector General, HUD, the U.S. Attorney’s Office of the District of Colorado and the Civil Division’s Commercial Litigation Branch.

The action is captioned United States v. Quicken Loans, Inc. (D.D.C.).  The claims asserted in the complaint are allegations only and there has been no determination of liability. 

15-506
Updated April 23, 2015
source: http://www.justice.gov
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YVANOVA v. NEW CENTURY MORTGAGE CORPORATION  AMICUS BRIEF OF CALIFORNIA ATTORNEY GENERAL KAMALA HARRIS IN SUPPORT OF APPELLANT

YVANOVA v. NEW CENTURY MORTGAGE CORPORATION AMICUS BRIEF OF CALIFORNIA ATTORNEY GENERAL KAMALA HARRIS IN SUPPORT OF APPELLANT

H/T Abby

In The Supreme Court Of California

TSVETANA YVANOVA,
Plaintiff and Appellant,

v.

NEW CENTURY MORTGAGE
CORPORATION, OCWEN LOAN
SERVICING, LLC, WESTERN
PROGRESSIVE, LLC, and DEUTSCHE
BANK NATIONAL TRUST COMPANY,
et al,
Defendant-Respondent.

EXCERPT-

TABLE OF CONTENTS
Page

INTRODUCTION …………………………………. 1
STATEMENT OF INTEREST …………………………………. 2
ARGUMENT …………………………………. 3
I. CALIFORNIA HAS A STRONG PUBLIC POLICY
IN FAVOR OF PROTECTING HOMEOWNERS
FROM WRONGFUL FORECLOSURE …………………………. 3

A. California’s Foreclosure Statutes Strike a
Careful Balance Between Efficiency in
Foreclosure and Homeowner Protection ……………….. 4

B. The Recent Enactment of the HBOR Reflects a
Legislative Intent to Protect Homeowners
Against Abusive Practices, Including
Foreclosures by the Wrong Party ………………………….. 5

II. A HOMEOWNER MAY BRING A CAUSE OF
ACTION FOR WRONGFUL FORECLOSURE ON
THE BASIS THAT THE ASSIGNMENT OF DEBT
IS INVALID ……………………………………………………………….. 7

A. The Foreclosing Party’s Lack of Authority Is a
Proper Basis on which the Homeowner May
Challenge a Foreclosure ………………………………………. 7

B. Because a Void Assignment Deprives a
Foreclosing Party of the Authority to Foreclose,
a Homeowner May Bring a Wrongful
Foreclosure Action on That Basis ……………………….. 10

C. A Homeowner Is Harmed When an Entity
Without The Authority To Do So Forecloses on
Her Home ………………………………………………………… 14

D. Permitting Wrongful Foreclosure Actions to
Challenge Invalid Assignments is Sound Policy …… 17

CONCLUSION ……………………………………………………………………………… 19

[…]

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Hammer v. Residential Credit Solutions, Inc. | Chicago Jury Returns $2Million Verdict for Homeowner

Hammer v. Residential Credit Solutions, Inc. | Chicago Jury Returns $2Million Verdict for Homeowner

United States District Court
Northern District of Illinois – CM/ECF LIVE, Ver 6,1 (Chicago)
CIVIL DOCKET (Attached) FOR CASE #: 1:13-cv-06397

Hammer

v.
Residential Credit Solutions, Inc.
.
Date Filed #      Docket Text
09/11/2014 42  MEMORANDUM (linked) Opinion and Order:Residential Credit Solution’s motion to dismiss is granted in part and denied in part 30 . Hammer has pled sufficient factual allegations to survive RCS’s motion to dismiss her claims for breach of contract and violation of RESPA. The Court grants RCS’s motion to dismiss Hammer’s FDCPA claims with prejudice and grants the motion to dismiss Hammer’s ICFA claim without prejudice and with leave to replead. Status hearing held on 9/11/2014. Any amended complaint is to be filed on or before 9/26/14. Defendant’s answer is due by 10/10/14. Written discovery is to be issued by 11/3/14. Fact Discovery ordered closed by 1/15/2015. Jury Trial set for 2/23/2015 at 09:30 AM. Status hearing set for 10/29/2014 at 09:00 AM. Signed by the Honorable Thomas M. Durkin on 9/11/2014:Mailed notice(srn, ) (Entered: 09/11/2014)

