Reuters-

Bank of America Corp has reached a $335 million settlement of a federal lawsuit accusing it of misleading shareholders about its exposure to risky mortgage securities and its dependence on an electronic mortgage registry known as MERS.

The second-largest U.S. bank disclosed the accord in its quarterly report filed on Friday with the U.S. Securities and Exchange Commission. It said it set aside enough reserves for the settlement as of June 30, and that final documentation and court approval are still needed.

Shareholders led by the Pennsylvania Public School Employees’ Retirement System claimed they had been misled into buying Bank of America stock in 2009 and 2010, including stock sold to repay $45 billion of federal bailout money.

[REUTERS]

EVERY SUNDAY
3:00 PM HAWAII
6:00 PM PACIFIC
9:00 PM EASTERN
ON KHVH-AM
(830 ON THE DIAL)
AND ON
iHEART RADIO

Housing Wire-

As the company itself predicted just last month, Ocwen Financial (OCN) is now in a position to record a loss in 2015, after the nonbank reported Wednesday that it generated a net loss of $66.8 million in the third quarter or $0.53 per share.

The company generated revenue of $405 million, down 21% compared to the third quarter of 2014.

 According to a note from Briefing.com, Ocwen’s third quarter results were worse than the Capital IQ Consensus, which had Ocwen posting a loss of $0.22 per share.

[HOUSING WIRE]

Speaking of Securitization

Accounting, tax, regulatory, and other developments affecting transfers and servicing of financial assets

The RE-REMIC phenomenon:

• Is it a regulatory capital play?
• Is it a defensive play against further ratings downgrades?
• Is it a tax-advantaged transaction?
• Is it a cost-efficient funding strategy for the new AAA securities?
• Is there an economic trading arbitrage?
• Does it make AAA bonds more saleable?

Sometimes the impetus for a RE-REMIC1 is one or more of the factors listed above, and in rare circumstances, all of the above. Given the paucity of any new primary issuances in the mortgage securitization market and the yet-to-develop traction in government strategies to revive mortgage securitization, just about the only non-agency game in town are RE-REMIC transactions, and there is no shortage of supply.

This paper will summarize technical accounting, regulatory, and tax issues that apply to these transactions. The paper does not address the credit re-rating analysis or any economic valuation of the sum of the parts in relation to the whole. Because the technical accounting and regulatory developments outlined herein are very fast-moving, readers should be aware that this paper might not represent the up-to-date status of these matters as of the date of their reading.

…

Document ATTACHED

[Federal Register Volume 75, Number 84 (Monday, May 3, 2010)]
[Proposed Rules]
[Pages 23327-23514]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-8282]

 \456\ 17 CFR 230.144A.
    \457\ See the Rule 144A Adopting Release.
    \458\ For example, a vast majority of resecuritizations of real 
estate mortgage conduits, known as ``Re-Remics,'' are offered 
through resales made in reliance on Rule 144A safe harbor. See 
Deloitte's Speaking of Securitization, ``The Re-Remic Phenomenon'' 
(June 2009), at 2.
    \459\ Many CDOs do not meet the ``discrete pool of assets'' 
component of the Regulation AB definition of an asset-backed 
security because CDOs permit the active management of the assets for 
a period of time (e.g., five years), a component which is 
inconsistent with the principle set forth in Item 1101(c). Also, 
other structured products like synthetic securities do not meet the 
definition of an asset-backed security under Regulation AB. See 
Section III.A.2.a. of the 2004 ABS Adopting Release. In addition, 
actively-managed CDOs and issuers that offer synthetic securities 
generally do not meet the requirements of Rule 3a-7 under the 
Investment Company Act and typically rely on one of the private 
investment company exclusions under that Act. See fn. 39 above.

Cleveland-

WASHINGTON, D.C. — As thousands of Ohio homeowners faced foreclosure during the last decade’s financial crisis, the state came through, delivering millions in bailout dollars sent from Washington. But first, the homeowners had to wait. And wait some more.

The process was painfully slow, with Ohio homeowners waiting months to get help — and sometimes more than a year, a pace that made the state the worst in the nation for many delays, according to a report being released Wednesday by a federal inspector general.

“When you’re unemployed, you don’t have six months to wait for help, and you certainly don’t have a year,” Christy Goldsmith Romero, the special inspector general for the federal Troubled Asset Relief Program, or TARP, told the Northeast Ohio Media Group in a telephone interview.

[CLEVELAND]

REUTERS-

Wells Fargo has reached an agreement with homeowners who accused it of reneging on a 2010 settlement over so-called adjustable-payment mortgages issued before the 2007 housing crisis.

Disclosed in a court filing on Friday, the agreement resolves a long-running dispute over Well Fargo’s compliance with the 2010 settlement, which called for the bank to provide up to $2.7 billion in mortgage relief to help borrowers avoid foreclosure. The homeowners are represented by lawyers Jeffrey Berns and Lee Weiss.

To read the full story on WestlawNext Practitioner Insights, click here: bit.ly/1MoO4mz

h/t refinblog

Dated: October 13, 2015

Ladies and Gentlemen:

This Notice is given by The Bank of New York Mellon (the “Trustee”), as trustee or indenture trustee under the Pooling and Servicing Agreements and Indentures and related Sales and Servicing Agreements (collectively, the “Governing Agreements”) governing the Settlement Trusts. The purpose of this Notice is to inform the beneficial owners of the Subject Securities and other persons potentially interested in the Settlement Trusts that the requirements of Subparagraphs 2(e) and 2(f) of the Settlement Agreement have been satisfied in full on October 5, 2015 and October 13, 2015, respectively, and that therefore the “Approval Date” under the Settlement Agreement has occurred on October 13, 2015.

Subparagraph 2(e) of the Settlement Agreement conditions Final Court Approval on the receipt of certain private letter ruling(s) from the Internal Revenue Service (“IRS”) with respect to the Settlement Trusts and provides that the Trustee shall cause the submission of a request for such private letter ruling(s) to the IRS and use reasonable best efforts to pursue such request. Subparagraph 2(f) of the Settlement Agreement conditions Final Court Approval on the receipt, at the Trustee’s request, of an opinion of Trustee tax counsel with respect to certain states concerning the same matters that would be covered by the requested private letter ruling(s).

In a prior informational notice, dated June 29, 2015 (the “June 2015 Informational
Notice”), the Trustee informed the beneficial owners of the Subject Securities and other persons
potentially interested in the Settlement Trusts that on April 8, 2015, the Trustee submitted to the
IRS a request for private letter ruling(s) under Sections 860A-860G of the Internal Revenue
Code of 1986, as amended (the “Code”) with respect to the Settlement Agreement (the “Private
Ruling Request”). The Trustee further informed the beneficial owners of the Subject Securities
and other persons potentially interested in the Settlement Trusts that the Trustee expected
delivery of the opinions contemplated under Subparagraph 2(f) of the Settlement Agreement
shortly after the issuance by the IRS of the private letter ruling(s) requested in the Private Ruling
Request.

The Trustee hereby provides notice that on October 5, 2015, Trustee’s tax counsel
received, on behalf of Trustee, a private letter ruling from the IRS (PLR-113051-15) that
satisfies the requirements of Subparagraph 2(e) of the Settlement Agreement in all respects (the
“Private Letter Ruling”). A copy of the Private Letter Ruling is attached as Exhibit B hereto.
The Trustee hereby provides further notice that on October 13, 2015, the Trustee
received opinions from Trustee tax counsel (the “Tax Opinions”) that satisfy the requirements
of Subparagraph 2(f) of the Settlement Agreement in all respects.

As a result of the foregoing, the “Approval Date” under the Settlement Agreement has
occurred on October 13, 2015. Accordingly, among other things, (i) the servicing improvements
set out in Subparagraph 5(c) of the Settlement Agreement and the reporting and attestation
obligations set out in Subparagraph 5(f) of the Settlement Agreement are now in effect; (ii)
pursuant to Subparagraph 3(c)(iv) of the Settlement Agreement, the Expert is required to
calculate the Allocable Share of each Settlement Trust within ninety (90) days of October 13,
2015, and (iii) pursuant to Subparagraph 3(a) of the Settlement Agreement, Bank of America
and/or Countrywide are required to pay the Settlement Payment or cause the Settlement
Payment to be paid in accordance with Subparagraph 3(b) of the Settlement Agreement within
one-hundred and twenty (120) days of October 13, 2015.

The Trustee expects to provide one or more additional informational notices (x) after
the Expert determines the Allocable Share of each Settlement Trust in accordance with
Subparagraph 3(c) of the Settlement Agreement and (y) after Countrywide and/or Bank of
America inform the Trustee of the date on which the Settlement Payment will be paid in
accordance with Subparagraph 3(b) of the Settlement Agreement (at which time the Trustee
expects to also give notice concerning the applicable distribution date on which the Settlement
Trusts’ Allocable Shares will be distributed to Investors in accordance with Subparagraph 3(d)
of the Settlement Agreement).

This Notice is not intended to be and should not be construed as investment, accounting,
financial, legal or tax advice by or on behalf of the Trustee, or its directors, officers, affiliates,
agents, attorneys or employees. Each person receiving this Notice is urged to carefully review
the Notice and should seek the advice of its own advisors in respect of the matters set forth
herein.

If you have any questions regarding this Notice, please contact the Trustee by email at
Questions@cwrmbssettlement.com or by telephone at (866) 294-7876 or (614) 569-0289.

THE BANK OF NEW YORK MELLON, as
Trustee for the Settlement Trusts

[…]

Decided on October 13, 2015

OneWest Bank FSB As Successor In Interest to IndyMac Bank, Plaintiff,

against

Giuseppe Prestano and Caterina Prestano, Defendants.

131889/09

Attorney for Plaintiff

Hogan Lovells US LLP

875 Third Avenue

New York, NY 10022

Attorney for Defendant

Nicholas M. Moccia, Esq

60 Bay Street, Penthouse

Staten Island, NY 10301
Philip S. Straniere, J.

The following items were considered in the review of this motion for Summary Judgment, Cross Motion and Motion for protective order

PapersNumbered

Notice of Motion1

Cross-Motion2

Notice of Motion for Protective Order3

Memorandum of Law4

Affirmation in Support5

Memorandum of Law6

Affirmation in Support7

Reply8

Memorandum of Law9

Exhibits Attached to Papers

Plaintiff, OneWest Bank FSB As Successor In Interest To IndyMac Bank, FSB, commenced this residential mortgage foreclosure action against the defendants, Giuseppe Prestano, Caterina Prestano, and “John Doe No.1” to “John Doe #10” alleging that the defendants failed to make payments as agreed in a note and mortgage.

Currently before the court are three motions.

1. Plaintiff’s motion for summary judgment and appointment of a referee to compute damages dated June 16, 2014.

2. Defendants’ cross-motion dated September 16, 2014 to:

(a) disqualify counsel for plaintiff, Hogan Lovells US LLP;

(b) compel plaintiff to comply with discovery requests;

(c) dismiss the complaint and toll interest because of plaintiff’s bad faith and unconscionable conduct in defendants’ attempt to renegotiate the loan;

(d) order a hearing on the issue of plaintiff’s standing to initially commence the action.

3. Plaintiff’s motion for a protective order in regard to defendants’ request for depositions dated October 24, 2014.

Both counsels pursuant to the Civil Practice Law and Rules (CPLR), have each failed to delineate any papers submitted to the others motion as “opposition papers” [CPLR §§2214 & 2215]. There is a difference between filing a cross-motion and filing opposition to a motion. The rules require that papers be properly labeled in that regard. There is a document dated December 2, 2014 by defendants’ counsel labeled “reply affirmation” which in its body counsel states is being submitted in opposition to plaintiff’s motion, and in support of defendants’ cross-motion and in opposition to plaintiff’s motion for a protective order.

Owing to the fact that this litigation started in 2009, counsels’ cooperation with each other in trying to chart a path to resolve this litigation, and the court’s desire to save a few more trees from destruction, the court will deem each motion submitted and opposed by the other party.

Defendants’ motion to disqualify Hogan Lovells as counsel for plaintiff, has been withdrawn as the matter has been transferred to Part 19 and a different judge for resolution.

Background:

Defendants Giuseppe Prestano and Caterina Prestano, purchased the premises 4 Fern Avenue, Staten Island, New York on October 29, 2001. Defendants allege that the original mortgage was only $100,000.00 of the $450,000.00 purchase price. The deed discloses that title was vested in the Prestano’s as “H/W” common shorthand for “Husband and Wife.” This designation meant they owned the property as tenants by the entirety with survivorship rights.

On August 17, 2005, in order to meet personal financial expenses, Giuseppe Prestano and Caterina Prestano, refinanced their home by entering into a mortgage agreement with Berkshire Financial Group, Inc. in the amount of $457,100.00. The loan term was for thirty years. It was an adjustable rate “negative amortization” loan, with an initial low monthly payment which each year would adjust to a new rate. Negative amortization means that because initial monthly payments are artificially low the unpaid interest charges may be added to the principal requiring the borrower to repay more money than the amount actually disbursed to the borrowers.

Documents provided in regard to the motions show that the lender processing the loan, Berkshire Financial Group, Inc. (Berkshire), appraised the property at $653,000.00 in August 2005, meaning the loan had a 70% loan-to-value (ltv) ratio. According to this appraisal, the property value had increased by about 50% in less than five years. A conclusion apparently not questioned by anyone.

Even though both Giuseppe Prestano and Caterina Prestano were in title, at the closing, only Giuseppe Prestano signed the Note. The mortgage, with its two riders (1-4 Family and Adjustable Rate), was signed by both Prestanos. The Prestano’s were not represented by counsel during the loan process or at closing.

The defendants defaulted on making the payments in May 2009. At that time the loan either was being serviced or was owned by IndyMac Bank. At some point IndyMac Bank failed and the defendants’ loan was assigned to the Federal Deposit Insurance Corporation (FDIC) and eventually to OneWest Bank.

Giuseppe Prestano committed suicide on September 15, 2009. Defendants allege that notice of his death was given to the lender at that time and prior to the commencement of the foreclosure action.

The summons and complaint commencing this action was filed with the clerk of the Supreme Court, Richmond County, on October 28, 2009. Service of process was made upon the defendants by substituted services on November 2, 2009 (CPLR §308-Personal Service upon a natural person).

On February 24, 2011, the Richmond County Surrogate, in the matter of the Estate of Giuseppe Prestano, (File #2011-83) issued “limited letters of administration” to Caterina Prestano only for the purpose “to assume the mortgage on 4 Fern Avenue, Staten Island, New York in her name.” There was no other proceeding in the Surrogates Court.

A review of the above fact situation reveals that there are certain problems which must be addressed.

Legal Issues Presented:

A. What was the Status of Title of the Property When the Foreclosure was Commenced?

When the Prestano’s purchased the property in October 2001, they took title as “tenants by the entirety” which means that when Giuseppe Prestano died in September 2009, Caterina Prestano, as the surviving tenant by the entirety, had sole ownership of the property by operation of law. Had she not signed the mortgage instrument along with her husband, plaintiff would have a problem foreclosing on the property because the lien would only be enforceable against the deceased husband’s interest in the property and not hers. Plaintiff would have to wait to be made whole until the sale of the property by the surviving tenant by the entirety or her death.

Fortunately for the plaintiff, someone at Berkshire had Caterina Prestano sign the mortgage document as a “borrower.” So, as discussed in detail below, she is proper defendant in this action.

B. Was Service of Process Effectuated on Giuseppe Prestano?

Giuseppe Prestano, died on September 15, 2009. The litigation was commenced on October 28, 2009 by substituted service effectuated on both Prestano’s on November 2, 2009. Service was made by delivery to a person of suitable age and discretion at the subject premises. Such service may be effective on Caterina Prestano, but the court is at a loss as to how service on a “dead” person can be made by substituted service. The person accepting service was neither the administrator nor executor of the Estate of Giuseppe Prestano. The process server delivered the documents to Frank Prestano, presumably his son. On the date of service, Frank Prestano lacked the legal ability to accept process for the decedent or his Estate as no fiduciary had been appointed.

When a person dies, they cease to exist as a legal entity and a new legal entity the “estate of” comes into existence. When plaintiff commenced this action, the legal entity to be served was the Estate of Giuseppe Prestano.

Service should have been made upon either the executor or administrator of the Estate Giuseppe Prestano or if no probate proceeding had been started at that point, service could be effectuated on the Public Administrator of Richmond County pursuant to Surrogates Court Procedure Act (SCPA) Article 11. Another option would have been for plaintiff to make an application to the Surrogate to have someone designated as an agent for service of process or as administrator to defend the foreclosure action on behalf of the deceased. Neither of these courses was followed.

This court also questions if consent of the Surrogate was needed to even commence an action against the decedent [SCPA Article 18] because he had passed away before the litigation was started. It does not appear that either party has addressed this issue.

A serious question exists as to whether this action has been properly commenced against [*2]Giuseppe Prestano or his estate. This court, absent any proof to the contrary must conclude it has not.

C. Is Caterina Prestano Authorized to Defend this Litigation on Behalf of Her Deceased Husband?

Caterina Prestano, received limited letters of administration authorizing her only to “assume the mortgage on 4 Fern Avenue.” She is not authorized to defend the foreclosure suit brought against the decedent. She may have to apply to the Surrogate for the authority to defend Giuseppe Prestano’s interest in the property. If, the service upon the decedent were valid, then the decedent is technically in default as no one was authorized to appear and answer for him. If the service on the decedent is not valid, then the issue to be addressed is whether this action against the Estate of Giuseppe Prestano is timed barred.

One of the parties in this litigation with the power and authority to do so, should apply to the Surrogate for permission to continue to prosecute or to defend the action against the decedent, as the case may be.

D. Does Caterina Prestano Have Any Personal Liability to Plaintiff?

For some reason known only to employees of Berkshire, this loan was structured in 2005 with Giuseppe Prestano and Caterina Prestano signing the Mortgage, the security instrument, and only Giuseppe Prestano signing the Note, the evidence of indebtedness. As a result, it appears that the Mortgage could be foreclosed against both parties, but no money judgment could be obtained against Caterina Prestano.

On the surface, that would seem to be the correct conclusion. However, examination of the documents signed by both defendants, leads to another conclusion. First, in the body of the Mortgage is the section labeled “Covenants.” It provides:

I promise and I agree with Lender as follows:

1. Borrower’s Promise to Pay. I will pay to Lender on time principal and interest due under the Note and any prepayment, late charges and other amounts under the Note….

Irrespective of whether Caterina Prestano has signed the Note, she signed the Mortgage as a “borrower” and agreed to pay the principal and interest due under the Note. This is a covenant creating an obligation to pay the principal and interest due the lender under the terms of the Note. Caterina Prestano in effect made herself personally liable to pay the Note in the event Giuseppe Prestano failed to do so.

One of the Riders to the Mortgage Document is the “Adjustable Rate Rider” which both Prestano’s signed. A comparison of the language of the Note with the language of Adjustable Rate Rider leads to the conclusion that the Adjustable Rate Rider creates a promise to repay the money borrowed and is actually a promissory note. It may not be a “negotiable instrument” under the Uniform Commercial Code (UCC), but it does require the signatories to the instrument to [*3]repay the debt.

The Adjustable Rate Rider recites the same terms and conditions as contained in the Note in regard to the monthly payment, the interest rate, interest rate changes, calculation of the interest rate, time and place of payment. Further in support of the argument that it is a Note, the language of the Rider makes the following references in its terms and conditions (underlining added for emphasis):

A. Interest Rate and Monthly Payment Changes

I will make all payments under this Note in the form of cash, check or money order.

2. Interest

(A) Interest Rate….I will pay interest….The interest I will pay….The interestrate…of thisNote.

3. Payments

(A)Time and Place of Payments. I will pay principal and interest by makingpayments every month….I will make these payments…under this Note. If… I still owe amounts under this Note, I will pay….

Other paragraphs have the signatories of the Rider acknowledging these are “my monthly payments” and that the principal “I originally borrowed” may reach 110% of the amount originally borrowed.

As is obvious from the language of the Rider, it does not refer to “the Note” or the “evidence of indebtedness executed simultaneously with this Mortgage.” It specifically says “this Note.” Giving the language its plain and obvious meaning, the Adjustable Rate Rider is a Note.

The promises to pay contained in it are enforceable against the signatories to the Rider irrespective of them signing the Note. Because this is a standard, nationally used form generated by a government agency, it must be concluded that the intention of the creators of the document was to obtain this result. It makes the person signing the Adjustable Rate Rider equally responsible to repay the money borrowed as those individuals who signed the Note.

The only thing missing from the Adjustable Rate Rider is the amount borrowed from the lender. However, that amount, $457,100.00 is set forth on page one of the Mortgage to which the Rider is attached, into which it is incorporated, and which the borrower agreed to pay in the first Covenant of the mortgage document. Even if the amount due and owing is greater than this stated amount because of the negative amortization covenant in the loan, that negative amortization total is a relatively simple to calculate.

The language clearly puts the signatories to the document on notice as to an obligation to [*4]make payment of the money borrowed and has their agreement to make those payments to the lender as set forth in the Rider, irrespective of whether both borrowers signed the separate Note document. The Rider is evidence of a promise to repay, although, as pointed out above, it may not be a negotiable instrument under the UCC.

It should be observed that the document in question is the Multistate Adjustable Rate Rider, Form 30044/2000(0004), presumably used in thousands of closings in New York if not nationally. The above quoted section, is not labeled number “one,” yet, it is followed by “2. (A) Interest Rate.” Last time I checked in our counting system you need a “#1” before you can have a “#2,” I guess people were too busy in giving out these loans to actually read what documents were being produced or signed. The Note document does not have that discrepancy as Paragraph 1 on the Note form is numbered and labeled “Borrower’s Promise To Pay.”

It appears that even though Caterina Prestano did not sign the Note, she has created an independent promise to repay the monies borrowed by signing the Mortgage and the Adjustable Rate Rider. Counsel for the parties may want to address the issue of whether she is a guarantor or a surety under the law.

