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HSBC Bank USA, N.A. v Gilbert | NY Appeals Court – plaintiff failed to demonstrate its prima facie entitlement to judgment as a matter of law, because it did not eliminate triable issues of fact regarding whether it had standing as the lawful holder or assignee of the subject note on the date it commenced the action

HSBC Bank USA, N.A. v Gilbert | NY Appeals Court – plaintiff failed to demonstrate its prima facie entitlement to judgment as a matter of law, because it did not eliminate triable issues of fact regarding whether it had standing as the lawful holder or assignee of the subject note on the date it commenced the action

Decided on August 27, 2014 SUPREME COURT OF THE STATE OF NEW YORK Appellate Division, Second Judicial Department
WILLIAM F. MASTRO, J.P.
MARK C. DILLON
ROBERT J. MILLER
JOSEPH J. MALTESE, JJ.
2013-01081
(Index No. 9436/09)

[*1]HSBC Bank USA, National Association, etc., respondent,

v

Arlene Gilbert, et al., appellants, et al., defendants.

Amed Marzano & Sediva, PLLC, New York, N.Y. (Alexander Sediva and Naved Amed of counsel), for appellants.

Friedman Harfenist Kraut & Perlstein, LLP, Lake Success, N.Y. (Andrew Lang of counsel), for respondent.

DECISION & ORDER

In an action to foreclose a mortgage, the defendants Arlene Gilbert and James Coffey appeal, as limited by their brief, from so much of an order of the Supreme Court, Dutchess County (Brands, J.), dated November 30, 2012, as granted that branch of the plaintiff’s motion which was for summary judgment on the complaint insofar as asserted against them.

ORDERED that the order is reversed insofar as appealed from, on the law, with costs, and that branch of the plaintiff’s motion which was for summary judgment on the complaint insofar as asserted against the appellants is denied.

On or about May 14, 2005, the defendant Arlene Gilbert executed a note to borrow the sum of $227,500 from Homebridge Mortgage Bankers Corp. The note was secured by a mortgage executed by Gilbert and the defendant James Coffey (hereinafter together the appellants). The mortgage was subsequently assigned to the plaintiff and, when the appellants defaulted, the plaintiff commenced this action to foreclose the mortgage, alleging, inter alia, that it was the owner and holder of the note and the mortgage. The appellants asserted the plaintiff’s lack of standing as an affirmative defense. The plaintiff moved, inter alia, for summary judgment on the complaint insofar as asserted against the appellants, and the Supreme Court granted that branch of the motion.

In a mortgage foreclosure action, where the plaintiff’s standing to commence the action is placed in issue by the defendant, the plaintiff must prove standing to be entitled to relief (see Bank of N.Y. Mellon v Gales, 116 AD3d 723; U.S. Bank, N.A. v Collymore, 68 AD3d 752). The plaintiff has standing where, at the time the action is commenced, it is the holder or assignee of both the subject mortgage and the underlying note (see Bank of N.Y. Mellon v Gales, 116 AD3d 723; Deutsche Bank Natl. Trust Co. v Haller, 100 AD3d 680; Bank of N.Y. v Silverberg, 86 AD3d 274). Written assignment of the underlying note or physical delivery of the note prior to the commencement of the action is sufficient to transfer the obligation (see Bank of N.Y. Mellon v Gales, 116 AD3d 723; Deutsche Bank Natl. Trust Co. v Haller, 100 AD3d 680; U.S. Bank, N.A. v [*2]Collymore, 68 AD3d 752). Once a promissory note is tendered to and accepted by an assignee, the mortgage passes as an incident to the note (see Bank of N.Y. v Silverberg, 86 AD3d 274; Mortgage Elec. Registration Sys., Inc. v Coakley, 41 AD3d 674). However, the assignment of a mortgage without assignment of the underlying debt is a nullity, and no interest is acquired by it (see Bank of N.Y. Mellon v Gales, 116 AD3d 723; HSBC Bank USA v Hernandez, 92 AD3d 843; Bank of N.Y. v Silverberg, 86 AD3d 274).

Here, the plaintiff failed to demonstrate its prima facie entitlement to judgment as a matter of law, because it did not eliminate triable issues of fact regarding whether it had standing as the lawful holder or assignee of the subject note on the date it commenced the action (see Bank of N.Y. Mellon v Gales, 116 AD3d 723; HSBC Bank USA v Hernandez, 92 AD3d 843; U.S. Bank, N.A. v Collymore, 68 AD3d 752).

Accordingly, the Supreme Court erred in granting that branch of the plaintiff’s motion which was for summary judgment on the complaint insofar as asserted against the appellants.

MASTRO, J.P., DILLON, MILLER and MALTESE, JJ., concur.

ENTER:

Aprilanne Agostino

Clerk of the Court

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U.S. Bank N.A. v Pia | NYSC – Plaintiff cannot escape responsibility for the loan it acquired. Public policy neither provides for shifting the burden of Plaintiff’s violation of TILA to Defendants, nor does it allow for Plaintiff to claim it is somehow insulated or protected from the obligation to correct the violation they acquired

U.S. Bank N.A. v Pia | NYSC – Plaintiff cannot escape responsibility for the loan it acquired. Public policy neither provides for shifting the burden of Plaintiff’s violation of TILA to Defendants, nor does it allow for Plaintiff to claim it is somehow insulated or protected from the obligation to correct the violation they acquired

Decided on August 26, 2014

Supreme Court, Putnam County

 

U.S. Bank National Association AS TRUSTEE UNDER POOLING AND SERVICING AGREEMENT DATED AS OF MARCH 1, 2006 ASSET BACKED SECURITIES CORPORATION HOME EQUITY LOAN TRUST, SERIES NC-2006- HE2 ASSET BACKED PASS-THROUGH CERTIFICATES, SERIES NC 2006-HE2, Plaintiff,

against

Lisa Ann Pia AND XAVIER F. PIA, Defendants.

976/2007

Marco Cercone, Esq.

Rupp, Baas, Pfalzgraf,

Cunningham, & Coppola LLC

Attorneys for Plaintiff

1600 Liberty Building

Buffalo, New York 14202

Daniel A. Schlanger, Esq.

Schlanger & Schlanger, LLP

Attorneys for Defendants

343 Manville Road

Pleasantville, New York 10570
Victor G. Grossman, J.

On December 8, 2005, Defendant Lisa Ann Pia executed a Note and Mortgage in the amount of $372,000.00 secured by her property at 13 Lowell Road, Carmel, New York. On or about May 10, 2007, the instant foreclosure action was commenced. Defendants answered the Complaint, asserted counterclaims, and interposed a third-party action, as well as an Amended Answer on July 9, 2007, and a Second Amended Verified Answer on February 14, 2008, containing counterclaims and a third-party complaint. Plaintiff replied to the counterclaims. The gravamen of Defendants’ allegations are that Plaintiff and Third-Party Defendants violated the Truth-in-Lending Act (“TILA”), Real Estate Settlement Procedures Act (“RESPA”), and various state laws, including General Business Law (“GBL”) §349. They sought, inter alia, rescission of the loan and damages. In May 2009, Defendants moved for partial summary judgment, and Plaintiff moved for summary judgment on the foreclosure action and dismissal of Defendants’ counterclaims. The motions were denied by Decision and Order dated May 15, 2009 as the Court (O’Rourke, J.) observed, “There are many issues which must be determined and cannot be resolved by summary judgment.” The issues were heard in a “framed-issue” hearing before the Hon. Francis A. Nicolai in March 2011.

The Court, by Order entered October 19, 2011 (Nicolai, J.), determined that Defendants were entitled to rescission of the instant mortgage and to attorney’s fees and costs, pursuant to the Truth in Lending Act. A Referee was appointed to determine the specific amounts to be paid to affect rescission of the loan. United States Bank Nat’l Assn v. Pia, 2011 NY Misc. LEXIS 4962 (N.Y.Sup. Ct. Oct. 7, 2011). Justice Nicolai’s Decision was affirmed by the Appellate Division. U.S.Bank, N.A. v Pia, 106 AD3d 991 (2d Dept. 2013), and leave to appeal was denied by the Court of Appeals. 21 NY3d 1071 (2013).

By Order dated April 25, 2013, this Court adopted the Referee’s Report and Recommendation, and directed Plaintiff to:

“1.Tender to the Defendants the sum of $37,472.91 with interest thereon at the statutory rate of 9% from October 9, 2011 to October 9, 2013;

2.Terminate the existing Mortgage on the subject property by preparing a Release of Mortgage for Defendants to review;

3.Deliver to Defendants a proposed new Mortgage for $ 196,277.09 payable by one payment of $37,472.91 and 267 monthly payments of $733.00 and one final payment of $566.09.”[FN1]

No appeal was taken from this Order, and Plaintiff did not undertake any efforts to [*2]comply with the Order between April 25, 2013 and November 6, 2013. Pursuant to the Court’s instructions on November 6, 2013, Defendants filed a proposed order giving Plaintiff a thirty-day opportunity to comply with the prior Orders of the Court. The Order was signed with minor modifications on December 9, 2013, and Plaintiff was served with the Order with Notice of Entry on December 24, 2013. The new Order, in salient terms, directed the same relief as the April 25, 2013 Order. No appeal was taken from the Order entered on December 24, 2013.