(Attached)

09/26/2014 43  AMENDED complaint by Alena W. Hammer against Residential Credit Solutions, Inc. (Attachments: # 1 Exhibit Ex. A, # 2 Exhibit Ex. B, # 3 Exhibit Ex. C, # 4 Notice of Filing Notice of Filing)(Zambon, Ross) (Entered: 09/26/2014)03/09/2015 117 MINUTE entry before the Honorable Thomas M. Durkin:Defendant’s motion to dismiss Counts II and III, R. 58, is denied. Nearly all of Defendant’s arguments go to issues of sufficient evidence, not proper pleading. The motion to dismiss Count IV, R. 58, is granted in part and denied in part. Specifically, the motion to dismiss Count IV with respect to Plaintiffs RESPA claim under § 2609 is granted with prejudice. Plaintiff seeks to replead the alleged § 2609 violations in her breach of contract claim as requested in her response brief, R. 89 at 10 n.5. Whether the Court will allow amendment of the complaint on this or any other count of the complaint or simply allow the evidence to be offered without amendment will be discussed at the final pretrial conference. Defendant’s motion to dismiss Count IV is denied on all other grounds. The Court will provide the basis for its ruling at the final pretrial conference scheduled for 4/8/15 at 2:00 p.m.Mailed notice (srn, ) (Entered: 03/09/2015)
(Attached)
04/20/2015 174 ORDER: Jury trial held and completed. Defendant’s renewed Rule 50 motion and motion for a directed verdict are denied for the reasons stated. Jury returns a verdict in favor of the Plaintiff. Plaintiff is awarded $500,000 in compensatory damages and $1,500,000 in punitive damages. Enter Verdict. Post trial motions are to be filed by 5/18/15. Responses are due 6/15/15. Replies are due 6/29/15. A status hearing is set for 7/8/15 at 9:00a.m. (6:35) Signed by the Honorable Thomas M. Durkin on 4/20/2015. Mailed notice (cc, ) (Entered: 04/22/2015)
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Will banks face a growing number of False Claims Act lawsuits based on government-backed mortgages in default?

Will banks face a growing number of False Claims Act lawsuits based on government-backed mortgages in default?

Lexology-

The legal aid group Advocates for Basic Legal Equality (ABLE) has taken a novel approach to using the False Claims Act by initiating a lawsuit against U.S. Bank. The case claims that U.S. Bank collected payments from the Federal Housing Administration (FHA) for FHA-backed loans deemed to be in default, rather than meeting its obligations to work out options with the borrowers.

ABLE relied on the information it obtained from customers and borrowers of U.S. Bank in bringing its suit. Borrowers, such as Mr. Hayward Ferrell, obtained mortgages from U.S. Bank guaranteed by the FHA. If a borrower defaults on an FHA loan, the government agency makes payments to the loan-issuing bank to make the bank whole. The FHA requires, however, that these banks make an effort to work with their borrowers to mitigate loss — so the government can limit expenditures on these loans.

In this lawsuit, ABLE has taken the position that U.S. Bank failed to take the necessary steps to work with borrowers like Mr. Ferrell to prevent them from defaulting on their mortgages. Instead, the group claims that the bank defaulted Mr. Ferrell and other borrowers between 2001 and 2011 so that it could make false claims for payment to FHA, receiving at least $2.37 billion in payments on these claims.