E. Does Plaintiff Have Standing to Bring This Action?

Defendants allege in their answer that the plaintiff lacks standing to bring this action . There is a copy of the Note attached to the complaint as an exhibit presented as a true and accurate copy of the original document signed by Giuseppe Prestano on August 17, 2005 for Berkshire. Defendants contend there is no showing that the plaintiff is either the owner or in physical possession of the original Note and that the copy affixed to the complaint lacks any indication that it was negotiated to OneWest prior to commencement of the litigation.

As part of Exhibit A attached to plaintiff’s motion for a summary judgment is a copy of the original Note evidencing the following placed on the document by a stamp:

Pay To The Order Of IndyMac Bank FSB

This 22 Day of August 2005

Without Recourse

Berkshire Financial Group, Inc.

Irene Genovese (signed)

Irene Genovese VP (printed)

Below this indorsement of the note is another indorsement by a stamp.

Pay To The Order Of

Without Recourse

IndyMac Bank, FSB

Brian P. Brouillard (signed)

Brian Brouillard (stamped)

First Vice President

This endorsement is neither dated nor made payable to any individual or entity. Under the UCC §3-204 it a “blank indorsement” which makes it “bearer” paper capable of being negotiated by delivery alone until it is specifically indorsed. Plaintiff alleges the Note was transferred to the FDIC by IndyMac Bank when IndyMac Bank went into receivership.

Plaintiff also has provided a copy of an “Allonge to Note” which identifies the Prestano Note as the underlying document and purports to:

Pay To The Order Of OneWest Bank FSB Without Recourse

Federal Deposit Insurance Corporation as Receiver for IndyMac

Federal Bank, FSB successor to IndyMac Bank, FSB

By:Sandra Schneider (signed)

Name:Sandra Schneider (typed)

Title:Attorney-In-Fact

This indorsement also is not dated. Nor is there any indication as to how Sandra Schneider became the “attorney-in-fact” as there is neither a reference to a particular power of attorney nor a description as to the extent of her power to so act.

Also provided by plaintiff as an exhibit is another undated “Allonge to Note” referencing the Prestano Note. It duplicates the information in the Allonge described above, except that the payee is left blank and Sandra Schneider is now described as “Vice President, OneWest Bank, FSB.” Because the payee is blank, this allonge returned the Note to “bearer paper” status.

Rather than clarify anything, this raises even more questions. How did Sandra Schneider go from an “attorney-in-fact” for the FDIC to the Vice President of OneWest, the plaintiff herein? This must be explained. Documentation establishing her authority to act must be produced.

There is no affidavit from Sandra Schneider. At a minimum one is needed if not her deposition. I know the court is trying to apply rules to an industry where, based on the number of foreclosures filed nationally in the last decade, it often seems the rule is there are no rules, but what transpired in this matter must be satisfactorily explained.

There are other documents submitted by plaintiff as exhibits which require further inquiry by the court. These include a copy of an “Assignment of Mortgage” dated October 4, 2011 whereby Berkshire assigned the Prestano’s Mortgage to “OneWest Bank, FSB, a Successor to Federal Deposit Insurance Corporation as Receiver for IndyMac Federal Bank, FSB, Successor to IndyMac Bank, FSB, Assignee.” It is signed by Frank Carone, President of Berkshire Financial Group, Inc.

Based on this document, OneWest did not own or have in its possession the Mortgage on October 28, 2009 when this litigation was commenced. Presumably the explanation is that IndyMac was servicing the Mortgage for Berkshire when the defendant’s defaulted. There is no explanation as to what is meant by “servicing the mortgage.” Does this mean accepting the monthly payments and making disbursements from the account or something else? The question then becomes does the plaintiff have to be the owner or in possession of the Mortgage in order commence this action? The answer in New York is that possession of the mortgage document is not necessary to commence a foreclosure action so long as the plaintiff has possession of the note.

The Court of Appeals held in Aurora Loan Services, LLC v Taylor, 25 NY3d 355 (2015):

The physical delivery of the note to the plaintiff from its owner prior tocommencement of a foreclosure action may, in some circumstances, be sufficient to transfer the mortgage obligation and create standing to foreclose (citations omitted)…. (T)o have standing, it is not necessary to have possession of the mortgage at the time the action is commenced. This conclusion follows from the fact that the note, and not the mortgage, is the dispositive instrument that conveys standing to foreclose under New Yorklaw….A transfer in full of the obligation automatically transfers the mortgage as well unless the parties agree that the transferor is to retain the mortgage….Once a note is transferred, however, “the mortgage passes as an incident to the note” (Bank of New York v Silverberg, 86 AD3d 274 [2d Dept. 2011])….because the mortgage is not the dispositive document of title as to the mortgage loan; the holder of the note is deemed the owner of theunderlying mortgage loan with standing to foreclose….

Based on the foregoing, it must be concluded that the fact that plaintiff did not have possession of the mortgage instrument on the date the action was commenced is not in and of itself grounds to dismiss the proceeding for the lack of standing if it can be established that the plaintiff owned or had possession of the note on the date the summons and complaint were filed. There is no evidence that the plaintiff was the holder of the Note on October 28, 2009 when the action was commenced. The negotiation of the Note to this plaintiff is undated and there is no affidavit from the person executing the indorsement of the Note to OneWest.

Neither the affidavit from Caryn Edwards nor that from Nicole Washington, both employees of OneWest, specifically address this issue, nor does either indicate what records each of them examined to determine OneWest had possession of the Note on the date in question. Neither does either of them in their affidavit describe the procedure OneWest maintained to log in either ownership or possession of mortgage notes in 2009.

Plaintiff needs to produce an affidavit from Sandra Schneider or someone with personal knowledge of this file in order to establish standing to bring this action with some certainty. This is an issue of fact to be addressed before this litigation may proceed.

F. Was Plaintiff Required to Serve a Real Property Actions and Proceedings Law (RPAPL) §1304 Notice to Caterina Prestano?

RPAPL §1304 provides:

Required prior notices.

1. Notwithstanding any other provision of the law, with regard to a home loan, at least ninety days before a lender, an assignee or a mortgage loan servicer commences legal action against the borrower, including mortgageforeclosure, such a lender assignee or mortgage loan servicer shall give notice to the borrower in at least fourteen-point type which shall include the following:…

Defendants allege that the proceeding is defective because the plaintiff failed to give such notice to Caterina Prestano. Plaintiff provided a copy of the RPAPL §1304 notice sent Giuseppe Prestano on April 13, 2009. Plaintiff in its papers asserts that because only Giuseppe Prestano was the borrower, there was no need to give Caterina Prestano any such notice. Plaintiff is operating under the misapprehension that Caterina Prestano is not a “borrower.”

There is no definition of who constitutes a “borrower” in this statute or any other affecting residential mortgage loans either in New York or federal law. Therefore, the court must give the word “borrower” its common and everyday meaning. As noted by the court in US Bank v Hasan, 42 Misc 3d 1221(A) (2014), “logic dictates that a ‘borrower’ is someone, who at a minimum, either received something and/or is responsible to return it.” Caterina Prestano may not have received the money, but she is a borrower because she has an independent obligation to return the proceeds not created by the Note but by the Mortgage.

Page one of the Mortgage which is being foreclosed lists as “Borrower” Giuseppe Prestano and Caterina Prestano. The signature page only has the term “Borrower,” next to Giuseppe Prestano’s name although both defendants signed the instrument. The two Riders to the Mortgage have the same notation of “borrower” only for Giuseppe Prestano next to his signature block even though both Prestanos signed the Riders.

The Note does not describe the “borrower” anywhere in the body of the instrument. Its first paragraph recites the “borrower’s promise to pay” without naming the “borrower.” The Note in this transaction is only signed by Giuseppe Prestano. Next to his name in the signature block is the designation “borrower.”

The papers submitted by the parties contain many of the documents Berkshire issued prior to and at the closing of the loan. A review of them reveals that other than the Mortgage with its Riders, only two other documents listed Caterina Prestano as a co-borrower, the Negative Amortization Disclosure and the Credit Score Disclosure. However, neither of them was signed by Caterina Prestano and her name was deleted in the signature block on each of them.

On the other hand the Truth-in-Lending Disclosure issued for the closing on August 17, [*5]2005 has only Giuseppe Prestano’s name on the document but it is signed by both of them with the description “borrower” only next to his name. A document labeled “Itemization of Amount Financed” follows that same pattern (although the copy produced is unsigned by both parties).

The same is true for the Settlement Statement HUD-1A, which is an optional form on a refinance. Why it is an optional form is beyond comprehension especially because it summarizes all of the expenses of the transaction for the borrower. Unlike New York, where lawyers would traditionally represent borrowers and who would then provide a closing statement for their clients, someone in the federal government actually thought it was a good idea for unrepresented borrowers on refinances not to receive a summary of their closing costs and proceeds distribution.

The Settlement Statement confirms that this was a refinance as there is a payoff figure of in excess of $383,000.00 to what appears to be Independence Bank.

A document which would have been helpful in determining whether Caterina Prestano is a “borrower” would have been the “Right of Rescission” Notice required under federal law [15 USCA §1635]. This document gives “the obligor” the “right to rescind the transaction until midnight of the third business day following the consummation of the transaction.” If she is signatory of the Right of Rescission Notice, it would indicate whether the lender considered her an obligor. A more interesting question of course is there any legal difference between a “borrower” and an “obligor.”

If there is an ambiguity in an instrumental to what is meant by the term “borrower”, the law requires that it be construed against the drafter of the document. Here, Berkshire, plaintiff’s predecessor in interest, prepared the document and therefore any ambiguity should be construed against the plaintiff. However, as further pointed out herein, there is no ambiguity as she is a “borrower” for the purposes of this litigation.

If plaintiff did not want to have Caterina Prestano declared a “borrower” it should have left her off the form mortgage document entirely and had her execute a “consent to mortgage” wherein she would indicate that she was an owner of the real property and she was consenting to have her spouse use it as security as against both their interests for a loan. By such a document she would declare she was not obligating herself either on the Note or Mortgage, but would acknowledge that should her spouse default on his obligations, the lender could institute a foreclosure proceeding against the entire premises. Berkshire could have had her sign the mortgage document in a manner similar to that used in US Bank v Hasan, supra, where the co-owner of the property also did not sign the Note but signed the Mortgage as a “Non-Obligor Spouse Owner.”

Presumably the Prestano’s were not represented by counsel during this entire process and clearly not at the closing. Had they been represented, an attorney looking out for their interests, may have been able to negotiate language would have clearly delineated the extent Caterina Prestano’s obligations, if any, under the Mortgage.

It seems that the inconsistent treatment of Caterina Prestano has created quite a dilemma for plaintiff. If she is a “borrower” then she was entitled to an RPAPL §1304 Notice. There is case law that the failure to give such a notice to a borrower negates the foreclosure action because the notice is a “condition precedent” to commencing an action [Aurora Loan Services, LLC v Weisblum, 85 AD3d 95 (2011) ] (Weisblum). If she is not a borrower, then what interest does she have which can be foreclosed on by the plaintiff?

It seems clear that the inability to serve a §1304 Notice is not a jurisdictional defect as the court has subject matter jurisdiction over the foreclosure action and it is not a failure to obtain personal jurisdiction over her, because she was validly served with process. It is a failure to comply with a condition precedent that would lead to a dismissal of the complaint without prejudice which may be corrected by plaintiff [Pritchard v Curtis, 101 AD3d 1502 (2012)].

If she is not a “borrower” then there was no obligation to serve her with the §1304 Notice and the action would have been properly commenced. However, if she is not a “borrower” then her signature on the Mortgage and Riders is there merely to consent to Giuseppe Prestano mortgaging his interests in the property and her ownership interest in the real property cannot be foreclosed upon. Logic would seem to indicate that because she did not sign the Note, she should not be a “borrower,” as she did not “borrow” any money. That conclusion is contradicted by her signing the Mortgage and Riders as a “borrower” and in those documents agreeing to pay the principal borrowed in the Note along with the interest accruing.

The court in Weisblum determined that Patti Weisblum, who like Caterina Prestano, did not sign the Note, was still a borrower entitled to the RPAPL §1304 notice and that failure to serve her was fatal to any claim being asserted against her. As the facts of Weisblum are similar to those in Prestano, it must be concluded that plaintiff herein has not established compliance with the statute and the action against Caterina Prestano must be dismissed without prejudice. The court will not address the statute of limitations issue, if there is one.

As the financing or refinancing of a home mortgage is a consumer credit transaction of monumental proportions to most persons, and the §1304 Notice is designed to advice the borrower of pending legal action, if a lender is unsure of whether to issue such a notice, it should err on the side of giving it. The need for such notice should not be optional. As the notice is designed to protect a consumer’s interests and most persons refinancing mortgages are unrepresented by counsel, the failure to give such notice to all persons signing either the note or mortgage is fatal defect. It is failure to comply with a condition precedent.

G. Does the Failure to Have Caterina Prestano Classified as a Borrower on the Truth-in-Lending Disclosure Form Matter?

Plaintiff has apparently argued that there was no need to treat Caterina Prestano as a “borrower” for any notice purposes because she is not listed as a borrower on the Truth-in-Lending Disclosure Form. The court’s first response is “who cares?” The Truth-in-Lending [*6]Disclosure has nothing to do with the rights and obligations of the parties under the terms and conditions set forth in the Mortgage and Note. It is a DISCLOSURE FORM (emphasis added), designed to clarify for borrowers how much the loan is actually costing them when there are points, origination fees and other charges from a lender. The idea is for the borrower to be able to compare for example, a no point loan at one interest rate with a two-point loan at a lower interest rate. The document has nothing to do with who is and who is not a borrower in any particular transaction. The Truth-in-Lending would be relevant if the terms and conditions in the Note materially differed from what was disclosed in the form, thereby creating a potential violation of the statute by the lender. But once the Note and Mortgage are signed, they are the documents relevant to the rights and obligations of the parties and not the Truth-in Lending form.

Plaintiff is also factually incorrect. Caterina Prestano did sign the Truth-in-Lending on August 17, 2005, the date of the closing. She is not listed as a “borrower” on the top of the form, nor is the word “borrower” typed in the signature block where she signed. But she did sign the form. Plaintiff is correct that a preliminary Truth-in-Lending Disclosure dated August 12, 2005 has Giuseppe Prestano as the “applicant” and is only signed by him. There are no issues in this litigation arising from the plaintiff’s failure to abide by the representations in the Truth-in-Lending Disclosure or rights it created in the defendants. The document is irrelevant.

Plaintiff apparently rejected a loan modification request from Caterina Prestano asserting that the “Truth-in-Lending” prohibited an assumption of the loan. This too is ridiculous. The restriction on assumption of the mortgage applies only to a purchaser of the property. And the prohibition is against the assumption of the “mortgage on its original terms.” Caterina Prestano is not a new purchaser. She has been in title since they purchased the premises in October 2001. In fact, she is not seeking to assume the Mortgage on its original terms. She is seeking to make payments on the Note on different terms than exist in the Note signed by her deceased husband and to have plaintiff continue to hold the Mortgage as the security instrument. Berkshire, in the initial transaction acknowledged her ownership interest in the property and made her a borrower on the Mortgage and Riders. Perhaps the authors of the Truth-in-Lending form should modify its language to clarify that the terms and conditions of the Note are not assumable as well. But at the time of this transaction the assumption language applies only to the Mortgage.

Defendants are asking that plaintiff restructure the loan on terms and conditions that she is able to pay owing to the fact that the prime borrower is deceased. This is not prohibited by any documents before the court. This is litigation. Litigation gets settled if possible. The fact that plaintiff is now subjected to additional governmental regulations in regard to foreclosure actions which did not exist when this loan was made, should not be a concern of the court. For instance, the parties could figure out how much the defendant can pay a month, make that the monthly payment at the current interest rate, over perhaps a forty year term, with a balloon payment at the end. The odds are that either the defendant will sell the property before the balloon payment is due or the economy will improve so that value of the property will increase and the lender made [*7]whole. In the worst case scenario, the plaintiff would have to foreclose in the future and by the time they would have been repaid a substantial amount of the loan.

H. Where Have All the Lawyers Gone?

Apparently there has been a concerted effort in the mortgage lending industry to follow the advice of Major Rufus Cobb who in the film “Jesse James” stated:

It’s the lawyers-gol-dang it-it’s the lawyers are messin’ up the whole world!…

If we are ever to have law and order in the West, the first thing we gotta do is take out all the lawyers and shoot ’em down like dogs.

There seems to be one constant in all of the foreclosure litigation involving refinances and second mortgages-the conspicuous absence of legal counsel for borrowers. It is especially troubling because in places like New York, people will not open their eyes in the morning without first consulting an attorney, yet they enter into agreements without the benefit of legal counsel to use probably the biggest asset they own, their home, as collateral for a loan made by someone who is not in a fiduciary relationship with them and often benefits personally by having them take a particular type of loan.

Obviously these transactions have serious legal consequences because the lenders are all represented by counsel. Why do the lenders need counsel when they are making the loan but the person obligating themselves to repay the loan and be bound by the terms of the mortgage and note does not? In fact, in 2005 when this closing took place, the Code of Professional Responsibility governing the conduct of lawyers in New York, would have prevented counsel for the lender from answering questions by the borrowers about the terms and conditions of the documents and their legal importance. Disciplinary Rule 7-104 provided:

A. During the course of the representation of a client a lawyer shall not:…2. Give advice to a person who is not represented by a lawyer, other than the advice to secure counsel, if the interests of such person are or have a reasonable possibility of being in conflict with the interests of the lawyer’s client.

The plain reading of this Rule makes it clear that the lawyer for the lender at a minimum should have been advising, if not actually directing or suggesting to unrepresented borrowers to obtain independent counsel because they have adverse interests. But if the first time the borrower is told that is at the closing what are the odds that the borrower would adjourn the closing and risk loss of the rate?

It has been apparent for many years that the practice of these lenders was to encourage borrowers not to use lawyers while some of them may have actually affirmatively discouraged such a path. Ask any lawyer who does residential real estate on a regular basis how often clients are convinced by real estate brokers and mortgage brokers to switch lawyers to someone who will not impede the closing when the lawyer begins to serve as an advisor to the client by pointing out the pitfalls and risks of proceeding in the transaction as structured.

Perhaps some advocacy group will do a comparison of the number of mortgages which are in foreclosure where the borrowers were represented by counsel against those where they were unrepresented. The existence of having three days to rescind the transaction is practically meaningless. If a person did not have counsel before hand, why would someone think they would consult an attorney after the fact, where all counsel could do at that point is kill the deal. This would mean the borrower would not get the money they obviously needed, or else why would they be refinancing. So this is not a viable option. It would also mean starting the process all over. If the borrower needed the money, this is an illusory choice.

Nowhere in the refinancing process are there any disclosures or notices to the borrowers that signing a note and mortgage has significant legal consequences and they should seriously consider hiring an attorney. With all the governmental oversight of the process, disclosures and forms, why are there none advocating obtaining legal counsel? Further, if using your home for mortgage financing is not such an activity with legal consequences, why was it necessary to put all of these programs and safe guards in place after the fact? We now have all these programs designed to prevent the foreclosure if possible and keep borrowers in their homes. Where was this concern when the loan process began?

It would not be too difficult for lenders to prepare a form advising that borrowers consult counsel and then have those borrowers sign a waiver of counsel form at closing.

This causes the court to wonder if the industry-wide practice of not advising borrowers that the transaction has serious legal consequences and suggesting that they contact an attorney amounts to a deceptive business practice under General Business Law §349. Perhaps some ambitious advocacy group or attorney will pursue this in some future litigation.

Finally, many of the problems with these underwater loans could have been avoided by the legislature requiring mortgage brokers be classified as fiduciaries. They would then have to procure the best terms for their clients, the borrowers and not for themselves or the lender.

Conclusion:

The parties are directed to resolve the issues set forth above created by the death of Giuseppe Prestano and whether the court even has jurisdiction over him or his estate. As there is a serious issue as to when the plaintiff acquired the Note giving it standing to bring this action, that fact must be verified by some documentation beyond what has been produced to date. It seems clear that Caterina Prestano was a borrower and plaintiff was required to serve her with a RPAPL §1304 Notice. If the action is dismissed against her the parties must address whether it can be recommenced or if it is time barred.

Plaintiff’s motion for summary judgment is denied without prejudice to renew when the above defects in this proceeding are addressed and corrected.

Defendant’s cross-motion is denied without prejudice to renew when the procedural issues cited above are addressed.

Plaintiff’s motion for a protective order is denied without prejudice as being moot.

Because dismissal of the action might mean that the defendants get a free loan of $457,100.00, or perhaps higher by adding in the negative amortization figure, the court is reluctant to grant such relief at this time.

The parties will appear on Monday October 26, 2015 at 11:00 AM in Part 19, 927 Castleton Avenue, Staten Island, New York to address the above issues.

The foregoing constitutes the decision and order of the court.

ENTER,

Philip S. Straniere

Acting Justice of the Supreme Court

DATED: October 13, 2015

Note: A potential document to examine for evidence of whether the lender considered Caterina Prestano as a “borrower” would have been a copy of any check distribution authorization form where the borrowers consent to the distribution of the mortgage proceeds. Along that line of inquiry a copy of the net proceeds distribution check showing if it was payable to both Giuseppe Prestano and Caterina Prestano, or only one of them, as well as a copy of the reverse of any checks issued to third parties at closing disclosing if the lender required the borrower or borrowers to “approve payment” would have been helpful. Neither party produced any of this information.

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(Sacramento)

MICHAEL MONTEROSSA et al.,
Petitioners,

v.
THE SUPERIOR COURT OF SACRAMENTO COUNTY,

Respondent;
PNC BANK, etc., et al.,
Real Parties in Interest.