The October 19, 2011 Order awarded attorney’s fees, but left the amount to be determined upon future application. This Court, by Justice Nicolai, awarded attorney’s fees of $265,453.86 and costs of $12,252.52, by Decision entered on December 17, 2013, and served with Notice of Entry on December 26, 2013. The Decision was reduced to a money Judgment on January 6, 2014, and was served with Notice of Entry on January 13, 2014. No appeal was taken from that Judgment.

On January 14, 2014, Defendants served an Information Subpoena and Restraining Notice, pursuant to CPLR §§5224(a)(3) and 5222. Plaintiff’s deadline to answer the Information Subpoena and comply with the Restraining Notice has passed, without compliance. No attempt was made to condition or quash the Information Subpoena and/or Restraining Notice until the instant Cross-Motion was filed on or about May 8, 2014.

Plaintiff’s Cross-Motion seeks to quash or modify the Information Subpoena and Restraining Notice on the grounds they are based on an interlocutory judgment, and are calculated to harass, annoy, intimidate, or otherwise put undue pressure on Plaintiff to comply with the Decision and Order of the Trial Court, which Plaintiff considers “unlawful”, despite its affirmance by the Second Department and the denial of leave to appeal by the Court of Appeals. Plaintiff further seeks an Order, pursuant to CPLR §5016, disposing of all claims that remain outstanding, in order to pursue its appellate remedies. Thus, the Court is presented with three Orders and Judgment, which have neither been complied with, nor appealed from. Plaintiff asserts the ordered remedy is unlawful, and Defendants’ assert they are entitled to enforcement of their Judgment and the Orders entered herein.

In view of the issues raised, the parties appeared for oral argument on June 6, 2014, and the Court reserved decision allowing for post-argument submissions.[FN2]

The Judgment awarding attorney’s fees then due and owing has not been appealed. It is final and conclusive on that issue. The finality is strengthened by the Appellate Division’s affirmance of Justice Nicolai’s October 19, 2011 Order, which held attorney’s fees were properly awarded. Moreover, the April 25, 2013 Order, confirming the Referee’s Report and Recommendation, from which no appeal was taken, supports the award of attorney’s fees. Plaintiff fails to offer any support for the claim that the Information Subpoena and Restraining Notices are calculated to harass, annoy, intimidate, or otherwise put undue pressure on Plaintiff. Instead, Plaintiff proposes Justice Nicolai’s Order, affirmed by the Appellate Division, and the Order confirming the Report and Recommendation of the Referee, are “unlawful”. In short, Plaintiff wants “another bite of the apple” by way of a further ruling from this Court that may be appealed.

Specifically, Plaintiff further seeks an Order “fully disposing of all outstanding claims or, in the alternative, issuing a scheduling order with respect to its remaining claims.” Plaintiff asserts there are outstanding claims against it that have not been resolved, precluding the entry of final judgment (Cercone Affirmation ¶81). Plaintiff asserts Defendants’ Third Counterclaim regarding alleged violations of GBL §349 remains unresolved (Cercone Affirmation ¶84), and the Court has not issued a final order or judgment disposing of all claims. As a result, as Plaintiff claims, its appellate remedies are limited because there is no “final determination” of the matter, as the determinations made herein are non-final. Plaintiff observes the denial of leave to appeal Justice Nicolai’s October 19, 2011 Order was due to the fact that it was “not a final order”, and further proceedings were undertaken.

However, a careful reading of the Record reveals the lack of any outstanding issues. Notably, when Justice Nicolai signed an Order, confirming the Referee’s Report and Recommendations, the issue of attorney’s fees and “any remaining claims are hereby severed and shall be addressed at a hearing,” which he scheduled for June 7, 2013. To the extent that the hearing only addressed the issue of attorney’s fees, the remaining issues, such as the third counterclaim (GBL §349) or third-party claims, were waived by Defendants. Defendants’ failure to pursue the third counterclaim constitutes a default under CPLR §3215(a). Eller v. Eller, 116 AD2d 617 (2nd Dept. 1986). Plaintiff cannot rely on Defendants’ default or waiver as a basis for further appellate relief. Certainly, Plaintiff cannot claim to be harmed by not having to defend a claim. Insofar as no further testimony was offered with respect to the Third Counterclaim, or the Third-Party action, those matters have been waived, and the Judgment entered on January 13, 2014, was, and is, the final Judgment in this matter. No appeal was taken from the Judgment; consequently, Plaintiff’s Cross-Motion seeking an order disposing of all claims, or in the alternative, issuing a scheduling order, is denied.

Defendant’s motion is granted. Plaintiff is in contempt for failing to comply with the Order Confirming the Referee’s Report and Judgment of this Court awarding attorney’s fees. The Decision, Order and Judgment of December 17, 2013, to the extent that it addressed two of the three counterclaims, also implicitly dismissed the third counterclaim under GBL §349 as having been waived by Defendants, or defaulted upon, when it was not pursued at the hearing. While the better practice would have been to recite the dismissal of the third counterclaim, the failure to do so is not fatal to the “finality” of the action. The finality of the Order and Judgment rests on the disposition of the causes of action between the parties, leaving nothing for future judicial action. Burke v. Crosson, 85 NY2d 10 (1995). The failure to appeal from the Decision, Order and Judgment entered on June 17, 2013 is not saved or excused by the entry of a separate judgment on the issue of attorney’s fees from which no appeal was taken. Shah v. State, 212 AD2d 876 (3rd Dept. 1995). A final order may not be reviewed on appeal from a later judgment. Crystal v. Manes, 130 AD2d 979 (4th Dept. 1987); Matter of Burke v. Axelrod, 90 AD2d 577 (3d Dept. 1982). According to Professor Siegel, the term “final” “has usually been given a pragmatic interpretation meaning a judgment or order that puts an end to the case, or to a logically separable part of it, and leaves nothing else in respect of it to be decided” Siegel, New York Practice, 4th ed. §527, p. 900 (emphasis added).

Plaintiff fails to offer any viable, or cognizable, excuse for its failure to comply with the Judgment awarding attorney’s fees and disbursements. The delays and excuses offered by Plaintiff’s counsel, based on their recent entry into the matter, are far from persuasive. This is especially true when Plaintiff’s counsel claims, at oral argument, that he “had teams of people [*3]looking at pulling the servicing agreement,” and his firm began its review in February 2014, but did not substitute into the matter until April 4, 2014 (Didone Affidavit ¶80, 84). The explanations offered focus on the enforcement, compliance with, or challenge to the Order Confirming the Referee’s Report, and fail to address the issue of the Judgment awarding attorney’s fees. Interest is accruing on the Judgment awarding attorney’s fees, costs, and disbursements, but compliance is inexcusably outstanding. The Court is concerned that Plaintiff’s pattern of delay, failure to comply, failure to seek relief, and general inertia is designed to evade the remedies to which Defendants are entitled.

Plaintiff’s request to quash Defendants’ Information Subpoena is denied. Plaintiff fails to identify any reason for supporting a Protective Order. Plaintiff’s contention — that “Defendants’ efforts to enforce an interlocutory judgment before the entire matter is brought to finality is premature” — is erroneous. The award of attorney’s fees, which is the basis of the Judgment, occurred after a full opportunity to be heard to litigate the matter. No appeal was taken. Defendants may pursue all enforcement remedies available to them until the Judgment is satisfied. The award of attorney’s fees is derived from violations of TILA. The alleged “unlawful order” (Order Confirming Referee’s Report) is an attempt to remedy the situation which, regardless of whether it had been properly and timely challenged, would not affect Defendants’ rights to recover legal fees for the underlying violation. The Court will reserve decision on the issue of further sanctions, additional attorneys’ fees and orders of commitment as available remedies. Kahn v. Enbar, 2011 NY Slip Op. 31192(U) (Sup. Ct., NY Co., April 26, 2011); 1319 Third Avenue Realty Corp. v. Chauteaubriant Restaurant Development Co., LLC, 57 AD3d 340 (1st Dept. 2008); Lipstick, Ltd. v. Grupo Tribasa, S.A., de C.V., 304 AD2d 482 (1st Dept. 2003).

Plaintiff further claims it cannot be held in contempt for refusing to comply with the Order Confirming the Referee’s Report, because the Order is “unlawful” in that it would force Plaintiff to violate one federal law by complying with another, and it may suffer tax consequences as a result. This claim is rejected. First, no appeal was taken from the Order, nor was any motion made to reargue it. Second, Plaintiff assumed certain risks when it acquired the loan, and it cannot evade or avoid the risks by attempting to insulate itself from liability at Defendants’ expense. Third, the claim made by present counsel, that former counsel “dropped the ball” (Cercone, oral argument, pp. 23), is not a basis for relief. Fourth, TILA violations are subject to equitable remedies, and it cannot be said the equitable remedy here was “unlawful”. Berkely Federal Bank and Trust, FSB, v. Siegel, 247 AD2d, supra at 499; 15 U.S.C. §1635(b). Fifth, Plaintiff has failed to comply with, or appeal from, three separate Orders and a Judgment of this Court. Sixth, Plaintiff’s late submission of a March 20, 2014 letter from Ocwen Loan Servicing to Credit Suisse (Didone Affidavit, July 17, 2014, Exhibit B) contains an acknowledgment that “Repurchase is required under Section 2.03(a) due to a breach of the warranties made by the Seller that render Loan 70651414 to borrower Lisa Ann Pia unenforceable”. The letter also contains the acknowledgment “there is some case law precedent for this [remedy] procedure which ultimately is an equitable remedy” . Plaintiff cannot escape responsibility for the loan it acquired. Public policy neither provides for shifting the burden of Plaintiff’s violation of TILA to Defendants, nor does it allow for Plaintiff to claim it is somehow insulated or protected from the obligation to correct the violation they acquired.

