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

IN THE DISTRICT COURT OF APPEAL
OF FLORIDA
SECOND DISTRICT

MICHAEL B. DICKSON and
MAGDALENA DICKSON,

Appellants,

v. Case No. 2D14-1137

ROSEVILLE PROPERTIES, LLC,

Appellee.
___________________________________

Opinion filed November 6, 2015.
Appeal from the Circuit Court for
Manatee County; Thomas M. Gallen,
Senior Judge.
Michael B. Dickson and Magdalena
Dickson, pro se.
Peter P. Hagood of Hagood & Garvey,
Maitland, for Appellee.

SALARIO, Judge.

In this residential foreclosure action, Michael and Magdalena Dickson
appeal from a final judgment in favor of Roseville Properties, LLC, rendered after a
nonjury trial. Prior to trial, Roseville was substituted as plaintiff in place of Nationstar
Mortgage, LLC, which originally filed the action. Because Roseville failed to prove at
trial that Nationstar had standing when it filed suit, we reverse and remand with
instructions to enter an order of involuntary dismissal.

In September 2007, the Dicksons borrowed $224,000 from Ameripath
Mortgage Corporation to finance the purchase of a residence. The debt was evidenced
by a note showing the Dicksons as borrowers and Ameripath as lender and secured by
a mortgage showing the Dicksons as borrowers and Mortgage Electronic Registration
Systems, Inc. (MERS), as nominee for Ameripath as lender. Beginning in November
2009, the Dicksons defaulted on the note by failing to make their mortgage payments.

On July 18, 2011, Nationstar filed a verified foreclosure complaint against
the Dicksons. It alleged that it was entitled to enforce the note and mortgage but did not
allege the factual or legal basis for that right. The only exhibits to the complaint were
copies of the note and mortgage, which, because they made no reference to Nationstar,
also failed to show the basis of its asserted right to foreclose. The Dicksons filed
affirmative defenses alleging, among other things, that Nationstar lacked standing to
enforce the note because it failed to establish any basis for doing so.

On October 26, 2012, Roseville filed a motion to substitute itself for
Nationstar as plaintiff. It alleged that after the complaint was filed, Nationstar’s interest
in the mortgage was transferred to Roseville. The Dicksons responded that Roseville
lacked standing because Nationstar, from which Roseville acquired any rights it had,
also lacked standing. The trial court granted the motion, and Roseville was substituted
for Nationstar as the plaintiff in this case.

Roseville later filed the original note, which contained no endorsement,
and the original mortgage. It also filed a document which reflected an assignment of the
Dickson’s mortgage from Kondaur Capital Corporation to Roseville on August 16, 2012.

Roseville also served the Dicksons with a set of requests for admissions. Those
requests sought admissions that Roseville was the owner of the note, the current holder
of the note, the owner of the mortgage, and the current holder of the mortgage. The
Dicksons failed to answer the requests.

On September 6, 2013, the Dicksons filed a motion to dismiss alleging
that Roseville lacked standing to foreclose because Nationstar lacked such standing at
the time the suit was filed. They attached copies of six assignments of their mortgage,
all of which were dated after the foreclosure complaint was filed on July 18, 2011: (1) an
assignment from MERS as nominee for Ameripath to U.S. Bank, N.A., “as trustee for
the Maiden Lane Asset Backed Securities I Trust 2008-1, c/o Nationstar” (U.S. Bank c/o
Nationstar) dated September 22, 2011; (2) an assignment from MERS as nominee for
Ameripath directly to Nationstar dated September 23, 2011; (3) an assignment from
U.S. Bank c/o Nationstar to Kondaur dated December 16, 2011; (4) an assignment from
U.S. Bank c/o Nationstar to Selene Finance dated February 2, 2012; (5) an assignment
from Nationstar to Kondaur dated April 25, 2012; and (6) an assignment from Kondaur
to Roseville dated August 16, 2012. Six days later, the trial court entered an order
denying the Dicksons’ motion. On September 18, 2013, the Dicksons filed a second
motion to dismiss for lack of standing. The trial court again denied the motion.

The trial court held a bench trial on February 10, 2014. As its sole
witness, Roseville called Taisha Cintron, a Roseville account representative. She
testified that she was familiar with the Dicksons’ account, that their file was kept in the
ordinary course of business, and that the loan was in default. Through Ms. Cintron,
Roseville introduced the Dicksons’ loan history into evidence. Ms. Cintron did not
provide any testimony concerning Nationstar’s entitlement to foreclose at the time suit
was filed or Roseville’s entitlement to foreclose at the time of trial. At the close of
Roseville’s case, the Dicksons moved to dismiss based on Roseville’s lack of standing.
The trial court denied this motion and granted judgment in favor of Roseville.

Where, as here, the defendant asserts a lack of standing as a defense to
foreclosure, it is incumbent upon the plaintiff to prove its standing at trial. Gonzalez v.
Deutsche Bank Nat’l Trust Co., 95 So. 3d 251, 253-54 (Fla. 2d DCA 2012). This
requires the plaintiff to show that it is the “holder” of the note or a person acting on
behalf of the holder. Mortg. Elec. Regis. Sys., Inc. v. Azize, 965 So. 2d 151, 153 (Fla.
2d DCA 2007). If the plaintiff is not the original lender, it may establish its standing as a
holder “by submitting a note with a blank or special endorsement, an assignment of the
note, or [with a sworn statement] otherwise proving the plaintiff’s status as the holder of
the note.” Focht v. Wells Fargo Bank, N.A., 124 So. 3d 308, 310 (Fla. 2d DCA 2013)
(citing McLean v. JP Morgan Chase Bank Nat’l Ass’n, 79 So. 3d 170, 173 (Fla. 4th DCA
2012)). A plaintiff that is not a holder, such as a mortgage servicer, can establish
standing through proof that it is authorized to enforce the note on behalf of the holder.
Russell v. Aurora Loan Servs., LLC, 163 So. 3d 639, 642-43 (Fla. 2d DCA 2015).

For better or for worse, it is settled that it is not enough for the plaintiff to
prove that it has standing when the case is tried; it must also prove that it had standing
when the complaint was filed.1 May v. PHH Mortg. Corp., 150 So. 3d 247, 248-49 (Fla.
2d DCA 2014); see also Focht, 124 So. 3d at 311-12 (describing “a long line of supreme
court cases” requiring that a plaintiff have standing at the inception of the case). In
Russell, we applied the rule requiring proof of standing at inception of the case to a
substituted plaintiff and held that it was required to demonstrate that the original plaintiff
had standing when the suit was filed. 163 So. 3d at 642. There, the original plaintiff
alleged in its complaint that it was the servicer of the mortgage at issue, and it later
sought to substitute a new plaintiff in its place based on an assignment of mortgage to
that new plaintiff. Id. at 641. The defendant raised lack of standing as an affirmative
defense, and at trial the substituted plaintiff failed to show that the original plaintiff had
standing either as a holder or as servicer authorized by the holder to enforce the note.
Id. at 641-42. Because the substituted plaintiff failed to prove the original plaintiff’s
standing at inception, we reversed the final judgment of foreclosure. Id. at 643.

This case is indistinguishable from Russell. The record is devoid of any
evidence that Nationstar had standing when it filed suit. The original note and mortgage
filed with the trial court contain no indication that Nationstar was the holder at the time
the complaint was filed. There is no documentary evidence to indicate that Nationstar
had the right to enforce the note on behalf of someone else at the time the complaint
was filed. Roseville presented no testimony to show that Nationstar had standing at
inception. On the contrary, the only evidence in this record related to Nationstar—the
postfiling assignments of mortgage from MERS to U.S. Bank c/o Nationstar Mortgage,
LLC and, subsequently, to Nationstar directly—could establish only that Nationstar
acquired standing in some manner after it filed the complaint.

Roseville asserts that because the Dicksons failed to respond to its
requests for admissions about its status as the “owner” and “current holder” of the note
and mortgage, those requests are deemed admitted and its standing is proved. See
Fla. R. Civ. P. 1.370(a), (b) (providing that unanswered requests for admission are
deemed admitted and that any matter admitted is conclusively established unless the
court permits withdrawal or amendment). The problem with this argument is that
Roseville did not propound any requests related to whether Nationstar was either the
holder of the note or acting on behalf of the holder of the note at the time it filed suit. Its
requests went solely to whether Roseville was the “owner” and “current holder” of the
note and mortgage. The Dicksons’ technical admissions of those requests establishes
at most that Roseville had standing when the requests were served and the Dicksons
failed to answer them, not that Nationstar had standing when it filed suit.2 See Russell,
163 So. 3d at 643 (rejecting as proof of standing at inception a power of attorney dated
eighteen months after the complaint was filed).

Because Roseville failed to prove standing at inception of the suit, the trial
court erred in granting it a final judgment. In light of Roseville’s failure of proof, the trial
court was obliged to grant the Dicksons the dismissal they sought. See id.; May, 150
So. 3d at 249. Accordingly, the judgment below is reversed and the case is remanded
to the circuit court with instructions to enter an order of involuntary dismissal. This
disposition renders the numerous other issues the Dicksons have raised on appeal
moot, and we therefore decline to address them.

Reversed and remanded with instructions.

NORTHCUTT and LaROSE, JJ., Concur.

footnotes:
1The rule requiring a plaintiff to prove its standing at the inception of suit at
any point up to and through trial does present difficult issues both as a matter of legal
doctrine and as a matter of practical application. See Focht, 124 So. 3d at 312-13
(Altenbernd, J., concurring).

2The Dicksons filed with the trial court a “motion to strike” the requests for
admissions, alleging that they never received them. The trial court denied that motion.
The Dicksons have not appealed that denial.

Lexology-

All indications point to yes; but it is wise to heed the old adage that you should “never count your chickens before they hatch”.

The Florida Supreme Court (FLSC) accepted certiorari earlier this year from its 5th District Court of Appeal and held oral argument last week to resolve a dispute on the statute of limitation issue plaguing the mortgage industry.  The State of Florida is divided into five District Courts of Appeal (DCAs), whose application of law reigns sovereign over their respective districts.  The debate stems between the 3rd DCA, which encompasses the populous county of Miami-Dade as well as neighboring Monroe County, and all other DCAs and federal courts throughout Florida which have spoken on the issue of the impact of the statute of limitations on re-filed foreclosure actions. (Notably only the 2nd DCA and the federal courts of the northern district of Florida have yet to publish an opinion on the issue.)