[LEXOLOGY]

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CFPB and Federal Trade Commission Take Action Against Green Tree Servicing for Mistreating Borrowers Trying to Save Their Homes

CFPB and Federal Trade Commission Take Action Against Green Tree Servicing for Mistreating Borrowers Trying to Save Their Homes

Green Tree to Pay $48 Million in Borrower Restitution and $15 Million Fine for Servicing Failures

WASHINGTON, DC (April 21, 2015) — Today the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) took action against Green Tree Servicing, LLC, for mistreating mortgage borrowers who were trying to save their homes from foreclosure. The mortgage servicer failed to honor modifications for loans transferred from other servicers, demanded payments before providing loss mitigation options, delayed decisions on short sales, and harassed and threatened overdue borrowers. Green Tree has agreed to pay $48 million in restitution to victims, and a $15 million civil money penalty for its illegal actions.

“Green Tree failed consumers who were struggling by prioritizing collecting payments over helping homeowners,” said CFPB Director Richard Cordray. “When homeowners in distress had their mortgages transferred to Green Tree, their previous foreclosure relief plans were not maintained. We are holding Green Tree accountable for its unlawful conduct.”

Green Tree, headquartered in St. Paul, Minn., is a national mortgage servicing company. It has rapidly expanded into the residential mortgage market and services loans for millions of homeowners. Green Tree specializes in servicing delinquent loans and markets itself as a “high touch” servicer that makes frequent collection calls to consumers.

As a servicer, Green Tree is responsible for, among other things, creating and sending monthly statements to borrowers, collecting payments, and processing payments. For troubled borrowers, it administers short sale and foreclosure relief programs provided by the owner of the loan. These “loss mitigation” programs provide alternatives to foreclosure. Green Tree is responsible for soliciting borrowers for these programs, collecting their applications, determining eligibility, and implementing the loss mitigation program for qualified borrowers.

The CFPB and FTC allege that Green Tree engaged in illegal practices when servicing loans that it acquired from other servicers. According to the complaint filed by the CFPB and FTC, on a number of occasions, Green Tree failed to honor loan modifications that consumers had entered into with their prior servicers and insisted that the consumer pay their original, higher monthly payment. Green Tree also failed at times to get the information and documentation from the prior servicer that it needed to accurately collect payments from consumers. Green Tree demanded payments before providing loss mitigation options, delayed decisions on short sales, and resorted to illegal practices to collect mortgage payments from consumers who fell behind on their loans, including false threats, repeated calls, and revealing debts to third parties, like employers.

Green Tree’s failures as a mortgage servicer hurt homeowners. In many cases, Green Tree delayed or deprived borrowers of the opportunity to save or sell their home. Specifically, the Bureau and the FTC allege that from 2010 to 2014, the company:

  • Demanded payments before providing loss mitigation options: Delinquent consumers who called Green Tree were automatically routed to a debt collector. The CFPB and FTC allege that consumers who wanted to speak with a customer service representative or loss mitigation specialist rather than a collector found that there was no way to do so and were sometimes told that they had to make a loan payment before they could be considered for a loan modification. In reality, consumers did not need to make payments on their loans before they could be considered for a loan modification. For example, the Home Affordable Modification Program (“HAMP”), which Green Tree participated in, does not allow participating servicers to require consumers to make payments before considering them for a loan modification.
  • Failed to honor in-process modifications: Because Green Tree was rapidly expanding its mortgage servicing business, it often acquired customers who already had an agreement with their previous servicer to modify their loans. The complaint alleges that Green Tree, in many instances, failed to honor these agreements and insisted that consumers pay their old higher mortgage payment.
  • Delayed short sales: Green Tree’s short sale department was frequently unreachable and unresponsive. The complaint alleges that in numerous instances, Green Tree took two to six months to respond to consumer requests for short sales. This could have cost consumers potential buyers, and it may also have cost them other loss mitigation alternatives while their short sale requests were pending.
  • Harassed and threatened overdue borrowers: The CFPB and FTC allege that if a consumer was two weeks or more past due, Green Tree consumers could receive seven to 20 phone calls a day. Some Green Tree representatives also told consumers that nonpayment of their mortgage loan could result in arrest or imprisonment. Or, representatives threatened seizure or garnishment of the consumer’s wages when Green Tree had no intention to take such actions. Such threats are illegal.
  • Used deceptive tactics to charge consumers convenience fees: The Bureau and the FTC allege that Green Tree deceived consumers to get them to pay $12 for its pay-by-phone service, called Speedpay. Green Tree representatives would pressure consumers to use the service by telling consumers that Speedpay was the only available payment method to ensure the payment would be received on time. In fact, Green Tree accepted other payment methods that do not involve a fee, such as checks and ACH payments, which consumers could have used to make a timely payment.
    This enforcement action covers Green Tree’s illegal practices prior to the January 2014 effective date of the CFPB’s new mortgage servicing rules.