Under these circumstances, contempt is not only an appropriate remedy, but also a necessary one. Should Plaintiff fail to fully comply with the Information Subpoena and [*4]Restraining Notice within thirty (30) days of service of this Decision and Order with Notice of Entry, Defendants may apply to this Court for further relief. In the interim, Defendants may pursue any and all enforcement and contempt remedies they deem appropriate, including additional attorney’s fees. Further, Plaintiff shall pay all attorney’s fees which have been reduced to Judgment entered on January 6, 2014, with interest thereon, and shall pay a statutory fine of $250.00.

The foregoing constitutes the Decision and Order of the Court.

Dated:Carmel, New York

__________________________________

HON. VICTOR G. GROSSMAN, J.S.C.

Footnotes

Footnote 1:TILA (15 U.S.C.§1601 et. seq.) provides for equitable remedies such as those outlined in Referee’s Report. Berkeley Federal Bank & Trust, FSB v. Siegel, 247 AD2d 498 (2nd Dept. 1998). In light of specific statutory authority providing for rescission, an equitable doctrine, upon a TILA violation (15 U.S.C. 1635[b]), it cannot be said the remedy is unlawful.

Footnote 2:

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FHFA Announces Settlement with Goldman Sachs

FHFA Announces Settlement with Goldman Sachs

HAPPY FRIDAY! In hopes this all is forgotten by Monday and so their stock don’t take a hit. Nice going as usual.

Heard from the sources that Wells Fargo is next…

FOR IMMEDIATE RELEASE
8/22/2014

? Washington, D.C. – The Federal Housing Finance Agency (FHFA), as conservator of Fannie Mae and Freddie Mac, today announced it has reached a settlement with Goldman Sachs, related companies and certain named individuals.  The settlement addresses claims alleging violations of federal and state securities laws in connection with private-label mortgage-backed securities (PLS) purchased by Fannie Mae and Freddie Mac between 2005 and 2007.

Under the terms of the settlement, Goldman Sachs will pay $3.15 billion in connection with releases and the purchase of securities that were the subject of statutory claims in the lawsuit FHFA v. Goldman Sachs & Co., et al., in the U.S. District Court of the Southern District of New York.  Goldman Sachs will pay approximately $2.15 billion to Freddie Mac and approximately $1 billion to Fannie Mae.  This settlement, worth approximately $1.2 billion, effectively makes Fannie Mae and Freddie Mac whole on their investments in the securities at issue.  As part of the settlement, FHFA, Fannie Mae and Freddie Mac will release certain claims against Goldman Sachs & Co. related to the securities involved.

The settlement also resolves claims that involved a Goldman Sachs security in FHFA v. Ally Financial Inc., et al.  FHFA previously settled claims against Ally Financial Inc.

This is the sixteenth settlement reached in the 18 PLS lawsuits? FHFA filed in 2011.  Three cases remain outstanding and FHFA is committed to satisfactory resolution of those actions.

Link to Settlement Agreement with Fannie Mae

Link to Settlement Agreement with Freddie Mac???

 

###

? The Federal Housing Finance Agency regulates Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks.  These government-sponsored enterprises provide more than $5.6 trillion in funding for the U.S. mortgage markets and financial institutions.

Contacts:

?Corinne Russell (202) 649-3032 / Stefanie Johnson (202) 649-3030?

SOURCE: fhfa.gov

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A.G. Eric Schneiderman Led State & Federal Working Group Announces Record-Breaking $16.65 Billion Settlement With Bank Of America

A.G. Eric Schneiderman Led State & Federal Working Group Announces Record-Breaking $16.65 Billion Settlement With Bank Of America

RMBS Task Force, Co-Chaired By Schneiderman, Secures Settlement That Includes $800 Million For New Yorkers, Including, For The First Time, Relief For Borrowers With FHA-Insured Loans

Settlement Addresses Misconduct That Contributed To The 2008 Financial Crisis

Schneiderman: “Today’s Settlement Is A Major Victory In The Fight To Hold Those Who Caused The Financial Crisis Accountable”

NEW YORK – Attorney General Eric T. Schneiderman today joined members of a state and federal working group he co-chairs to announce a $16.65 billion settlement with Bank of America. The settlement is the largest in U.S. history with a single institution, surpassing the $13 billion settlement with JPMorgan Chase that was secured by the same state and federal working group last November. The settlement includes $800 million – $300 million in cash, and a minimum of $500 million worth of consumer relief – that will be allocated to New York State. As part of today’s settlement, Bank of America acknowledged it made serious misrepresentations to the public – including the investing public – arising out of the packaging, marketing, sale and issuance of residential mortgage-backed securities (RMBS) by Bank of America, as well as by Countrywide Financial and Merrill Lynch, institutions that Bank of America acquired in 2008. The resolution also requires Bank of America to provide relief to underwater homeowners, distressed borrowers, and affected communities through a variety of means, including relief that for the first time will assist certain homeowners with mortgages insured by the Federal Housing Administration (FHA) who were ineligible for relief under previous settlements.

The settlement requires Bank of America to pay $9.65 billion in hard dollars and provide $7 billion in consumer relief. New York State will receive at least $800 million: $300 million in cash and a minimum of $500 million in consumer relief for struggling New Yorkers. The settlement was negotiated through the Residential Mortgage-Backed Securities Working Group, a joint state and federal working group formed in 2012 to share resources and continue investigating wrongdoing in the mortgage-backed securities market prior to the financial crisis. Attorney General Schneiderman co-chairs the RMBS working group.

“Since my first day in office, one of my top priorities has been to pursue accountability for the misconduct that led to the crash of the housing market and the collapse of the American economy,” said Attorney General Schneiderman. “This historic settlement builds upon our work bringing relief to families around the country and across New York who were hurt by the housing crisis, and is exactly what our working group was created to do. The frauds detailed in Bank of America’s statement of facts harmed countless of New York homeowners and investors. Today’s result is a major victory in the fight to hold those who caused the financial crisis accountable.”

The settlement includes an agreed-upon statement of facts that describes how Bank of America, Merrill Lynch and Countrywide made representations to RMBS investors about the quality of the mortgage loans they securitized and sold to investors.  Contrary to those representations, the firms securitized and sold RMBS with underlying mortgage loans that they knew had material defects. Bank of America also made representations to the FHA, an agency within the U.S. Department of Housing and Urban Development, about the quality of FHA-insured loans that Bank of America originated and underwrote. Contrary to those representations, Bank of America originated and underwrote FHA-insured mortgages that were not eligible for FHA insurance. Bank of America and Countrywide also made representations and warranties to Fannie Mae and Freddie Mac about mortgages they originated and sold to those Government Sponsored Entities (GSE’s). Contrary to those representations and warranties, many of those mortgages were defective or otherwise ineligible for sale to GSE’s.

As the statement of facts explains, on a number of occasions, Merrill Lynch employees learned that significant percentages of the mortgage loans reviewed by a third party due diligence firm had material defects. Significant numbers of loans—50% in at least one pool—that were found in due diligence not to have been originated in compliance with applicable laws and regulations, not to be in compliance with applicable underwriting guidelines and lacking sufficient offsetting compensating factors, and loans with files missing one or more key pieces of documentation were nevertheless waived into the purchase pool for securitization and sale to investors. In an internal email that discussed due diligence on one particular pool of loans, a consultant in Merrill Lynch’s due diligence department wrote: “[h]ow much time do you want me to spend looking at these [loans] if [the co-head of Merrill Lynch’s RMBS business] is going to keep them regardless of issues? . . . Makes you wonder why we have due diligence performed other than making sure the loan closed.” A report by one of Merrill Lynch’s due diligence vendors found that from the first quarter of 2006 through the second quarter of 2007, 4,009 loans that were part of loan pool samples reviewed by the vendor were not in compliance with underwriting guidelines or applicable laws and regulations, and were waived in to purchase pools by Merrill Lynch. This conduct, along with similar conduct by other banks that bundled defective and toxic loans into securities and misled investors who purchased those securities, contributed to the financial crisis.

Attorney General Schneiderman was elected in 2010 and took office in 2011, when the five largest mortgage servicing banks, 49 state attorneys general, and the federal government were on the verge of agreeing to a settlement that would have released the banks – including Bank of America – from liability for virtually all misconduct related to the financial crisis. Attorney General Schneiderman refused to agree to such sweeping immunity for the banks. As a result, Attorney General Schneiderman secured a settlement that preserved a wide range of claims for further investigation and prosecution.

In his 2012 State of the Union address, President Obama announced the formation of the RMBS Working Group. The collaboration brought together the Department of Justice (DOJ), other federal entities, and several state law enforcement officials – co-chaired by Attorney General Schneiderman – to investigate those responsible for misconduct contributing to the financial crisis through the pooling and sale of residential mortgage-backed securities. The negotiations for settlement, which were led by Associate Attorney General Tony West of DOJ, were part of the RMBS Working Group.