While it is generally understood that extinguishment of a mortgage only occurs when all sums secured are paid off or the mortgage is foreclosed, the 3rd DCA has held that a mortgagee may not have the right to foreclose on a mortgage if a prior foreclosure action was dismissed and a second action was filed within five years after the filing of the first.  Five years represents the statute of limitation for foreclosure actions in Florida.  Consequently, a lucky borrower might get a free house if a mortgagee has, through oversight or inadvertence, had its prior action dismissed — although there is some debate as to whether the mortgage would still encumber the property for the remaining mortgage term even though the mortgagee can no longer foreclose on it.  Indeed, it might be possible that the right to foreclose a mortgage could be lost even if the mortgagee was not negligent but, instead, had voluntarily dismissed its own action for any reason including, but not limited to, simply abandoning the action to give the borrower some relief.

[LEXOLOGY]

Guess Eric Holder’s firm’s many tentacles never represented this one… THIS could apply to every large bank CEO – and why hasn’t been applied/tried

National Mortgage News-

The former chief executive of a Nebraska bank was convicted Friday by a federal jury for lying to investors and regulators about considerable losses tied to risky commercial real estate investments.

Gilbert Lundstrom, 74, led TierOne Bank to make hazardous investments, including construction projects in Las Vegas, resulting in loan and property valuation losses of more than $100 million in the aftermath of the financial crisis, according to a Justice Department announcement.

Then Lundstrom and other executives at the $3 billion publicly traded company concealed the losses to investors for more than a year, according to authorities. They did not disclose in financial statements that the Lincoln, Neb., bank needed $34 million to $114 million in additional reserves and loan loss allowance after finding out about the requirement in April 2009. And in a May 2009 annual shareholder meeting, Lundstrom did not clearly reveal the state of the bank’s capital ratios and reserves to investors, nor that it had asked for Troubled Asset Relief Program assistance, regulators contend.

 [NATIONAL MORTGAGE NEWS]

KPAX-

A District Court jury has awarded a Billings man just over $2 million in his action against a bank that foreclosed on and sold a house that he and his wife had purchased outright for cash two years earlier.

After a four-day trial in the court of Yellowstone County District Judge Ingrid Gustafson last week, the jury unanimously awarded Jason Norman $350,000 in lost profitability, $100,000 for emotional distress and $1.6 million in punitive damages against Deutsche Bank National Trust Co, reports Last Best News.

Also named as defendants were Ocwen Loan Servicing, which handled the sale of the Normans’ house, and MOM Haven 6 LLP, the company to which the house was sold.

 [KPAX]

Credit Slip-

There’s an interesting new article out on the celebrated Massachusetts U.S. Bank v. Ibanez case that suggests that the defendant, Antonio Ibanez, was at the center of a property fraud ring. It’s not clear to me that there was anything illegal about Ibanez’s activities, but even if there were, I don’t think it much matters.

The article is by Zachary K. Kimball, who appears to currently be employed by McKinsey. The paper itself seems to have been written while Kimball was a law student at Harvard, but with its genesis when Kimball was a researcher at the Boston Fed. The contribution of the paper is to document the various property dealings of Antonio Ibanez, the defendant in US Bank v. Ibanez. Kimball did some impressive digging into the public property records to discover the various property dealings of Mr. Ibanez. He shows that the property at issue in Ibanez was one of several investment properties in Springfield Massachusetts that Ibanez (a resident of Brookline, Massachusetts, 80 miles away) and certain other parties were involved with. The various properties were all purchased out of previous foreclosures at low prices. They were then resold at substantially higher prices, with 90% of the purchase prices financed by bank loans. The various buyers and sellers in the transactions were all connected with each other in various. The implication, Kimball suggests, is that Ibanez might have been involved in some sort of a mortgage fraud ring, either unwittingly or deliberately. The “fraud” would have been as follows: a largely judgment-proof Ibanez (who had his Brookline property protected as a homestead) borrowed at 90% LTV from banks. The loans proceeds were then used to pay grossly inflated purchase prices for the properties. Why would Ibanez do this? Because he never intended to repay the loans and was receiving a kickback from the seller.

[CREDIT SLIPS]

“TO BORROW, TO BORROW . . . SHOULD NOT CAUSE SUCH SORROW”: WHY NEW JERSEY SHOULD ENACT LEGISLATION INCORPORATING A HOMEOWNER BILL OF RIGHTS (HBOR) AND A SERVICER’S DUTY OF LOSS MITIGATION
Cheryl Aptowitzer, Esq.*

Foreclosures blight neighborhoods, put financial pressure on families and drive down local real estate values, and consumers, made more cautious by a crippled housing market, spend less freely, curbing the economy’s growth. . . . In fact, the Urban Institute estimates that a single foreclosure costs $79,443 after aggregating the costs borne by financial institutions, investors, the homeowner, their neighbors, and local governments. However, even this number may understate the true costs, since it does not reflect the impact of the foreclosure epidemic on the nation’s economy or the disparate impact on lower-income and minority communities . . . .1

In 2012, California legislators, facing a grim economic situation which experts blamed, to a large extent, on the state’s high rate of foreclosures, had the foresight to pass a Homeowner’s Bill of Rights, resulting in a steep decline in foreclosures.2 Given New Jersey’s fragile economy, sluggish housing market, and the continued high rate of foreclosures, the state stands precipitously on the edge of a financial downward spiral.3 Now is the time for New Jersey legislators to return economic stability to the state, protect its homeowners, and ensure a brighter future by passing legislation incorporating a Homeowner’s Bill of Rights and a servicer’s duty of loss mitigation.
Part I of this Article will discuss the different events leading up to the national foreclosure crisis, including widespread fraudulent lenders’ practices, which resulted in the National Mortgage Settlement. This Article will highlight President Obama’s attempt to bring attention to the troubled housing market, Congress’s failure to respond to that attempt, and how, in the absence of a federal solution, California made the decision to pass groundbreaking legislation, with other states following suit. Part II will analyze New Jersey’s recent grim foreclosure statistics and forecasts, which reflect the need for action. Part III will present the findings of an important independent report outlining the insufficiency of current legislation and will also look to other states’ legislative proposals for ideas that New Jersey could incorporate in new legislation. Part IV will note the disparate impact that foreclosures have on minority communities and the need to protect New Jersey’s most vulnerable citizens from suffering a disproportionate share of the foreclosure problem. Part V will conclude that New Jersey should enact a Homeowner Bill of Rights and a servicer’s duty of loss mitigation so as to ensure that the brewing financial “perfect storm” passes over New Jersey’s landscape without wreaking havoc on our economy, real estate market, and homeowners.

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

DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT

DIANA JELIC,
Appellant,

v.

BAC HOME LOANS SERVICING, LP, f/k/a COUNTRYWIDE HOME
LOANS SERVICING, L.P.,
Appellee.

No. 4D14-516

[November 4, 2015]

Appeal from the Circuit Court for the Fifteenth Judicial Circuit, Palm
Beach County; Richard L. Oftedal, Judge; L.T. Case No.
2009CA017255XXXXMB.
Peter Ticktin, Josh Bleil, Michael Vater, Heather Cherepkai, and
Kendrick Almaguer of The Ticktin Law Group, P.A., Deerfield Beach, for
appellant.
Tricia J. Duthiers and Kristen A. Tajak of Liebler Gonzalez & Portuondo,
Miami, for appellee Bank of America, N.A., successor by merger to BAC
Home Loans Servicing, LP, f/k/a Countrywide.

FORST, J.

We again consider the question of standing to foreclose upon a
mortgage. Diana Jelic (“Owner”) signed a mortgage and note in 2005. In
2008, she stopped making payments on the note. BAC Home Loans
Servicing, LP, f/k/a Countrywide Home Loans Servicing, LP (and since
merged into Bank of America, N.A.) (“the Bank” when used collectively)
initiated a foreclosure proceeding. Owner challenged the Bank’s standing
to foreclose along with its compliance with contractual conditions
precedent in the mortgage and note. For the reasons given below, we agree
with Owner that the Bank did not properly demonstrate its standing and
therefore reverse the trial court’s Final Judgment of Foreclosure.
Owner initially executed a note and mortgage in favor of Sterling Bank.
The note was later indorsed to Countrywide Bank. At some point, the note
was indorsed from Countrywide Bank to Countrywide Home Loans
Servicing. But the copy of the note attached to the complaint shows only
the first indorsement (to Countrywide Bank). The second indorsement
appears only on the note introduced at trial. No testimony was introduced
giving the date on which the second indorsement was made, or stating that
Countrywide Home Loans Servicing held the note at the time of the
complaint.

The Bank provides two arguments as to how it proved that it was the
holder of the note at the time the complaint was filed. Even if we ignore
the fact that those arguments seem to contradict each other and instead
address each individually, the Bank still has failed to show that it was the
holder as of the date that the complaint was filed.

The Bank’s first argument is that the indorsements alone transferred
the note into its control. However, the failure to introduce testimony
establishing the date the second indorsement was made is fatal to this line
of reasoning. We have said before, and apparently need say again: if an
indorsement is undated and appears for the first time after the complaint
is filed, some evidence must be introduced that will support a finding that
the indorsement was made prior to the complaint’s filing. Tilus v. AS
Michai LLC, 161 So. 3d 1284, 1286 (Fla. 4th DCA 2015) (“Where the
plaintiff files the original note after filing suit, an undated blank
endorsement on the note is insufficient to prove standing at the time the
initial complaint was filed”); Sosa v. U.S. Bank Nat’l Ass’n, 153 So. 3d 950,
951 (Fla. 4th DCA 2014); LaFrance v. U.S. Bank Nat’l Ass’n, 141 So. 3d
754, 756 (Fla. 4th DCA 2014) (“A plaintiff’s lack of standing at the
inception of the case is not a defect that may be cured by the acquisition
of standing after the case is filed and cannot be established retroactively
by acquiring standing to file a lawsuit after the fact.”) (internal quotation
marks and citation omitted).

Statements that make exclusive use of the present tense (here: “Bank
of America is the holder of the note” (emphasis added)) are insufficient.
What is required is some evidence that the foreclosing party was the holder
at the appropriate time. Although the Bank’s sole witness did say that the
Bank “owned the loan prior to the filing of the complaint,” she immediately
corrected herself, answering with “No” when asked “So Bank of America
never acted as the owner of this loan?” Because of that retraction, we
cannot hold that the Bank introduced the necessary evidence to prove that
the Bank held the note at the time the initial complaint was filed.
The Bank’s second argument as to how the note transferred is that a
pre-complaint assignment of the mortgage to Countrywide Home Loans
Servicing is evidence that the note was also transferred before the
complaint. But that is not how the law operates. Again we repeat: the
mortgage follows assignment of the note. Bristol v. Wells Fargo Bank, Nat’l
Ass’n, 137 So. 3d 1130, 1133 (Fla. 4th DCA 2014). The assignment of a
mortgage cannot serve as evidence that the note was also transferred, even
though a transfer of the note usually will serve as a transfer of the
mortgage. Lamb v. Nationstar Mortg., LLC, 40 Fla. L. Weekly D1912 (Fla.
4th DCA Aug. 19, 2015) (“A bank does not have standing to foreclose where
it relies on an assignment of the mortgage only.”).