In 2012, new legislation imposed specific limitations regarding the nonjudicial foreclosure of owner-occupied residential real property.1 Among other things, the statutory scheme provides that a court may award reasonable attorney fees and costs to the “prevailing borrower,” indicating: “A borrower shall be deemed to have prevailed for purposes of this subdivision if the borrower obtained injunctive relief or was awarded damages pursuant to this section.” (Civ. Code, § 2924.12, subd. (i).)2 In this case, the respondent superior court concluded the petitioners were not prevailing borrowers because they obtained only a preliminary, rather than permanent, injunction. The court erred. We hold that a borrower who obtains a preliminary injunction enjoining, pursuant to section 2924.12, the trustee’s sale of his or her home is a “prevailing borrower” within the meaning of the statute.

FACTUAL AND PROCEDURAL BACKGROUND

On April 16, 2014, petitioners Michael Monterossa and Cheranne Nobis filed an ex parte application for a temporary restraining order (TRO) and request for issuance of an order to show cause regarding a preliminary injunction, seeking to prevent the trustee’s sale of their Folsom residence, then scheduled for April 21, 2014.

Simultaneously, petitioners filed a civil complaint against real parties. On April 17, the respondent superior court issued an order granting the TRO, enjoining real parties in interest from conducting the trustee’s sale pending a May 8, 2014 hearing on petitioners’ motion for a preliminary injunction.

In support of the motion for a TRO and preliminary injunction, petitioners declared, as relevant: Petitioners obtained a loan of $359,650 from PNC Mortgage, a division of PNC Bank, N.A. (PNC), and purchased their home in 2005. In June 2013, petitioners were unable to make their mortgage payments. PNC twice wrote to petitioners in August, asking them to call PNC for help with foreclosure prevention alternatives, and telling them that PNC wanted to help them retain their home. Petitioners repeatedly called PNC to request a “hardship assistance package,” but PNC failed to send them one. Despite PNC’s failure to send petitioners a hardship assistance package, PNC notified petitioners that their request for hardship was denied because PNC did not receive a completed hardship assistance package from petitioners. Thereafter, PNC recorded a notice of default with Quality Loan Service Corporation. In November 2013, petitioners submitted a loan modification agreement to PNC, and PNC “appointed a single point of contact” named Hazel, who informed petitioners they needed to submit missing documents. On December 5, 2013, petitioners submitted the missing documents, and Hazel confirmed PNC had received a complete package. On January 24, 2014, PNC recorded a notice of trustee’s sale on the property. Petitioners immediately called PNC, and were told that their loan modification was denied due to missing documents.

After a hearing, the respondent superior court issued an order on May 8, 2014, granting petitioners’ motion for a preliminary injunction enjoining the trustee’s sale of petitioners’ home, conditioned on petitioners either posting a $20,000 bond or paying real party PNC $2,135.54 monthly pending trial of the action. The court reasoned that real parties offered no evidence in opposition to petitioners’ evidence that real parties engaged in “dual tracking” by recording a notice of trustee’s sale while simultaneously engaging in the loan modification process, in violation of section 2923.6. The court concluded: “[Petitioners] would suffer irreparable harm if they were to lose their residence before the merits of their claims were adjudicated. Any harm to [real parties] in granting the injunction is far outweighed by the damage to [petitioners] if the injunction were to be denied.”

Thereafter, petitioners filed a motion for attorney fees and costs pursuant to section 2924.12, subdivision (i). After a hearing, the respondent superior court denied the motion, reasoning the language of the statute is consistent with the award of attorney fees at the conclusion of the action; statutory attorney fees are awardable only at the end of the case; and the statute does not specifically provide for an interim award of attorney fees upon the granting of provisional relief such as a preliminary injunction.
Petitioners filed a petition for writ of mandate seeking an order directing the respondent superior court to grant the motion for attorney fees and costs. We issued an order to show cause. Real party PNC has filed a return. We shall issue a peremptory writ of mandate.

DISCUSSION

Petitioners contend the respondent superior court erred in interpreting subdivision (i) of section 2924.12 as precluding an award of attorney fees and costs if a borrower obtains only a preliminary rather than a permanent injunction. We agree.3

“Generally, we review an award of fees and costs by the trial court for abuse of discretion. ‘However, de novo review of such a trial court order is warranted where the determination of whether the criteria for an award of attorney fees and costs in this context have been satisfied amounts to statutory construction and a question of law.’ ” (Crews v. Willows Unified School Dist. (2013) 217 Cal.App.4th 1368, 1379, citing & quoting Carver v. Chevron U.S.A., Inc. (2002) 97 Cal.App.4th 132, 142.)

“ ‘The rules governing statutory construction are well settled. We begin with the fundamental premise that the objective of statutory interpretation is to ascertain and effectuate legislative intent. [Citations.] To determine legislative intent, we turn first to the words of the statute, giving them their usual and ordinary meaning. [Citations.] When the language of a statute is clear, we need go no further. However, when the language is susceptible of more than one reasonable interpretation, we look to a variety of extrinsic aids, including the ostensible objects to be achieved, the evils to be remedied, the legislative history, public policy, contemporaneous administrative construction, and the statutory scheme of which the statute is a part. [Citations.]’ (Nolan v. City of Anaheim (2004) 33 Cal.4th 335, 340.) In addition, ‘every statute should be construed with reference to the whole system of law of which it is a part, so that all may be harmonized and have effect. [Citation.] Legislative intent will be determined so far as possible from the language of the statutes, read as a whole.’ (County of Fresno v. Clovis Unified School Dist. (1988) 204 Cal.App.3d 417, 426.)” (Doe v. Albany Unified School Dist. (2010) 190 Cal.App.4th 668, 675-676.)

“[O]n July 2, 2012, the California Legislature passed Assembly Bill No. 278 and Senate Bill No. 900 (2011-2012 Reg. Sess.), which have since been signed into law by the Governor. These provisions address more pointedly the foreclosure crisis in our state through even greater encouragement to lenders and loan servicers to engage in good faith loan modification efforts. [¶] One of the targets of the legislation is a practice that has come to be known as ‘dual tracking.’ ‘Dual tracking refers to a common bank tactic. When a borrower in default seeks a loan modification, the institution often continues to pursue foreclosure at the same time.’ (Lazo, Banks are foreclosing while homeowners pursue loan modifications, L.A. Times (Apr. 14, 2011); see Sen. Floor Analyses, Conf. Rep. on Assem. Bill No. 278, as amended June 27, 2012, p. 3.) The result is that the borrower does not know where he or she stands, and by the time foreclosure becomes the lender’s clear choice, it is too late for the borrower to find options to avoid it. ‘Mortgage lenders call it “dual tracking,” but for homeowners struggling to avoid foreclosure, it might go by another name: the double-cross.’ (Lazo, Banks are foreclosing.)” (Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 904, fn. omitted.)4

The prohibition against dual tracking is found in section 2923.6, subdivision (c), which provides in pertinent part: “If a borrower submits a complete application for a first lien loan modification offered by, or through, the borrower’s mortgage servicer, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale, or conduct a trustee’s sale, while the complete first lien loan modification application is pending.”

And the prohibition against dual tracking is given teeth by section 2924.12, which provides remedies for a violation of section 2923.6 or other specified provisions of the statutory scheme. The remedies are different, depending on whether a trustee’s deed upon sale has been recorded. “If a trustee’s deed upon sale has not been recorded, a borrower may bring an action for injunctive relief to enjoin a material violation of Section 2923.55, 2923.6, 2923.7, 2924.9, 2924.10, 2924.11, or 2924.17.” (§ 2924.12, subd. (a)(1).) “Any injunction shall remain in place and any trustee’s sale shall be enjoined until the court determines that the mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent has corrected and remedied the violation or violations giving rise to the action for injunctive relief. An enjoined entity may move to dissolve an injunction based on a showing that the material violation has been corrected and remedied.” (§ 2924.12, subd. (a)(2).)

“After a trustee’s deed upon sale has been recorded, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall be liable to a borrower for actual economic damages pursuant to Section 3281, resulting from a material violation of Section 2923.55, 2923.6, 2923.7, 2924.9, 2924.10, 2924.11, or 2924.17 by that mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent where the violation was not corrected and remedied prior to the recordation of the trustee’s deed upon sale. If the court finds that the material violation was intentional or reckless, or resulted from willful misconduct by a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent, the court may award the borrower the greater of treble actual damages or statutory damages of fifty thousand dollars ($50,000).” (§ 2924.12, subd. (b).)

Here, because a notice of trustee’s deed upon sale had not been recorded, petitioners sought and obtained a preliminary injunction enjoining the trustee’s sale. As we have indicated, petitioners then sought an award of attorney fees and costs, pursuant to subdivision (i) of section 2924.12, which provides: “A court may award a prevailing borrower reasonable attorney’s fees and costs in an action brought pursuant to this section. A borrower shall be deemed to have prevailed for purposes of this subdivision if the borrower obtained injunctive relief or was awarded damages pursuant to this section.”5

The statute at issue refers to “injunctive relief,” which plainly incorporates both preliminary and permanent injunctive relief. Nevertheless, the respondent superior court concluded that the phrase “prevailing borrower . . . in an action” suggests the Legislature intended for an award of attorney fees and costs solely at the conclusion of the action, i.e., after a judgment issuing a permanent injunction. However, a preliminary injunction is obtained “in an action.” And a borrower who obtains a preliminary injunction has prevailed in obtaining “injunctive relief.” Thus, the plain language of subdivision (i) of section 2924.12 provides for attorney fees and costs to a borrower who obtains a preliminary injunction.

But even if we assume the phrase “prevailing borrower . . . in an action” creates an ambiguity as to whether the Legislature intended to authorize attorney fees and costs when a preliminary injunction is issued, nevertheless the language and purpose of the statutory scheme, and its legislative history, demonstrate the Legislature intended to authorize an award of attorney fees and costs when a preliminary injunction issues.

Under this unique statutory scheme, in many cases the best a plaintiff can hope to achieve is a preliminary injunction. “In deciding whether to issue a preliminary injunction, a trial court weighs two interrelated factors: the likelihood the moving party ultimately will prevail on the merits, and the relative interim harm to the parties from the issuance or nonissuance of the injunction.” (Hunt v. Superior Court (1999) 21 Cal.4th 984, 999.) Where the trial court has found the plaintiff is likely to prevail on the claim of a “material violation” of one of the provisions enumerated in subdivision (a)(1) of section 2924.12, and accordingly has issued a preliminary injunction, the “mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent” can expeditiously correct and remedy the violation giving rise to the action for injunctive relief and then move to dissolve the preliminary injunction pursuant to subdivision (a)(2) of section 2924.12. This compliance with the statutory scheme would consequently moot the borrower’s request for a permanent injunction. But, given that the borrower has effectively prevailed in the action by obtaining a preliminary injunction forcing compliance with the statute, the Legislature must have intended to authorize an award of attorney fees and costs when a trial court issues a preliminary injunction pursuant to subdivision (i) of section 2924.12.

As an example, in this case the respondent court found petitioners’ showing to be undisputed that real parties “dual tracked” petitioners in violation of section 2923.6 by recording a notice of trustee’s sale while petitioners’ first lien loan modification application was pending. Rather than wait for trial on petitioners’ claim for a permanent injunction, real parties could simply comply with the statutory scheme and then, if necessary, move to dissolve the preliminary injunction in order to record a new notice of trustee’s sale. That is, real parties could provide petitioners with a written determination regarding the loan modification application (§ 2923.6, subd. (c)), and if a loan modification is granted, wait 14 days for petitioners to decide whether to accept it (§ 2923.6, subd. (c)(2)). If loan modification is denied, real parties would wait 31 days to determine if petitioners appealed, and if they did, wait another 15 days if the appeal was denied. (§ 2923.6, subds. (d) & (e).) The short time periods set out in the statutory scheme suggest the Legislature’s understanding that a prevailing borrower’s preliminary injunctive victory may often be short-lived and subject to dissolution upon compliance with the statutory scheme’s procedural requirements.6

Our interpretation of the statute as authorizing attorney fees and costs when a borrower obtains a preliminary injunction is further supported by the purpose of the statutory scheme, set out in section 2923.4, subdivision (a): “The purpose of the act that added this section is to ensure that, as part of the nonjudicial foreclosure process, borrowers are considered for, and have a meaningful opportunity to obtain, available loss mitigation options, if any, offered by or through the borrower’s mortgage servicer, such as loan modifications or other alternatives to foreclosure. Nothing in the act that added this section, however, shall be interpreted to require a particular result of that process.” In enacting the statutory scheme, the Legislature mandated a process for fair consideration of options other than foreclosure. As we have explained, when a lender fails to comply with that process, the borrower prevails by obtaining a preliminary injunction requiring the lender to comply with the process. After correcting the error, the lender may move to dissolve the preliminary injunction, and in such cases, there will be no need for a trial regarding a permanent injunction. The Legislature’s purpose is fulfilled by providing attorney fees and costs to a borrower who successfully forces the lender to comply with the statutory process by obtaining a preliminary injunction.

Finally, the legislative history demonstrates unequivocally that the Legislature intended to authorize an award of attorney fees and costs when a trial court grants a preliminary injunction as a result of a lender’s violation of sections 2923.55, 2923.6, 2923.7, 2924.9, 2924.10, 2924.11, or 2924.17. As explained in the July 2, 2012 Senate Rules Committee’s “Conference Report No. 1” regarding Senate Bill No. 900, as amended June 27, 2012, page 29: “Importantly, no action for money damages would be allowed until the date the trustee’s deed is recorded after a foreclosure sale. At all times until then, the only legal remedy a homeowner may seek is an action to enjoin a substantial violation of the specified sections, along with any trustee’s sale. When a court considers a request for injunctive relief it must determine whether there is convincing evidence of harm if the injunction is not granted. The court will also consider if the borrower has a likelihood of prevailing on the merits. As part of that consideration, no legal action would be permissible if brought in bad faith or intended merely for the purpose of unnecessary delay, and no injunctive relief could be awarded unless the homeowner could show a likelihood of prevailing on the merits in relation to the balance of harms. Any such injunction is to be dissolved if the moving party shows that the violation has been redressed. No special pre-litigation procedures or particular allegations are required by the amendments, whether or not the sale is pending. Conversely, the servicer or other covered entity may avoid legal action by curing the violation any time prior to recordation of a trustee’s deed. This right to cure is not unprecedented in comparable circumstances where the parties are known to each other and have an established relationship of ongoing communication. Equivalent provisions may be found in Civil Code Section 910 et seq. and Labor Code Section 2698 et seq. If it is necessary to order injunctive relief, a party who obtains an injunction is among those who is recognized as a prevailing party for the purposes of attorney’s fees and costs. As with the vindication of other important statutory rights, an award of attorney’s fees and costs is to be decided by the court. (See, e.g., Code of Civil Procedure Section 1021.5; Government Code Section 12965; Civil Code Section 52.1.)” (Italics added.) Thus, the Legislature understood that the intent of the statutory scheme was to permit a trial court
to award attorney fees and costs to a borrower who prevails in obtaining a preliminary injunction.

We reject the position of the superior court and real party PNC that “interim” attorney fee awards may never be made in conjunction with provisional relief such as the issuance of a preliminary injunction. Indeed, the conference report to Senate Bill No. 900, quoted above, expressly refers to one statute as to which attorney fees have been awarded to a plaintiff who obtained a preliminary injunction, i.e., Code of Civil Procedure section 1021.5. (See, e.g., Bouvia v. County of Los Angeles (1987) 195 Cal.App.3d 1075, 1080, 1086.) The respondent superior court and real party mistakenly rely on a practice guide, which notes only the general rule that attorney fees are ordinarily awarded at the end of the case rather than when interim relief is granted. (Wegner et al., Cal. Practice Guide: Civil Trials and Evidence (The Rutter Group 2014) ¶ 17:152.5, pp. 17-115 to 17-116.) Indeed, the case cited by the practice guide simply recognizes that attorney fees may be awarded only when specifically provided for by statute, and asserts that interim attorney fee awards in California have been limited to cases under Code of Civil Procedure section 1021.5. (Bell v. Farmers Ins. Exchange (2001) 87 Cal.App.4th 805, 830-832.) But, here, the Legislature has specifically provided that trial courts may award attorney fees upon issuance of “injunctive relief,” which includes the issuance of a preliminary injunction.

We reject also real party PNC’s contention that it is improper to award attorney fees because a preliminary injunction may issue solely to preserve the status quo. Although the case authority relied on by real party PNC recognizes that the purpose of a preliminary injunction is to maintain the status quo, the cases also state the rule that a trial court must consider both the plaintiff’s likelihood of prevailing on the merits and the balance of harms to the parties; and, further, that the trial court must deny a preliminary injunction if the plaintiff has no reasonable probability of prevailing on the merits.(Continental Baking Co. v. Katz (1968) 68 Cal.2d 512, 528; SB Liberty, LLC v. Isla Verde Assn., Inc. (2013) 217 Cal.App.4th 272, 280; see, e.g., Weingand v. Atlantic Sav. & Loan Assn. (1970) 1 Cal.3d 806, 820; Pro-Family Advocates v. Gomez (1996) 46 Cal.App.4th 1674, 1681.) In order to issue a preliminary injunction, the respondent superior court was required to, and did in fact, determine that petitioners were likely to prevail on the merits. An award of attorney fees at the preliminary injunction stage furthers the legislative purpose of ensuring borrowers have a meaningful opportunity to participate in available loss mitigation options.

We reject real party PNC’s contention that an absurd consequence may result if attorney fees are awarded to a borrower at the preliminary injunction stage only to have the lender correct the violation or to have the borrower lose in a subsequent effort to obtain a permanent injunction. There is nothing absurd about such an outcome. A borrower who obtains a preliminary injunction that prevents the foreclosure of his or her home because of the lender’s violation of section 2923.55, 2923.6, 2923.7, 2924.9, 2924.10, 2924.11, or 2924.17, may recover attorney fees expended to obtain the preliminary injunction. The borrower has prevailed in the action by obtaining injunctive relief. The lender’s correction of the violation and successful motion to dissolve the preliminary injunction will not entitle the lender to recover the attorney fees. If the lender fails to correct the violation and to move to dissolve the preliminary injunction, as a practical matter, the borrower may have little incentive to set the matter for trial of a permanent injunction. But, in the scenario where the borrower has obtained a preliminary injunction and then pursues but fails to obtain a permanent injunction, the borrower will still have been entitled to seek the attorney fees he or she incurred in order to obtain the preliminary injunction.

DISPOSITION

Let a peremptory writ of mandate issue directing the respondent superior court to vacate its September 3, 2014 order denying petitioners’ motion for attorney fees and costs, and to consider that motion on its merits. Petitioners are awarded their costs of this proceeding.

(Cal. Rules of Court, rule 8.493(a).)

(CERTIFIED FOR PUBLICATION)

BUTZ , Acting P.J.

We concur:
MURRAY , J.
DUARTE , J.

NBC-

KENNEWICK, WA — The Washington Supreme Court ruled in favor of the Washington State Department of Commerce today in Brown v. Commerce, a case addressing the rights of Washington homeowners to access mediation with their lenders under the Foreclosure Fairness Act (FFA). Northwest Justice Project (NJP) and Columbia Legal Services (CLS) jointly represented Kennewick homeowner Darlene Brown in the case to advocate for the equal right to mediation for Washington homeowners whose loans are owned by Freddie Mac and Fannie Mae.

This case involved Darlene Brown, a disabled homeowner in Benton County, Washington, who was in danger of losing her home due to unexpected deaths in her family and resultant loss of income. The mortgage note was owned by Freddie Mac, but because the loan servicer M&T Bank as “note holder” was on the mediation-exempt list, Ms. Brown was denied mediation.

“We believe all homeowners with loans owned by Freddie Mac and Fannie Mae should be granted the same right to mediation, regardless of what bank or non-bank entity services their loan and ‘holds’ their note. The Court’s decision means that not all Washington homeowners with Fannie and Freddie owned loans will be able to use mediation to avoid foreclosure” said NJP Staff Attorney Meredith Bruch.

[NBC]

CARMEN GOMEZ, Plaintiff,
v.
RESURGENT CAPITAL SERVICES, LP and LVNV FUNDING, LLC, Defendants.

Concepcion A. Montoya, Esq., Han Sheng Beh, Esq., Jason Joseph Oliveri, Esq., HINSHAW & CULBERSON LLP, New York, NY, Attorneys for the Defendants.

OPINION

ROBERT W. SWEET, District Judge.

Two duelling motions for summary judgment are currently pending before the Court in this unfair debt collection practices case: one filed by Defendants Resurgent Capital Services, LP (“Resurgent”) and LVNV Funding, LLC (“LVNV,” collectively with Resurgent, the “Resurgent Defendants” or the “Defendants”) seeking dismissal of the complaint filed by Plaintiff Carmen Gomez (“Gomez” or the “Plaintiff”), and one filed by Gomez seeking summary judgment on liability against the Resurgent Defendants, with proceedings to continue regarding the amount of damages. (Dkt. Nos. 57 & 79.) Also pending is Resurgent’s motion for a protective order covering certain documents submitted by Gomez in her summary judgment briefing. (Dkt. No. 97.) For the reasons stated below, both summary judgment motions are granted in part and denied in part, and the motion for a protective order is granted.

Prior Proceedings

Gomez brought this case on October 18, 2013, filing a complaint against former defendants Inovision-Medclr Portfolio Group, LLC; Peter T. Roach & Associates, P.C.; Kirschenbaum, Phillips & Roach, P.C.; Timothy Murtha; NCO Financial Systems, Inc., and the two remaining defendants, LVNV Funding, LLC and Resurgent Capital Services, LP. (Dkt. No. 1.) The Complaint alleged that the defendants had engaged in abusive debt collection practices in violation of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. (the “FDCPA”), the Telephone Consumer Protection Act, 47 U.S.C. § 227 et seq., New York General Business Law § 349, and New York Judiciary Law § 487.^[1] (See generally id.)