Under the settlement, Bank of America will be required to provide a minimum of $500 million in creditable consumer relief directly to struggling families and communities across the state. The settlement includes a menu of options for consumer relief to be provided, and different categories of relief are credited at different rates toward the bank’s $500 million obligation. The agreement also requires Bank of America to provide minimum amounts of creditable relief under certain priority categories in New York. The Consumer Relief Credit Menu, available here, details the how each category of relief will be credited and the minimum amounts for each category where applicable.

The most significant priority on the Consumer Relief Credit Menu is a change that will allow first lien principal reductions for certain types of FHA-insured mortgages. Borrowers with these types of loans have previously been excluded from getting the benefits of principal reduction under past settlements, despite the fact that a significant number of distressed loans fall into this category. According to data collected by the Office of the Attorney General, roughly 23% of all distressed loans in New York have FHA insurance, and FHA-insured loans represent the largest portion of Bank of America’s remaining distressed loan portfolio in New York.

Attorney General Schneiderman made it a high priority to extend principal forgiveness to FHA-insured mortgages in negotiations with Bank of America, and their inclusion in this settlement represents a huge step forward in Attorney General Schneiderman’s ongoing commitment to helping families move past the foreclosure crisis.

“Empire Justice Center is very pleased that the settlement with Bank of America provides for principal balance reductions on FHA-insured loans,” said Kirsten Keefe, Senior Attorney at the Empire Justice Center. “This is a critical component that has not been included in prior bank settlements. It has left homeowners with FHA loans at a disadvantage when trying to negotiate with their bank to save their homes. We thank Attorney General Schneiderman for making this a priority in the Bank of America Settlement.”

Bank of America will provide a minimum of $60 million in first lien principal reductions in New York, including the FHA-insured portfolio. Other New York-specific minimum requirements for consumer relief under this settlement include:

  • A minimum value of $20 million in donations, including cash and contributions of vacant and abandoned properties to land banks, units of local government and other nonprofits. Bank of America estimates that this will help address as many as 300 vacant properties—also known as zombie properties—across the state of New York.
  • The bank must also earn at least $35 million in credits for making cash donations to legal service providers, housing counseling agencies, land banks and other community development nonprofits. These relief options are a direct compliment to the investment Attorney General Schneiderman has made to these types of programs over the past three years, including more than $60 million in funding to support a network of housing counseling and legal service provider across the state under the Homeowner Protection Program (HOPP), which has provided free, high-quality services to more than 30,000 homeowners since launching in 2012.
  • Bank of America must also provide $125 million in credits to create and preserve hundreds of units of affordable rental housing across New York State. This initiative is particularly critical in New York, where affordable rental housing is scarce and many families are struggling to find decent and affordable alternatives to homeownership following the economic crisis.

New York City Mayor Bill DeBlasiosaid, “We’re in the midst of an affordability crisis hitting New Yorkers from the very poor to those once solidly middle class. We are deeply grateful to the Attorney General for securing a historic settlement that will make a real difference for families struggling across the city and state. We are pushing hard to build and preserve an unprecedented amount of affordable housing to meet this crisis, and the Attorney General’s continued advocacy is proving vitally important in supporting that effort.”

“We applaud AG Schneiderman’s efforts to hold the too-big-to-fail banks accountable to lower income communities,” said Josh Zinner, Co-Director of New Economy Project. “We are hopeful that this settlement will provide relief to people and communities that have been hardest hit by predatory lending and high rates of foreclosure.”

Compliance with the settlement will be overseen by an independent monitor who will be responsible for ensuring that targets under the settlement are met and that quarterly reporting requirements, which will measure how relief is being allocated at a Census Tract level, are made available to the public.

This matter was led by former Deputy Attorney General for Economic Justice Virginia Chavez Romano, Chief of the Investor Protection Bureau Chad Johnson, Senior Enforcement Counsel for Economic Justice Steven Glassman, and Assistant Attorneys General in the Investor Protection Bureau Hannah Flamenbaum and Melissa Gable.

SOURCE: http://ag.ny.gov

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Inside the Dark, Lucrative World of Consumer Debt Collection

Inside the Dark, Lucrative World of Consumer Debt Collection

NYT-

One afternoon in October 2009, a former banking executive named Aaron Siegel waited impatiently in the master bedroom of a house in Buffalo that served as his office. As he stared at the room’s old fireplace and then out the window to the quiet street beyond, he tried not to think about his investors and the $14 million they had entrusted to him. Siegel was no stranger to money. He grew up in one of the city’s wealthiest and most prominent families. His father, Herb Siegel, was a legendary playboy and the majority owner of a hugely profitable personal-injury law firm. During his late teenage years, Aaron lived essentially unchaperoned in a sprawling, 100-year-old mansion. His sister, Shana, recalls the parties she hosted — lavish affairs with plenty of Champagne — and how their private-school classmates would often spend the night, as if the place were a clubhouse for the young and privileged.

So how, Siegel wondered, had he gotten into his current predicament? His career started with such promise. He earned his M.B.A. from the highly regarded Simon Business School at the University of Rochester. He took a job at HSBC and completed the bank’s executive training course in London. By all indications, he was well on his way to a very respectable future in the financial world. Siegel was smart, hardworking and ambitious. All he had to do was keep moving up the corporate ladder.

Instead, he decided to take a gamble. Siegel struck out on his own, investing in distressed consumer debt — basically buying up the right to collect unpaid credit-card bills. When debtors stop paying those bills, the banks regard the balances as assets for 180 days. After that, they are of questionable worth. So banks “charge off” the accounts, taking a loss, and other creditors act similarly. These huge, routine sell-offs have created a vast market for unpaid debts — not just credit-card debts but also auto loans, medical loans, gym fees, payday loans, overdue cellphone tabs, old utility bills, delinquent book-club accounts. The scale is breathtaking. From 2006 to 2009, for example, the nation’s top nine debt buyers purchased almost 90 million consumer accounts with more than $140 billion in “face value.” And they bought at a steep discount. On average, they paid just 4.5 cents on the dollar. These debt buyers collect what they can and then sell the remaining accounts to other buyers, and so on. Those who trade in such debt call it “paper.” That was Aaron Siegel’s business.

[NEW YORK TIMES]

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LaSalle Bank N.A. v Dono | NYSC – Judge Spinner Rips Into LaSalle – “Bad Faith” … Plaintiff and any assignee is forever barred, prohibited and foreclosed from recovering the same from Defendant

LaSalle Bank N.A. v Dono | NYSC – Judge Spinner Rips Into LaSalle – “Bad Faith” … Plaintiff and any assignee is forever barred, prohibited and foreclosed from recovering the same from Defendant

Decided on August 12, 2014

Supreme Court, Suffolk County

 

Lasalle Bank N.A. As Trustee For MERRILL LYNCH FIRST FRANKLIN MORTGAGE LOAN TRUST 2007-4 MORTGAGE LOAN ASSET-BACKED CERTIFICATES SERIES 2007-4 , Plaintiff,

against

Brian Dono, AMERICAN GENERAL FINANCIAL SERVICES INC. and BENITO DOE, Defendants

2009-04422

Larry T. Powell, Esq.

Davidson Fink LLP

Attorneys for Plaintiff

28 East Main Street

Rochester, New York 14614

John Batanchiev, Esq.

Ian S. Wilder, Esq.

Long Island Housing Services Inc.

Attorneys for Defendant BRIAN DONO

640 Johnson Avenue

Bohemia, New York 11716
Jeffrey Arlen Spinner, J.

Plaintiff, through predecessor counsel Steven J. Baum P.C., commenced this action pursuant to Real [*2]Property Actions and Proceedings Law Article 13, claiming the foreclosure of a first mortgage which encumbers residential real property located at 77 Winchester Drive, Lindenhurst, Town of Babylon, Suffolk County, New York. In its Verified Complaint, the Plaintiff alleges that it is the owner and holder of an Adjustable Rate Note in the principal amount of $ 420,000.00 which is secured by a Mortgage, recorded with the Suffolk County Clerk. Plaintiff demands foreclosure of the Mortgage together with recovery of interest, costs, disbursements, attorney’s fees and a deficiency judgment. Defendant does not deny the default, instead freely admitting that the course of events which brings these parties before the Court occurred as a direct result of his incarceration. The Court recalls that prior to Defendant’s discharge from custody, his wife appeared at the settlement conferences in the exercise of a vain but honest attempt to reach an amicable disposition herein.

In compliance with the provisions of CPLR § 3408, a series of mandatory settlement conferences were held, upon which there were no less than 24 appearances before the Court. Indeed, as early as March 16, 2009, the Court’s records reflect that Defendant requested provision of the appropriate settlement conference package, apparently evincing his intention to attempt to reach an amicable resolution herein.

Defendant, through counsel, now moves this Court for an Order tolling interest and other costs on the mortgage debt, asserting that Plaintiff has failed to negotiate in good faith, as mandated by CPLR § 3408. Not surprisingly, Plaintiff vociferously opposes Defendant’s application, insisting that it has acted in good faith throughout the process and that there exists no basis for Defendant’s application.

In support of its application, Defendant submits the Affirmations of John Batanchiev Esq. and Ian S. Wilder Esq. together with the Affidavit of Brian Dono, supported by a number of exhibits as well as a Reply Memorandum of Law. Plaintiff has submitted the Affirmation of Larry T. Powell Esq. together with a Sur-Reply Affirmation but has not seen fit to provided proof from a party with actual knowledge. The Court is constrained to note that in the particular matter that is sub judice, Plaintiff has failed to appear through a representative during the mandatory settlement conference process, despite having been ordered to do so by the undersigned.