As part of this second argument, Bank also argues that one specific line
in the mortgage assignment transferred the note itself. But again, Florida
law does not allow for a transfer in this method. To transfer a note, there
must be an indorsement, which itself must be “on [the] instrument” or on
“a paper affixed to the instrument.” § 673.2041(1), Fla. Stat. Here, the
signature on the mortgage assignment did not constitute an indorsement
of the note because it was not on the note or an attached paper.
The Bank has failed to establish its standing to foreclose. We therefore
need not consider the Owner’s argument based on conditions precedent.

The judgment of the trial court is reversed.
Reversed.

CIKLIN, C.J., and MAY, J., concur.

* * *

Not final until disposition of timely filed motion for rehearing

U.S. BANK, N.A., as Trustee for Bank of America Funding Corporation 2007-2 Trust, Plaintiff-Appellee,
v.
MATTHEW KOSTERMAN and AMY KOSTERMAN, Defendants-Appellants.

Sandra M. Emerson, Matthew C. Swenson, Richard F. Kohn, and Lindsey N. McGuire, all of Emerson Law Firm, LLC, of Oak Park, for appellee.

PRESIDING JUSTICE SIMON delivered the judgment of the court, with opinion.

Justice Neville concurred in the judgment and opinion.

Justice Liu dissented, with opinion.

OPINION

PRESIDING JUSTICE SIMON delivered the judgment of the court, with opinion.

¶ 1 This is a mortgage foreclosure case in which the trial court dismissed defendants’ affirmative defenses, entered summary judgment in plaintiff’s favor, and entered an order of possession in plaintiff’s favor. The trial court erred in finding that lack of standing is not an affirmative defense. Moreover, defendants were improperly denied the opportunity to mount a meaningful defense because plaintiff failed to produce the records relied upon by its affiant and refused to produce the affiant for a deposition. Accordingly, we reverse and remand for further proceedings consistent with this order.

¶ 2 BACKGROUND

¶ 3 Because the analysis in this case is best understood when examined alongside the procedural history, many of the relevant events are set forth in the analysis section. Thus, this section will serve only as a brief outline of the events leading up to the parties being at issue.

¶ 4 On October 20, 2006, defendants Matthew and Amy Kosterman executed a mortgage for the property commonly known as 608 Bonnie Brae Place in River Forest, Illinois. The mortgage was executed to secure a loan evidenced by a promissory note. The lender was HLB Mortgage, a New York corporation. Defendants apparently made payments for several years.

¶ 5 On October 18, 2011, plaintiff U.S. Bank, as trustee for Bank of America Funding Corporation 2007-2 Trust, filed a complaint to foreclose the mortgage on defendants’ property alleging that defendants had failed to make payments when due. In response to the complaint, defendants filed an answer that included two affirmative defenses. The trial court dismissed the affirmative defenses with prejudice and did not grant leave to replead. Shortly thereafter, plaintiff filed a motion for summary judgment which was granted, and an order of foreclosure and an order of possession were thereafter issued in plaintiff’s favor. Defendants now appeal.

¶ 6 ANALYSIS

¶ 7 We review the dismissal of an affirmative defense de novo. CitiMortgage, Inc. v. Bukowski, 2015 IL App (1st) 140780, ¶ 15. Like a motion to dismiss a plaintiff’s claim, a motion to dismiss a defendant’s affirmative defense should not be granted with prejudice unless it is clearly apparent that there is no set of facts that might entitle the defendant to some relief. Mack Industries, Ltd. v. Village of Dolton, 2015 IL App (1st) 133620, ¶ 18; Farmers Automobile Insurance Ass’n v. Neumann, 2015 IL App (3d) 140026, ¶ 16.

¶ 8 Here, defendants interposed two separate defenses in their answer: one was lack of standing and the other was lack of capacity to sue. The trial court treated the putative defenses as one in the same. However, “standing is not the same as legal capacity to sue.” Aurora Bank FSB v. Perry, 2015 IL App (3d) 130673, ¶ 17. Capacity to sue is something the plaintiff must allege; while lack of standing is a defense that a defendant can allege. See id. ¶ 16. Regardless, the difference is not material to the outcome of this appeal because the trial court considered both as challenges to standing.

¶ 9 At the hearing on plaintiff’s motion to strike defendants’ affirmative defenses, the trial judge stated, “[A] claim or assertion that the plaintiff cannot maintain a cause of action is not an affirmative defense under any definition of affirmative defense.” “[A challenge to standing] doesn’t say this plaintiff has a cause of action, but [the defendant] can avoid the effect of that cause of action by some other affirmative matter. That’s what an affirmative defense does.” The trial judge continued, “what you’re saying is this plaintiff doesn’t have a right to sue. That’s a basis for dismissal, not an assertion of a defense.” The trial court explained that lack of standing might be an “affirmative matter,” (invoking the phrasing for section 2-619 motions to dismiss) but that “it just simply is not an affirmative defense.” Accordingly, the trial court struck the defenses from defendants’ answer.

¶ 10 The Illinois Supreme Court has made clear that a challenge to standing in a civil case is an affirmative defense. Greer v. Illinois Housing Development Authority, 122 Ill. 2d 462, 508 (1988). So the trial judge’s explanation is inconsistent with established, binding precedent. Plaintiff nevertheless claims that a challenge to standing is not an affirmative defense in a foreclosure case. Within just the past two years, we have explained on at least six occasions that the assertion of lack of standing in a foreclosure action is an affirmative defense that not only can be raised in an answer, but must be, or else it is waived. See Aurora Bank, 2015 IL App (3d) 130673, ¶ 18; Beal Bank v. Barrie, 2015 IL App (1st) 133898, ¶ 39; Bank of America, N.A. v. Adeyiga, 2014 IL App (1st) 131252, ¶¶ 59-63; US Bank, National Ass’n v. Avdic, 2014 IL App (1st) 121759, ¶ 34; Rosestone Investments, LLC v. Garner, 2013 IL App (1st) 123422, ¶¶ 24, 28; Parkway Bank & Trust Co. v. Korzen, 2013 IL App (1st) 130380, ¶ 24. Accordingly, the trial court erred by striking defendants’ affirmative defense for lack of standing as a matter of law.

¶ 11 Even though striking the affirmative defense was erroneous, we still must determine whether the trial court erred in granting summary judgment in plaintiff’s favor. We review the grant of summary judgment de novo. Cook v. AAA Life Insurance Co., 2014 IL App (1st) 123700, ¶ 24. Summary judgment is appropriate when the pleadings, depositions, admissions and affidavits, viewed in a light most favorable to the nonmovant, fail to establish a genuine issue of material fact, thereby entitling the moving party to judgment as a matter of law. 735 ILCS 5/2-1005 (West 2012); Progressive Universal Insurance Co. of Illinois v. Liberty Mutual Fire Insurance Co., 215 Ill. 2d 121, 127-28 (2005). If disputes as to material facts exist or if reasonable minds may differ with respect to the inferences drawn from the evidence, summary judgment may not be granted. Associated Underwriters of America Agency, Inc. v. McCarthy, 356 Ill. App. 3d 1010, 1016-17 (2005).

¶ 12 Two weeks after defendants’ affirmative defenses were stricken, plaintiff filed a two-page motion for summary judgment. Plaintiff’s motion for summary judgment was supported by the affidavit of Carolyn Mobley, a vice president for loan documentation at Wells Fargo Bank. In her affidavit, Mobley asserts that she has reviewed various records that support her averments. However, none of the records were attached to her affidavit. The Illinois Supreme Court rules require that affidavits submitted in support of motions for summary judgment “shall have attached thereto sworn or certified copies of all documents upon which the affiant relies.” Ill. S. Ct. R. 191(a) (eff. Jan. 4, 2013). Defendants responded to the summary judgment motion with affidavits pursuant to Illinois Supreme Court Rule 191(b) (eff. Jan. 4, 2013) asserting that they could not adequately respond to Mobley’s affidavit without the records or other information she relied upon.

¶ 13 In response to defendants’ affidavits, plaintiff faxed defendants’ counsel a copy of an 11-page loan transaction history that was not even certified by Mobley, and that did not contain any indication that the record produced was the one she relied upon. Again, the Illinois Supreme Court Rules require that the affiant identify and certify the records forming the basis of the attestations. Ill. S. Ct. R. 191(a) (eff. Jan. 4, 2013). Mobley, in fact, averred that she relied upon “data compilations, electronically imaged documents, and others” to reach her conclusions. That attestation is not in line with the single record made available for the first time while the summary judgment motion was pending. Plaintiff then transparently claimed that the records were too numerous to make available. But if that was the case, defendants were entitled to at least some access to the records. See Champaign National Bank v. Babcock, 273 Ill. App. 3d 292, 298 (1995) (holding that summaries may be used in place of producing a mass of documents as long as the entirety of the documents is at least made accessible to the opposing party). After producing that singular record, plaintiff, by letter dated January 31, 2013, offered defendants seven days to amend their response to the motion for summary judgment. Plaintiff proceeded to file its reply on February 14, 2013.

¶ 14 While the parties awaited a ruling on the summary judgment motion, on February 20, 2013, defendants filed a notice of telephonic deposition requesting to depose Mobley which also requested that she produce the records she used to make out her affidavit. On February 26, 2013, the trial court granted plaintiff’s motion for summary judgment. On March 5, 2013, plaintiff filed a motion to strike defendants’ outstanding discovery requests that were served 15 months earlier (some of which pertained to the issue of standing) as well as to strike the notice of deposition served on Mobley. Plaintiff’s argument was that the discovery requests were aimed at certain claims and defenses, including lack of standing, that had already been rejected and, thus, that the discovery was unnecessary. Plaintiff contended that all defenses at that point had been “forfeited.” On July 16, 2013, the trial court struck all of defendants’ outstanding discovery requests. The order of possession was made final on October 25, 2013, ending the case.

¶ 15 Plaintiff makes some plausible arguments in an attempt to counter the allegations made in defendants’ affirmative defenses on the merits. But defendants never even had an opportunity to explore their defenses. Many of plaintiff’s arguments offered to substantiate its standing were not raised in the trial court. The evidence offered was not so conclusive that defendants could have never raised a question of material fact. The chain of ownership and the series of indorsements, in conjunction with the interactions of the different banking and servicing entities and trusts, is relatively convoluted—at least something defendants were entitled to explore. As plaintiff acknowledges, it is the plaintiff’s burden in a mortgage foreclosure case to make out a prima facie case that it is entitled to enforce the instrument, but plaintiff also recognizes that the defendant has the opportunity to rebut that showing.^[1] Here, defendants were denied that rebuttal opportunity.