On January 14, 2014, defendants Inovision-Medclr Portfolio Group, LLC and NCO Financial Systems, Inc. made Gomez an offer of judgment pursuant to Fed R. Civ. P. 68, which Gomez accepted two weeks later. (See Dkt. No. 22.) The Court dismissed those two defendants on June 5, 2014. (Dkt. No. 33.) In March of 2014, the parties agreed to a Protective Order governing the treatment of confidential information, which the Court approved on June 25, 2014. (Dkt. No. 41.) On January 13, 2015, Gomez dismissed her claims against defendants Peter T. Roach and Associates, P.C.; Kirschenabaum & Phillips, P.C.; and Timothy Murtha pursuant to a settlement agreement. (Dkt. Nos. 68 & 70.)

The Resurgent Defendants filed their motion for summary judgment on December 30, 2014. (Dkt. Nos. 56-62.) Gomez filed her opposition papers on January 24, 2015 (Dkt. Nos. 72-75), and then filed her own motion for partial summary judgment five days later. (Dkt. Nos. 79-83.) The Resurgent Defendants filed papers on February 18, 2015 replying to Gomez’ opposition to its summary judgment motion and opposing the one she filed. (Dkt. No. 87-88.) Gomez filed her reply brief in support of her summary judgment motion on March 5, 2015 (Dkt. No. 92), and the Resurgent Defendants filed a sur-reply on March 26, 2015. (Dkt. No. 96.) The motion was head on submission on March 4, 2015. (See Dkt. No. 86.)

The Resurgent Defendants filed their motion for a protective order on March 26, 2015. (Dkt. No. 97-99.) Gomez filed her opposition on April 9 (Dkt. No. 102) and Resurgent filed its reply on April 13. (Dkt. No. 103.)

The Facts

The facts are set forth in the parties’ various Rule 56.1 Statements (Dkt. Nos. 61, 75, 82, & 88) and are not in dispute except as noted below.

The events that gave rise to this case began on September 12, 2005, when Mel S. Harris and Associates, LLC filed a lawsuit against Gomez, seeking to collect a debt she had allegedly incurred to Chase Bank, U.S.A., N.A. (“Chase”), which was later assigned to Inovision-Medclr Portfolio Group, LLC (“Inovision”). The parties dispute whether Gomez was ever served; an affidavit of service says that she was served on September 28, 2005, but Gomez states that she never received notice of the lawsuit and speculates that she may have been the victim of “sewer service.” Either way, it is undisputed that Gomez did not appear in the suit, and a default judgment was entered against her.

The history of the alleged debt is a tangled one. Gomez admits that she had an account with Chase, but maintains that she ceased using it in or before 1995, rendering the validity of any action regarding it in 2005 dubious. Although the lawsuit regarding the debt was brought by Inovision, Gomez questions whether Chase ever sold that account to anyone and states that there is no evidence that title to the account ever passed from Chase to Inovision. Defendants state that Inovision sold Gomez’ debt to Sherman Originator III, LLC (“Sherman”), a nonparty to this case, and that Sherman transferred the debt to defendant LVNV Funding, LLC (“LVNV”). Gomez questions whether the alleged paperwork of those sales, which covers an unknown number of accounts, actually includes hers, since they make no specific mention of her. She also states that she never received any notice that her debts had been assigned and argues that any attempt to collect the debts is therefore invalid.

Defendants utilized a chain of entities to collect Gomez’ debt. LVNV had a contractual relationship with Resurgent, its “master servicer.” Resurgent then hired the law firm of Eltman, Eltman and Cooper, P.C. (“EEC”) to collect on the judgment against Gomez. EEC in turn retained Peter T. Roach and Associates, P.C. (together with successor firm Kirschenbaum, Phillips & Roach, P.C., “Roach”) to collect on the judgment. Roach employed former defendant Timothy Murtha (“Murtha”) as an attorney to handle the case. Roach also used another corporation, Global Connect, to make automated calls.

On or around October 19, 2012, Murtha signed an information subpoena and restraining notice to be sent to Municipal Credit Union, Gomez’ bank, seeking to enforce the judgment against her. The parties differ on how much attention Murtha put into the notice. Gomez cites Murtha’s deposition from another civil lawsuit involving Roach, in which he estimated he signed approximately 400 postjudgment enforcement documents per week, and alleges that Murtha “robo-signed” her notice without actually reviewing its merits. Defendants note that in this case Murtha testified that he executes approximately two and a half postjudgment execution devices per work day, and contend that he did not “robo-sign” the document.

MCU sent a copy of the restraining notice to Gomez on November 7, 2012. On December 5, 2012, Gomez sent a letter to Roach saying that she had no knowledge of the debt, stating that the statute of limitations on the debt had expired, and requesting proof of the debt. She also requested not to be called on her cellular phone. On December 11, 2012, Roach sent Gomez a letter seeking to collect a judgment of $2,366.46, plus interest at a rate of 9 percent annually, amounting to $3,864.91 in total. The check was to be made payable to Roach.

During this time, Gomez states that she continued receiving debt collection phone calls. She received debt collection calls to her cellular phone on November 21, 27, and 29, 2012; December 4, 7, and 31, 2012; and January 7, 18, and 19, 2013.^[2] Roach’s records indicate that additional calls were made.

Gomez filed an Order to Show Cause in Bronx Civil Court, seeking to vacate the 2005 judgment against her. On February 19, 2013, the Honorable Ruben Franco signed the Order, which required that all debt collection activities be stayed. On March 8, 2013, Judge Franco vacated the default judgment and ordered that “any funds including fees in the possession of [LVNV], [the] City Marshal, or any other agent shall be returned to [Gomez] forthwith.” However, even after Judge Franco’s order was entered, the City Marshal continued to garnish Gomez’ wages three times on Defendants’ behalf, totalling roughly $400, with a similar amount being taken and held in trust. Gomez also filed an answer and a motion to dismiss in the original debt collection action. Her motion to dismiss was granted on May 31, 2013.

Gomez alleges that she has suffered severe emotional distress as a result of the debt collection actions taken against her, including the phone calls she received, the restraints placed on her bank account, and the garnishment of her wages. According to her, she could not sleep and suffered “extreme stomach pain after every meal,” and even had suicidal thoughts. It is undisputed that she incurred attorney’s fees in fighting the attempts to collect the debt. Gomez estimates that the fees amount to over $1,500; Defendants assert that her evidence for that total is lacking and deny that the amount is so high.

Applicable Standard

Summary judgment is appropriate only where “there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). A dispute is “genuine” if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The relevant inquiry on application for summary judgment is “whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.” Id. at 251-52. A court is not charged with weighing the evidence and determining its truth, but with determining whether there is a genuine issue for trial. Westinghouse Elec. Corp. v. N.Y. City Transit Auth., 735 F. Supp. 1205, 1212 (S.D.N.Y. 1990) (quoting Anderson, 477 U.S. at 249).

As to the motion for a protective order, “Rule 26(c) confers broad discretion on the trial court to decide when a protective order is appropriate and what degree of protection is required.” In re Zyprexa Injunction, 474 F. Supp. 2d 385, 415 (E.D.N.Y. 2007) (quoting Seattle Times Co. v. Rhinehart, 467 U.S. 20, 36 (1984)). The touchstone of the court’s power under Rule 26(c) is the requirement of “good cause.” Id. The party wishing to seal materials bears the burden of demonstrating good cause as to why the material should be concealed from the public. New York v. Actavis, PLC, No. 14 Civ. 7473, 2014 WL 5353774, at *3.

The Case Is Not Mooted by the Resurgent Defendants’ Offer of Judgment

On March 4, 2014, Defendants made Gomez an offer of Judgment pursuant to Fed R. Civ. P. 68, in the amount of $4,001 “plus reasonable attorney’s fees” stemming from this litigation. Gomez declined the offer. Defendants argue that because their offer fully satisfied Gomez’ claim, the case is now moot.

Rule 68 provides that a party defending against a claim may serve on an opposing party an offer to allow judgment on specified terms, with the costs then accrued. Fed. R. Civ. P. 68(a). If the claimant accepts the offer, the clerk enters judgment on those terms. Id. If the claimant declines the offer, and later obtains a judgment that is less favorable, she must pay the costs incurred after the offer was made. Fed. R. Civ. P. 68(d). If the proposed offer of judgment satisfies the entire demand, the claim is mooted, and the Court may enter judgment according to the offer’s terms. See Ambalu v. Rosnblatt, 194 F.R.D. 451, 453 (E.D.N.Y. 2000); see also Abrams v. Interco Inc., 719 F.2d 23, 32 (2d Cir. 1983).

The parties dispute whether the offer of $4,001 does in fact satisfy the Plaintiff’s entire claim. The FDCPA allows a victim of abusive debt collection practices to recover any actual damages she has suffered as a result of any violation, plus additional statutory damages up to $1,000, attorney’s fees, and costs. 15 U.S.C. § 1692k(a). The damages that Gomez alleges amount to over $1,500 in attorney’s fees spent in order to vacate the default judgment entered against her in 2005, plus what her briefing refers to as “garden variety emotional distress.” (Dkt. No. 72.)

Defendants appear to have arrived at the $4,001 figure by adding $1,000 in statutory damages under 15 U.S.C. § 1692k(a) to the $1,500 in attorney’s fees Gomez claims she paid and $1,500 in emotional damages, which they believe is the maximum that Gomez could possibly obtain in this Circuit. For this latter proposition, they cite a number of FDCPA cases in which courts in this Circuit have limited recovery for emotional damages to amounts under $1,500 or reduced higher damage awards to amounts below $1,500. E.g., Mira v. Maximum Recovery Solutions, No. 11 Civ. 1009, 2012 WL 4511623 (E.D.N.Y. Aug. 31, 2012); Krueger v. Ellis, Crosby & Assocs., Inc., No. 05 Civ. 0160, 2006 WL 3791402 (D. Conn. Nov. 9, 2006); Gervais v. O’Connell, Harris & Assocs., Inc., 297 F. Supp. 2d 435 (D.Conn. 2003). Gomez does not cite any case awarding a greater amount.

Accepting Defendants’ argument would require the Court to rule as a matter of law that a FDCPA plaintiff’s potential recovery for emotional distress is capped at $1,500. While the Defendants establish that courts in the Second Circuit have generally been circumspect in awarding damages for emotional harm in FDCPA cases, they do not cite any statute or case law establishing a cap on such damages, and courts elsewhere have awarded amounts for emotional harm many times greater what the Defendants have offered Gomez. See, e.g., Goodin v. Bank of Am., N.A., No. 13-cv-102, 2015 WL 3866872, at *13 (M.D. Fla. June 23, 2015) (“Accordingly, the Court, as fact-finder, finds that Mr. and Mrs. Goodin have proven entitlement to $50,000 each for their emotional distress.”); Nelson v. Equifax Info. Servs., LLC, 522 F. Supp. 2d 1222, 1239 (C.D. Cal. 2007) (upholding jury award in FDCPA case of $85,000 in damages based on emotional distress); see also McCaig v. Wells Fargo Bank (Texas), N.A., 788 F.3d 463, 484 (5th Cir. 2015) (affirming $75,000 in damages for emotional distress awarded under equivalent Texas statute). As a matter of law, the maximum amount that Gomez can recover in damages for emotional harm cannot be established, and summary judgment on these grounds is not appropriate. See Sibersky v. Borah, Goldstein, Altschuler, & Schwartz, P.C., 242 F. Supp. 2d 273, 278 (S.D.N.Y. 2002).

Partial Summary Judgment is Granted for Gomez on her FDCPA Claim

The FDCPA creates a private right of action for persons who are subjected to a variety of abusive debt collection practices. See 15 U.S.C. § 1692k. The Second Circuit summarizes its function and operation thus:

The purpose of the FDCPA is to “eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.” 15 U.S.C. § 1692(e). The FDCPA “establishes certain rights for consumers whose debts are placed in the hands of professional debt collectors for collection, and requires that such debt collectors advise the consumers whose debts they seek to collect of specified rights.” DeSantis v. Computer Credit, Inc., 269 F.3d 159, 161 (2d Cir.2001). The legislative history of the passage of the FDCPA explains that the need for the FDCPA arose because of collection abuses such as use of “obscene or profane language, threats of violence, telephone calls at unreasonable hours, misrepresentation of a consumer’s legal rights, disclosing a consumer’s personal affairs to friends, neighbors, or an employer, obtaining information about a consumer through false pretense, impersonating public officials and attorneys, and simulating legal process.” S.Rep. No. 95-382, at 2 (1977), reprinted in 1977 U.S.C.C.A.N. 1695, 1696. The FDCPA sets forth examples of particular practices that debt collectors are forbidden to employ. See 15 U.S.C. § 1692e. The list, however, is non-exhaustive, and the FDCPA generally forbids collectors from engaging in unfair, deceptive, or harassing behavior. See 15 U.S.C. §§ 1692 et seq.

Kropelnicki v. Siegel, 290 F.3d 118, 127 (2d Cir. 2002). In order to establish a violation under the FDCPA, 1) the plaintiff must be a “consumer” who allegedly owes the debt or a person who has been the object of efforts to collect a consumer debt, 2) the defendant collecting the debt is considered a “debt collector,” and 3) the defendant has engaged in any act or omission in violation of FDCPA requirements. Plummer v. Atl. Credit & Fin., Inc., 66 F. Supp. 3d 484, 488 (S.D.N.Y. 2014). Here, it is unquestioned that Gomez was the object of efforts to collect a consumer debt, and Defendants do not dispute that they are “debt collectors” under the terms of the FDCPA. See id. at 488-89 (declaring that assignees who purchase consumer debt for the purposes of collection qualify as a debt collector under the FDCPA).

The motion therefore turns on the third prong of the test — whether the Resurgent Defendants violated the FDCPA. Gomez essentially points to four actions taken against her as violations of the FDCPA: first, that she repeatedly received collection calls even after demanding that they stop; second, that Murtha “robo-signed” the execution documents enforcing the 2005 judgment against her; third, that she was never sent a notice of assignment informing her that LVNV now owned her debt; and fourth, that the debt collectors continued to garnish her wages and refused to return her money, in violation of the stay and vacatur orders issued by Judge Franco.^[3]

Since the parties vigorously dispute whether Murtha “robo-signed” the execution documents and whether Gomez received a notice of assignment, and since neither party has mustered sufficient evidence to prevail on either matter as a matter of law, summary judgment cannot be granted on those bases.^[4] However, both sides agree that Gomez sent a letter on December 5, 2012 denying the debt and asking for collection calls to stop, but that calls continued to be placed to her afterwards. Similarly, both sides agree that her wages continued to be garnished on the Resurgent Defendants’ behalf even after Judge Franco ordered collection activity to cease and vacated the 2005 judgment against Gomez. Each of these incidents violated the FDCPA. See 15 U.S.C. § 1692c(c) (“If a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wishes the debt collector to cease further communication with the consumer, the debt collector shall not communicate further with the consumer with respect to such debt. . . .”); 15 U.S.C. § 1692f(1) (proscribing “[t]he collection of any amount . . . unless such amount is expressly . . . permitted by law.”).

Neither violation, however, was committed by the Defendants, who never contacted Gomez directly. Instead, they utilized a chain of entities to collect the debt on their behalf, beginning with LVNV, the actual debt holder, and extending through Resurgent, LVNV’s master servicer, to EEC, a law firm hired by Resurgent, onwards to the Roach law firm and its successor, which were hired by EEC, and then on to Murtha, the attorney at the Roach firm in charge of executing on Gomez’ debt, and Global Connect, which was retained by Roach to make telephone calls. Gomez does not allege that the Defendants ordered, oversaw, or even were aware of the actions taken to collect Gomez’ debt on their behalf.^[5]

Thus, the motion turns on whether the Defendants can be held vicariously liable for FDCPA violations committed by the people who worked for them, but not under their direct control. Courts are split on this issue, both within this District and among the Courts of Appeals. Some judges have followed the Third Circuit’s holding in Pollice v. National Tax Funding, L.P., 225 F.3d 379, 404 (3d Cir. 2000) and allowed entities that themselves meet the definition of debt collector under the FDCPA to be held vicariously liable for the actions taken to collect debts on their behalf, whether or not they actually exercised control over them. The leading case for the proposition within this District is Okyere v. Palisades Collection, LLC, 961 F. Supp. 2d 508 (S.D.N.Y. 2013). See also, e.g., Plummer, 66 F. Supp. 3d at 493; Fritz v. Resurgent Cap. Servs., LP, 955 F. Supp. 2d 163, 177 (S.D.N.Y. 2013).^[6] The second line of cases follows the Ninth Circuit’s holding in Clark v. Capital Credit & Collection Services, Inc., 460 F.3d 1162, 1173 (9th Cir. 2006) to require that any vicarious liability in a FDCPA case be based on “general principles of agency,” under which “to be liable for the actions of another, the principal must exercise control over the conduct or activities of the agent.” (quotation omitted) The leading case following Clark in this district is Bodur v. Palisades Collection, LLC, 829 F. Supp. 2d 246, 259 (S.D.N.Y. 2011). See also, e.g., Nichols v. Niagara Credit Recovery, Inc., No. 12-cv-1068, 2013 WL 1899947, at *5 (N.D.N.Y. May 7, 2013); Sanchez v. Abderrahman, No. 10 Civ. 3641, 2013 WL 8170157, at *6 (E.D.N.Y. July 24, 2013).^[7]

This decision will follow Pollice and Okyere in holding that debt collectors such as the Defendants are vicariously liable for FDCPA violations committed by agents acting on their behalf, whether or not they exercised direct control over them. Although the FDCPA is silent on the issue, the fact that Congress defined “debt collector” to include any person “who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another,” 15 U.S.C. § 1692a(6), indicates an intent to apply liability to all entities involved in the debt collection process, regardless of whether they face the consumer directly. Moreover, the same subsection contains several subcategories excluding various types of debt collectors’ agents from the provisions of the FDCPA, indicating that Congress took care to break the liability relationship between debt collectors and agents within those categories, and implying that it wished to keep a liability relationship between debt collectors and agents not so excluded. See id.

The legislative history of the FDCPA also indicates a congressional intent to include large debt collection entities such as the Resurgent Defendants within the FDCPA’s ambit. According to the Senate Committee on Banking, Housing, and Urban Affairs, the Act is geared toward collection agencies generally, since “[u]nlike creditors, who generally are restrained by the desire to protect their good will when collecting past due accounts, independent collectors are likely to have no future contact with the consumer and often are unconcerned with the consumer’s opinion of them.” S. Rep. No. 95-382, at 2 (1977). Neither the text of the FDCPA nor its legislative history indicates that Congress intended to draw a line between the activities of large debt collection agencies like the Resurgent Defendants, who buy consumer debt in bulk but contract out the actual collection work, and the ground-level operations that actually contact individual debtors. Rather, the Act’s recognition that “[e]xisting laws and procedures for redressing these injuries [were] inadequate to protect consumers” indicates that Congress intended to stop debt collectors large and small from using legalistic means to avoid liability for abusive practices. See 15 U.S.C. § 1692(b).

Contrary to the Defendants’ assertions, holding debt collectors vicariously liable for their agents’ actions is consistent with traditional common law principles. As Judge Gorenstein noted in Okyere, the common law “ordinarily make[s] principals liable for acts of their agents merely when the agents act `in the scope of their authority.'” Okyere, 961 F. Supp. 2d at 517 (quoting Meyer v. Holley, 537 U.S. 280, 285 (2003)). That authority need not even be authentic, due to “the established rule of agency law that a principal is liable to third parties for the acts of an agent operating within the scope of the agent’s real or apparent authority.” See Security Pac. Mortg. & Real Estate Servs., Inc. v. Herald Ctr., Ltd., 891 F. 2d 447, 448 (2d Cir. 1989). Where a ground-level debt collector contacts a consumer, claiming that it is acting on behalf of an assignee that has purchased his or her debt, the collector acts on behalf of assignee and represents to the consumer that it has the assignee’s permission to do what it does. The assignee, as the party whose authority the ground-level debt collector is utilizing and the party who stands to benefit from any aggressive tactics, can be held liable under traditional common-law principles.

In addition to being consistent with the common law and with Congress’ intention in enacting the FDCPA, holding debt collectors liable for FDCPA violations made on their behalf should incentivize them to actively supervise their agents with an aim toward minimizing abusive practices. To allow debt collectors to shield themselves from liability by placing a long enough chain of entities in between themselves and the consumer would encourage willful blindness to the actions taken in their name. Adopting Bodur’s control requirement would also place significant evidentiary burdens on plaintiffs who, given their status as debtors, are likely to lack the resources to sort out complex links between the debt collection entities aligned against them.^[8]

Since it is undisputed that Roach took actions that amount to violations of the FDCPA, and that it did so on behalf of the Resurgent Defendants,^[9] summary judgment is granted for the Plaintiff as to liability on her FDCPA claim, insofar as it pertains to telephone calls made to her after she sent her letter demanding they cease and to the garnishment of her wages after the entry of Judge Franco’s Orders. Both sides’ motions for summary judgment are denied in all other respects.

Summary Judgment is Granted for Defendants on Gomez’ § 349 Claim

New York General Business Law § 349 outlaws “[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state,” and creates a private right of action for persons harmed by any such deceptions. In order to state a cause of action under § 349, a plaintiff must show 1) that the defendant’s conduct is “consumer-oriented,” 2) that the defendant is engaged in a “deceptive act or practice,” and 3) that the plaintiff was injured by this practice. Wilson v. Nw. Mut. Ins. Co., 625 F.3d 54, 64 (2d Cir. 2010).

Gomez alleges that Defendants violated § 349 by “filing time barred collection lawsuits, entering default judgments based on sewer service, seeking to collect on those sewer service default judgments on time barred debts. . . . [and] robo–signing post-judgment executions impliedly represented to consumers that an attorney had done a meaningful review prior to issuing the execution when none was done.” [sic] (Complaint, Dkt. No. 1, at ¶ 80.) Any § 349 claim based on the filing of the initial 2005 lawsuit against her, any putative sewer service, or the obtaining of the initial default judgment is time-barred due to § 349’s three-year statute of limitations. Gaidon v. Guardian Life Ins. Co. of Am., 96 N.Y.2d 201, 210 (2001). A claim based on the enforcement of the judgment against her, or on the “robo–signing” of the execution paperwork would not be time-barred, but fails for a different procedural reason.