In essence, Defendant asserts, without any factual or admissible contravention by Plaintiff, that since at least October 1, 2010, he has fully complied with each and every document request received from Plaintiff’s various loan servicers, each of whom, it is claimed, have acted in bad faith. Defendant claims, again without contraversion by Plaintiff, that the real property that secures the loan has an approximate fair market value of $ 317,265.00 juxtaposed against a claimed balance due of $ 676,361.45. Defendant further states, once again without opposition, that Plaintiff has unreasonably and wrongfully delayed these proceedings by interposing multiple and duplicitous document demands, that Plaintiff and its servicers have willfully failed to comply with the applicable HAMP guidelines, to which its initial servicer was subject, by offering a “modified” payment equal to 70% of his gross monthly income while knowing that the “cap” was set at 31% within those guidelines, that Plaintiff surreptitiously conveyed the loan to a different, non-HAMP servicer so as to avoid being subject to the HAMP guidelines and which also caused the process to start anew, that Plaintiff failed and neglected to provide HAMP-compliant denials, that Plaintiff refused to consider Defendant’s reasonable counter-offer which fell well within HAMP guidelines and finally, that Plaintiff has refused to negotiate, instead propounding a “take it or leave it” modification which contained unconscionable terms including a waiver of defenses, counterclaims and setoff together with a reverter clause in the nature of a penalty. While Defendant’s sworn averments are supported by efficacious documentation together with Affirmations from two respected attorneys who possess actual and personal knowledge of this particular matter (both attorneys have appeared before the undersigned on multiple occasions with respect to this matter), Plaintiff has failed to submit any evidence whatsoever in opposition, instead relying upon counsel’s cavalier Affirmation.

Plaintiff’s opposition, distilled to its essence, consists solely of counsel’s stentorian albeit factually unsupported assertions that inasmuch as a mortgage is a contract, the Court may neither interfere with nor modify its terms; that since this proceeding is one sounding in equity this Court is bound to comply with the rules of equity (and hence must rule in Plaintiff’s favor), citing IndyMac Bank F.S.B. v. Yano-Horoski 78 AD3d 895 (2nd Dept. 2010) and Bank of America v. Lucido 114 AD3d 714 (2nd Dept. 2014), among others; that the Court may not force a settlement upon the parties; and finally, counsel refers this Court to the decision of a court of co-ordinate jurisdiction in such a manner as to strongly suggest that said opinion is controlling herein. Counsel urges this Court to summarily deny the relief sought by Defendant, stating that Plaintiff has asked for nothing more than that the note and mortgage be strictly enforced according to their terms and further, that it is Defendant who has acted in bad faith. None of these meretricious assertions are supported by so much as a scintilla of evidence and indeed, they are both factuallly inaccurate and decidedly fallacious. Counsel fails and neglects to substantively address any of Defendant’s efficacious claims, instead stridently admonishing this Court that it may not act in a manner that is based upon sympathy, citing Graf v. Hope Building Corp. 254 NY 1 (1930) and further strongly admonishing this Court that in view of the clear language of the note and mortgage, that this Court is “…not at liberty to revise while professing to construe” citing Sun Printing & Publishing Ass’n v. Remington Paper & Power Co. 235 NY 338 (1923).

Interestingly, the Affirmation of Plaintiff’s counsel does not state the basis upon which his bald and unsupported statements are based, other than his position as an associate with Plaintiff’s successor counsel. Again, the opposition submitted is quite conspicuous for its complete absence of any Affidavit of a party with actual knowledge herein and as counsel surely must be aware, an Affirmation of counsel, absent proof of actual first-hand knowledge, is wholly devoid of probative value, Barnet v. Horwitz 278 AD 700 (2nd Dept. 1951).

The decision in this matter is necessarily based upon and is controlled by the provisions of CPLR § 3408, which was promulgated by the Legislature in response to the mortgage foreclosure crisis that was (and is) facing New York homeowners. The statute, remedial in nature, was passed in 2008 and was substantially amended late in 2009.

The relevant portions for purposes of this decision are CPLR § 3408(a) & (f), which read, in pertinent part, as follows:

“(a) In any residential foreclosure action involving a home loan…in which the defendant is a resident

of the property subject to foreclosure, the court shall hold a mandatory conference…for the purpose

of holding settlement discussions pertaining to the relative rights and obligations of the parties under

the mortgage loan documents, including, but not limited to determining whether the parties can reach

a mutually agreeable resolution to help the defendant avoid losing his or her home, and evaluating

the potential for a resolution in which payment schedules or amounts may be modified or other

workout options may be agreed to, and for whatever other purposes the court deems appropriate.

“(f) Both the plaintiff and defendant shall negotiate in good faith to reach a mutually agreeable

resolution, including a loan modification, if possible.” CPLR 3408(a), (f)

While the express language of CPLR § 3408 appears clear on its face, the term “good faith” is nowhere defined in the statute. Too, the legislative history fails to reveal any clue at all as to the definition of this term. Instead, working within a statutory vacuum, various trial courts have assiduously attempted to give real meaning to this concept in the absence of any definition or other guidance. Both Defendant and Plaintiff have cited a plethora of case law in their respective papers, none of which is controlling, in view of a new decision from our Appellate Division, which was released subsequent to the submission of the instant [*3]application.

Instead, this Court finds itself inexorably guided by the decision in the matter of US Bank N.A. v. Jose Sarmiento

2014 NY Slip Op 05533, 2014 NY App Div LEXIS 5457 (2nd Dept., July 30, 2014). In a searching and thoughtful opinion by Justice Leventhal, the Appellate Division painstakingly explored and expounded upon the provisions and guidelines of HAMP, CPLR § 3408 and, most important, the concept of good faith as applied to the mandatory settlement conference process. For purposes of the matter at bar, this Court is only concerned with the issue of good faith. Indeed, the Appellate Division, in that opinion, has expressly and unequivocally stated that “…the issue of whether a party failed to negotiate in good faith’ within the meaning of CPLR 3408(f) should be determined by considering whether the totality of the circumstances demonstrates that the party’s conduct did not constitute a meaningful effort at reaching a resolution.”Therefore, this express language constitutes the yardstick by which this Court must measure the conduct of Plaintiff and Defendant in order to determine which party, if either, failed to act in good faith.

In accord with the ruling of the Appellate Division in US Bank N.A. v. Sarmiento, supra, close and careful examination and consideration of the totality of the circumstances reveals that Defendant has fully complied with Plaintiff’s various document demands on multiple occasions, that Defendant and/or his counsel have appeared on at least 24 occasions before the undersigned with respect to mandatory settlement conferences, that Plaintiff has failed to comply with the HAMP guidelines by offering a “modification” which was facially and obviously not affordable and which exceeded the applicable housing expense ceiling by 39%, that Plaintiff failed and refused to negotiate at all with Defendant, that Plaintiff failed and refused to produce a representative in court despite a Court order to do so, that Plaintiff conveyed the loan to a different servicer which engendered further delay in that the process had to begin anew, all of which has inured to the detriment of Defendant. Since October 1, 2010, interest has continued to accrue at an adjustable rate of not less (and possibly greater) than 8.2% together with the accrual of added costs, disbursements and, presumably, a claim for reasonable counsel fees.

Based upon the totality of circumstances, this Court is constrained to find that Plaintiff, and the servicers acting upon its behalf, have acted in bad faith throughout the mandatory settlement conference process, as “bad faith” has been defined in US Ban k N.A. v. Sarmiento, supra, thus inexorably warranting the granting of Defendant’s application.

It is, therefore,

ORDERED that Defendant’s application shall be and is hereby granted in its entirety; and it is further

ORDERED that all interest, disbursements, costs and attorneys fees which have accrued upon the loan at issue since October 1, 2010 shall be and the same are hereby permanently abated, shall not be a charge on account of or to the detriment of Defendant and that Plaintiff and any assignee is forever barred, prohibited and foreclosed from recovering the same from Defendant; and it is further

ORDERED that such abatement shall continue in futuro and that no further interest, disbursements, costs or attorney’s fees shall accrue or be chargeable to Defendant absent further Order of this Court; and it is further

ORDERED that any relief not expressly granted herein shall be and is hereby denied; and it is further

ORDERED that Defendant’s counsel shall, within twenty one days after entry hereof, serve a copy of this Order with Notice of Entry upon all parties in this action as well as all counsel who have appeared in [*4]this action.

Dated: August 12, 2014

Riverhead, New York

E N T E R:

______________________________________

JEFFREY ARLEN SPINNER, J.S.C.

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On Petition For Writ Of Ceftiorari To The Supreme Court Of The State Of Hawaii | re: Due Process Clauses of the Fifth and Fourteenth Amendments to the United States Constitution

On Petition For Writ Of Ceftiorari To The Supreme Court Of The State Of Hawaii | re: Due Process Clauses of the Fifth and Fourteenth Amendments to the United States Constitution

In the
Supreme Court of the United States

ALBERTO C. TIMOSAN, SIMPLICIA C. TIMOSAN,
ARIEL TIMOSAN, ARCHANGEL TIMOSAN
and AILYN T. OUNYOUNG,
Petitioners,

vs.

THE BANK OF NEW YORK MELLON TRUST
COMPANY, NATIONAL ASSOCIATION, FKA THE
BANK OF NEW YORK TRUST COMPANY, N.A. AS
SUCCESSOR TO JPMORGAN CHASE N.A. AS
TRUSTEE FOR RAMP 2OO5RS9,
Respondent.