¶ 16 The dissent does not wade into the trial court’s clear misstatement of the law, but instead relies on the allegations that were pled by defendants at the outset of the case. Those allegations were made without the opportunity to replead and without any of the discovery requested, precisely because the trial court did not quarrel with the allegations that were pled, but instead ruled that lack of standing could not be raised in an answer as a matter of law. The dissent posits that defendants had “every opportunity” to argue their defenses. Defendants did argue them, but the defenses were stricken at the pleading stage by an erroneous ruling. To uphold the trial court’s action in the way plaintiff and the dissent would have us do would require us to conclude that supplying a note, endorsed in blank, is sufficient to defeat any fathomable defense that a borrower may have to standing, and that no set of facts could entitle a defendant to any relief. But everyone agrees that supplying a note endorsed in blank is only prima facie evidence of ownership that could potentially be rebutted.

¶ 17 The harm to defendants was compounded by the fact that the recordsapparently relied upon by plaintiff’s affiant were never made available to defendants. Defendants were denied the opportunity to depose the only person offering testimony against them. Without the records and without being able to depose the affiant, defendants had no meaningful chance to challenge the affiant’s contentions. All of the information was in plaintiff’s sole possession. The events leading up to the trial court’s ruling essentially amounted to summary judgment by ambush. This is especially true when defendants filed affidavits under Illinois Supreme Court Rule 191(b) averring that they needed to conduct discovery to rebut Mobley’s attestations, but the affidavits were not even acknowledged by the trial court.

¶ 18 The dissent would hold that there was no problem with the evidence submitted in support of the summary judgment motion; believing that the belatedly-disclosed 11-page computer printout that was never authenticated by the affiant is competent and sufficient to prove that plaintiff was entitled to recover and the amount of damages. The dissent would also find that the seven-day extension offered by plaintiff (not even the court) was a sufficient opportunity to review the “business records” and file a counteraffidavit to challenge the evidence, therefore “defendants were not prejudiced by plaintiff’s initial failure.” Not only are the requisite findings and attestations to make this a business record absent, a holding that defendants should have timely responded to this new evidence would unreasonably shift the burden to defendants and would have required them to expediently respond to something not even presented by motion or presented to the court at all. It was plaintiff’s burden to clearly and appropriately demonstrate its right to recovery—to the court. Not to defendants’ counsel by fax. Technically, the “business record” was never even made to supplement the summary judgment motion. It was never taken into evidence and cannot support the entry of summary judgment.

¶ 19 To summarize, the trial court’s decision to not let defendants pursue any claim for lack of standing beyond the pleading stage was an error of law. The more problematic issue with striking the affirmative defenses at the pleading stage was that the trial judge then prevented defendants from taking any discovery on possible defenses, or getting a clear demonstration of plaintiff’s right to enforce the instrument. The dissent focuses extensively on defendants’ supposed failure to conduct discovery in regard to Mobley’s affidavit, but ignores plaintiff’s failure to respond toany discovery requests, including those served in December 2012—at the beginning stages of the case. The document requests served by defendants at that time requested a whole host of relevant documents that defendants were denied. Of course, striking those discovery requests after summary judgment was entered was easy. Why would defendants need any evidence once they had already lost? The trial court’s summary judgment order provides no reasoning for its decision, and a review of the record, even with the aid of plaintiff’s appellate brief, fails to make clear that there is no set of facts that might entitle defendants to some relief. It is also undeniable that plaintiff failed to prove its damages because Mobley’s affidavit and any records it purported to authenticate should not have been considered. At bottom, the cumulative effect of the affirmative defense being improperly stricken, the denial of defendants’ requests for discovery, and plaintiff’s failure to produce the evidentiary records, was that, despite being called defendants, they were denied the opportunity to defend.

¶ 20 Accordingly, on remand, defendants are entitled to take discovery on their challenge to plaintiff’s standing and to replead their affirmative defense if necessary. Defendants are likewise entitled to take discovery on the subject matter of Mobley’s affidavit.

¶ 21 CONCLUSION

¶ 22 Based on the foregoing, we reverse the trial court’s judgment.

¶ 23 Reversed and remanded.

¶ 24 JUSTICE LIU, dissenting.

¶ 25 I dissent, because the record shows that the circuit court conducted the proceedings in a manner that allowed defendants every opportunity to raise and argue valid and well-pleaded defenses, to engage in necessary discovery related to the alleged default and amounts due on their loan, and to rebut the evidence that plaintiff presented in its motion for summary judgment. During the pendency of this case, defendants successfully avoided a default judgment despite failing to answer the complaint in a timely manner, asserted their lack of ability to admit or deny the allegations in the complaint, had the opportunity to review the pertinent records related to their loan payment history, and effectively stayed the proceedings when they filed for chapter 7 bankruptcy after the circuit court entered a judgment of foreclosure and sale. Following a review of the entire record in this case, I conclude that the circuit court did not err in striking defendants’ affirmative defenses or in granting summary judgment to plaintiff. I also find that the court did not abuse its discretion when it barred defendants from proceeding with discovery requests after the judgment had been entered and when it confirmed the judicial sale of the property.

¶ 26 In 2006, defendants executed a promissory note for $747,000; as security for this indebtedness, defendants granted the lender a mortgage on their home. Five years later, they failed to pay the monthly installments due on the loan. On October 18, 2011, plaintiff brought a foreclosure lawsuit against defendants. Six months later, after plaintiff moved for a default judgment, defendants were given additional time to appear and to respond to the complaint. Defendants filed a motion to strike and dismiss the complaint, asserting that plaintiff failed to specify the capacity in which it was bringing the suit as a “mortgagee.” The court denied this motion and granted defendants some time to answer the complaint.

¶ 27 In their verified answer and affirmative defenses, defendants averred that they lacked sufficient information to either deny or admit the allegation that they had failed to pay the monthly installments due as of March 2011. They also asserted, as affirmative defenses, that plaintiff lacked capacity to sue and lacked standing to bring the foreclosure case. The affirmative defenses were later stricken. At the time plaintiff filed its motion for summary judgment, plaintiff submitted Carolyn Mobley’s affidavit pursuant to Rule 191(a). Mobley attested that she had determined the amounts due and owing based on her personal examination of certain business records maintained by the loan servicing agent. No records, however, were attached to her affidavit. In response, defendants argued that Mobley’s affidavit was defective under Rule 191(a) because sworn and certified copies of the records on which she relied were not attached. Defendants attested in their supporting Rule 191(b) affidavits that they were “unable to fully respond to [Mobley’s] affidavit *** because any material facts which ought to be in [Mobley’s] affidavit and might be included in [their] counter-affidavit” were not “known” to them. Defendants again averred that they “lack[ed] sufficient knowledge to form a belief as to whether the amounts due as claimed by Plaintiff are accurate.” No other defenses or substantive challenges to the motion—such as standing or capacity to sue—were raised in the response.

¶ 28 While the summary judgment motion was pending, defendants served plaintiff with interrogatories and requests to produce. The number of interrogatories, including subparts, totaled over 60. Plaintiff did not respond to the discovery requests and, instead, responded to defendants’ affidavits by producing a copy of the loan history records for their review. Defendants then served a notice for Mobley’s deposition. A dispute arose between the parties regarding the notice of deposition and the discovery requests, and the parties’ counsel engaged in 201(k) conferences to resolve the dispute.

¶ 29 On February 26, 2013, the court entered summary judgment and a judgment of foreclosure and sale in favor of plaintiff. The amounts due and owing for principal, interest, charges, and legal fees and costs, as stated in the judgment of foreclosure and sale, totaled $830,828.69 and were consistent with the figures set forth in Mobley’s affidavit. Following the entry of judgment, plaintiff moved to strike the outstanding discovery requests; defendants moved to compel discovery responses and Mobley’s deposition. The court entered an order striking the defendants’ discovery requests and the deposition notice and barred defendants from propounding further discovery without leave of the court. On October 25, 2013, the court entered an order confirming the July 28, 2013 judicial sale of the property.

¶ 30 Order Striking Affirmative Defenses

¶ 31 Based on my review of the record, I find no error in the order striking the affirmative defenses as to (i) lack of capacity and (ii) lack of standing. I differ with the circuit court, however, as to the grounds for striking the standing defense as a matter of law. Nonetheless, we review de novo the court’s judgment, and even if “the court was incorrect as to [a] particular issue, we may affirm the decision of the trial court to grant summary judgment on any basis in the record, regardless of whether it relied on that ground or whether its reasoning was correct.” Castro v. Brown’s Chicken & Pasta, Inc., 314 Ill. App. 3d 542, 552 (2000).

¶ 32 According to defendants, plaintiff lacked capacity to sue on the note because its name is listed in SEC filings as “Banc of America Funding 2007-2 Trust,” not Bank of America Funding Corporation (BAFC) 2007-2 Trust. Defendants cannot prevail on this assertion because, unlike an affirmative defense, a misnomer is “not a ground for dismissal” and “may be corrected at any time, before or after judgment, on motion, upon any terms and proof that the court requires.” 735 ILCS 5/2-401(b) (West 2012). In addition, defendants’ assertion that plaintiff is not an entity authorized to transact business in Illinois under the Business Corporation Act of 1983 (Act) (805 ILCS 5/1.01 et seq. (West 2012)) lacks sufficient factual support. It is apparent from the mortgage and note that are attached to the complaint that plaintiff was a foreign corporation conducting interstate commerce. Therefore, it was not required to obtain a certificate of authority under the Act. Bank of America, N.A. v. Ebro Foods, Inc.,409 Ill. App. 3d 704, 710 (2011). Defendants’ challenge to plaintiff’s lack of capacity to sue fails to raise any allegations that would defeat the presumption of this exemption.