Enforcement Action
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions engaging in unfair, deceptive, or abusive practices. The CFPB also has authority to take action against institutions violating the Real Estate Settlement Procedures Act, the Fair Credit Reporting Act, and the Fair Debt Collections Practices Act. If entered by the court, today’s order would require Green Tree to:

  • Pay $48 million in redress to victims: Green Tree must pay $48 million to thousands of consumers whose loan modifications were not honored, who had their short sales decisions delayed because of Green Tree’s poor servicing, or who were deceptively charged convenience fees when paying their mortgage. Borrowers who receive payments will not be prevented from taking individual action on their claims as a result of this settlement.
  • Engage in efforts to help affected borrowers preserve their home: For certain borrowers affected by Green Tree’s unlawful practices who were not foreclosed on, Green Tree must convert in-process loan modifications into permanent modifications and engage in outreach, including telephone and mail campaigns and translation services, to contact borrowers and offer them loss mitigation options. And Green Tree must halt the foreclosure process, if one is happening, during this outreach and qualification process for these borrowers.
  • End all mortgage servicing violations: In addition to being subject to the loss mitigation provisions of the CFPB’s new mortgage servicing rules, Green Tree is prohibited from making misrepresentations to consumers regarding loss mitigation, such as false statements about how much consumers owe Green Tree. Green Tree must take other actions relating to servicing loans in loss mitigation, such as acknowledging the receipt of a short sale request and providing consumers with a list of any missing documents, within five days.
  • Adhere to rigorous servicing transfer requirements: Green Tree must create a detailed data integrity program that tests, identifies, and corrects errors in loans transferred to Green Tree to ensure that Green Tree has accurate information about consumers’ loans. Green Tree may not transfer loans in loss mitigation, in or out, unless all account-level documents and data relating to loss mitigation are provided to the new servicer by the date of transfer.
  • Honor prior loss mitigation agreements: Green Tree must honor loss mitigation agreements entered by the prior servicer, continue processing pending loss mitigation requests received in the transfer, and review and evaluate pending loss mitigation applications within a set time.
  • Provide access to quality customer service: Green Tree must ensure that consumers are referred to a loss mitigation or other appropriate supervisor upon request, have access to individuals able to stop foreclosure proceedings, and are not subject to compensation arrangements that encourage collection over loss mitigation.
  • Pay $15 million civil penalty: Green Tree will make a $15 million penalty payment to the CFPB’s Civil Penalty Fund.
    The Bureau’s complaints and consent orders are not findings or rulings that the defendants have actually violated the law.

A copy of the proposed consent order is available at: http://files.consumerfinance.gov/f/201504_cfpb_proposed-consent-order-green-tree.pdf

A copy of the complaint is available at: http://files.consumerfinance.gov/f/201504_cfpb_complaint-green-tree.pdf

Today’s settlement is a collaborative effort with the FTC. The FTC’s press release is available at: https://www.ftc.gov/news-events/press-releases/2015/04/national-mortgage-servicing-company-will-pay-63-million-settle

 

The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.

 Office of Communications

Tel: (202) 435-7170

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Many Who Lost Homes to Foreclosure in Last Decade Won’t Return — NAR

Many Who Lost Homes to Foreclosure in Last Decade Won’t Return — NAR

One has absolutely NO idea what a homeowner went through with the stress after losing their roof, mind, some their family and most importantly even cost some lives.