On Petition For Writ Of Centiorari
To The Supreme Court Of The State Of Hawaii

PETITION FOR WRIT OF CERTIORARI

GARY VICTOR DUBIN
FREDERICK J. ARENSMEYER
Counsel of Record for Petitioners
DUBIN Law Offices
55 Merchant Street, Suite 3100
Honolulu, Hawaii 96813
Telephone: (808) 537-2300
Facsimile: (808) 523-7733
E -Mail: gdubin@dubinlaw.net
E-Mail: farensmeyer@dubinlaw. net

QUESTION PRESENTED
Is it a violation of the Due Process Clauses of the
Fifth and Fourteenth Amendments to the United
States Constitution for a federal or state court
through state action to deprive property owners of
title to and possession and enjoyment of real
property by enforcing a nonjudicial or judicial
foreclosure against their economic interests based
solely on recorded mortgages and recorded mortgage
assignments without first also requiring proof by a
foreclosing mortgagee of the location, ownership and
validity of their underlying promissory note?

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LETTER | NYDFS reviewing a troubling transaction involving Ocwen’s related company, Altisource Portfolio Solutions, S.A. (“Altisource”) — Forced Placed Insurance

LETTER | NYDFS reviewing a troubling transaction involving Ocwen’s related company, Altisource Portfolio Solutions, S.A. (“Altisource”) — Forced Placed Insurance

Andrew M. Cuomo
Governor

Benjamin M. Lawsky
Superintendent

August 4, 2014

Timothy Hayes
General Counsel
Ocwen Financial Corporation
1661 Worthington Road, Suite 100
West Palm Beach, FL 33409

Dear Mr. Hayes:
As part of the Department’s ongoing examination of Ocwen’s mortgage servicing practices, we are reviewing a troubling transaction involving Ocwen’s related company, Altisource Portfolio Solutions, S.A. (“Altisource”), and the provision of force-placed insurance. Indeed, this complex arrangement appears designed to funnel as much as $65 million in fees annually from already-distressed homeowners to Altisource for minimal work. Additionally, the role that Ocwen’s Executive Chairman William C. Erbey played in approving this arrangement appears to be inconsistent with public statements Ocwen has made, as well as representations in company SEC filings. As discussed below, we require certain information about this force-placed insurance arrangement and about Mr. Erbey’s role in approving the arrangement.

Background
As you know, the Department has previously expressed concerns about Ocwen’s use of related companies to provide fee-based services such as property inspections, online auction sites, foreclosure sales, real estate brokers, debt collection, and many others. Because mortgage servicing presents the extraordinary circumstance where there is effectively no customer to select a vendor for ancillary services, Ocwen’s use of related companies to provide such services raises concerns about whether such transactions are priced fairly and conducted at arms-length.

The Department now seeks additional information about Ocwen’s provision of force-placed insurance through related companies. As you are aware, the Department’s recent investigation into force-placed insurance revealed that mortgage servicers were setting up affiliated insurance agencies to collect commissions on force-placed insurance, and funneling all of their borrowers’ force-placed business through their own agencies, in violation of New York Insurance Law section 2324’s anti-inducement provisions.

The Department discovered that servicers’ own insurance agencies had an incentive to purchase force-placed insurance with high premiums because the higher the premiums, the higher the commissions kicked back by insurers to the servicers or their affiliates. The extra expense of higher premiums, in turn, can push already struggling families over the foreclosure cliff. In light of this investigation, the Department last year imposed further prohibitions on these kickbacks to servicers or their affiliates.

However, as part of our broader review of ancillary services provided by non-bank mortgage
servicers, we are concerned that certain non-bank mortgage servicers are seeking to side-step
those borrower protections through complex arrangements with subsidiaries and affiliated
companies. Indeed, in recent weeks, we halted one such arrangement at another non-bank
mortgage servicing company.

Agreements with SWBC and Altisource
Based on its investigation and through the Monitor’s work, the Department understands that
Ocwen’s force-placed arrangement with Altisource features the use of an unaffiliated insurance
agent, Southwest Business Corporation (“SWBC”), apparently as a pass-through so that Ocwen
and Altisource are not directly contracting with each other, but Altisource can still receive
insurance commissions and certain fees seemingly for doing very little work.

These are the facts established by documents Ocwen provided to the Monitor: In August 2013,
Ocwen appointed an Altisource subsidiary called Beltline Road Insurance Agency, Inc.
(“Beltline”) as its exclusive insurance representative, purportedly to negotiate and place a new
force-placed insurance program for Ocwen. Ocwen’s existing force-placed arrangement with the
insurer Assurant was set to expire in March 2014, and Beltline’s stated task was to find an
alternative arrangement. In January 2014, Altisource provided a memo to the Credit Committee
of Ocwen Mortgage Servicing, Inc., recommending, among other things, replacing Assurant with
SWBC as Ocwen’s managing general agent. SWBC would then be charged with managing
Ocwen’s force-placed insurance program, including negotiating premiums with insurers. As part
of this arrangement, Altisource recommended itself to provide fee-based services to SWBC.

In emails dated January 15 and 16, 2014, the transaction was approved by the three members of
the Credit Committee: William Erbey, Duo Zhang, and Richard Cooperstein. The Credit
Committee did not meet to discuss this proposal, no minutes were taken of the Credit
Committee’s consideration of this proposed transaction, and the proposed transaction apparently
was not presented for review or approval to any member of the Ocwen Board of Directors except
Mr. Erbey, as Mr. Zhang and Mr. Cooperstein are not members of the Ocwen Board of
Directors.

Just one month after this Credit Committee approval, on February 26, 2014, the company
received the Department’s letter raising concerns about potential conflicts of interest between
Ocwen and its related public companies. In that letter, we identified facts that “cast serious
doubts on recent public statements made by the company that Ocwen has a ‘strictly arms-length
business relationship’ with those companies,” and we specifically referenced the multiple roles
played by Mr. Erbey as an area of concern.

Disregarding the concerns raised in our letter, Ocwen proceeded to execute contracts formalizing
this new force-placed arrangement, apparently without further consideration by any Board
member other than Mr. Erbey. Those contracts, dated as of June 1, 2014, indicate that Altisource
will generate significant revenue from Ocwen’s new force-placed arrangement while apparently
doing very little work. Indeed, a careful review of these and other documents suggests that
Ocwen hired Altisource to design Ocwen’s new force-placed program with the expectation and
intent that Altisource would use this opportunity to steer profits to itself.

First, Altisource will reap enormous insurance commissions for having recommended that Ocwen hire SWBC. Under the contracts, Ocwen promises to give its force-placed insurance business to SWBC. SWBC does the work of negotiating premiums, preparing policies, and handling renewals and cancellations. For these services, SWBC receives commissions from insurers. SWBC then passes on a portion of those commissions, constituting 15% of net written premium on the policies, to Altisource subsidiary Beltline, for “insurance placement services.” Documents indicate that Ocwen expects to force-place policies on its borrowers in excess of $400 million net written premium per year; a 15% commission on $400 million would be $60 million per year. It is unclear what insurance placement services, if any, Altisource is providing to justify these commissions.

Second, Altisource will be paid a substantial annual fee for providing technology support that it appears to be already obligated to provide. This fee relates to monitoring services, whereby Ocwen pays a company to monitor whether its borrowers’ insurance remains in effect. Such monitoring is necessary to establish which borrowers have lapsed on their payments and need to have insurance force-placed upon them. Prior to 2014, Ocwen was paying ten cents per loan per month to Assurant for monitoring. In this new arrangement, however, Ocwen agrees to pay double the prior amount – twenty cents per loan per month now paid to SWBC, for each of the approximately 2.8 million borrowers serviced by Ocwen. SWBC, in turn, agrees to pass on fifteen out of that twenty cents to Altisource, or an estimated $5 million per year. Altisource provides only one service in exchange for this fee: granting SWBC access to Ocwen’s loan files. Altisource, of course, only has access to Ocwen’s loan files through its own separate services agreements with Ocwen, which appear to contractually obligate Altisource to provide this access to business users designated by Ocwen to receive such access.