Rather than a claim based on § 349, a general statute which covers deceptive business practices, Gomez’ state law claim is actually one for a violation of General Business Law § 601, which prohibits a variety of abusive debt collection practices, including to “[c]laim, or attempt or threaten to enforce a right [to collect a debt] with knowledge or reason to know that the right does not exist.” While this statute covers Roach’s attempts to collect on a debt that it should have known was invalid, Gomez cannot sue the Resurgent Defendants under it because “[t]he New York Court of Appeals has stated unequivocally that Section 601 does not supply a private cause of action.” Conboy v. AT&T Corp., 241 F.3d 242, 258 (2d Cir. 2001) (citing Varela v. Investors Ins. Hldg. Corp., 81 N.Y.2d 958, 961 (1993)). “Plaintiffs cannot circumvent this result by claiming that a Section 601 violation is actionable under Section 349.” Id. Summary judgment is granted for the Defendants on Gomez’ § 349 claims.

The Motion for a Protective Order is Granted

Defendants separately move for a protective order sealing a set of documents submitted by Gomez in support of her reply brief. These documents consist of 1) the Amended and Restated Servicing Agreement between LVNV and Resurgent, 2) the Collection Services Agreement between Resurgent and EEC, 3) the Service Provider Master Agreement between EEC and Roach, and 4) Resurgent’s Attorney Standards and Operations Manuals. (D.’s Protective Order Br., Dkt. No. 99, at 4). The three contracts were produced during this case, while the manuals were produced by a third party in a different litigation.

Defendants have adequately shown that the materials contain proprietary information that could harm their business if it were to be disclosed. The Attorney Standards and Operations Manuals contain information about Resurgent’s computer system, the codes put into it, protocols for transferring account information, procedures for handling accounts, and descriptions of fee arrangements with the law firms it employs to collect debts. (D.’s Protective Order Br., Dkt. No. 99, at 7-8.) While the contracts between LVNV, Resurgent, EEC, and Roach are less substantive in nature, Defendants aver that they “identify the fee arrangements and structures, set down procedures regarding Roach’s settlement authority during all debt collection litigation, and other policies regarding litigation of collection suits.” (Id.)

The Court is satisfied that disclosure could cause harm to Defendants’ business, and that there is good cause for the documents to remain confidential. The conclusion is buttressed by the fact the documents are offered in support of an argument that was first raised in a reply brief, and therefore waived, see In re Motors Liquidation Co., No. 15 Civ. 4685, 2015 WL 5076703, at *7 n.4 (S.D.N.Y. Aug. 27, 2015) (quoting Conn. Bar Ass’n v. United States, 620 F.3d 81, 91 n.13 (2d Cir. 2010)), and by the fact that this Opinion resolves both sides’ summary judgment motions without the need to refer to them. The Defendants’ motion for a Protective Order is therefore granted.

Conclusion

Summary judgment is granted for the Plaintiff as to liability on her FDCPA claim, insofar as it pertains to telephone calls made to her after she sent her letter demanding they cease, and to the garnishment of her wages after the stay and vacatur of the default judgment against her. Summary judgment is granted for Defendants on Plaintiff’s General Business Law § 349 claim. Both parties’ motions for summary judgment are denied in all other respects. The Defendants’ motion for a protective order is granted.

It is so ordered.

[1] Gomez withdrew her Telephone Consumer Protection Act claim while briefing these motions. (See Pl.’s Opp. Br., Dkt. No 72, at 14.) The Judiciary Law claim was only alleged against Roach (see Complaint, Dkt. No. 1 at 17), and is thus no longer active after Roach’s dismissal from the case.

[2] Defendants’ response to these assertions is puzzling. They “deny that the facts set forth . . . are undisputed” and state that Gomez’ proffered evidence does not support the assertions that the calls were made by or on behalf of Roach, or that they were made for the purposes of debt collection. However, while the Defendants deny that the facts are undisputed, they do not actually dispute them by offering any evidence to the contrary, or even by asserting that the facts are incorrect. (See D.’s Response to Pl.’s Local Civil Rule 56.1 Statement, Dkt. No. 88, at 14.) These facts, and those alleged in several other paragraphs to which Defendants responded with similar non-denial denials, are deemed admitted for the purposes of this motion. See Local Civil Rule 56.1(c) (“Each numbered paragraph in the statement of material facts . . . will be deemed to be admitted for the purposes of the motion unless specifically controverted. . . .” (emphasis added)).

This measure is particularly warranted given that inconsistencies in Defendants’ Rule 56.1 statements indicate that these murky responses are being utilized to avoid making potentially harmful admissions. (Compare, e.g., D.’s Local Civil Rule 56.1 Statement, Dkt. No. 61, ¶ 13 (“On March 15, 2013, [Roach] received notice that the Gomez Judgment was vacated.”) with D.’s Response to Pl.’s Local Civil Rule 56.1 Statement, Dkt. No. 88, at 18 (“there is no indication [in the evidence offered by Gomez] that the Roach Defendants or the Resurgent Defendants received notice of the vacatur of the Gomez Judgment. The contents of paragraph [sic] are denied because the citations to the record do not support this statement of fact.”).

[3] Gomez makes a fifth allegation, claiming that she received a phone call in November 2013 from a man who identified himself as “Brandon” and threatened to garnish 20 to 25 percent of her wages. The allegation cannot be credited at the summary judgment stage because it is based only on her own affidavit, and she did not attempt to depose Raymond Hunter, the employee who both sides agree was the person who identified himself as Brandon. The telephone call also does not fit Gomez’ offered timeline, since November 2013 was well after Judge Franco vacated her alleged debt, and even after she had filed her Complaint in this case. Although Defendants responded to the allegation with another non-denial denial (See Dkt. No. 88 ¶ 38), they did cite to deposition testimony by Murtha that tended to contradict the proposition.

[4] Defendants point to two documents sent to Gomez “that disclosed the assignment of the judgment,” but the documents themselves simply state that Gomez owes a debt to Inovision and that Roach is attempting to collect on it. (See Dkt. Nos. 83-8 and 83-9.) These documents are insufficient to inform her of which debt is at issue and how LVNV came to own it, with one of the documents even listing Inovision, not LVNV, as the only creditor. The issue of whether she received a notice of assignment thus comes down to Gomez’ word that she received no notice against Murtha’s testimony that he mailed her one.

[5] Gomez argues for the first time in her reply brief that she has obtained several contracts and training manuals showing that the Defendants exercised control over the Roach entities. “[I]ssues raised for the first time in a reply brief are generally deemed waived.” In re Motors Liquidation Co., No. 15 Civ. 4685, 2015 WL 5076703, at *7 n.4 (S.D.N.Y. Aug. 27, 2015) (quoting Conn. Bar Ass’n v. United States, 620 F.3d 81, 91 n.13 (2d Cir. 2010)). Since summary judgment can be granted based on the vicarious liability issue alone, the Court need not reach this question.

[6] LVNV litigated the issue of whether it was vicariously liable for debt collection actions taken on its behalf in Fritz, and lost. See Fritz, 955 F. Supp. 2d at 177. As such, LVNV (but not Resurgent) is collaterally estopped from rearguing the issue. District courts in the Second Circuit are permitted to raise the issue of collateral estoppel sua sponte. See Curry v. City of Syracuse, 316 F.3d 324, 330-31 (2d Cir. 2003).

[7] Gomez argues that Defendants’ control over Roach and their agents is established by the attorney-client relationship between Resurgent and the EEC law firm, which in turn hired the Roach firm. While the contention may have merit, it runs head-on into the same split in authority. Compare Okyere, 961 F. Supp. 2d at 517 (“Moreover, the nature of an attorney-client relationship itself reflects that the client has the power to `control’ its agent in material respects if the client wishes to do so.”) with Bodur, 829 F. Supp. 2d at 259 (Without evidence that [debt collector client] exercised control over [law firm]’s conduct . . . [client] is not vicariously liable and therefore is entitled to summary judgment.”). Moreover, neither the parties nor the cases cited touch on whether the question of control is different when the law firm retains another law firm, as happened here. As with Gomez’ allegations of direct control, since the motions can be resolved on the issue of vicarious liability alone, the Court need not reach the attorney-client question.

[8] Moreover, the Bodur rule could cut plaintiffs off from recovery altogether if debt collectors are clever enough to avoid direct control in each link of the chain, while leaving consumer-facing entities so undercapitalized as to be judgment-proof. Although the financial picture of the entities working on the Resurgent Defendants’ behalf is incomplete, the record before the Court indicates that as the entities in the chain came closer to contact with consumers, they had ever-shallower pockets.

[9] Defendants argue for the first time in their reply brief that Roach acted outside the scope of its agency. “[I]ssues raised for the first time in a reply brief are generally deemed waived.” In re Motors, 2015 WL 5076703 at *7 n.4. Even if the issue were not waived, the contention is without merit. Defendants argue that a “rogue attorney” who violates the law cannot act within the scope of his authority, by definition, citing a fifteen-year-old case from the Western District of New York Bankruptcy Court and a 22-year-old case from the Ohio Court of Appeals. Their argument would result in the abolition of vicarious liability altogether, since a plaintiff could only recover for conduct that violated the law and any violation of the law would be outside the scope of an agent’s authority.

GSAA HOME EQUITY TRUST 2006-2, BY AND THROUGH LL FUNDS LLC, Plaintiff,
v.
WELLS FARGO BANK, N.A., and SAXON MORTGAGE SERVICES, INC., Defendants.

OPINION AND ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS

ROBERTO A. LANGE, District Judge.

Plaintiff GSAA Home Equity Trust 2006-2 (the Trust) is a residential mortgage-backed securities trust. Defendant Wells Fargo, N.A. (Wells Fargo) is the Master Servicer of the Trust and Defendant Saxon Mortgage Services, Inc. (Saxon) was the Trust’s Servicer. The Trust, by and through Plaintiff LL Funds LLC (LL Funds), filed suit in this Court, asserting breach of contract and tort claims against both Defendants and a claim under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968, against Wells Fargo. Doc. 1. Defendants have moved to dismiss all of LL Funds’ claims under Rules 12(b)(6) and 12(b)(1) of the Federal Rules of Civil Procedure. Docs. 25, 28. For the reasons explained below, this Court grants in part and denies in part Defendants’ motions to dismiss.

I. Facts

This case involves residential mortgage-backed securities (RMBS). RMBS are a type of asset-backed financial product created through securitization. The securitization process begins when the originator of a residential mortgage loan sells the loan to a financial institution. Doc. 1 at 12. The financial institution then pools the loan with others, deposits the loans into a trust, and sells certificates issued by the trust to investors. Doc. 1 at ¶¶ 12, 17. The certificates entitle the investors to a portion of the mortgage payments made by the borrowers on the loans within the trust. Doc. 1 at ¶¶ 15-16.

The Trust in this case was established in January 2006 pursuant to a Master Servicing and Trust Agreement (MSTA). Doc. 1 at ¶¶ 1-2. The parties to the MSTA were GS Mortgage Securities Corporation as Depositor; Deutsche Bank National Trust Company (Deutsche) as Trustee and Custodian; and Wells Fargo as Master Servicer. Doc. 1 at ¶ 2. The MSTA provides that it is governed by New York law. Doc. 27-2 at 51. Saxon agreed to be the Servicer for the loans in the Trust by entering into a Flow Servicing Rights Purchase and Servicing Agreement (Servicing Agreement) with Goldman Sachs Mortgage Company. Doc. 1 at ¶ 5; Doc. 27-1 at 46. The Servicing Agreement was eventually assigned to Deutsche.

Saxon’s responsibilities under the Servicing Agreement included collecting mortgage loan payments from borrowers, Doc. 30-1 at 26, remitting the collected payments to the Trust, Doc. 30-1 at 26-28, engaging in loss mitigation efforts with delinquent borrowers, Doc. 30-1 at 22-23, and, if necessary, pursuing foreclosure proceedings on the Trust’s behalf, Doc. 30-1 at 24-25. Under the Servicing Agreement, Saxon had a duty to ensure that its mortgage servicing practices were in conformity with those of prudent mortgage lending institutions which service similar mortgage loans. Doc. 1 at ¶ 20; Doc. 30-I at 7, 22, 24. As the Master Servicer, Wells Fargo had a duty under the MSTA to “monitor the performance of the Servicer under the related Servicing Agreements” and to “use its reasonable good faith efforts to cause the Servicer to duly and punctually perform their duties and obligations thereunder.” Doc. 27-2 at 30; Doc. 1 at ¶ 21.

Section 12.07 of the MSTA contains what is commonly referred to as a “no-action clause” which provides in relevant part:

No Certificateholder shall have any right by virtue or by availing itself of any provisions of this Agreement to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Agreement, unless such Holder previously shall have given to the Trustee a written notice of an Event of Default and of the continuance thereof, as herein provided, and unless the Holders of Certificates evidencing not less than 25% of the Voting Rights evidenced by the Certificates shall also have made written request to the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses, and liabilities to be incurred therein or thereby, and the Trustee, for 60 days after its receipt of such notice, request and offer of indemnity shall have neglected or refused to institute any such action, suit or proceeding. . . .

Doc. 27-2 at 53.

LL Funds owns and holds certificates issued under the MSTA evidencing 25% or greater of the voting rights of the Trust. Doc. 1 at ¶¶ 3, 10. The Complaint does not aver that LL Funds owned 25% or greater of the voting rights during the time Saxon was the Servicer. In March 2014, after Saxon no longer was servicing loans in the Trust, LL Funds sent a letter to Deutsche directing it to sue Saxon and “any other parties under the MSTA . . . while Saxon was a Servicer” for, among other things, breach of contract and negligence. Doc. 1 at ¶ 3; Doc. 1-1 at 1. LL Funds explained in the letter that it was making a written request under § 12.07 of the MSTA for Deutsche to institute an action in its own name as Trustee. Doc. 1 at ¶ 3; Doc. 1-1 at 1-2. LL Funds further explained that it had not given a separate notice of an Event of Default under § 12.07 because Saxon was no longer the Servicer for the Trust and could not remedy the conduct in question. Doc. 1 at ¶ 3; Doc. 1-1 at 2. To the extent that a separate notice of an Event of Default was necessary, however, LL Funds asked Deutsche to consider the letter as providing such notice. Doc. 1-1 at 2.

After Deutsche allowed more than sixty days to pass without bringing suit, LL Funds filed the present Complaint against Saxon and Wells Fargo. Doc. 1 at ¶ 3. Rather than focusing on Wells Fargo’s actions as the Master Servicer of the Trust, the Complaint consists in large part of allegations concerning Wells Fargo’s conduct as the servicer for loans in other trusts or other settings. Doc. 1 at ¶¶ 30-34, 40-45. According to the Complaint, Wells Fargo entered into consent orders with various federal agencies after investigations by these agencies revealed that Wells Fargo had engaged in “robo–signing“^[1] and other improper conduct in its capacity as a servicer of loans not in this particular Trust. Doc. 1 at ¶¶ 30-34, 40-45.

The Complaint contains similar allegations about Saxon. LL Funds alleged in the Complaint that Saxon entered into a Consent Order (Saxon Consent Order) with the Board of Governors of the Federal Reserve in April 2012. Doc. 1 at ¶ 35. The Consent Order alleged that when foreclosing on certain residential mortgage loans that it serviced, Saxon had filed or caused to be filed affidavits purportedly based on the affiant’s personal knowledge when in fact they were not; litigated foreclosure proceedings without ensuring that the mortgage and related documents were in order; failed to allocate proper resources to handle the increased level of foreclosures and loss mitigation activities; and failed to exercise adequate control over the foreclosure process. Doc. 1 at ¶ 35; Doc. 30-3 at 1-4. LL Funds alleged in the Complaint that “[o]n information and belief, . . . Saxon filed in county recording or land offices and in courts flawed, misleading, improper and arguably unlawful documents as set forth in the above-referenced [Saxon Consent Order] with regard to the Trust.” Doc. I at ¶ 36.

Based on these allegations and others, LL Funds asserted claims for breach of contract against Wells Fargo (Count I); breach of contract against Saxon (Count II); negligence against Wells Fargo and Saxon (Count III); willful misfeasance/misconduct or gross negligence against Wells Fargo and Saxon (Count IV); and a violation of RICO against Wells Fargo (Count V). Doc. 1. Defendants offer multiple arguments in support of their motion to dismiss, each of which is discussed below.

II. Standards of Review

On a motion to dismiss under Rule 12(b)(6), courts must accept the plaintiff’s factual allegations as true and construe all inferences in the plaintiff’s favor, but need not accept a plaintiff’s legal conclusions. Retro Television Network, Inc. v. Luken Commc’ns, LLC, 696 F.3d 766, 768-69 (8th Cir. 2012). To survive a motion to dismiss for failure to state a claim, a complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Although detailed factual allegations are unnecessary, the plaintiff must plead enough facts to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. When determining whether to grant a Rule 12(b)(6) motion, a court generally must ignore materials outside the pleadings, but it may “consider `matters incorporated by reference or integral to the claim, items subject to judicial notice, matters of public record, items appearing in the record of the case, and exhibits attached to the complaint.— Dittmer Props, L.P. v. FDIC, 708 F.3d 1011, 1021 (8th Cir. 2013) (quoting Miller v. Redwood Toxicology Lab., Inc., 688 F.3d 928, 931 n.3 (8th Cir. 2012)); see also Kushner v. Beverly Enters., Inc., 317 F.3d 820, 831 (8th Cir. 2003) (explaining that courts may also consider “documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading” (quoting Rosenbaum v. Syntex Corp. (In re Syntex Corp. Sec. Litig.), 95 F.3d 922, 926 (9th Cir. 1996))). In addition to the allegations in the Complaint, this Court has considered the Saxon Consent Order (but not for the truth of the allegations therein), the Servicing Agreement, the MSTA, and LL Funds’ letter to Deutsche.

Rule 12(b)(1) provides for dismissal of a suit when the court lacks subject matter jurisdiction. The United States Court of Appeals for the Eighth Circuit has drawn a distinction between facial and factual 12(b)(1) motions, explaining the applicable standard in each instance. See Osbom v. United States, 918 F.2d 724, 728-30 (8th Cir. 1990). Under a facial attack, “the court restricts itself to the face of the pleadings, and the non-moving party receives the same protections as it would defending against a motion brought under Rule 12(b)(6).” Jones v. United States, 727 F.3d 844, 846 (8th Cir. 2013) (quoting Osborne, 918 F.2d at 729 n.6). Under a factual attack, however,

the trial court may proceed as it never could under 12(b)(6) or Fed. R. Civ. P. 56. Because at issue in a factual 12(b)(1) motion is the trial court’s jurisdiction—its very power to hear the case—there is substantial authority that the trial court is free to weigh the evidence and satisfy itself as to the existence of its power to hear the case. In short, no presumptive truthfulness attaches to the plaintiff’s allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims.

Osborne, 918 F.2d at 730 (quoting Mortensen v. First Fed. Say. & Loan Ass’n, 549 F.2d 884, 891 (3d Cir. 1977)). Plaintiffs faced with either a factual or facial attack under Rule 12(b)(1) have the burden of proving subject matter jurisdiction. V S Ltd. P’ship v. Dep’t of Hous. & Urban Dev., 235 F.3d 1109, 1112 (8th Cir. 2000).

III. Analysis

A. Standing

Saxon contends that LL Funds’ claims are derivative and therefore must be dismissed for lack of standing because LL Funds failed to comply with the contemporaneous ownership rule embodied in Federal Rule of Civil Procedure 23.1(b)(1) and New York Business Corporation Law § 626. Alternatively, Saxon argues that even if LL Funds’ claims are direct rather than derivative, LL Funds still lacks standing because LL Funds purchased its certificates on the secondary market and further did not have a contractual relationship with Saxon.

Federal Rule of Civil Procedure 23.1 “applies when one or more shareholders or members of a corporation or an unincorporated association bring a derivative action to enforce a right that the corporation or association may properly assert but has failed to enforce.” Fed. R. Civ. P. 23.1(a). One of the pleading requirements of Rule 23.1 is that the plaintiff must allege in a verified complaint that it “was a shareholder or member at the time of the transaction complained of.” Fed. R. Civ. P. 23.1(b)(1). “Similarly, New York Business Corporation Law § 626(b) requires that a plaintiff in a shareholder derivative suit have been `a [share]holder at the time of the transaction of which he complains’ in order to have standing.” Kaliski v. Bacot (In re Bank of N.Y. Derivative Litig.), 320 F.3d 291, 297 (2d Cir. 2003) (alteration in original) (quoting N.Y. Bus. Corp. § 626(b)). “The main purpose of this so-called contemporaneous ownership rule is to prevent courts from being used to litigate purchased grievances.” Id. (alterations, citation, and internal quotation marks omitted).

Although neither Rule 23.1 nor New York Business Corporation Law § 626 specifically mention suits by beneficiaries of a trust, federal district courts have applied these rules to derivative suits by certificateholders in mortgage-backed securities trusts. See Fed. Hous. Fin. Agency v. WMC Mortg., LLC, No. 13 Civ. 584(AKH), 2013 WL 5996530, at *1 (S.D.N.Y. June 12, 2013); SC Note Acquisitions, LLC v. Wells Fargo Bank, 934 F. Supp. 2d 516, 528-29 (E.D.N.Y. 2013), aff’d, 548 F. App’x 741 (2d Cir. 2014). The question here, then, is whether LL Funds’ claims are direct or derivative.