It’s a nightmare.


WSJ-

Less than one-third of families who lost their homes to foreclosure or other distress events in the past decade are likely to become homeowners again, according to an analysis by the National Association of Realtors.

More than 9.3 million homeowners went through a foreclosure, surrendered their home to a lender or sold their home via a distress sale between 2006 and 2014. Of those, about 2.5 million either have already jumped back into the housing market or will do so within the next eight years because they have the financial ability to purchase and are eligible for a mortgage, according to the Realtor group. Most of the rest won’t be eligible to borrow or won’t have the desire to buy again, the analysis found.

Real-estate agents and economists have been anxious about the return of formerly foreclosed upon homeowners, whose re-emergence could boost the housing market and the broader economy. Borrowers who went through a foreclosure or other negative event are ineligible to obtain a government-backed mortgage for up to seven years afterward. For families who lost their home in the early years of the crisis, the penalty phases are ending, creating optimism about a large new pool of potential homeowners.

[WALL STREET JOURNAL]

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U.S. judge finds Wells Fargo breached 2010 mortgage settlement

U.S. judge finds Wells Fargo breached 2010 mortgage settlement

REUTERS-

Wells Fargo Bank breached a nationwide 2010 legal settlement involving adjustable-payment mortgages, a federal judge ruled, finding that the bank did not properly evaluate homeowners who applied for help to avoid foreclosures.

In an order on Wednesday, U.S. District Court Judge Richard Seeborg in northern California told Wells to meet with plaintiffs and find a way to remedy its violations, including steps to let some homeowners reapply for loan assistance.

Tom Goyda, spokesman for Wells Fargo, the largest U.S. mortgage lender, said the bank is reviewing the decision and will be working to provide additional information requested.

[REUTERS]

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Fraudulent Income Overstatement on Mortgage Applications During the Credit Expansion of 2002 to 2005 | Atif R. Mian & Amir Sufi

Fraudulent Income Overstatement on Mortgage Applications During the Credit Expansion of 2002 to 2005 | Atif R. Mian & Amir Sufi

Fraudulent Income Overstatement on Mortgage Applications During the Credit Expansion of 2002 to 2005


Atif R. Mian

Princeton University – Department of Economics; Princeton University – Woodrow Wilson School of Public and International Affairs; NBER

Amir Sufi

University of Chicago – Booth School of Business; NBER

April 6, 2015

Kreisman Working Papers Series in Housing Law and Policy No. 21


Abstract:     

Academic research, government inquiries, and press accounts show extensive mortgage fraud during the housing boom of the mid-2000s. We explore a particular type of mortgage fraud: the overstatement of income on mortgage applications. We define “income overstatement” in a zip code as the growth in income reported on home-purchase mortgage applications minus the average IRS-reported income growth from 2002 to 2005. Income overstatement is highest in low credit score, low income zip codes that Mian and Sufi (2009) show experience the strongest mortgage credit growth from 2002 to 2005. These same zip codes with high income overstatement are plagued with mortgage fraud according to independent measures. Income overstatement in a zip code is associated with poor performance during the mortgage credit boom, and terrible economic and financial economic outcomes after the boom including high default rates, negative income growth, and increased poverty and unemployment. From 1991 to 2007, the zip code-level correlation between IRS-reported income growth and growth in income reported on mortgage applications is always positive with one exception: the correlation goes to zero in the non-GSE market during the 2002 to 2005 period. Income reported on mortgage applications should not be used as true income in low credit score zip codes from 2002 to 2005.
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TILA : : : Bank of America v. Peterson | “Jesinoski REMAND”; but an additional “OF NOTE” . . . .

TILA : : : Bank of America v. Peterson | “Jesinoski REMAND”; but an additional “OF NOTE” . . . .