Third, the contracts require SWBC to use Altisource to provide loss draft management services for Ocwen borrowers; to pay Altisource $75 per loss draft for these services; and to pay Altisource an additional $10,000 per month for certain other services.
In an effort to better understand this arrangement, the Department requests that Ocwen provide the following information and documents:

1. Is Altisource already obligated to provide access to Ocwen’s loan files to SWBC pursuant to separate agreements with Ocwen? If your answer is no, please specifically explain how the Technology Products Letter between Ocwen and Altisource, produced to the Department beginning at OFC00002496, does not impose this obligation.
2. What services, if any, does Altisource or its subsidiary provide to SWBC in exchange for SWBC paying the Altisource subsidiary a commission of 15% of insurance premiums? In addition, it appears that payment of this commission excludes premium generated by policies issued on properties in New York State. Please describe the negotiations that resulted in this exclusion, and identify any alternate compensation to be paid to Altisource or any affiliate to make up for the excluded commissions on New York properties.
3. What services, if any, does Altisource provide to SWBC in exchange for SWBC paying Altisource fifteen cents per loan per month?
4. What services, if any, does Altisource provide to SWBC in exchange for an additional $10,000 per month?
5. Under what circumstances do Ocwen policies and procedures permit approval of transactions solely through the Credit Committee? Did this force-placed insurance arrangement meet those requirements? Do Ocwen policies and procedures require any additional review or approvals for transactions involving related companies? If so, did Ocwen engage in that review or obtain those approvals for this arrangement?
6. Were any options presented to the Credit Committee other than the proposed SWBC transaction? If so, did all such options feature the retention of Altisource to provide fee-based services? Or were options presented that did not involve payments to Altisource?
7. Throughout this process, did members of the Credit Committee or any Ocwen personnel give any consideration to the impact that Altisource fees and commissions would have in increasing insurance premiums to be paid by struggling families?
8. After the Credit Committee approved Altisource’s January 2014 proposal for Ocwen’s new forced-placed insurance program, it appears that certain changes were made to the proposal, including an expansion of SWBC’s and Altisource’s roles in the program and their associated compensation. Please describe those changes and the negotiations that led to those changes, and identify all personnel involved in negotiating and approving those changes.
9. What process resulted in the August 2013 appointment of Altisource’s subsidiary as Ocwen’s exclusive insurance representative? Was this process competitive? What Ocwen Board members or personnel were involved in this appointment? Which Board members, if any, authorized this appointment? Did those Ocwen Board members or personnel know or anticipate that Altisource would return with a plan that would appear to be highly profitable for itself?
10. What amount of revenue has Altisource or its affiliates realized, and what amount of revenue is it projected to realize, from the services it is providing pursuant to this force-placed insurance arrangement? What are its costs for providing those services? How many employees at Altisource or its subsidiaries work on providing those services, and how much of their time is dedicated to this work?
11. Altisource’s presentation to the Credit Committee stated that “Altisource will establish its own managing general underwriter during 2014 to provide LPI underwriting services starting in 2015.” Please explain Altisource’s intention to establish a managing general underwriter, state whether Ocwen supports Altisource’s plan, and explain how this development will affect Ocwen’s force-placed program, Altisource’s revenue, and the fees to be charged to Ocwen borrowers or mortgage investors.

Ocwen’s Public Statements Concerning Transactions with Related Companies

In addition to the issues raised above, the Department has serious concerns about the apparently conflicted role played by Ocwen Executive Chairman William Erbey and potentially other Ocwen officers and directors in directing profits to Altisource, which is “related” to Ocwen but is formally a separate, publicly-traded company. As you know, Mr. Erbey is Ocwen’s largest shareholder and is also the Chairman of and largest shareholder in Altisource. In fact, Mr. Erbey’s stake in Altisource is nearly double his stake in Ocwen: 29 percent versus 15 percent. Thus, for every dollar Ocwen makes, Mr. Erbey’s share is 15 cents, but for every dollar Altisource makes, his share is 29 cents.
The Department and its Monitor have uncovered a growing body of evidence that Mr. Erbey has approved a number of transactions with the related companies, despite Ocwen’s and Altisource’s public claims – including in SEC filings1 – that he recuses himself from decisions involving related companies. Mr. Erbey’s approval of this force-placed insurance arrangement as described above appears to be a gross violation of this supposed recusal policy.

12. Please explain how and why Mr. Erbey approved the arrangement between Ocwen, SWBC, and Altisource.
13. Please provide every instance where Mr. Erbey has approved a transaction involving a related company notwithstanding Ocwen’s statements to the contrary.
Finally, Ocwen and Altisource state in their public filings that rates charged under agreements with related companies are market rate,2 but Ocwen has not been able to provide the Monitor with any analysis to support this assertion.
14. Please advise whether Ocwen has performed any independent analysis to determine whether the rates charged in the SWBC arrangement are market rate.
15. Please address whether Ocwen has performed any independent analysis to support the assertion that the rates charged under other related party agreements are market rate.

We intend to fully review all of the issues raised above. Please also provide documents that support your responses. We ask and expect that Ocwen will preserve all documents concerning the matters discussed in this letter.
Sincerely,
Benjamin M. Lawsky Superintendent of Financial Services
cc: William C. Erbey, Executive Chairman, Ocwen Board of Directors
Ronald M. Faris, Ocwen Board of Directors
Ronald J. Korn, Ocwen Board of Directors
William H. Lacy, Ocwen Board of Directors
Wilbur L. Ross, Jr., Ocwen Board of Directors
Robert A. Salcetti, Ocwen Board of Directors
Barry N. Wish, Ocwen Board of Directors
Mitra Hormozi, Zuckerman Spaeder LLP
James Sottile, Zuckerman Spaeder LLP

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Wells ruling an affront to ‘good faith’

Wells ruling an affront to ‘good faith’

Case is here:US BANK NATIONAL ASSOCIATION v SARMIENTO | NY Appellate Div, 2nd Dept. – we hold that the Supreme Court properly concluded that the plaintiff failed to negotiate in good faith and that the Supreme Court had the authority to sanction the plaintiff for that failure


NYPOST –

In a decision that will have enormous ripple effects through local foreclosure cases, a powerful New York court hit Wells Fargo for failing to negotiate in good faith with Brooklyn borrower José Sarmiento.

The smackdown came as the court affirmed an earlier ruling on the issue, and upheld sanctions preventing Wells from collecting interest and fees on the loan since December 2009 and legal fees in this action — a total of roughly $300,000, according to estimates by Sarmiento’s attorney, David Fuster.

Sarmiento endured 18 rounds of settlement negotiations with Wells, which “delayed and prevented resolution of the action,” according to the decision.

[NEW YORK POST]

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US BANK NATIONAL ASSOCIATION v SARMIENTO | NY Appellate Div, 2nd Dept. – we hold that the Supreme Court properly concluded that the plaintiff failed to negotiate in good faith and that the Supreme Court had the authority to sanction the plaintiff for that failure

US BANK NATIONAL ASSOCIATION v SARMIENTO | NY Appellate Div, 2nd Dept. – we hold that the Supreme Court properly concluded that the plaintiff failed to negotiate in good faith and that the Supreme Court had the authority to sanction the plaintiff for that failure

Supreme Court of the State of New York
Appellate Division: Second Judicial Department

D39377
W/hu
AD3d Argued – June 6, 2013
REINALDO E. RIVERA, J.P.
PETER B. SKELOS
JOHN M. LEVENTHAL
PLUMMER E. LOTT, JJ.

2012-03513 OPINION & ORDE

2014 NY Slip Op 05533
 

US BANK NATIONAL ASSOCIATION, ETC., Appellant,
v.
JOSE SARMIENTO, Respondent, ET AL., Defendants.

 

2012-03513, Index No. 11124/09.
 

Appellate Division of the Supreme Court of New York, Second Department.

 

Decided July 30, 2014.
 

Hogan Lovells US LLP, New York, N.Y. (David Dunn and Nathaniel E. Marmon of counsel), for appellant.

 

Fuster Law, P.C., Long Island City, N.Y. (J. A. Sanchez-Dorta of counsel), for respondent.

 

Before: Reinaldo E. Rivera, J.P. Peter B. Skelos John M. Leventhal Plummer E. Lott, JJ.

 

APPEAL by the plaintiff, in an action to foreclose a mortgage, from so much of an order of the Supreme Court (Leon Ruchelsman, J.), dated December 19, 2011, and entered in Kings County, as, upon a finding that the plaintiff failed to negotiate in good faith during settlement conferences conducted pursuant to CPLR 3408, granted the motion of the defendant Jose Sarmiento to bar the plaintiff from collecting interest or fees that accrued on the subject loan since December 1, 2009, to bar the plaintiff from recovering from him any costs or attorneys’ fees it incurred in this action, and to direct the plaintiff to review the issue of whether the subject loan may be eligible for a loan modification pursuant to the Home Affordable Modification Program by employing correct information and without regard to interest or fees that have accrued on the subject loan since December 1, 2009.

 

LEVENTHAL, J.

 

OPINION & ORDER

 

On appeal in this mortgage foreclosure action, the plaintiff contends that the Supreme Court erred in determining that it failed to negotiate in good faith during mandatory settlement conferences conducted pursuant to CPLR 3408, and that, in any event, the Supreme Court lacked the authority to impose any sanctions against it on the ground that it violated the “good faith” requirement of CPLR 3408(f). In addressing these contentions, we set forth the proper standard for determining whether a party acted in good faith pursuant to CPLR 3408(f). Further, we hold that the Supreme Court properly concluded that the plaintiff failed to negotiate in good faith and that the Supreme Court had the authority to sanction the plaintiff for that failure.

 

In May 2009, the plaintiff, as successor trustee to Bank of America, National Association (Successor by Merger to LaSalle Bank National Association), as trustee for Morgan Stanley Mortgage Loan Trust, 2007-2AX, commenced this action in the Supreme Court, Kings County, to foreclose a mortgage secured by residential property located in Brooklyn. In the complaint, the plaintiff alleged that the defendant homeowner, Jose Sarmiento, defaulted on the subject mortgage by failing to make the monthly payment due on October 1, 2008. The plaintiff elected to call due the entire amount secured by the mortgage, in the principal sum of $578,388.75, plus interest at an annual rate of 8.25%, accruing from September 1, 2008. Issue was joined by Sarmiento’s service of a pro se verified answer dated July 17, 2009, which was accompanied by a notice to produce documents.