When analyzing whether a claim is derivative, courts “must look to the nature of the alleged wrong rather than the designation used by plaintiffs.” Ellington Credit Fund v. Select Portfolio Servicing, Inc., 837 F. Supp. 2d 162, 188 (S.D.N.Y. 2011) (quoting Primavera Familienstiftung v. Askin, No. 95 Civ. 8905 (RWS), 1996 WL 494904, at *14-15 (S.D.N.Y. Aug. 30, 1996)). In the past, some federal district courts in New York followed the rule that “an alleged injury that is `equally applicable’ to all shareholders gives rise to a derivative, not a direct, action.” Dall, Cowboys Football Club, Ltd. v. Nat’l Football League Tr., No. 95 CIV. 9426 (SAS), 1996 WL 601705, at *2 (S.D.N.Y. Oct. 18, 1996) (quotation omitted); SC Note, 934 F. Supp. 2d at 530 (quoting and applying rule announced in Dallas Cowboys). Just this year, however, the author of Dallas Cowboys abandoned the rule stated in that decision in favor of the test articulated by the Supreme Court of Delaware in Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004). See Royal Park Invs. SA/NV v. HSBC Bank USA, Nos. 14-cv-8175 (SAS), 14-cv-9366 (SAS), 14-cv-10101 (SAS), 2015 WL 3466121, at *15-16 (S.D.N.Y. June 1, 2015) (noting that a New York appellate court had adopted the Tooley test and concluding that the test was consistent with New York law); see also Hansen v. Wwebnet, Inc., No. 1:14-cv-2263 (ALC), 2015 WL 4605670, at *4 (S.D.N.Y. July 31, 2015) (applying Tooley to determine whether claim was derivative under New York law). A New York appellate court has adopted Tooley, so the test in Tooley should control whether an action is direct or derivative under New York law. See Serino v. Lipper, 994 N.Y.S.2d 64, 69 (N.Y. App. Div. 2014) (acknowledging adoption of the Tooley test and explaining that the test is consistent with existing New York law); Yudell v. Gilbert, 949 N.Y.S.2d 380, 384 (N.Y. App. Div. 2012) (adopting Tooley).

In Tooley, the Supreme Court of Delaware explained that the test for determining whether a stockholder’s claim is direct or derivative must be based “solely on the following questions: (1) who suffered the alleged harm (the corporation or the suing stockholders, individually); and (2) who would receive the benefit of any recovery or other remedy (the corporation or the stockholders, individually)?” Tooley, 845 A.2d at 1033. To be considered direct under the Tooley test, a stockholder’s “injury must be independent of any alleged injury to the corporation. The stockholder must demonstrate that the duty breached was owed to the stockholder and that he or she can prevail without showing an injury to the corporation.” Id. at 1039. The stockholder’s injury need not be distinct from the injury suffered by other stockholders to be direct, however. The Supreme Court of Delaware in Tooley “expressly disapprove[d]” of “the concept that a claim is necessarily derivative if it affects all stockholders equally.” Id.; see also Blackrock Allocation Target Shares: Series S Portfolio v. U.S. Bank Nat’l Ass’n, No. 14-cv-9401 (KBF), 2015 WL 2359319, at *6 n.12 (S.D.N.Y. May 18, 2015) (concluding an allegation that all certificateholders would suffer harm equally was “immaterial” under Tooley).

Whether LL Funds’ claims are direct or derivative under Tooley is a difficult question, which the parties have not analyzed. Compounding the difficulty of that question, the Supreme Court of Delaware in NAF Holdings, LLC v. Li & Fung (Trading) Ltd., 118 A.3d 175 (Del. 2015), recently deemed Tooley to have “no bearing on whether a party with its own rights as a signatory to a commercial contract may sue directly to enforce those rights.” NAF Holdings, 118 A.3d at 176. The facts of NAF Holdings are distinguishable, and none of the parties briefed whether LL Funds is suing “directly to enforce those rights” LL Funds (as opposed to the Trust) has under a commercial contract. Instead of addressing Tooley, LL Funds argued in its brief that its claims are direct because it “seeks to recover its own unique losses within the waterfall,” because the Complaint states that the claims are direct, and because it is suing on behalf of the Trust and in the name of the Trustee. These arguments are not satisfactory; whether LL Funds’ injuries are unique from other Certificateholders is irrelevant under Tooley, the labels LL Funds applies to its claims are not determinative, and LL Funds has not provided any legal authority in support of its contention that a certificateholder’s action on behalf of a trust or in the name of the trustee is direct. This entire question may be academic if in fact LL Funds owned the requisite certificates at the time of the transactions complained of, and thus this Court will allow LL Funds twenty-one days to file an Amended Complaint to satisfy the contemporaneous ownership rule. Alternatively, LL Funds may file a supplemental brief with citation to legal authority explaining why and how this is a direct action. Saxon and Wells Fargo then will be given an opportunity to respond within twenty-one days, and LL Funds may file a reply brief within fourteen days thereafter.

If LL Funds establishes that it may bring a direct action, this leaves Saxon’s alternative argument that LL Funds lacks standing. Saxon contends that LL Funds does not have standing to sue it directly because LL Funds “necessarily purchased its Certificates in the secondary market” and any causes of action against Saxon did not transfer from the prior Certificateholder to LL Funds. See Ellington, 837 F. Supp. 2d at 180-83 (holding that plaintiff did not have standing to assert claims against servicer that accrued prior to plaintiff’s purchase of certificates because New York General Obligation Law § 13-107 did not provide for the transfer of such claims). The viability of this argument depends on when Saxon’s alleged breach of contract occurred and when LL Funds purchased its Certificates. LL Funds failed to plead when it became a Certificateholder and should plead at a minimum that it owned Certificates when Saxon was the Servicer. LL Funds can address this standing issue through amendment of its Complaint or in the supplemental briefing ordered by this Court.

B. No-Action Clause

Defendants make several arguments concerning why the no-action clause bars LL Funds’ claims. First, Wells Fargo contends that because the no-action clause refers to an “Event of Default” rather than a “Master Servicer Event of Default,” the clause bars all of LL Funds’ claims against Wells Fargo, the Master Servicer. Second, Wells Fargo argues that even if the no-action clause applies to its conduct, LL Funds’ notice letter to the Trustee was deficient with respect to Wells Fargo because the letter only expressly addressed claims against Saxon. Third, both Defendants assert that the no-action clause bars all of LL Funds’ claims because the Events of Default alleged in LL Funds’ notice letter were not continuing. Finally, Saxon argues that the no-action clause bars LL Funds’ claims against it because LL Funds failed to give notice of an “Event of Default” as that term is defined in § 11.01(d) of the Servicing Agreement. In response, LL Funds contends that it was not required to comply with the no-action clause, that it has satisfied the requirements of the clause anyway, and that the clause does not apply to its tort and RICO claims.

No-action clauses limiting the rights of individual securityholders to sue are “standard provision[s]” in many trust agreements. Akanthos Capital Mgmt., LLC v. CompuCredit Holdings Corp., 677 F.3d 1286, 1298 (11th Cir. 2012). The main purpose of a no-action clause is “to avoid duplicative suits and protect the majority interests [of securityholders] by mandating that actions be channeled through the Trustee.” Quadrant Structured Prods. Co. v. Vertin, 16 N.E.3d 1165, 1177 (N.Y. 2014). Courts have enforced no-action clauses “in a variety of contexts,” McMahan & Co. v. Wherehouse Entm’t, Inc., 65 F.3d 1044, 1050-51 (2d Cir. 1996), including on motions to dismiss under Rule 12(b)(6), SC Note, 934 F. Supp. 2d at 531-33 (dismissing claim under Rule 12(b)(6) for failure to comply with no-action clause); Sterling Fed. Bank v. DLJ Mortg. Capital, Inc., No. 09 C 6904, 2010 WL 3324705, at *4-5 (N.D. Ill. Aug. 20, 2010) (same).

Although no-action clauses need not be followed when enforcing them would require the “absur[ity]” of asking “the Trustee to sue itself,” Cruden v. Bank of N.Y., 957 F.2d 961, 968 (2d Cir. 1992) (applying New York law), courts have enforced such clauses when doing so would require the trustee to sue a manager of the trust, Peak Partners v. Republic Bank, 191 F. App’x 118, 126-27 (3d Cir. 2006); SC Note, 934 F. Supp. 2d at 532; Ellington, 837 F. Supp. 2d at 186-87. Under New York law, which the MSTA specifies to govern, no-action clauses “are to be construed strictly and thus read narrowly.” Quadrant, 16 N.E.3d at 1172. Courts interpreting no-action clauses should “give effect to the precise words and language used.” Id.

1. Whether the No-Action Clause Applies to LL Funds’ Contract Claims

The no-action clause in the MSTA provides in relevant part that: “No Certificateholder shall have any right by virtue or by availing itself of any provisions of this Agreement to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Agreement, unless” the Certificateholder satisfies certain conditions. Doc. 27-2 at 53. LL Funds’ breach of contract claims plainly fall within the scope of the no-action clause because they seek to enforce the terms of the MSTA itself.^[2] See Sterling, 2010 WL 3324705, at *3-5 (concluding that no-action clause with language substantially similar to the no-action clause in this case applied to certificateholder’s breach of contract claims); Quadrant, 16 N.E.3d at 1170, 1178 (holding that no-action clause applied to securityholder’s contract claims where clause precluded suits “upon or under or with respect to this Indenture”).

LL Funds’ argument that it was not required to comply with the no-action clause at all is unpersuasive. LL Funds’ only support for such an argument is In re Oakwood Homes Corp., No. 02-13396(PJW), 2004 WL 2126514 (Bankr. D. Del. Sept. 22, 2004). In Oakwood, the Delaware bankruptcy court relied on the trustee exception set forth by the Second Circuit in Cruden, 957 F.2d at 968, to conclude that the plaintiff could sue the servicer of a trust despite failing to comply with a no-action clause. Oakwood, 2004 WL 2126514, at *3. Courts applying New York law like the Second Circuit was in Cruden have required compliance with no-action clauses when the situation is not akin to asking the trustee to sue itself. See Peak Partners, 191 F. App’x at 126-27; SC Note, 934 F. Supp. 2d at 532; Sterling, 2010 WL 3324705, at *5. Although the plaintiff in Oakwood was not suing the trustee directly, the bankruptcy court interpreted the plaintiff’s claim as alleging that the servicer had given the trustee mistaken instructions on how to distribute funds within the trust. The bankruptcy court concluded that the servicer was essentially acting as the trustee’s agent when it gave the distribution instructions and that the trustee and servicer could therefore both be liable for the mistake. Given these circumstances, the bankruptcy court concluded that the plaintiff’s claim was analogous enough to a claim against the trustee that the no-action clause did not apply. Oakwood, 2004 WL 2126514 at *3.

In contrast to Oakwood, the claims in LL Funds’ Complaint do not implicate Deutsche as Trustee, so there is no justification for applying the reasoning in Oakwood to this case. Moreover, since the decision in Oakwood, several courts have held that even when there are allegations of trustee misconduct, there remains a distinction between demanding that a trustee sue itself and demanding that the trustee sue a servicer or master servicer. Peak Partners, 191 F. App’x at 122-27 (concluding that no-action clause applied to claims against servicer in negligence suit against servicer and trustee); SC Note, 934 F. Supp. 2d at 532 (“[I]t is not akin to asking the trustee to bring an action against itself when the request is to sue a servicer or another manager of the trust, even if it may implicate some misconduct by the trustee.”); Sterling, 2010 WL 3324705, at *5 (“There is an important difference between asking the trustee to sue itself— an `absurd’ requirement that we presume the parties did not intend—and asking it to sue a third party, even when the investor alleges wrongdoing by the trustee.”). The reasoning in Peak Partners, SC Note, and Sterling is more persuasive than the reasoning in Oakwood. LL Funds had a contractual obligation to comply with the no-action clause to invoke rights under the MSTA.

2. Whether the No-Action Clause Allows Suits Against Wells Fargo

Wells Fargo argues that because the no-action clause refers to an “Event of Default” rather than a “Master Servicer Event of Default,” the clause only authorizes Certificateholder suits against the Servicer. The text of the MSTA provides some support for this argument, but contains conflicting language. As set forth above, the no-action clause provides in relevant part: “No Certificateholder shall have any right . . . to institute any suit, action or proceeding . . . with respect to this Agreement, unless such Holder previously shall have given to the Trustee a written notice of an Event of Default. . . .” Doc. 27-2 at 53. The MSTA refers to the Servicing Agreement for the definition of an “Event of Default.” Doc. 27-1 at 31. The Servicing Agreement, in turn, defines an “Event of Default” as certain improper conduct by the Servicer. Doc. 30-1 at 53-54. The MSTA defines a “Master Servicer Event of Default” separately as various improper conduct by the Master Servicer. Doc. 27-2 at 33-35. Thus, Wells Fargo argues, the no-action clause should be construed as not allowing Certificateholders to sue the Master Servicer, but only to sue the Servicer for an Event of Default by the Servicer.

Yet § 9.11 of the MSTA supports a different interpretation of the no-action clause. Section 9.11 states in relevant part:

Limitation on Liability of the Master Servicer. Neither the Master Servicer nor any of the directors, officers, employees or agents of the Master Servicer shall be under any liability to the Trustee, the Securities Administrator, the Servicer or the Certificateholders for any action taken or for refraining from the taking of any action in good faith pursuant to this Agreement, or for errors in judgment; provided, however, that this provision shall not protect the Master Servicer or any such person against any liability that would otherwise be imposed by reason of willful malfeasance, bad faith or negligence in the performance of its duties or by reason of reckless disregard for its obligations and duties under this Agreement.

Doc. 27-2 at 37 (italics added). The inclusion of Certificateholders in this provision limiting the Master Servicer’s liability suggests that Certificateholders have some right to sue the Master Servicer under the MSTA.

Other portions of the MSTA further support interpreting the no-action clause as not precluding all Certificateholder suits against the Master Servicer. Section 9.04, which sets forth the definition of Master Servicer Events of Default, states:

In each and every such case, so long as a Master Servicer Event of Default shall not have been remedied, in addition to whatever rights the Trustee may have at law or equity to damages, including injunctive relief and specific performance, the Trustee, by notice in writing to the Master Servicer, may, and (a) upon the request of the Holders of Certificates representing at least 51% of the Voting Rights (except with respect to any Master Servicer Event of Default related to a failure to comply with an Exchange Act Filing Obligation) or (b) the Depositor, in the case of a failure related to an Exchange Act Filing obligation shall terminate with cause all the rights and obligations of the Master Servicer under this Agreement.

Doc. 27-2 at 34. This paragraph can best be understood as allowing the majority of Certificateholders to remove the Master Servicer from its position should certain Master Servicer Events of Default remain unremedied. It would be strange to conclude that the parties to the MSTA intended to allow the Certificateholders to remove the Master Servicer for a Master Servicer Event of Default, but not allow them to sue the Master Servicer for the Default itself. In addition, at least one portion of the MSTA uses the term “Event of Default” more generally to refer to conduct by parties other than the Servicer. The Definitions section of the MSTA states that “with respect to the Securities Administrator, the Master Servicer, the Servicer and the Depositor only, the occurrence of an Event of Default under this Agreement” constitutes a “Reportable Event.” Doc. 27-1 at 45. This suggests that the term “Event of Default” in this particular no-action clause is not limited to defaults by the Servicer.

Under New York law which governs the MSTA, the contract is to be read as a whole, Westmoreland Coal Co. v. Entech, Inc., 794 N.E.2d 667, 670 (N.Y. 2003), and no-action clauses “are to be construed strictly and thus read narrowly,” Quadrant, 16 N.E.3d at 1172. On a motion to dismiss, this Court must draw all inferences in LL Funds’ favor, making it reasonable to interpret the MSTA as allowing Certificateholders to sue the Master Servicer. Even if Wells Fargo’s interpretation of the no-action clause is deemed reasonable as well, then the no-action clause is ambiguous. See Am. Bldg. Maint. Co. of N.Y. v. Acme Prop. Servs., Inc., 515 F. Supp. 2d 298, 311 (N.D.N.Y. 2007) (applying New York law and explaining that a “contract that is susceptible to two reasonable interpretations is considered ambiguous”). When the language of a contract is ambiguous, “its construction presents a question of fact, which of course precludes summary dismissal” under Rule 12(b)(6). Paysys Int’l v. Atos SE, No. 14 Civ. 10105(SAS), 2015 WL 4533141, at *4 (S.D.N.Y. July 24, 2015) (quoting Maniolos v. United States, 741 F. Supp. 2d 555, 567 (S.D.N.Y. 2010)).

3. Whether there was Sufficient Notice of Claims Against Wells Fargo

One of the requirements of the no-action clause is that the Certificateholder give the Trustee “a written notice of an Event of Default” prior to bringing suit. Doc. 27-2 at 53. Wells Fargo argues that LL Funds failed to comply with this requirement because its notice letter to the Trustee only addressed claims against Saxon. Although the notice letter mainly focuses on alleged events of defaults by Saxon, LL Funds accurately alleges in its complaint that the letter also requests that the Trustee “institute an action, suit or proceeding in its own name as Trustee against Saxon Mortgage Services, Inc. and/or any relevant affiliates acting through Morgan Stanley, and any other parties under the MSTA and/or documents incorporated into or related to the MSTA while Saxon was a Servicer, based on the grounds listed in this letter.” Doc. 1-1 at 1; Doc. 1 at ¶ 3. Given that Wells Fargo was one of only three parties to the MSTA and was responsible for supervising Saxon’s conduct, this statement, when construed in LL Funds’ favor, gave sufficient notice of and requested a suit against Wells Fargo. Accordingly, LL Funds has pleaded sufficient facts to survive Wells Fargo’s motion to dismiss for failure to comply with the no-action clause’s notice requirement.

4. Whether the No-Action Clause Requires that Events of Default Be Continuing

The no-action clause states that before bringing suit, a Certificateholder must give the Trustee “a written notice of an Event of Default and of the continuance thereof.” Doc. 27-2 at 53. Defendants argue that this language requires Certificateholders to give notice of a continuing or “live” Event of Default before they can bring suit. Defendants contend that because Saxon had ended its role as Servicer before LL Funds sent the notice letter to Deutsche, LL Funds was unable to give notice of a continuing Event of Default and its Complaint therefore must be dismissed for failure to comply with the no-action clause.

However, the phrase “continuance thereof’ does not unambiguously establish that a Certificateholder must give notice of a “live” or active Event of Default. It is at least as plausible to interpret the phrase as simply requiring that the Event of Default remain uncured. Under this interpretation, LL Funds satisfied the no-action clause by alleging in its letter to Deutsche that Saxon had committed Events of Default and that these Defaults had not been corrected.

5. Whether the No-Action Clause Bars LL Funds’ Claims Against Saxon for Failure to Give Notice

In the notice letter, LL Funds alleged that Saxon committed an Event of Default under § 11.01(d) of the Servicing Agreement. Doc. 1-1 at 2. Section 11.01(d) provides:

[T]he failure by the Servicer duly to observe or perform in any material respect any other of the covenants or agreements on the part of the Servicer set forth in this Agreement or in the Custodial Agreement which continues unremedied for a period of 30 days after the date on which notice of such failure, requiring the same to be remedied, shall have been given to the Servicer by the Purchaser (the date of delivery of such notice, the “Notice Date”); provided, however, that in the case of a failure that cannot be cured within thirty (30) days after the Notice Date, the cure period may be extended if the Servicer can demonstrate to the reasonable satisfaction of the Purchaser that the failure can be cured and the Servicer is diligently pursuing remedial action. . . .

Doc. 30-1 at 54. Saxon argues that because LL Funds failed to give it notice and an opportunity to cure, the no-action clause bars LL Funds’ claims against it. This Court disagrees.

New York law does “not require strict compliance with a contractual notice-and-cure provision if providing an opportunity to cure would be useless, or if the breach undermines the entire contractual relationship such that it cannot be cured.” Giuffre Hyundai, Ltd. v. Hyundai Motor Am., 756 F.3d 204, 209 (2d Cir. 2014). Courts have found that compliance with a notice-and-cure provision is unnecessary when the “cure is unfeasible.” Id. at 210 (quoting Sea Tow Servs. Intl, Inc. v. Pontin, 607 F. Supp. 2d 378, 389 (E.D.N.Y. 2009)); see also Hicksville Mach. Works Corp. v. Eagle Precision, Inc., 635 N.Y.S.2d 300, 302 (N.Y. App. Div. 1995) (asserted “right to cure” irrelevant where “there was no evidence in the record to support the proposition that a cure was possible”). Here, Saxon had ceased working as the Servicer for the Trust by the time LL Funds sent its letter to Deutsche. Doc. 1 at ¶ 3. Drawing all inferences in LL Funds’ favor, it would not have been feasible for Saxon to cure its alleged Events of Default when it was no longer the Servicer. Thus, LL Funds did not need to comply with the notice-and-cure provision in § 11.01(d) of the MSTA with regard to its contract-based claim against Saxon under these circumstances.

C. Whether LL Funds’ Claims are Sufficient under Rule 12(b)(6)

1. Contract Claims

Defendants make two main arguments for dismissal of LL Funds’ breaches of contract claims, the first of which focuses on the Complaint’s references to the Saxon Consent Order. Saxon argues that any references to the Saxon Consent Order are immaterial under Federal Rule of Civil Procedure 12(f) and therefore should be stricken. Similarly, Wells Fargo argues that references to the Saxon Consent Order should be disregarded because the Order is not a proper basis for pleading liability. Defendants contend that once references to the Saxon Consent Order are stricken or set aside, LL Funds’ breaches of contract claims fail.

Defendants’ primary support for disregarding references to the Saxon Consent Order is the Second Circuit’s decision in Lipsky v. Commonwealth United Corp., 551 F.2d 887 (2d Cir. 1976). Lipsky was a breach of contract case in which the plaintiff sued the defendant for failing to use its “best efforts” to register the plaintiff’s stock with the Securities Exchange Commission (SEC). 551 F.2d at 890. One of the plaintiff’s arguments in support of his claim was that the defendants had filed a deficient registration statement with the SEC when attempting to register his stock. Id. at 891. Rather than alleging improprieties in this registration statement in his complaint, however, the plaintiff referenced allegations in an SEC complaint that the defendants had filed deficient registration statements when attempting to register other stock. Id. at 891-92. The defendants argued that because the SEC complaint had been settled by a consent judgment rather than an adjudication on the merits, any allegations referring to the SEC complaint should be struck as immaterial under Federal Rule of Civil Procedure 12(f). The district court agreed and dismissed the complaint with prejudice for failure to state a claim. Id.