¶ 33 Additionally, defendants’ challenge based on lack of standing was also deficient because it failed to raise a challenge to plaintiff’s status as a mortgagee. Plaintiff has standing to enforce the note because it is the legal holder of the indebtedness. 735 ILCS 5/15-1504(a)(3)(N) (West 2012); see Mortgage Electronic Registration Systems, Inc. v. Barnes, 406 Ill. App. 3d 1, 7 (2010); 735 ILCS 5/15-1208 (West 2012) (defining a “mortgagee” as the holder of an indebtedness). “The mere fact that a copy of the note [was] attached to the complaint [was] itself prima facie evidence that the plaintiff own[ed] the note.” Parkway Bank & Trust Co. v. Korzen, 2013 IL App (1st) 130380, ¶ 24. Here, the note contained specific endorsement from the original lender to American Home Mortgage and a blank endorsement by American Home Mortgage. Therefore, plaintiff is the legal holder, absent evidence to the contrary. The 2006 note is a negotiable instrument, and a note endorsed in blank is payable to the bearer. 810 ILCS 5/3-205(b) (West 2012). Because plaintiff acquired the rights as the “bearer” of the note, it has standing to enforce the note as the holder of the indebtedness. 810 ILCS 5/3-201(a) (West 2012). Defendants’ claim that these endorsements are not clearly visible or legible is unavailing. They could have requested an opportunity to inspect the original note; it is not an uncommon practice for a lender’s counsel in a foreclosure proceeding to present the original note for review in open court or at counsel’s office.

¶ 34 Defendants also claim that plaintiff lacked standing because it failed to comply with the Pooling and Servicing Agreement (PSA) with respect to the assignment of the note and mortgage. Without a third-party beneficiary status, “a litigant lacks standing to attack an assignment to which he or she is not a party.” Bank of America National Ass’n v. Bassman FBT, L.L.C., 2012 IL App (2d) 110729, ¶ 15. UnderBassman, plaintiff’s actions are, at most, voidable, not void; and defendants, therefore, lack standing to challenge the assignment. Id. ¶ 21. For the foregoing reasons, I therefore would affirm the order striking defendants’ affirmative defenses.

¶ 35 Order Granting Summary Judgment

¶ 36 I agree with the circuit court’s award of summary judgment in this case. Defendants failed to file any counteraffidavit to dispute the liability and damages asserted by plaintiff, after obtaining the documentation, i.e., loan history records, that Mobley purportedly reviewed before attesting to defendants’ delinquency in the Rule 191 affidavit. I also find that defendants were not prejudiced by plaintiff’s initial failure to attach these business records to Mobley’s affidavit, because defendants ultimately had the opportunity to review them and to assert any issue of material fact in a supplemental response to the motion. The complained-of defect in Mobley’s affidavit—involving the failure to attach the records on which she relied—was effectively cured when plaintiff’s counsel tendered a set of business records to defendants’ counsel for review. Defendants had an opportunity, at that time, to amend their response prior to the hearing on the summary judgment motion. At that time, it became incumbent on defendants to present counteraffidavits in opposition to the motion in order to create a genuine issue of material fact to defeat summary judgment. PNC Bank, National Ass’n v. Zubel, 2014 IL App (1st) 130976, ¶ 21. Defendants, however, presented no evidence to rebut either the allegation of their default on the loan or the amount that was allegedly due and owing. Here, plaintiff submitted the affidavit of Mobley to establish that defendants owed $803,378.79 in principal, accrued interest, and charges as of August 30, 2012. If defendants disputed the alleged liability and the amount due on the note according to Mobley after reviewing the business records, they should have filed a counteraffidavit challenging the amounts in dispute.

¶ 37 Furthermore, defendants did not assert their defenses related to standing or capacity to sue in their response to the summary judgment motion. The fact that the affirmative defenses were stricken did not preclude defendants from raising them as affirmative matters in opposition to the summary judgment motion. Aurora Bank FSB v. Perry, 2015 IL App (3d) 130673, ¶ 20. Because defendants ultimately raised no issue of material fact as to liability and damages, summary judgment was proper.

¶ 38 Order Quashing Notice of Deposition and Striking Discovery

¶ 39 The majority concludes that the circuit court erred in striking defendants’ discovery requests on the basis that defendants were unable to assert an adequate defense because their affirmative defenses were stricken and they had no access to the loan records that Mobley relied on in preparing her affidavit. The circuit court’s ruling on discovery matters are reviewed for an abuse of discretion. Reda v. Advocate Health Care, 199 Ill. 2d 47, 54 (2002). See Parkway Bank & Trust Co. v. Korzen, 2013 IL App (1st) 130380, ¶ 34 (according “great deference” to trial court’s resolution of a discovery dispute).

¶ 40 Defendants were notified of the damages that plaintiff sought to recover on the delinquent loan as early as April of 2012, when plaintiff submitted a prove-up affidavit in support of its motion for default and judgment of foreclosure and sale. Four months later, in their verified answer and affirmative defenses, defendants represented that they lacked sufficient information to either admit or deny that they failed to pay the monthly installments due on the loan and, similarly, could not admit or deny that they owed plaintiff the alleged damages pled in the complaint. Again, during the summary judgment proceedings, plaintiff provided them a copy of the business records that contained the requested information. At that time, defendants were given the business records necessary to rebut evidence of the default and damages and should have determined whether there were specific payments, credits, assessments, penalties, fees or other amounts in dispute; they could have then sought discovery related specifically to a disputed material fact in the case. Instead, they waited until the summary judgment motion was pending before seeking discovery on the default and damages. And when they did, they filed over 60 interrogatories, including subparts, well in excess of the limited number (30) of interrogatories that a party is permitted to propound absent an agreement or leave of the court. Ill. S. Ct. R. 213(c) (eff. Jan. 1, 2007). The court did not abuse its discretion when it struck the discovery requests and quashed the notice of deposition after summary judgment and the judgment of foreclosure and sale had been entered. SeeKorzen, 2013 IL App (1st) 130380, ¶ 60 (affirming denial of postjudgment discovery request because “when the [judgment of] foreclosure has been entered, the defendant has lost the case for all intents and purposes”).

¶ 41 Under the circumstances, I find that the court did not abuse its discretion in striking defendants’ request to depose Mobley and defendants’ discovery requestsafter the court ruled on the motion for summary judgment and entered a judgment of foreclosure and sale.

¶ 42 Order Confirming the Sale

¶ 43 Lastly, I find that the court did not abuse its discretion in confirming the judicial sale. The entry of an order confirming the sale is reviewed for an abuse of discretion.CitiMortgage, Inc. v. Moran, 2014 IL App (1st) 132430, ¶ 25. Section 15-1508(b) of the Illinois Mortgage Foreclosure Law provides:

“Unless the court finds that (i) a notice required in accordance with subsection (c) of Section 15-1507 was not given, (ii) the terms of sale were unconscionable, (iii) the sale was conducted fraudulently, or (iv) justice was otherwise not done, the court shall then enter an order confirming the sale.” 735 ILCS 5/15-1508(b) (West 2012).

Defendants do not assert that the first three grounds apply here. The only issue, therefore, is whether “justice was otherwise not done.” Id. In Wells Fargo Bank, N.A. v. McCluskey, 2013 IL 115469, ¶ 26, the supreme court explained the test vacating a sale under the fourth basis:

“To vacate both the sale and the underlying default judgment of foreclosure, the borrower must not only have a meritorious defense to the underlying judgment, but must establish under section 15-1508(b)(iv) that justice was not otherwise done because either the lender, through fraud or misrepresentation, prevented the borrower from raising his meritorious defenses to the complaint at an earlier time in the proceedings, or the borrower has equitable defenses that reveal he was otherwise prevented from protecting his property interests.”

¶ 44 Here, defendants have not asserted that, due to fraud or misrepresentation, they were prevented from raising meritorious defenses earlier in the proceedings; indeed, they did raise their defenses earlier and they were stricken. They also do not assert any equitable defenses. Under the circumstances, I would find that the court properly confirmed the judicial sale.

¶ 45 For the reasons stated, I respectfully dissent.

[1] See Pl. Br., p. 24, ¶ 2.

NY POST-

An ex-employee of the Federal Reserve Bank of New York pleaded guilty in Manhattan federal court on Wednesday to passing off secret government documents to Goldman Sachs.

Jason Gross, 37, admitted to a misdemeanor charge of theft of government property for passing along regulatory documents from the New York Fed to his friend and ex-colleague, according to a plea deal with the Justice Department.

That former colleague, Rohit Bansal, worked at Goldman at the time, according to people familiar with the case.

[NEW YORK POST]

image: Jason Gross Reuters

H/T Gary Dubin

This pending USSC decision could conceivably add a new dimension to “constitutional standing” in foreclosure cases were a federal consumer statute is involved.  Gary

Lexology-

This morning the U.S. Supreme Court heard oral arguments in Spokeo, Inc. v. Robins, No. 13-1339. As our loyal blog readers know, this is a case that corporate counsel need to follow closely in light of the stakes for the future of class action litigation.

Spokeo arises as a putative class action brought under the Fair Credit Reporting Act (“FCRA”) and addresses one of the fundamental prerequisites to civil litigation: Does this plaintiff have standing under Article III of the U.S. Constitution to bring this case under the FCRA in the first place?  Groups on both sides of this argument have been watching this case closely (as we have noted here, here, here, and here), as the Supreme Court’s determination may have a very significant impact on consumers (as well as employees and prospective employees), employers, and the consumer reporting industry as a whole.

The question specifically presented to the Supreme Court is straight-forward — “Does a plaintiff who suffers no concrete harm, but who instead alleges only a statutory violation, have standing to bring a claim on behalf of himself or a class of individuals?”

[LEXOLOGY]

IN THE DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FIFTH DISTRICT

NOT FINAL UNTIL TIME EXPIRES TO
FILE MOTION FOR REHEARING AND
DISPOSITION THEREOF IF FILED

WILLIAM VON KUEHLMAN,
Appellant,

v. Case No. 5D14-2131

BANK OF AMERICA, N.A., ETC.,
Appellee.
________________________________/

Opinion filed October 30, 2015
Appeal from the Circuit Court
for Citrus County,

Barbara Gurrola, Judge.

Jeremy T. Simons, of Simons & Catey,
P.A., New Port Richey, for Appellant.
Curtis A. Wilson, of McCalla Raymer,
LLC, Orlando and Alan M. Pierce, of
Liebler, Gonzalez & Portuondo, Miami,
for Appellee.
PER CURIAM.

William Von Kuehlman (“Borrower”) timely appeals a Final Judgment of
Foreclosure in favor of Bank of America, N.A. (“Lender”).1 He raises five arguments, all
of which rest on this Court’s legal determination of whether he entered into a valid
modification of his mortgage. We agree that he did, and reverse the final judgment—
which was premised upon the erroneous conclusion that the parties did not agree to
modify the mortgage.

The following facts were established at trial by Lender’s representative and are not
disputed. Lender offered Borrower a modification and the terms of the offer required him
to accept it by a certain day. Borrower executed the agreement but returned it late, along
with the first modified payment, which was also late. Borrower then made six additional
payments in the modified amount, all of which were late, but which Lender accepted and
deposited. At that point, Lender’s “investor” (Fannie Mae or Freddie Mac), which was not
a party to the contracts, instructed Lender to “pull the plug on” (or “not accept”) the
modification. Then, after accepting two additional modified payments, Lender
accelerated the mortgage, gave Borrower an opportunity to cure based on the original
mortgage, not the modification, and refused to accept additional modified payments.
Lender sued alleging breach of the original note and mortgage.