CURRENT Opinion

In 2014, the Eighth Circuit held that the Petersons’ claim for rescission under the Truth in Lending Act, 15 U.S.C. 1601, was time-barred by 15 U.S.C. 1635(f) because of their failure to file a lawsuit within three years of their transaction with Bank of America. In 2015, the Supreme Court held that another court had erred in holding that a borrower’s failure to file a suit for rescission within three years of the transaction’s consummation extinguishes the right to rescind and bars relief. Following remand by the Court, the Eighth Circuit vacated its earlier judgment and remanded.
Court Description: Civil case – Truth in Lending Act. On remand from the Supreme court for reconsideration in light of Jesinoski v. Countrywide Home Loans, 135 S. Ct. 790 (2015). For the court’s prior opinion in the case, see Peterson v. Bank of America, N.A., 746 F.3d 357 (8th Cir. 2014). In light of the Jesinoski opinion, the court vacates that portion of the judgment that granted Bank of America summary judgment on the Petersons’ claim for rescission, reinstates that portion of the judgment that vacated the grant of summary judgment to Bank of America on the Peterson’s counterclaim for statutory damages and remands the matter to the district court for further proceedings.

This is a revision of a Previous Opinion originally issued on March 21, 2014.

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Previous Opinion

Bank of America v. Peterson, et al., No. 12-2508 (8th Cir. 2014)

 

OF NOTE: Pg 7 Para: 2

“…. The Petersons, however, have offered evidence that Bank of America failed to deliver the required documents.  They testified that the closing agent took the documents after they had signed them and did not thereafter give them copies.  Taking the evidence in the light most favorable to the Petersons, their testimony rebuts the presumption of delivery and creates a genuine issue of material fact for trial.  See Stutzka v. McCarville, 420 F.3d 757, 762-63 (8th Cir. 2005) (concluding that the presumption of delivery was rebutted based on the borrower’s affidavit that she did not receive the documents); see also Cappuccio v. Prime Capital Funding LLC, 649 F.3d 180, 189-90 (3d Cir. 2011) (“[W]e hold that the testimony of a borrower alone is sufficient to overcome TILA’s presumption of receipt.”) …..”

Defendants appealed the district court’s order granting Bank of America’s motion for summary judgment on their counterclaims for rescission and statutory damages under the Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq. The court concluded that the district court did not err in determining that defendants’ right to rescission had expired and that their rescission claim was time-barred under section 1635 because defendants notified Bank of America of their intent to rescind but failed to file a lawsuit within the three-year period. The court concluded, however, that defendants have offered evidence that Bank of America failed to deliver the TILA disclosures and notices. Therefore, there was a genuine issue of material fact regarding the failure to deliver the required documents. Accordingly, the court affirmed the grant of summary judgment to Bank of America on defendants’ counterclaim for rescission; vacated the grant of summary judgment to Bank of America on defendants’ counterclaim for statutory damages; and remanded for further proceedings.
Court Description: Civil case – Truth in Lending Act. Because defendants notified Bank of America of their intent to rescind but failed to file a lawsuit within the three-year limitations period, the district court did not err in finding their right of rescission had expired and that their rescission claim was time barred under 15 U.S.C. Sec. 1635(f); however, the fact that the defendants’ rescission claim failed as a matter of law under Section 1635(f) does not mandate the conclusion that their failure-to-rescind counterclaim for statutory damages necessarily fails or is time-barred, and the district court erred in granting the bank summary judgment on this claim.

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_________________________________

SEPARATE BUT RELATED DISCUSSION:

Rescission Summary As I see It

by Neil Garfield

If you read my blog for the last 3 weeks or so you should get a good idea of where I am coming from on this.  The basic thrust of my argument is that:

  1. BOTH Congress and US Supreme Court agree that there is nothing left for the borrower to do other than dropping notice of rescission in the mail. It is EFFECTIVE BY OPERATION OF LAW at the point of mailing. The whole point is that you don’t need to be or have a lawyer in order to cancel the loan contract, the note and the mortgage (deed of trust) with the same force as if a Judge ordered it. No lawsuit, no proof is required from the borrower. No tender is required as it would be in common law rescission. The money for payoff of the old debt is presumed to come from a new lender that approves a 1st Mortgage loan without fear that they will lose their priority position.
  2. Lender(s) must comply within 20 days — return canceled note, satisfy mortgage, and return money to borrower.
  3. Lenders MUST file a lawsuit challenging the rescission within 20 days or their defenses are waived. Any other interpretation would make the rescission contingent, which is the opposite of what TILA and Scalia say is the case.
  4. Therefore a lawsuit by borrower to enforce the rescission need only prove mailing. (SEE “OF NOTEabove in “Bank of America v. Peterson, et al., No. 12-2508 (8th Cir. 2014)”)
  5. Any attempt to bring up statute of limitations or other defenses are barred by 20 day window.
  6. The clear reason for this unusual statutory scheme is to allow borrower to cancel the old transaction and replace with a new loan. This can only happen if the rescission is ABSOLUTE. It can be declared void or irregular or barred or anything else ONLY within the 20 day window. If the 20 day window was not final (like counting the days for filing notice of appeal appeal, motion for re-hearing, etc.) then no new lender or bank would fund a loan that could be later knocked out of first priority position in the chain of title because the rescission was found to be faulty in some way. This is the opposite of what TILA and Scalia say.
  7. The content of the rescission notice should be short — I hereby cancel/rescind the loan referenced above. You merely reference the loan number, recording information etc. at which point the note and mortgage become VOID by operation of law.
  8. BY OPERATION OF LAW means that the only way it can be avoided is by getting a court order.
  9. If any court were to allow “defense” in a rescission enforcement action AFTER the 20 day window the goal of allowing the borrower to get another loan to pay off the old lender(s) would be impossible.
  10. Hence the ONLY possible logical conclusion is that they MUST file the action within 20 days or lose the opportunity to challenge the rescission. And any possible defenses are waived if not filed during that period of time. That action by the “lender” or “creditor” must be an equitable action to set aside the rescission, which is already “effective” by operation of law.

The worst case scenario would be that rescission is the most effective discovery tool available. If the lender(s) file the 20 day action they would need to establish their positions as creditors WITHOUT the note and mortgage (which are ALREADY VOID). This would require proof of payment and proof of economic interest and proof of ownership and balance. Any failure to plead these things would fail to establish standing. The attempt to use the note and mortgage as proof or the basis of pleading should be dismissed easily. The note and mortgage are void by operation of law by the time the bank or servicer files its action.

In all probability the only parties who actually have an interest in the debt are clueless investors who by contract have waived their right to enforce or participate in the collection process. The problem THEY have is they gave their money to a securities broker. They can neither show nor even allege that they know what happened to their money after they gave it to the broker.

The important thing about TILA Rescission is that it is a virtual certainty that the borrower will be required to file an enforcement action. In that action they should not allow themselves to get sucked into an argument over whether the rescission was correct, fair, barred by limitations or anything else, all of which should have been raised within the 20 day window. AND that recognition is the reason why we have been inundated to prepare pre-litigation packages, analysis and reports to assist lawyers in filing actions to enforce rescissions, whether filed today or ten years ago.

Caveat: I have no doubt that attempts will be made to change the law. The Supreme Court has made changing the law impossible by a ruling from the bench, That means state legislatures and Congress are going to be under intense pressure to change this law or the effect of it. But as it stands now, I don’t think any other analysis covers all the bases like the one expressed here.