The Second Circuit in Lipsky affirmed in part, holding that although the consent judgment and SEC complaint were immaterial under Rule 12(f), the district court should have given the plaintiff an opportunity to amend the complaint to plead facts about the registration statement for his stock. Id. at 893-94. To arrive at this conclusion, the Second Circuit began with the proposition that a Rule 12(1) motion to strike should be denied unless no evidence in support of the allegations would be admissible. Id. at 893. Next, the Second Circuit concluded that because the consent judgment was not the result of an adjudication on the merits, it would be inadmissible at trial and therefore was immaterial under Rule 12(f). Id. at 893-94. Because the consent judgment was immaterial, the Second Circuit reasoned, so too was the SEC complaint that preceded it. Id. at 894. Accordingly, the Second Circuit held that “neither a complaint nor references to a complaint which results in a consent judgment may properly be cited in the pleadings under the facts of this case.” Id. at 893. However, the Second Circuit in Lipsky reversed the district court’s dismissal being with prejudice. Id.

District courts have disagreed over how to interpret Lipsky. Some courts read Lipsky as meaning that “references to preliminary steps in litigations and administrative proceedings that did not result in an adjudication on the merits or legal or permissible findings of fact are, as a matter of law, immaterial under Rule 12(f).” In re Merrill Lynch & Co. Research Reports Sec. Litig., 218 F.R.D. 76, 78 (S.D.N.Y. 2003); see also Waterford Twp. Police & Fire Ret. Sys. v. Smithtown Bancorp., Inc., No. 10-CV-864 (SLT)(RER), 2014 WL 3569338, at *4 (E.D.N.Y. July 18, 2014) (striking references to an FDIC consent order where the plaintiffs were relying on the consent order to show that the defendants had, in fact, failed to maintain an adequate allowance for estimated loan losses and had fraudulently understated delinquent loans); In re Platinum & Palladium Commodities Litig., 828 F. Supp. 2d 588, 593-94 (S.D.N.Y. 2011) (concluding that unajudicated CTFC findings were immaterial under Rule 12(f) when plaintiff was attempting to use findings to prove liability); Dent v. U.S. Tennis Ass’n, No. CV-08-1533 (RID) (VVP), 2008 WL 2483288, at *2-3 (E.D.N.Y. June 17, 2008) (striking allegations derived from a settlement agreement with the attorney general where the plaintiff was relying on the settlement agreement to show that the defendant had engaged in discrimination in the past). Other courts have read Lipsky more narrowly. See Marvin H. Maurras Revocable Tr. v. Bronfman, Nos. 12 C 3395, 12 C 6019, 2013 WL 5348357, at *16 (N.D. Ill. Sept. 24, 2013) (concluding that when “a plaintiff does not make allegations about the content of an inadmissible document but rather alleges independently sourced and appropriately supported facts that track . . . that inadmissible document’s factual allegations,” the allegations are not immaterial under Lipsky); VNB Realty, Inc. v. Bank of Am. Corp., No. 11 Civ. 6805(DLC), 2013 WL 5179197, at *3 (S.D.N.Y. Sept. 16, 2013) (“A close reading of Lipsky reveals that it does not mandate the elimination of material from a complaint simply because the material is copied from another complaint.”); In re Fannie Mae 2008 Sec. Litig., 891 F. Supp. 2d 458, 471 (S.D.N.Y. 2012) (“Lipsky does not, as defendants argue, stand for the proposition that any factual allegation derived from a government investigation or pleading must be stricken from a private plaintiff’s complaint.”); In re Bear Stearns Mortg. Pass-Through Certificates Litig., 851 F. Supp. 2d 746, 768 n.24 (S.D.N.Y. 2012) (explaining that although “some courts in [the Southern District of New York] have stretched the holding in Lipsky to mean that any portion of a pleading that relies on unajudicated allegations in another complaint is immaterial under Rule 12(f). . . . [n]either Circuit precedent nor logic supports such an absolute rule”).

Lipsky can best be understood as requiring that references to a consent order be struck in certain situations, such as when a plaintiff is relying on the order for a purpose that would be inadmissible at trial, but not as establishing a rule that all references to a consent order are per se immaterial. With that understanding, this Court concludes that the main focus of Defendants’ arguments—paragraphs 35 and 36 of the Complaint—do not deserve to be stricken. Paragraph 35 recites the Federal Reserve’s allegations in the Saxon Consent Order after which paragraph 36 states:

On information and belief, and as a result of Defendants’ activities in these and other matters, Defendant Saxon filed in county recording or land offices and in courts flawed, misleading, improper and arguably unlawful documents as set forth in the above-referenced Consent Order with regard to the Trust. This conduct constituted negligence, gross negligence and/or bad faith and willful misfeasance.

Doc. 1 at ¶ 36. Although inartfully pleaded, paragraphs 35 and 36 appear to allege that the allegations in the Saxon Consent Order provide an accurate description of how Saxon serviced the loans in the Trust. LL Funds is not relying on the Consent Order to prove that Saxon entered into a settlement or to establish that the facts alleged in the Consent Order did, in fact, occur. Rather, LL Funds appears to use the Consent Order to detail conduct that LL Funds alleges to have taken place when Saxon serviced the Trust’s loans. Accordingly, this Court denies Saxon’s motion to strike paragraphs 35 and 36 and rejects Wells Fargo’s argument that these paragraphs should be disregarded.^[3]

Defendants’ second main argument in support of dismissal asserts that LL Funds was required to allege wrongdoing with respect to specific loans within the Trust. According to Defendants, the Second Circuit’s decision in Retirement Board of the Policemen’s Annuity & Benefit Fund of Chicago v. Bank of New York Mellon, 775 F.3d 154 (2d Cir. 2014), petition for cert. filed, (U.S. Sep. 14, 2015) (No. 14-314), requires LL Funds to plead their claims on a “loanby-loan” and “trust-by-trust” basis. In Mellon, the plaintiffs in a putative class action alleged that the trustee of over five hundred RMBS trusts had failed to take appropriate action when mortgage loans within the trusts defaulted. Id. at 156-57. The question before the Second Circuit in Mellon was whether the plaintiffs had standing to assert claims concerning certificates issued by trusts in which the plaintiffs had never invested. Id. at 156-57. To demonstrate such standing, the plaintiffs needed to show that the trustee’s conduct that harmed the plaintiffs “implicate[d] the same set of concerns’ as [the trustee’s] alleged failure to take action with respect to defaults in other trusts in which Plaintiffs did not invest.” Id. at 161. The Second Circuit explained that the nature of the plaintiffs’ claims—including allegations that the trustee had failed to notify the plaintiffs of breaches by the loan originator, failed to force the originator to repurchase defaulted loans, and failed to ensure that the loans were properly documented— required that the claims “be proved loan-by-loan and trust-by-trust.” Id. at 162. Although the plaintiffs argued that evidence of the trustee’s “policy of `inaction’ in the face of widespread defaults” would be applicable to all of the trusts, the Second Circuit reasoned that “even proof that [the trustee] always failed to act when it was required to do so would not prove [the plaintiffs’] case, because they would still have to show which trusts actually had deficiencies that required [the trustee] to act in the first place.” Id. Given the “significant differences in the proof that will be offered for each trust,” the Second Circuit held that the plaintiffs did not have standing to assert claims concerning trusts in which they had never invested. Id. at 163.

Although Mellon established that plaintiffs need to prove their claims “loan-by-loan and trust-by-trust” at trial, it did not hold that plaintiffs must plead their claims in this manner. Mellon does not impose a stricter pleading standard in cases involving RMBS. See Royal Park, 2015 WL 3466121, at *6 (concluding that Mellon did not “implicate plaintiffs’ burden at the pleading stage” and rejecting argument that Mellon created “a heightened pleading requirement into the RMBS context”). Rather, even after Mellon, the relevant question under Rule 12(b)(6) in cases such as this is whether plaintiffs “have pleaded `factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.’ Id. (quoting Iqbal, 556 U.S. at 678). Under this standard, LL Funds’ breach of contract claims are sufficient.

There are four elements to a breach of contract claim under New York law: 1) the existence of a contract; 2) plaintiff’s performance of the contract; 3) breach of the contract by defendants; and 4) damages. Harsco Corp. v. Segui, 91 F.3d 337, 348 (2d Cir. 1996). To properly plead a breach of contract claim, a plaintiff must identify the provisions of the contract that were breached and the “defendant’s acts or omissions constituting the breach.” Dilworth v. Goldberg, 914 F. Supp. 2d 433, 457-58 (S.D.N.Y. 2012).

In regard to Saxon’s alleged breach of contract, LL Funds alleges in Count II that the MSTA and Servicing Agreement obligated Saxon to “employ the mortgage servicing practices of prudent mortgage lending institutions” and that Saxon breached this obligation by engaging in “numerous illicit and illegal acts with regard to its servicing of the mortgage loans in the Trust.” Doc. 1 at ¶¶ 73-74. As an example, LL Funds alleges that Saxon “caused to be filed in state courts and federal bankruptcy courts false affidavits, improperly notarized affidavits, and otherwise failed to ensure that proper foreclosure processes were in place.” Doc. 1 at ¶ 75. These allegations, along with the other factual content pleaded in the Complaint, allow for a reasonable inference that Saxon breached its contractual obligations. Although Saxon takes issue with paragraph 36 of the Complaint being based on “information and belief,” plaintiffs may plead in this manner in certain situations, even after the Supreme Court’s decisions in Iqbal and Twombly. See Pope v. Fed. Home Loan Mortg. Corp, 561 F. App’x 569, 573 (8th Cir. 2014) (per curiam) (“While plaintiffs may at times plead upon information and belief, . . . `[i]nformation and belief does not mean pure speculation.” (quotation omitted)). Specifically, the “Twombly plausibility standard . . . does not prevent a plaintiff from pleading facts alleged upon information and belief where the facts are peculiarly within the possession and control of the defendant.” Arista Records, LLC v. Doe 3, 604 F.3d 110, 120 (2d Cir. 2010) (internal quotation marks and citation omitted). In its brief, LL Funds asserts that pleading more specifically “loan-by-loan” is an “impossible and futile endeavor until discovery begins in this case.” Doc. 33 at 13. Defendants counter that § 8.02 of the MSTA allows LL Funds to request the documents necessary to plead its claims with more specificity. Section 8.02 of the MTSA states that the “Custodian shall provide access to the Mortgage Loan documents in possession of the Custodian” upon request of various parties, including the Certificateholders. Doc. 27-2 at 18. Counsel for LL Funds claims that the documents allegedly robo-signed would be in possession of the Servicer rather than the Custodian. Doc. 42 at 73. Thus, § 8.02 appears not to be a vehicle for LL Funds to have obtained the documents needed to plead its claims with more specificity. Given these circumstances, LL Funds may appropriately plead certain matters on information and belief.

LL Funds alleges in Count I that Wells Fargo breached its obligation under the MSTA to ensure that Saxon “duly and punctually perform[ed]” its servicing duties. Doc. I at in ¶¶ 63-66 (alteration in original). As Saxon’s failure to perform its servicing duties, LL Funds invokes Saxon’s alleged robo–signing. Doc. 1 at ¶ 65. Drawing all inferences in LL Funds’ favor, the factual allegations in the Complaint make Count I plausible.

2. Tort Claims

Defendants argue that LL Funds’ tort claims should be dismissed because they fail to state a basis for relief that is independent from the MSTA and Servicing Agreement. New York law governs the contract claims, but LL Funds asserts that South Dakota law applies to its tort claims. Saxon has no connection with South Dakota, but is based in Texas.^[4] Regardless of which state’s law applies to the tort claims, the outcome is the same. Courts in New York, Texas, and South Dakota have all held that a breach of contract does not give rise to a tort claim unless a legal duty independent of the contract itself has been violated. See UTex. Commc’ns Corp. v. Pub. Util. Comm’n, 514 F. Supp. 2d 963, 972 (W.D. Tex. 2007) (applying Texas law and explaining that a “defendant’s conduct that breaches an agreement between the parties and does not breach an affirmative duty imposed outside the contract is not actionable in tort”); Sundt Corp. v. S.D. Dep’t of Transp., 566 N.W.2d 476, 478 (S.D. 1997) (“[T]here can be no cause of action sounding in negligence unless there is a legal duty which arises independent of the duties under the contract”); Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 516 N.E.2d 190, 193-94 (N.Y. 1987) (“It is a well-established principle that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated. This legal duty must spring from circumstances extraneous to, and not constituting elements of, the contract, although it may be connected with and dependent upon the contract.”) (internal citations omitted).

Here, LL Funds alleges in Count III that Defendants “had a duty to perform their servicing duties with due care” but failed to do so. As “one example,” Count III states:

Defendants were required to properly service the loans and to ensure any foreclosure activities were performed legally, and “duly and punctually,” and in conformance with the practices “of prudent mortgage lending institutions which service mortgage loans of the same type” as the loans held in the Trust for the benefits of its Certificateholders. As documented in the Consent Orders described in this Complaint, Defendants failed to properly and legally service the loans and perform their foreclosure activities. Doc. 1 at ¶¶ 84-85 (emphasis added). The emphasized language in this block quote comes directly from the MSTA and the Servicing Agreement. Doc. 27-2 at 30; Doc. 30-1 at 7. Similarly, Count IV, in which LL Funds alleges that Defendants engaged in “Willful Misfeasance/Misconduct or Gross Negligence,” alleges that Defendants “had a duty to perform their servicing duties with due care” and “the obligation not to act with willful misconduct or willful misfeasance.” Doc. 1 at ¶¶ 92-93. At bottom, LL Funds in Counts III and IV is seeking to enforce obligations the Defendants contractually undertook in the MSTA and the Servicing Agreement. The misconduct and damages alleged in Counts III and IV are essentially the same as the misconduct and damages alleged in LL Funds’ breaches of contract claims. Because LL Funds has failed to plead any facts or cite any cases suggesting that Defendants have an independent duty under tort to perform the obligations under the MSTA and Servicing Agreement, Counts III and IV fail to state claims upon which relief can be granted.

LL Funds makes three arguments to avoid this conclusion, none of which are persuasive. First, LL Funds argued in its brief that Defendants have a duty to “service borrowers’ mortgage loans in compliance with all applicable laws,” that is independent of their duties under the MSTA and the Servicing Agreement. Doc. 33 at 14. At the hearing, counsel for LL Funds contended that this duty arose out of Defendants’ performance of professional services. Courts in New York, Texas, and South Dakota have recognized that certain professionals “may be subject to tort liability for failure to exercise reasonable care, irrespective of their contractual duties.” Sommer v. Fed. Signal Corp., 593 N.E.2d 1365, 1369 (N.Y. 1992); Kreisers Inc. v. First Dakota Title Ltd. P’ship, 852 N.W.2d 413, 420 (S.D. 2014) (recognizing that a provider of professional services may have an independent duty to perform the services with reasonable care); Averitt v. PriceWaterhouseCoopers L.L.P., 89 S.W.3d 330, 334 (Tex. Ct. App. 2002) (“Whether a written contract providing for professional services exists between a professional and his client or not, a cause of action based on the alleged failure to perform a professional service is a tort rather than a breach of contract.”). “Professionals” who have an independent duty to exercise reasonable care include lawyers, Univ. Nat’l Bank v. Ernst & Whinney, 773 S.W.2d 707, 710 (Tex. Ct. App. 1989), accountants, O’Bryan v. Ashland, 717 N.W.2d 632 (S.D. 2006); Cumin Ins. Soc’y Inc. v. Tooke, 739 N.Y.S.2d 489, 492-93 (N.Y. App. Div. 2002) Univ. Nat’l Bank, 773 S.W.2d at 710; veterinarians, Limpert v. Bail, 447 N.W.2d 48, 51 (S.D. 1989), doctors, Martinmaas v. Engelmann, 612 N.W.2d 600 (S.D. 2000), and architects, Liberty Mut. Ins. Co. v. N. Picco & Sons Contracting Co., No. 05 Civ. 217(SCR), 2008 WL 190310, at *17 (S.D.N.Y. Jan. 16, 2008). Courts also have found an independent duty when a party holds itself out to the plaintiff as an expert in a particular area. See William Wrigley Jr. Co. v. Waters, 890 F.2d 594, 602-03 (2d Cir. 1989) (finding duty of care under New York law outside contract was imposed by law when defendants held themselves out as experts in trademark law); see also Kreisers, 852 N.W.2d at 420-21 (holding that company owed independent duty of care to ascertain what type of like-kind property exchange client wanted where company advertised that it performed exchanges without limitation but did not actually perform the type of complex exchange the client desired).

Here, LL Funds has not cited any cases holding that the servicer or master servicer of a mortgage-backed securities trust perform “professional” services that give rise to an independent duty of care. Nor has LL Funds pleaded any facts or offered any argument suggesting that the work of a mortgage servicer or master servicer is analogous to professions where courts have found such an independent duty. And while LL Funds has alleged that Defendants entered into contracts in which they agreed to perform services in regard to the Trust, this alone does not establish that LL Funds may sue Defendants in tort. See Niagra Mohawk Power Corp. v. Stone & Webster Eng’g Corp., 725 F. Supp. 656, 666 (N.D.N.Y. 1989) (“The mere fact that the alleged breach involved a contract that encompassed the performance of services does not suffice as special additional allegations of wrongdoing which amount to `a breach of a duty distinct from, or in addition to, the breach of a contract.'” (quoting N. Shore Bottling Co., v. C. Schmidt & Sons, Inc., 239 N.E.2d 189, 193 (N.Y. 1968))).

Second, LL Funds argued at the hearing that under the Sommer decision, Defendants had an independent duty to perform their obligations under the MSTA and the Servicing Agreement. According to LL Funds, this duty arose out of the public importance of Defendants’ obligations. In Sommer, the Court of Appeals of New York held that a fire alarm company owed its client a duty of reasonable care that was independent of the company’s contractual obligations. 593 N.E.2d at 1370. The court reasoned that the fire alarm company’s duty arose out of the nature of the services it was providing, in which there was a significant public interest. Id. (“Fire alarm companies . . . perform a service affected with a significant public interest; failure to perform the service carefully and competently can have catastrophic consequences.”). Although the public has some interest in having the servicers of RMBS trusts perform their obligations in a nonnegligent manner, this interest is a far cry from the protection of the personal safety of citizens that was at issue in Sommer. The Sommer decision does not justify imposing a tort duty independent of contractual obligations on these Defendants in this case.

Third, LL Funds argues that it should be allowed to assert its tort claims because § 9.11 of the MSTA and § 8.02 of the Servicing Agreement “carve out of their coverage any contractual liability for Defendants’ negligence.” Doc. 33 at 14. Section 9.11 of the MSTA states in relevant part:

Limitation on Liability of the Master Servicer. Neither the Master Servicer nor any of the directors, officers, employees or agents of the Master Servicer shall be under any liability to the Trustee, the Securities Administrator, the Servicer or the Certificateholders for any action taken or for refraining from the taking of any action in good faith pursuant to this Agreement, or for errors in judgment; provided, however, that this provision shall not protect the Master Servicer or any such person against any liability that would otherwise be imposed by reason of willful malfeasance, bad faith or negligence in the performance of its duties or by reason of reckless disregard for its obligations and duties under this Agreement. . . .

The Master Servicer shall not be liable for any acts or omissions of the Servicer except to the extent that damages or expenses are incurred as a result of such act or omissions and such damages and expenses would not have been incurred but for the negligence, willful malfeasance, bad faith or recklessness of the Master Servicer in supervising, monitoring and overseeing the obligations of the Servicer as required under this Agreement.

Doc. 27-2 at 37-38. Similarly, Section 8.02 of the Servicing Agreement provides in part:

Limitations on Liability of Servicer and Others. Neither the Servicer nor any of the directors, officers, employees or agents of the Servicer shall be under any liability to the purchaser for any action taken or for refraining from the taking of any action in good faith pursuant to this Agreement, or for errors in judgment, provided, however, that this provision shall not protect the Servicer or any such person against any breach of warranties or representations made herein, its own negligent actions, or failure to perform its obligations in compliance with any standard of care set forth in this Agreement, or any liability which could otherwise be imposed by reason of any breach of the terms and conditions of this Agreement.

Doc. 31-1 at 47. This “carve-out language,” however, does not excuse LL Funds from identifying an independent duty that would require Defendants to perform their obligations under the MSTA and the Servicing Agreement. See BNP Paribas Mortg. Corp. v. Bank of Am., N.A., 949 F. Supp. 2d 486, 506-08 (S.D.N.Y. 2013) (concluding that language in trust agreement carving out claims of negligence did not relieve plaintiff of identifying a duty independent of the agreement). Because LL Funds has failed to identify such a duty, Counts III and IV of the Complaint are dismissed.

3. RICO Claim

“RICO provides a private right of action for any person `injured in his business or property by reason of a violation of’ its substantive provisions.” Dahlgren v. First Nat’l Bank of Holdrege, 533 F.3d 681, 689 (8th Cir. 2008) (quoting 18 U.S.C. § 1964(c)). LL Funds alleges in Count V of the Complaint that Wells Fargo violated § 1962(c) of the RICO Act. Section 1962(c) makes it “unlawful for any person employed by or associated with any enterprise engaged in . . . interstate . . . commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity.” 18 U.S.C. § 1962(c). To state a claim under § 1962(c), LL Funds must plead “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Stonebridge Collection, Inc. v. Carmichael, 791 F.3d 811, 822-23 (8th Cir. 2015) (quoting Nitro Distrib., Inc. v. Alticor, Inc., 565 F.3d 417, 428 (8th Cir. 2009)).