Lender argues that no modification occurred because of Borrower’s late
acceptance.2 However, Borrower’s late acceptance of the modification operated as a
counteroffer. See 2 Williston on Contracts §§ 6:56-6:57 (4th ed., updated May 2015); see
also Grant v. Lyons, 17 So. 3d 708, 710-11 (Fla. 4th DCA 2009) (“Acceptances can turn
into counteroffers either by adding additional terms or not meeting the terms of the original
offer.”). On these undisputed facts, we conclude as a matter of law that Lender accepted
the counteroffer by a combination of its many months of silence and its acceptance of
nine monthly payments in the amount specified in the modification agreement. Grant; 17
So. 3d at 710-11; see also 2 Williston on Contracts §§ 6.1-6.3 (4th ed., updated May
2015). As argued by Borrower, because the parties entered a modification agreement
following Borrower’s alleged breach of the original mortgage, Lender could only foreclose
by alleging and proving a breach of the modification agreement. It failed to plead that
theory. Nor was the theory tried by consent.

REVERSED.

LAWSON, C.J., TORPY and BERGER, JJ., concur.

1 Bank of America succeeded BAC Home Loans Servicing, L.P., which succeeded
the original lender, Countrywide Home Loans, Inc. Standing is not an issue. These
entities are referred to collectively as “Lender.”

2 Lender made a different argument below, contending that Borrower did not
accept its modification offer because his monthly modified payments were all late.
Borrower correctly countered that Lender was really arguing that Borrower breached the
modification agreement, which Lender did not plead in its Amended Complaint.

Introduction and summary
The Great Recession, which began with the collapse of U.S. home prices in 2007,
resulted in an enormous number of households with negative equity. Housing
prices dropped nationally by 35 percent during the collapse.

As home values fell, the mortgage debt obligations of millions of American homeowners remained
fixed, leading to an unprecedented number of homes being worth less money than
what was owed on them.

Seven years later, about 7.5 million American homeowners are still underwater.
Even though home values have continued to rise and the national percentage of
homeowners with negative equity is down from 30 percent in the second quarter
of 2011 to 15 percent in the first quarter of 2015, there is still much work to be
done in order for the market to fully recover.
Negative equity is considered one of the principal challenges to an economic
recovery at both the local and national levels.

The persistence of negative equity imposes significant costs not only on homeowners but also on local
communities and the economy at large. When homeowners owe more on their homes than
what they are worth, they are unable to draw on home equity to invest in their
children’s education or to start small businesses. Homeowners also may curtail
their consumption by purchasing fewer goods and services from local businesses,
thus curbing employment and income levels. Finally, because of underwater borrowers’
high propensity to default, large concentrations of underwater properties
threaten to induce future waves of foreclosures and can contribute to a continuing
cycle of decline and disinvestment.

The mortgage crisis has affected the entire nation and economy. It is important,
however, to recognize that the negative equity crisis has tended to be concentrated
in certain areas of the country, and its evolution has followed different patterns
based on geography. This report examines the course of negative equity at the
county level nationwide and provides an account of the characteristics of counties
that have experienced a decrease in the incidence of negative equity compared
with those where negative equity rates are stagnating or getting worse.

[…]

DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT

KIMBERLY A. ENSLER,
Appellant,

v.

AURORA LOAN SERVICES, LLC,
Appellee.

No. 4D14-351

[October 28, 2015]

Appeal from the Circuit Court for the Fifteenth Judicial Circuit, Palm Beach County; Roger B. Colton, Senior Judge; L.T. Case No. 2008CA018626XXXXMB.

Donna Greenspan Solomon of Solomon Appeals, Mediation & Arbitration, Fort Lauderdale, for appellant.
Nancy M. Wallace of Akerman, LLP, Tallahassee; William P. Heller of Akerman LLP, Fort Lauderdale; and Brandon G. Forgione of Akerman LLP, West Palm Beach, for appellee.

LEVINE, J.

Appellant appeals a final judgment of mortgage foreclosure entered in favor of appellee Aurora Loan Services. Because we find that the trial court erred in allowing the introduction of certain evidence, and that no final judgment in favor of appellee could be entered without such evidence, we reverse.

Aurora Loan Services, LLC, brought a foreclosure action against Kimberly A. Ensler. Prior to trial, however, Nationstar Mortgage LLC was substituted as the party plaintiff because a “service transfer” occurred subject to a power of attorney.

At trial, Ensler objected to Nationstar introducing some of Aurora’s business records into evidence. Ensler argued Nationstar’s witness, Fay Janati, a litigation resolution analyst for Nationstar, did not have the ability to identify and testify about Aurora’s breach letter, payment history, and power of attorney. Janati conceded that she never visited any Aurora office, never worked for Aurora, never spoke to any Aurora employee, and did not have personal knowledge as to how Aurora processed payments, kept its payment history, or compiled and stored its records. But Janati nevertheless felt Aurora’s records were “accurate” because “[t]hey’re a reputable big company and we trust them and they trust us.” The trial court overruled Ensler’s objections. After Nationstar rested, Ensler moved for an involuntary dismissal, which the trial court denied. The trial court subsequently entered final judgment of foreclosure in favor of Aurora.

On appeal, Ensler argues that Nationstar did not satisfy the requirements of the business records exception to hearsay. As a result, the trial court erred in denying her motion for involuntary dismissal based upon the lack of competent, substantial evidence concerning damages and entitlement to foreclose.

“The standard of review for denial of a motion for involuntary dismissal at trial is de novo.” Holt v. Calchas, LLC, 155 So. 3d 499, 503 (Fla. 4th DCA 2015) (citation omitted).

The elements to prove that evidence is admissible under the business records exception of section 90.803(6)(a), Florida Statutes (2013), are:

(1) the record was made at or near the time of the event; (2) was made by or from information transmitted by a person with knowledge; (3) was kept in the ordinary course of a regularly conducted business activity; and (4) that it was a regular practice of that business to make such a record.

Holt, 155 So. 3d at 503 (quoting Yisrael v. State, 993 So. 2d 952, 956 (Fla. 2008)). “[A] witness’s general testimony that a prior note holder follows a standard record-keeping practice, without discussing details to show compliance with section 90.803(6), is not enough to establish a foundation for the business records exception.” Id. at 505. However, “where the current note holder ha[s] procedures in place to check the accuracy of the information it received from the previous note holder,” then “[the] subsequent note holder can [] provide testimony” to satisfy the business records exception. Id. at 506.

In Holt, a foreclosing bank sought to admit records of prior servicers into evidence. Id. at 502. However, the bank’s witness had never worked for the prior servicers, did not know who had transmitted any of the prior servicers’ records, and had never seen the prior servicers’ policy manuals. Id. The only basis of the witness’s knowledge was that the prior servicers followed “the generally accepted servicing practice.” Id. at 505. This court
held that the bank did not provide sufficient information to lay the foundation for the business records exception. Id. at 506. See also Burdeshaw v. Bank of N.Y. Mellon, 148 So. 3d 819, 826 (Fla. 1st DCA 2014) (finding the bank failed to satisfy the business records exception where the testimony that the records were accurate “was merely supposition, based on her general knowledge of ordinary mortgage industry practices, not any specific knowledge about” the original lender and subsequent servicers); Glarum v. LaSalle Bank Nat’l Ass’n, 83 So. 3d 780, 782 (Fla. 4th DCA 2011) (finding the prior servicer’s records were inadmissible hearsay because the plaintiff’s only witness “did not know who, how, or when the data entries were made into [the prior servicer’s] computer system” and he “could not state if the records were made in the regular course of business”).

In the instant case, Nationstar failed to satisfy the requirements of the business records exception. Janati, Nationstar’s sole witness, never worked for Aurora, never visited any Aurora office, and never spoke to any Aurora employee. She did not have personal knowledge as to how Aurora processed, compiled, or retained its records, including the breach letter. Although Janati felt Aurora’s records were accurate because “[t]hey’re a reputable big company,” she never identified any particular record-keeping system Aurora used. She also did not testify that Nationstar had any mechanisms for checking the accuracy of Aurora’s numbers. See Holt, 155 So. 3d at 504-05. Janati’s testimony was therefore “not enough to establish a foundation for the business records exception.” Id. at 505. Thus, the trial court erred when it permitted the introduction of the Aurora records into evidence.
Aurora argues the introduction of Aurora’s payment history was harmless error because Nationstar’s payment history was admitted without objection. This argument is meritless.

Paragraph twenty-two of the mortgage required that notice of breach and opportunity to cure be sent to Ensler as a condition precedent to filing suit. However, the only indication the notice was actually sent comes from inadmissible hearsay, i.e., Aurora’s records. Because Nationstar has failed to present any admissible evidence that the notice was actually sent, we reverse the final judgment of foreclosure and remand for further proceedings. See Holt, 155 So. 3d at 506-07.

Reversed and remanded for further proceedings consistent with this opinion.

STEVENSON and KLINGENSMITH, JJ., concur.

FT-

Somewhere in New York there is an ex-drug addict who owes a debt of thanks to the NYDFS — but there are few banking executives who would offer similar warmth towards the regulatory institution.

Since 2011 the state’s Department of Financial Services has wrung about $6.8bn of fines out of some of the world’s biggest banks. Most of the proceeds have gone into patching up roads and bridges. But this year $5m made its way to a chemical dependence programme run by the Office of Alcoholism and Substance Abuse, according to public records.

For all its usefulness in plugging gaps in budgets, the DFS has become something of a headache for New York state governor, Andrew Cuomo. Since he mashed together the state banking and insurance regulators as a way to improve oversight after the global financial crisis, the DFS has earned a reputation as the snarling watchdog of Wall Street. But its methods have upset institutions at home — and caused real angst abroad.

[FT]

CHRISTOPHER WHITE and WILLIAM SUITOR, individually and on behalf of all others similarly situated, Plaintiffs,
v.
FEIN, SUCH AND CRANE, LLP, Defendant.

No. 15-CV-438-JTC.
United States District Court, W.D. New York.

October 26, 2015.
WESTERN NEW YORK LAW CENTER, INC. (KEISHA ALECIA WILLIAMS, ESQ., of Counsel), Buffalo, New York, Attorneys for Plaintiffs.

BARCLAY DAMON, LLP (DENNIS R. McCOY, ESQ., of Counsel), Buffalo, New York, Attorneys for Defendant.