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A.G. Schneiderman Announces Settlement With Ernst & Young Over Auditor’s Involvement In Alleged Fraud At Lehman Brothers

A.G. Schneiderman Announces Settlement With Ernst & Young Over Auditor’s Involvement In Alleged Fraud At Lehman Brothers

Agreement Resolves Allegations Firm Enabled Bank To Paint False Picture Of Its Financial Statements By Temporarily Removing Tens Of Billions Of Dollars Of Securities From Its Balance Sheet Without Disclosing Those Transactions On Financial Statements

Schneiderman: Auditors Will Be Held Accountable For Failures To Honestly And Fairly Audit Public Companies

NEW YORK– Attorney General Eric T. Schneiderman today announced a $10 million settlement of a lawsuit filed against the auditing firm Ernst & Young LLP (“Ernst & Young”) over its involvement in a financial statement fraud at the now-defunct investment bank, Lehman Brothers Holdings, Inc. That money will be distributed as restitution to investors in Lehman securities, along with some $99 million being paid by Ernst & Young to settle a private federal class action that relied in part on facts uncovered by the Attorney General’s investigation. No other law enforcement authority has brought an enforcement action in connection with the 2008 collapse of Lehman. Moreover, today’s settlement resolves the first lawsuit brought against an auditor of a public company under New York’s securities laws. The case also resulted in an important decision by the Appellate Division’s First Department, which confirmed the Attorney General’s power to obtain disgorgement of professional fees received by a firm, in this case Ernst and Young’s fees.

“The basic duty and legal obligation of auditors is to ensure that the public companies they audit provide reliable and unbiased information about their operations to the investing public. If auditors issue opinions that are unreliable or provide cover for their clients by helping to hide material information, that harms the investing public, our economy, and our country,” Attorney General Schneiderman said. “Auditors will be held accountable when they violate the law, just as they are supposed to hold the companies they audit accountable.”

Under the terms of the settlement, Ernst & Young will pay $10 million—most of which will go to investors, with the remaining settlement funds to be used to reimburse New York State for investigation and litigation costs.

The Attorney General’s case, People v. Ernst & Young LLP, filed in Manhattan Supreme Court pursuant to the Martin Act and Executive Law § 63(12) in December 2010, concerned Ernst & Young’s role, as Lehman’s auditor, in an alleged fraud involving Lehman’s use of “Repo 105” transactions. Repo 105s were transactions in which Lehman transferred to various overseas counterparties investment grade securities in return for cash, with the binding understanding that Lehman would repurchase the same securities within a very short time, often just a few days. As alleged in the Attorney General’s lawsuit, Lehman, with Ernst & Young’s approval and complicity, treated the Repo 105s as sales, which enabled Lehman to temporarily remove tens of billions of dollars of securities from its balance sheet without requiring Lehman to disclose the Repo 105 transactions as financings on its financial statements. The Repo 105s served no legitimate business purpose. As alleged in the suit, Lehman used the funds derived from the transactions to pay down billions of dollars of liabilities, which had the effect of temporarily and misleadingly reducing Lehman’s leverage ratios, an important metric for analyzing Lehman’s liquidity and financial health.

As alleged by the Attorney General, Ernst & Young approved Lehman’s accounting for the Repo 105 transactions and issued unqualified opinions certifying Lehman’s financial statements, in spite of knowing that Lehman was not disclosing the existence or impact of the Repo 105s in its annual and quarterly consolidated financial statements, all of which Ernst & Young audited or reviewed. Ernst & Young also failed to object when Lehman allegedly misled analysts on its quarterly earnings calls regarding its leverage ratios, and did not inform Lehman’s Audit Committee about a highly-placed whistleblower’s concerns about Lehman’s use of Repo 105 transactions.

The lawsuit charged that Ernst & Young’s assent to Lehman’s failure to include any indication in its financial statements about the Repo 105 transactions was fraudulent and deceptive under the Martin Act and Executive Law § 63(12), as was allowing Lehman to the use the Repo 105s to manipulate its balance sheet and leverage ratios.

The case against Ernst & Young was prosecuted by Senior Trial Counsel David N. Ellenhorn, Assistant Attorneys General Armen Morian and Tanya Trakht, and Bureau Chief Chad Johnson, all of the Investor Protection Bureau, and Executive Deputy Attorney General for Economic Justice Karla G. Sanchez.

Source:http://ag.ny.gov/press-release/ag-schneiderman-announces-settlement-ernst-young-over-auditor’s-involvement-alleged

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