RICO defines “racketeering activity” as numerous so-called predicate acts, including mail fraud, wire fraud, bank fraud, and obstruction of justice. 18 U.S.C. § 1961(1). To plead a pattern of racketeering activity, a plaintiff must allege “two or more related [predicate] acts . . . that `amount to or pose a threat of continued criminal activity.'” Nitro Distrib., 565 F.3d at 428 (quoting Wisdom v. First Midwest Bank, 167 F.3d 402, 406 (8th Cir. 1999)). A plaintiff relying on fraud as a predicate act under RICO must “state with particularity the circumstances constituting fraud.” Fed. R. Civ. P. 9(b); Murr Plumbing, Inc. v. Scherer Bros. Fin. Servs. Co., 48 F.3d 1066, 1069 (8th Cir. 1995) (applying Rule 9(b) to allegations of fraud used as predicate acts for RICO claims). “The `[c]ircumstances” of the fraud include `such matters as the time, place and contents of false representations, as well as the identity of the person making the misrepresentation and what was obtained or given up thereby.” H & Q Props., Inc. v. Doll, 793 F.3d 852, 846 (8th Cir. 2015) (alteration in original) (quoting Murr Plumbing, 48 F.3d at 1069)). “[C]onclusory allegations that a defendant’s conduct was fraudulent and deceptive are not sufficient to satisfy [Rule 9(b)].” Drobnak v. Anderson Corp., 561 F.3d 778, 783 (8th Cir. 2009) (first alteration in original) (quoting Schaller Tel. Co. v. Golden Sky Sys., Inc., 298 F.3d 736, 746 (8th Cir. 2002)).

LL Funds alleged in the Complaint that Wells Fargo engaged in a pattern of racketeering activity by committing mail and wire fraud in violation of federal law and perjury and subornation of perjury in violation of South Dakota law. Perhaps recognizing the shaky foundations for its RICO claim, LL Funds alleges in its brief that Wells Fargo also committed bank fraud and obstruction of justice.

i. Wire and Mail Fraud

“When plead as RICO predicate acts, mail and wire fraud require a showing of: (1) a plan or scheme to defraud, (2) intent to defraud, (3) reasonable foreseeability that the mail or wires will be used, and (4) actual use of the mail or wires to further the scheme.” Wisdom, 167 F.3d at 406. Under Crest Construction II, Inc. v. Doe, 660 F.3d 346, 358 (8th Cir. 2011), to state a RICO claim based on wire and mail fraud, plaintiffs under Rule 9(b) must allege the who, what, when, where, and how of wire and mail fraud.^[5] LL Funds does not meet this standard.

LL Funds alleges that Wells Fargo engaged in a scheme to defraud the Trust and the Trust’s Certificateholders by “committing acts of robo–signing and the other improper and illegal servicing practices alleged in this Complaint.” Doc. 1 at ¶ 105; see also Doc. 33 at 34 (“Plaintiff has alleged that Defendant Wells Fargo engaged in a scheme to defraud the Trust and the Trust’s certificateholders and that Wells Fargo used the mail and the wires in furtherance of that scheme.”). “Specifically,” LL Funds alleges, “Wells Fargo intended to defraud Plaintiff (and the residential mortgage industry as a whole) when it created and facilitated the circulation of false and fraudulent documents submitted in connection with its foreclosure practices, and when it mailed to borrowers their mortgage loan statements containing improper servicing fees.” Doc. 1 at 11106. LL Funds’ allegations, however, that Wells Fargo engaged in robo–signing and other illegal servicing practices are based mainly on either consent orders between Wells Fargo and two federal agencies or a complaint by the United States against Wells Fargo and other banks that ultimately resulted in Wells Fargo entering into a consent judgment.^[6] Doc. 1 at ¶¶ 33, 42, 43. As explained above, a plaintiff may not rest its allegations in a complaint wholly on unajudicated consent orders or unadmitted complaints to establish that the defendant did, in fact, engage in the conduct alleged therein. See Lipsky, 551 F.2d at 893-94; Waterford Twp. Police & Fire Ret. Sys., 2014 WL 3569338, at *4; In re Platinum & Palladium Commodities Litig., 828 F. Supp. 2d at 593-94; Dent, 2008 WL 2483288, at *2-3.

The Eighth Circuit likewise has been reluctant to accept reference to a consent agreement as establishing that a defendant engaged in misconduct, even at the pleading stage. See Insulate SB, Inc. v. Advanced Finishing Sys., Inc., 797 F.3d 538, 546 n.7 (8th Cir. 2015). The plaintiff in Insulate SB argued that the Eighth Circuit should infer that the defendant violated antitrust laws based on an FTC complaint against the defendant and a corresponding consent agreement. Id. The Eighth Circuit declined to draw such an inference, explaining that the consent agreement not only involved an entirely different antitrust dispute, but also explicitly stated that the defendant was not admitting its guilt. Id. Although the Eighth Circuit granted the plaintiff’s request to take judicial notice of the FTC complaint, it declined “to consider the [complaint] as evidence [the defendant] actually engaged in any anticompetitive conduct alleged therein.” Id. at 543 n.4.

LL Funds’ allegations that Wells Fargo engaged in a scheme to defraud the Trust and its Certificateholders are based on conduct of Wells Fargo separate and apart from the Trust. LL Funds bases its allegations on Wells Fargo’s alleged conduct as a mortgage servicer on loans outside of the Trust. However, for the Trust at issue here, Wells Fargo was the Master Servicer, a role distinct from being a mortgage servicer. Indeed, during the time relevant to this Complaint, Saxon—and not Wells Fargo—was the Servicer. LL Funds for its RICO claim against Wells Fargo alleges no specific conduct concerning the Trust, but relies instead on consent orders and the like—the very material Lipsky and its progeny declare cannot form the sole basis of a claim.

Unlike with its breaches of contract claims where LL Funds cites the Saxon Consent Order involving Saxon’s mortgage-servicing conduct and then alleges that Saxon engaged in the same mortgage-servicing conduct with regard to the Trust, the substance of the RICO claim against Wells Fargo lacks any connection to conduct involving the Trust or LL Funds’ holdings. Unlike with the breach of contract claim where this Court does not have to take as true allegations of the Saxon Consent Order to make the breaches of contract claims plausible, the RICO claim against Wells Fargo requires this Court to assume the truth of the consent orders and government investigations and findings to support any predicate act. In short, the wire and mail fraud allegations fail.

ii. Bank Fraud

LL Funds alleges in its brief that Wells Fargo committed bank fraud under 18 U.S.C. § 1344, “when it instructed its employees to robo-sign and falsify various mortgage-related documents and then subsequently filed those fraudulent documents in various courts, local land record and other government agencies.” Doc. 33 at 36. Section 1344 makes it a crime to

knowingly execute[], or attempt[] to execute, a scheme or artifice—

(1) to defraud a financial institution; or

(2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises.

18 U.S.C. § 1344. By its terms, then, § 1344 only applies to schemes that have at least some connection to a “financial institution,” a term that is defined in 18 U.S.C. § 20.

Here, LL Funds not only neglected to identify the financial institution it claims was harmed, but also failed to plead any facts suggesting that this entity qualified as a financial institution as that term is defined in 18 U.S.C. § 20. Under these circumstances, LL Funds’ invocation of bank fraud in its brief is insufficient under Rule 9(b) and Rule 12(b)(6) to preserve the RICO claim. See Viviani v. Vahey, No. 2:10-cv-01445-LRH-GWF, 2011 WL 3048733, at *3 (D. Nev. July 25, 2011) (“Without specific facts showing that each Plaintiff qualifies as a protected financial institution, Plaintiffs have not sufficiently plead acts of bank fraud under section 13[4]4. . . .”); Holmes v. MBNA Am. Bank, N.A., No. 5:05-cv-16, 2007 WL 952017, at *1 (W.D.N.C. Mar. 27, 2007) (dismissing bank fraud claim where plaintiff failed to plead suggesting that the entity harmed was a financial institution). Because LL Funds’ claims of wire, mail, and bank fraud all fail, it is unnecessary to analyze whether LL Funds’ claim that Wells Fargo engaged in obstruction of justice can serve as a predicate act under RICO.

IV. Conclusion

For the reasons explained above, it is hereby

ORDERED that Defendant Wells Fargo’s Motion to Dismiss, Doc. 25, and Saxon’s Motion to Dismiss, Doc. 28, are granted in part and denied in part, in that Counts III, IV, and V of the Complaint are dismissed without prejudice. It is further

ORDERED that Plaintiff is granted leave to file an Amended Complaint within twenty-one days of the date of this order to allege that it was a Certificateholder at the time of the transactions complained, as well as when Saxon’s alleged breach of contract occurred and when LL Funds purchased its Certificates. It is further

ORDERED that Plaintiff has twenty-one days within which to file the supplemental brief as set forth in 111.A. above, that Defendants have twenty-one days to respond, and that Plaintiff has fourteen days thereafter to file a reply, if Plaintiff chooses to do so.

[1] LL Funds defines robo–signing as “the practice of signing mortgage assignments, satisfactions and other mortgage-related documents in assembly-line fashion, often with a name other than the affiant’s own, and swearing to personal knowledge of facts of which the affiant has no knowledge.” Doc. 1 at ¶ 29.

[2] Because LL Funds’ tort claims and RICO claim are being dismissed on other grounds, it is unnecessary to determine whether the no-action clause applies to these claims.

[3] Saxon also moved to strike other paragraphs of the Complaint as immaterial under Rule 12(f). Although this Court will disregard LL Funds’ statement in paragraph 35 that the Federal Reserve Board “found” that Saxon engaged in certain misconduct, Saxon’s motion is otherwise denied.

[4] Wells Fargo argues that New York law applies to LL Funds’ tort claims against it, while Saxon contends that Texas law applies. LL Funds asserted for the first time at the hearing that South Dakota law governs its tort claims. Because LL Funds has failed to establish that Defendants owed it an independent duty under the law in New York, Texas, or South Dakota, it is unnecessary to engage in a choice of law analysis.

[5] This Court recognizes that a mailing or wire communication need not be fraudulent on its face to constitute an act of wire or mail fraud. In the present case, however, LL Funds is claiming that the mailings and wire communications themselves were “false and fraudulent.” LL Funds has not pleaded any facts to suggest that Wells Fargo used factually accurate mailings or wire communications as part of a scheme to defraud.

[6] The Complaint also bases its allegations of robo–signing on a Memorandum of Review by the Office of the Inspector General. Doc. 1 at ¶¶ 40, 41, 44.

Servicing Guide Updates

The Servicing Guide has been updated to include the following:

• Updates to Short Sale Access Requirements
• Updates to Property Inspection Frequency
• Updates to Lender-Placed Insurance Requirements
• Revisions to Breach/Acceleration Letter Content Requirements
• Clarifications to Liquidation Action Code Descriptions
• Changes to Texas Section 50(a)(6) Modifications
• Changes to Requirements for Processing Modification Agreements
• Updates to Requirements for Unapplied Funds and Custodial Accounts
• Adjustments to Foreclosure Time Frames and Compensatory Fee Allowable Delays Exhibit
• Updates to Compensatory Fee Calculation Examples
• Changes to the Borrower Notification Sample Letter Exhibit

see case here: U.S. BANK v. PARISI | NYSC – Another Statute of Limitations Foreclosure Dismissal Granted

Newsday-

A judge dismissed a foreclosure case against a mother and daughter in Mastic last week, ruling that their bank missed New York’s six-year deadline to file its lawsuit.

The decision could allow Randi Richman and her daughter, Lisa Viola, to shed their mortgage and own their home free and clear, more than eight years after their lender sued to foreclose.

State Supreme Court Justice William Rebolini decided in favor of the family on Wednesday, writing that U.S. Bank National Association was “untimely” in suing last year to take back the home.

“It’s just like a weight has been lifted — I can breathe,” said Richman, who is 63 and disabled.

 [NEWSDAY]

Around Osceola –

Among the criticisms that Osceola County Clerk of Court Armando Ramirez has received for various policies and personnel moves since taking office in 2013, backing down from a legal challenge isn’t one of them.

Ramirez has refused to remove a 759-page forensic examination of property records and mortgage files his auditors claim are fraudulent — and have led to foreclosures that cost local residents their homes — from his office’s website, osceolaclerk.com. The website includes a notice about what constitutes mortgage fraud according to
state statute.

This comes after receiving a cease and desist letter from a Tampa law firm whose clients, various lenders, are named in the report.

On Sept. 25, Ramirez received the notice from the Gilbert Garcia Group in Tampa, which claims the report, which was published on Dec. 29. 2014, includes “perceived defamatory statements.”

 [AROUND OSCEOLA]

Morning Consult –

Hillary Clinton is campaigning as a president who will be tough on Wall Street. But the leader of one powerful bank lobby isn’t buying it.

Camden Fine, the head of the Independent Community Bankers of America, said Clinton’s stance on regulating large Wall Street banks is pure politicking.

“She’s doing that because of Bernie. If Hillary is elected president of the United States, it’s gonna be $500 billion, and that’s fine,” Fine said in an interview with Morning Consult, referring to a policy proposed by Senate Republicans to loosen Dodd-Frank regulations. “She’s gonna all of a sudden become Mrs. Wall Street if she’s elected. So it’s all Bernie theatrics right now. She’s a Clinton, for God’s sake. What do you expect?”

[MORNING CONSULT]

image: Reuters Stephen Lam

Reuters-

Jeb Bush is leading the U.S. presidential campaign by at least one measure: financial support from Wall Street.

The former Florida governor who is seeking the Republican presidential nomination received more financial backing than any competitor – Democrat or Republican – from employees of the major Wall Street banks between July and the end of September, campaign filings released on Thursday show.

Employees from Bank of America (BAC.N), Citigroup (C.N), Credit Suisse (MLPN.P), Goldman Sachs (GS.N), HSBC HSBCUK.UL, JPMorgan Chase JPN.N, Morgan Stanley (MS.N) and UBS UBSAG.UL gave Bush a combined $107,000. He also received the maximum-allowed $2,700 from billionaire hedge fund manager Leon Cooperman.

[REUTERS]

The teachers’ pension fund invested hundreds of millions of dollars into a company that has foreclosed on and evicted numerous homeowners, including dozens in the East Bay.

East Bay Express-

California’s pension fund for public school teachers invested hundreds of millions of dollars in a company that has been criticized for foreclosing on property owners and kicking them out of their homes, including dozens in the East Bay, records and interviews show. The company, Caliber Home Loans, is owned by the private equity firm Lone Star Funds and was featured in a New York Times story last week because of its controversial practices.

In an email to the Express, officials for the California State Teachers Retirement System (CalSTRS) confirmed that the pension fund invested $660 million in two different funds managed by Lone Star, and that the company has used the money to buy up distressed home loans, foreclose on the homeowners, and resell the homes. CalSTRS spokesperson Ricardo Duran said that Lonestar officials have told pension fund managers that the investment has resulted in a lower rate of foreclosure than the industry standard. But according to Duran, CalSTRS has not been provided with data from Lone Star to substantiate these claims.

[EAST BAY EXPRESS]

H/T

Decision and order of Honorable William B. Rebolini, Suffolk County Supreme Court Justice, dated October 14, 2015 (Parisi-Viola decision)—wherein, Mr. Young, principal counsel of Young Law Group, PLLC, once again, successfully argued that the six (6) year statute of limitations to foreclose their clients’ mortgage had expired prior to the commencement of the action.

.

.

Decided on October 7, 2015

US Bank National Association, as Trustee for the holders of the Citigroup Mortgage Loan Trust, Inc., Asset-Backed Pass Through Certificates, Series 2007-AMC2, Plaintiff,

against

Robert M. Glusky, et. al., Defendant.

Fenkel, Lambert, Weiss, Wiesman & Gordon, LLP
Attorney for Plaintiff
53 Gibson Street
Bayshore, New York 11706

Clair & Gjersten
Attorney for Defendant Robert Glusky
720 White Plains Road
Scarsdale, New York 10583
William J. Giacomo, J.

Factual and Procedural Background

Plaintiff commenced this mortgage foreclosure action on December 18, 2012. Defendant answered although its not clear if it was served in February 2013 or February 2014.

Plaintiff now moves for summary judgment and an order of reference.

Defendant opposes the motion on the ground that plaintiff has not satisfied a condition precedent to commencing a loan foreclosure action. Specifically he claims that the notice requirement embodied in Real Property Action and Proceeding Law (“RPAPL”) §1304 has not been complied with. Defendant also argues that plaintiff lacks standing to bring this action.

Discussion

A party seeking summary judgment bears the initial burden of affirmatively demonstrating its entitlement to summary judgment as a matter of law. (See Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985]; Alvarez v Prospect Hospital, 68 NY2d 320 [1986]). “Once this showing has been made … the burden shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action” (see Zuckerman v. City of New York, 49 NY2d 557 [1980]).

Here, plaintiff has not established prima facie entitlement to summary judgment and an order of reference since it has not established as a matter of law that the notice required by §1304 has been sent. Pursuant to the provisions of RPAPL §1304, 90 days prior to the institution of a foreclosure action, a notice containing statutory mandated content must be sent to the borrower.

In Aurora Loan Services, LLC. v Weisblum, (85 AD3d 95 [2nd Dept 2011]) the Appellate Division, Second Department held that mailing such notice was a mandatory condition precedent to commencing a foreclosure action which must be alleged by plaintiff in its complaint and proved by the plaintiff to meet its prima facie burden of proof on a summary judgment motion. In Aurora, the Appellate Division found that plaintiff failed to meet its prima facie burden in several respects. Among those was the failure of plaintiff to produce an affidavit of service to establish that the §1304 notice was served on the borrowers by both registered or certified mail and first class mail at their last known address. In so ruling, the Court held that the failure to comply with RPAPL §1304 may not be disregarded even if no prejudice to the borrower is shown (see Aurora 85 AD3d at 107).

In this case, to support its motion for summary judgment, plaintiff alleges that a [*2]RPAPL §1304 notice was mailed to the borrowers pursuant to the statute in a timely fashion. In proof of this, plaintiff submits an affidavit from Andre Dickson on behalf of Nationstar Mortgage Servicing, LLC., servicer and attorney-in-fact for the plaintiff. Mr. Dickson is a document execution specialist. In his affidavit Mr. Dickson attests that he has reviewed the business records and other documents of Nationstar relating to the loan in question and attests that they are created and maintained in the regular course of business as loan servicer. Mr. Dickson goes on to attest that he reviewed the business records of Bank of America, N.A., a prior servicer of the mortgage loan at the time this foreclosure action was commenced, and attests that the prior servicer caused to be mailed the appropriate notice under RPAPL §1304 by certified and first class mail and details the date of the letter, the date it was mailed by the prior servicer and notes the certified mailing number. Mr. Dickson does not, however, attest that he has personal knowledge that the notices were mailed nor that he was the individual actually mailing the notices.

Defendant argues that such an affidavit does not suffice under the statute to satisfy §1304 notice. Defendant claims that an affidavit must be submitted from someone with personal knowledge that the notice was mailed. He claims that the Dickson affidavit is not proof that the notices were mailed and properly served on the defendant. Defendant argues that without a sworn statement from the person who actually mailed both the certified mailing and first class mailing plaintiff clearly fails to satisfy the provisions of §1304 and therefore the condition precedent has not been satisfied.

In support of its argument, defendant cites several decisions from other Courts in this Judicial District which have ruled that a failure to supply an affidavit of service from someone with personal knowledge that the §1304 notices were sent was not sufficient as a matter of law to establish a prima facie entitlement to summary judgment (see Deutsche Bank Nat. Trust Co. v. Tassone, 44 Misc 3d 1228(A) [Putnam County Sup Ct 2014]; Trustco Realty Corp v. Hayes [Westchester County Sup Ct Index No. 64939/2013];Trustco Realty Corp v. Hayes [Westchester County Sup Ct Index No. 12154/2011]; Wells Fargo v. Belknap, [Westchester County Sup Ct Index No. 68609/2012]). These Courts have denied lender’s motions for summary judgment finding a question of fact as to whether the mailing was made.

This Court has reviewed these decisions as well as the provisions of the statute together with the Appellate decision in Aurora and agrees that for plaintiff to meet its burden of proof on a summary judgment motion for foreclosure it must produce an affidavit from a person with knowledge that the required notices under RPAPL §1304 have been mailed. It is not sufficient to produce an affidavit from the servicer or the lender as to the usual procedures undertaken with respect to mailing the notice even if a copy of a notice is produced as part of the servicer’s file. This Court finds that the statute requires such notice be sent to the borrower and proof of mailing cannot be established by reference to the usual procedures undertaken by a lender or servicer.

Accordingly, plaintiff has failed to establish entitlement to summary judgment as a matter of law and its motion is DENIED.

The parties are directed to appear in the Preliminary Conference Part on October 26, 2015 room 800 at 9:30 a.m. for further proceedings.

Dated: White Plains, New York
October 7, 2015
_______________________
Hon. William J. Giacomo, JSC

Rolling Stone 0

The inaugural Democratic debate Tuesday night was a strange show. It felt like two different programs.

One was a screwball comedy starring red-faced ex-Marine Jim Webb and retired Keebler elf Lincoln Chafee, whose Rhode Island roots highlighted the Farrelly brothers feel of his performance. The latter’s “I voted to repeal the Glass-Steagall Act because it was my first day at school” moment was the closest thing I’ve seen to a politician dissolving into his component elements on live television.

The other drama was serious and highly charged argument between two extremes on the political campaigning spectrum, pitting the unapologetic idealist Bernie Sanders against the master strategist Hillary Clinton. (Martin O’Malley seemed like an irrelevant spectator to both narratives.)

Read more: http://www.rollingstone.com/politics/news/hillary-clintons-take-on-banks-wont-hold-up-20151014#ixzz3oetkKGzD

Image: AP / Mark Lennihan