JOHN T. CURTIN, District Judge.

INTRODUCTION

Plaintiffs filed a class action complaint in this action on May 15, 2015, alleging violations of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (“FDCPA”) and New York General Business Law (“GBL”) § 349 (Item 1). This matter is presently before the court on the defendant’s motion to dismiss the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure (Item 7).

BACKGROUND and FACTS

In their complaint, plaintiffs allege that they are “consumers” and that defendant is a “debt collector” as those terms are defined by the FDCPA. See Item 1, ¶¶ 5-7. Defendant attempted to collect a debt owed by plaintiff White by way of a foreclosure action filed in New York State Supreme Court, Erie County, and by plaintiff Suitor in New York State Supreme Court, Niagara County. Id., ¶¶ 9-10. As part of the New York State foreclosure process, the parties participated in a mandatory settlement conference pursuant to New York C.P.L.R. § 3408. Id., ¶ 11. In the event a foreclosure action is settled prior to final judgment and sale, either for a loss mitigation option, reinstatement, or payment in full, the applicable regulations provide that borrowers “shall only be liable for reasonable and customary fees for work actually performed.” 3 N.Y.C.R.R. ¶ 419.10(c); Item 1, ¶ 15. Plaintiff alleges that defendant “systematically and intentionally misrepresents, and attempts to collect from homeowners unreasonable and deceptive costs for foreclosure-related services that are either exaggerated or did not happen at all.” Id., ¶ 17.

Specifically, plaintiffs have alleged that defendant routinely charges borrowers a “discontinuance fee” which is the cost of preparing and filing a motion for a discontinuance. Plaintiffs allege that defendant charges this fee, prior to actually making such a motion, and that in most cases it simply files a stipulation of discontinuance (Item 1, ¶¶ 20-25). Plaintiffs also allege that defendant routinely charges borrowers a fee for the preparation and filing of a motion for an order of reference, although it is not required to file such a motion and does not file such a motion in a settled case (Item 1, ¶ 26). Plaintiffs allege that defendant routinely charges borrowers the cost it would have incurred for the hiring of a referee to conduct a foreclosure sale, even in cases that settle and where a foreclosure sale is not conducted. (Item 1, ¶¶ 27-28). Plaintiffs allege that defendant charges excessive attorneys’ fees in the form of a flat rate, “allowable” fee that bears no relationship to the amount of legal work actually done. Additionally, they allege that defendant refuses to provide quantum meruit proof of the value of the services provided. (Item 1, ¶¶ 32-35). Plaintiffs allege that defendants routinely charge borrowers the cost of filing a New York State pre-foreclosure notice, a filing for which defendant is not charged (Item 1, ¶¶ 36-38). Finally, plaintiffs allege that defendant routinely charges borrowers a fee for service of process significantly higher than is reasonable and customary. (Item 1, ¶ 39).

Plaintiff White was charged $6,041.56 in fees and costs as part of a loan modification agreement. Id., ¶ 41. In the case of plaintiff Suitor, $15,520.88 in fees and costs were capitalized and added to his loan according to a modification agreement. Id., ¶ 52. Plaintiff Suitor later received a refund of $2,629.59 plus interest from HSBC bank, which plaintiffs assert represents “fees and costs that Defendant unlawfully collected for services not actually rendered in Mr. Suitor’s foreclosure action.” Id., ¶ 60.

Plaintiffs allege that the practices of the defendant in collecting and attempting to collect certain fees and costs in the context of New York State foreclosure actions violate both the FDCPA and GBL § 349. Specifically, plaintiffs allege that the defendant has attempted to collect an amount not permitted by law in violation of section 1692f(1) of the FDCPA, used unfair and unconscionable collection methods in violation of section 1692f, used deceptive, false and misleading representations in connection with the collection of a debt in violation of section 1692e, gave a false impression of the character, amount or legal status of a debt in violation of section 1692e(2), used false and deceptive collection methods in violation of section 1692e(10), and threatened to take legal action which could not legally be taken in violation of section 1692e(5) (Item 1, ¶ 72). Additionally, plaintiffs allege that defendant’s actions, in seeking to collect attorney’s fees in foreclosure-related actions which are not legally due and owing and falsely representing the nature or amount of the debt to be collected, constitute deceptive acts and practices in violation of GBL § 349. Id., ¶¶ 82-83.

DISCUSSION

In lieu of an answer, defendant filed a motion to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6) (Item 7). Defendant asserts that plaintiffs’ claims against it are not actionable under the FDCPA because its communications were directed at the plaintiffs’ attorneys, not the consumers themselves. They contend that the claims pursuant to the GBL must also be dismissed because the communications were neither consumeroriented nor directed to the public at large.

In considering a motion to dismiss pursuant to Rule 12(b)(6), the court must accept the factual allegations in the complaint as true and draw all reasonable inferences in favor of plaintiff. Bold Electric, Inc. v. City of New York, 53 F.3d 465, 469 (2d Cir.1995). Plaintiffs are required to plead enough facts “to state a claim for relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007); see also Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Although heightened factual pleading is not the standard, Twombly holds that a “formulaic recitation of the elements of a cause of action will not do. . . . Factual allegations must be enough to raise a right to relief above the speculative level.” Twombly, at 555. “Determining whether a complaint states a plausible claim for relief” is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, at 679. Reciting bare legal conclusions is insufficient, and “[w]hen there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.” Iqbal, at 679. A pleading that does nothing more than recite bare legal conclusions is insufficient to “unlock the doors of discovery.” Iqbal, at 678-679.

A. The FDCPA Claims

Congress enacted the FDCPA “to protect consumers from deceptive or harassing actions taken by debt collectors[,]” Kropelnicki v. Siegel, 290 F.3d 118, 127 (2d Cir. 2002), with the purpose of “limiting the suffering and anguish often inflicted by independent debt collectors.” Russell v. Equifax A.R.S., 74 F.3d 30, 34 (2d Cir. 1996) (internal quotation marks omitted). Section 1692e of the FDCPA proscribes debt collectors from using “any false, deceptive, or misleading representation or means in connection with the collection of any debt[,]” and provides a non-exhaustive list of example violations. 15 U.S.C. § 1692e. Section 1692f provides that a debt collector may not use “unfair or unconscionable means to collect a debt” and again provides a list of representative violations. In this case, plaintiffs allege that defendant violated section 1692e by making false and deceptive representations, including misstating the character, amount or legal status of the debt and threatening to take legal action which was either not intended or could not legally be taken. They allege that defendant violated section 1692f by collecting an amount not expressly authorized by the agreement creating the debt or permitted by law. The gravamen of plaintiffs’ claims is that defendant collected attorneys’ fees and other costs as part of the loan modifications that were the result of settlement negotiations in the New York State court foreclosure actions and that these amounts were not actually incurred by the defendant.

Defendant argues that plaintiffs’ claims must fail because the subject communications were directed to plaintiffs’ attorneys, not plaintiffs themselves. It asserts that the controlling law in the Second Circuit is “clear and unequivocal,” see Reply Memorandum of Law (Item 10, p. 2), relying principally on Kropelnicki v. Siegel, 290 F.3d 118 (2d Cir. 2002). Although not dispositive to its ruling in the case, the Second Circuit stated in dicta in Kropelnicki that “[a] review of the FDCPA’s purpose, as explained both in the statute and in the legislative history, and this Court’s treatment of the FDCPA in other cases leads us to believe that alleged misrepresentations to attorneys for putative debtors cannot constitute violations of the FDCPA.” Kropelnicki, 290 F.3d at 127. The court further stated that “[w]here an attorney is interposed as an intermediary between a debt collector and a consumer, we assume the attorney, rather than the FDCPA, will protect the consumer from a debt collector’s fraudulent or harassing behavior.” Id. at 128. Plaintiffs rely principally on Paulemon v. Tobin, 30 F.3d 307 (2d Cir. 1994), in which the court acknowledged a previous version of the FDCPA which excluded attorneys from the statutory definition of “debt collector,” but found that the attorney-defendant, who sent a letter to the consumer’s attorney, was not exempt from the current version of the FDCPA.

The court’s review of the law in the courts of the Second Circuit finds it neither clear nor unequivocal. In Kropelnicki, the defendant debt collector made an alleged misstatement to the borrower’s attorney, assuring the borrower’s attorney that he would not institute a state court action without first contacting him. The action was commenced and the borrower defaulted. The Second Circuit found “serious flaws” in the borrower’s argument “that a violation of the FDCPA occurs where a party alleges that his attorney has been misled to the party’s detriment.” Kropelnicki, 290 F.3d at 128. However, the court found that the claimed violation of the FDCPA on the basis of the defendant’s alleged misrepresentation to the borrower’s attorney was inextricably intertwined with an underlying state court default judgment and that the Rooker-Feldman[1] doctrine barred review of this claim. Kropelnicki, 290 F.3d at 129. The court went on to decide that the plaintiff had no standing to claim that misstatements in a letter violated the FDCPA, as the letter was addressed to plaintiff’s daughter.

Defendant also relies on Gabriele v. American Home Mortg. Servicing, Inc., 503 F.App’x 89 (2d Cir. 2012). In Gabriele, the court dismissed plaintiff’s FDCPA claims, not because the communications were directed to plaintiff’s attorney, but because the communications contained “mere technical falsehoods that misle[d] no one.” Gabriele, 503 F.App’x at 95 (quoting Donahue v. Quick Collect, Inc., 592 F.3d 1027, 1034 (9th Cir.2010)). The fact that plaintiff was represented by counsel was just one factor in the court’s consideration of whether the communications could mislead the least sophisticated consumer.[2] Gabriele, supra, at 95-96 (“Within the context of an adversary proceeding in state court between two represented parties, these allegations simply do not state plausible claims under the FDCPA.”).

Additionally, defendant relies on Tromba v. M.R.S. Assocs., Inc., 323 F.Supp.2d 424 (E.D.N.Y. 2004). The plaintiff in Tromba alleged that the debt collector violated sections 1692e, 1692e(3) and 1692e(10) of the FDCPA when an individual, not licensed to practice law in any state, sent a fax cover sheet to the plaintiff’s attorney referring to himself as a “Senior Legal Associate.” The court, relying on Kropelnicki, supra, and limiting its holding to the facts alleged in the case, found that a communication from a debt collector to a borrower’s attorney did not give rise to a violation of the FDCPA, where the communication “was solely directed to her attorney and no threat was made regarding contact with the debtor herself.” Tromba, 323 F.Supp.2d at 428. Here, the communications, while directed to the plaintiffs’ attorneys, contained more than a technical misstatement in a fax cover sheet and were obviously intended to be conveyed to, reviewed by, and signed by the plaintiffs. Thus, the court finds defendant’s reliance on Tromba is misplaced.

Finally, defendant relies on Rojas v. Forster & Garbus LLP, 2014 WL 3810124 (E.D.N.Y. July 31, 2014). In Rojas, the plaintiff alleged violations of the FDCPA when the defendant rejected the renegotiation of a loan repayment plan and demanded a higher amount to resolve plaintiff’s outstanding debt. The court found that any purported misrepresentations made to plaintiff’s attorney in support of her claim under section 1692d[3] were not actionable. Relying on the dictum statement in Kropelnicki, the court stated that “[g]enerally, for a misrepresentation to be actionable under the FDCPA, the false statement must be made to the debtor directly and not to counsel.” Rojas, supra at *5. This case provides the most direct support for defendant’s position, although this court is not bound by it.

Here, plaintiffs have alleged that the loan payoff and reinstatement quotes sent by defendant to their attorneys were false and misleading under section 1692e. Under Gabriele, supra, the fact that the plaintiffs have legal representation is just one factor in this court’s consideration of whether the defendant’s communications were false and misleading under the least sophisticated consumer standard. Plaintiffs allege that the defendant presents homeowners in foreclosure proceedings with loan modification terms that are essentially non-negotiable. Settlement conferences are overseen by volunteer law clerks with no judicial authority to question the fees and costs sought by the defendant. Item 1, ¶ 18. When asked by plaintiffs’ counsel to provide quantum meruit proof of the attorneys’ fees, defendant has refused. Item 1, ¶¶ 45, 55, 58. To the extent that the loan payoff and reinstatement terms demand fees and costs that, as alleged, are not properly recoverable or valid, those statements are false and misleading. See Quinteros v. MBI Assocs., Inc., 999 F.Supp.2d 434, 439 (E.D.N.Y. 2013) (statement from debt collector seeking unlawful processing fee violates section 1692e because it falsely implies that debt collector was entitled to collect the fee in the first place); Hallmark v. Cohen & Slamowitz, LLP, 293 F.R.D. 410, 415-16 (W.D.N.Y. 2013) (letter demanding payment of a fee to which defendant may not be entitled is false and misleading and a violation of section 1692e). The fact that the plaintiffs are represented by counsel does not excuse the debt collector from the consequences of conveying inaccurate and unlawful information. Accordingly, the court finds that plaintiffs have stated a claim under section 1692e of the FDCPA.

The plaintiffs also allege the violation of 1692f, the collection of any amount (including interest, fee, charge, or expense incidental to the principal obligation) not expressly authorized by the agreement creating the debt or permitted by law. Communications regarding repayment details directed to plaintiffs’ attorney and intended to be shared with the plaintiff have not been squarely addressed by Kropelnicki and its progeny. Plaintiffs do not dispute that defendant is entitled to attorneys’ fees and other costs. The mortgages at issue provide that “[i]n any lawsuit for Foreclosure and Sale, Lender will have the right to collect all costs and disbursements and additional allowances allowed by Applicable Law and will have the right to add all reasonable attorneys’ fees. . . .” Items 7-3, 7-8. Thus, the fees sought by defendant are “expressly authorized by the agreement creating the debt,” in accordance with 15 U.S.C. § 1692f(1). See Sierra v. Forster and Garbus, 48 F.Supp.2d 393, 395 (S.D.N.Y. 1999) (collection of fees expressly authorized by the agreement creating the debt does not violate the FDCPA). However, the plaintiffs allege that the amounts were exaggerated, unreasonable, or not actually incurred. New York law provides that, a loan servicer “may only collect a fee for services actually rendered.” See N.Y.Comp. Codes R. & Regs, tit. 3, § 419.10(b) (2015). Furthermore, “[i]n the event a foreclosure action is terminated prior to final judgment and sale for a loss mitigation option, a reinstatement or payment in full, the borrower shall only be liable for reasonable and customary fees for work actually performed.” See N.Y.Comp. Codes R. & Regs, tit. 3, § 419.10(c) (2015). Accordingly, to the extent that the fees sought are unreasonable, exceed the customary cost for such work, or represent amounts for work not actually performed, they are not “permitted by law” and the attempt to collect such fees would constitute the violation of section 1692f(1) of the FDCPA. See Kaymark v. Bank of America, N.A., 783 F.3d 168, 175 (3rd Cir. 2015) (attempt by debt collector to collect disputed fees for work not yet performed violated section 1692f of the FDCPA).

Having reviewed the allegations of the complaint, the court is satisfied that plaintiffs have alleged a plausible claim for relief under the sections 1692e and 1692f of the FDCPA. Accordingly, defendant’s motion to dismiss the FDCPA claims is denied.

B. The GBL Claim

Section 349 of the GBL prohibits “[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service. . . .” N.Y. Gen. Bus. § 349(a) (McKinney 2015). To establish a claim under GBL § 349, the 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. Northwestern Mut. Ins. Co., 625 F.3d 54, 64 (2d Cir. 2010) (citing Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, N.A., 647 N.E.2d 741, 744-45 (N.Y. 1995)).

A plaintiff may satisfy the “consumer-oriented” element by showing that the alleged deceptive act or practice “has a broader impact on consumers at large or similarly situated consumers.” Yurman Studio, Inc. v. Castaneda, 591 F.Supp.2d 471, 491 (S.D.N.Y. 2008) (citation and internal quotation marks omitted). Thus, disputes that are “unique to the parties,” such as “[p]rivate contract dispute[s],” do not “fall within the ambit of the statute.” Oswego Laborers’ Local, 647 N.E.2d at 744; see also Maurizio v. Goldsmith, 230 F.3d 518, 522 (2d Cir. 2000) (“It is clear that `the gravamen of the complaint must be consumer injury or harm to the public interest.'” (citation omitted)). In addition to establishing that the acts were directed at consumers, the plaintiff must show that “defendant is engaging in an act or practice that is deceptive or misleading in a material way and that plaintiff has been injured by reason thereof.” Oswego Laborers’ Local, 647 N.E.2d at 744 (citation omitted). New York courts employ “an objective definition of deceptive acts and practices, whether representations or omissions, limited to those likely to mislead a reasonable consumer acting reasonably under the circumstances.” Oswego Laborers’ Local, 647 N.E.2d at 745.

The requirement that defendants engaged in “consumer-oriented” conduct has been construed liberally. New York v. Feldman, 210 F.Supp.2d 294, 301 (S.D.N.Y. 2002) (internal citations and quotation marks omitted). “Consumer-oriented” has been defined in this circuit as “conduct that potentially affects similarly situated consumers.” SQKFC, Inc. v. Bell Atl. TriCon Leasing Corp., 84 F.3d 629, 636 (2d Cir.1996) (citation and internal quotations omitted). As the New York Court of Appeals has stated, “[c]onsumer-oriented conduct does not require a repetition or pattern of deceptive behavior.” Oswego Laborers’ Local, 647 N.E.2d at 744. Instead, the critical question is whether “the acts or practices have a broad [ ] impact on consumers at large.” Id.; see, e.g., Riordan v. Nationwide Mut. Fire Ins. Co., 977 F.2d 47, 51-53 (2d Cir. 1992) (holding GBL § 349 applicable to insurers where plaintiffs demonstrated that similar practices had been employed by defendant against multiple insureds). “Based on this standard, courts have found sufficient allegations of injury to the public interest where plaintiffs plead repeated acts of deception directed at a broad group of individuals.” Feldman, 210 F.Supp.2d at 301 (collecting cases).

Here, defendant argues that the alleged misleading or deceptive practices occurred within the context of private settlement agreements, which fall outside the scope of the statute. Plaintiffs have alleged that defendant engaged in deceptive practices directed not just at them, but also at a large class of similarly situated debtors. While it is true that defendant entered into private settlement agreements with the plaintiffs, defendant sought attorneys’ fees and costs in accordance with its established practice and policies. It is alleged that all debtors in foreclosure actions brought by defendant would be subject to the same practices and policies. Defendant’s acts therefore arguably have a “broader impact” on the consuming public. The court concludes that, at this stage of the case, plaintiffs have adequately alleged consumer-oriented conduct sufficient to state a claim under GBL §349. See Kapsis v. Am. Home Mort. Servicing Inc., 923 F.Supp.2d 430, 450 (E.D.N.Y. 2013) (allegations that mortgage loan servicer failed to properly credit accounts, failed to timely respond to communications sent by debtors, issued false or misleading monthly statements and escrow projection statements, and refused to provide detailed accountings to debtors for sums allegedly owed satisfied consumer-oriented conduct requirement of GBL § 349). Accordingly, defendant’s motion to dismiss plaintiff’s GBL § 349 claim is denied.

CONCLUSION

Based on the foregoing, the defendant’s motion to dismiss the complaint is DENIED. Defendant is directed to file a responsive pleading in accordance with the Federal Rules of Civil Procedure.

So ordered.

[1] Under the Rooker-Feldman doctrine, lower federal courts lack subject matter jurisdiction over claims that effectively challenge state court judgments. See D.C. Court of Appeals v. Feldman, 460 U.S. 462, 486-87(1983); Rooker v. Fidelity Trust Co., 263 U.S. 413, 415-16 (1923).

[2] The question of whether a communication complies with the FDCPA is determined from the perspective of the “least sophisticated consumer.” See Jacobson v. Healthcare Fin. Servs., Inc., 516 F.3d 85, 90 (2d Cir. 2008); Clomon v. Jackson, 988 F.2d 1314, 1318 (2d Cir. 1993).

[3] Although the court cited section 1692d (prohibiting harassing or abusive behavior in the collection of a debt), this statement was made in the context of its discussion of plaintiff’s claims under section 1692e (prohibiting false or misleading representations).

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

NO: 11-CV-00733-WHP
__________________________________________
PENNSYLVANIA PUBLIC SCHOOL
individually and on behalf of all others
similarly situated,
CLASS ACTION
Plaintiff,

v.

BANK OF AMERICA CORPORATION, et al.,
Defendants.
__________________________________________

MEMORANDUM OF LEAD PLAINTIFF, PENNSYLVANIA PUBLIC SCHOOL
EMPLOYEES’ RETIREMENT SYSTEMS, IN OPPOSITION TO DEFENDANTS’
MOTIONS TO DISMISS THE CONSOLIDATED CLASS ACTION COMPLAINT

__________________________________________

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

11 Civ. 733 (WHP)
————————————x
PENNSYLVANIA PUBLIC SCHOOL
EMPLOYEES’ RETIREMENT SYSTEM,
individually and on behalf ofall others similarly
situated,
Plaintiff,

-against-

BANK OF AMERICA CORPORATION, et aI.,
Defendants.
————————————

MEMORANDUM & ORDER