 

In an affidavit, Sarmiento averred that, in May 2008, he lost much of his monthly income and that, as a consequence, he was unable to make his monthly mortgage payment due on October 1, 2008, and the payments due thereafter. In September 2008, Sarmiento contacted America’s Servicing Company (hereinafter ASC), the mortgage servicing agent of the lender, and a wholly owned subsidiary of Wells Fargo Bank, N.A. (hereinafter together ASC/Wells), in order to discuss a loan modification. Sarmiento was told that he did not qualify for a loan modification because he had insufficient income. In February 2009, Sarmiento found an additional tenant for the subject property, and began receiving monthly rental income in the sum of $4,652. According to Sarmiento, notwithstanding his augmented income, ASC/Wells repeatedly refused to modify his loan.

 

In September 2009, this matter was referred to a Court Attorney Referee for a mandatory settlement conference pursuant to CPLR 3408. Sarmiento initially appeared pro se at the settlement discussions, and later obtained pro bono counsel. ACS/Wells, through their counsel,[1] appeared at the settlement discussions on behalf of the plaintiff. From September 14, 2009, to January 14, 2011, 18 settlement conferences were held. What transpired during the settlement conferences is detailed in the report of the Court Attorney Referee, dated April 20, 2011.

 

The Court Attorney Referee’s Report

 

The report of the Court Attorney Referee set forth the following facts. On October 29, 2009, Sarmiento submitted to ACS/Wells a Home Affordable Mortgage Program (hereinafter HAMP) application[2]. On November 18, 2009, upon the request of ASC/Wells, Sarmiento submitted updated financial documents. According to the Court Attorney Referee, Sarmiento met the basic criteria for HAMP eligibility since: (1) the subject property was a one-to-four-family residence; (2) Sarmiento’s monthly mortgage payment of principal, interest, property tax, and insurance exceeded 31% of his gross monthly income; and (3) the principal balance of the loan was equal to or less than $729,750.

 

At a settlement conference held on November 30, 2009, ASC/Wells confirmed that it had received Sarmiento’s HAMP application and his updated financial documents, and represented that it would make a decision on the application within one week, even though it had 30 days to make that decision. Upon her review of Sarmiento’s income, the Court Attorney Referee directed him to set aside the sum of $2,000 per month beginning December 1, 2009, to demonstrate his good faith and his ability to make modified mortgage payments and, if necessary, to use as a down payment on a non-HAMP, traditional loan modification.

 

First HAMP Denial

 

By letter dated January 12, 2010, ASC/Wells denied Sarmiento’s HAMP application on the ground that he did not reside at the subject property as his primary residence. After Sarmiento asserted that there was no factual basis for ASC/Wells to have concluded that the property was not his primary residence, ASC/Wells conceded that Sarmiento resided at the property.

 

At a settlement conference conducted on February 2, 2010, ASC/Wells reported that Sarmiento’s HAMP application was complete and still under review. ASC/Wells asserted, however, that it required a broker’s price opinion (hereinafter BPO) to determine the value of the property, which was necessary before a Net Present Value (hereinafter NPV) test could be conducted under HAMP. The NPV test would determine whether a loan modification or a foreclosure sale was more lucrative to the mortgage lender/investor.

 

Second HAMP Denial

 

By letter dated April 2, 2010, ASC/Wells advised Sarmiento that his HAMP application was again denied, this time on the ground that an affordable monthly payment amount—equal to or less than 31% of gross monthly income—could not be reached. In an email message from ASC/Wells’s counsel to Sarmiento’s counsel, ASC/Wells stated that Sarmiento’s HAMP application was denied because of a monthly income deficit of $1,100. According to the Court Attorney Referee, “Servicer ASC/Wells was evaluating . . . Sarmiento for a [HAMP] modification using the wrong income figures, although the defense thoroughly documented the employment and rental income that . . . Sarmiento and his wife earned each month.” By letter dated April 7, 2010, Sarmiento’s counsel informed ASC/Wells of this error, and referred ASC/Wells to Sarmiento’s previously submitted pay stubs, bank statements, and rental agreements, which reflected a gross monthly income of $6,303. Sarmiento’s counsel further requested a denial notice with greater specificity than set forth in the denial letter of April 2, 2010. Pursuant to Sarmiento’s rights under HAMP, his counsel requested that ASC/Wells produce the inputs and data that ASC/Wells used in performing the NPV test.

 

In an email message dated April 9, 2010, ASC/Wells advised Sarmiento’s counsel that it had never conducted an NPV test on Sarmiento’s HAMP application because the file had not reached the NPV calculation phase, and that the denial was “due to [an inability to] reach an affordable payment.” By letter dated April 12, 2010, Sarmiento’s counsel reiterated his objections to the HAMP denials, and requested “that ASC/Wells comply with HAMP guidelines and complete its modification review.”

 

At a settlement conference held on April 13, 2010, and by letter dated April 22, 2010, Sarmiento requested a proper review of his HAMP application. According to the Court Attorney Referee, ASC/Wells replied that it “had misplaced income documentation” and that some other documentation had become “stale.” As a consequence of its characterization of the status of the documentation, ASC/Wells requested that Sarmiento submit a new HAMP application. The Court Attorney Referee instructed Sarmiento’s counsel to resubmit and update the HAMP application, and directed “ASC/Wells to escalate and expedite the HAMP review.” Sarmiento submitted an updated HAMP application to ASC/Wells on April 26, 2010.

 

Third HAMP Denial

 

At a settlement conference held on May 11, 2010, ASC/Wells reported that it had “escalated” review of Sarmiento’s HAMP application, and that such review was still incomplete. Two days later, however, ASC/Wells informed Sarmiento’s counsel, in an email message, that it was again denying his HAMP application “due to not being able to reach affordability.” The email message further stated the “this property is not affordable,” and requested Sarmiento’s counsel to “refer the borrower to our liquidations department for further foreclosure prevention options.” According to the Court Attorney Referee, the email message dated May 13, 2010, “failed and refused to demonstrate that Sarmiento was ineligible for a HAMP modification.”

 

By letter dated May 28, 2010, Sarmiento’s counsel requested more specific information about the denial, and again demanded the inputs and data that ASC/Wells used to conduct the NPV test in connection with Sarmiento’s HAMP application. ASC/Wells did not provide the requested information. The Court Attorney Referee observed that, “[a]lthough HAMP guidelines require production of the NPV inputs upon request so that borrowers can review the propriety of a denial and challenge the accuracy of the NPV inputs, Services ASC/Wells ignored[] the written requests [from Sarmiento's counsel] for the data, and failed to produce the NPV values. Indeed, ASC/Wells failed to demonstrate that an NPV test had, in fact, been run.”

 

As set forth in the report of the Court Attorney Referee, on June 2, 2010, Sarmiento filed a formal complaint against ASC/Wells with the HAMP support center on the ground that ASC/Wells refused to properly assess his HAMP application. On June 8, 2010, the HAMP support center advised Sarmiento that ASC/Wells had denied his HAMP application because he had $25,000 in liquid assets, which exceeded the maximum limit. The report of the Court Attorney Referee noted, however, that the $25,000 reflected funds which she had previously directed Sarmiento to set aside.

 

Nevertheless, at a settlement conference held on July 1, 2010, ASC/Wells reported that Sarmiento’s HAMP application was “still under review,” and that this review would be completed no later than two weeks after that date. ASC/Wells added that the funds that Sarmiento set aside at the direction of the Court Attorney Referee would not affect his HAMP application. Sarmiento’s counsel made a third request for the inputs and data that ASC/Wells used in the NPV test; ASC/Wells replied that it “did not have the NPV inputs because the latest denial related to a non-HAMP modification.” The Court Attorney Referee adjourned the settlement conference until July 19, 2010, to await the results of ASC/Wells’s review of Sarmiento’s HAMP application.

 

At the settlement conference held on July 19, 2010, ASC/Wells reported that it had not completed its HAMP review. Moreover, consistent with the statement of the HAMP support center dated June 8, 2010, counsel for ASC/Wells reported that ASC/Wells had previously denied Sarmiento’s HAMP application because of “excess resources.” The Court Attorney Referee stated that, “[i]n light of the repeated delays, the baseless denials, and obvious mishandling of the loan file by both ASC/Wells and [counsel for ASC/Wells] before a HAMP review was even done, I directed an ASC/Wells representative with personal knowledge and settlement authority to appear in person at the next settlement conference.”

 

At the next settlement conference, which was held on September 14, 2010, Eliza Melendez of ASC/Wells appeared, and explained that “Sarmiento’s HAMP application was still under review and that a new BPO was required to value the [property] for the NPV test.” The Court Attorney Referee described Melendez as having limited knowledge of Sarmiento’s file, and no settlement authority. Sarmiento’s counsel asserted that ASC/Wells should waive at least nine months of accrued interest because of the “inexplicable delays” in ASC/Wells’s HAMP review. The Court Attorney Referee directed the vice president of ASC/Wells to personally appear at the next settlement conference.

 

The next settlement conference was held on September 28, 2010. At that time, Tracy Brooks, a Loan Administration Manager in the Home Preservation Department of ASC/Wells, personally appeared, and she reported that the HAMP review was incomplete because Sarmiento had not submitted certain documents. However, when Brooks accessed Sarmiento’s loan file on her personal laptop computer, she confirmed that the file was complete. Upon Brooks’s request, she was allowed to review the file overnight. The next day, Brooks reported that ASC/Wells needed a property tax bill and a copy of Sarmiento’s property insurance declaration page, and that she was expediting the HAMP review.

 

At the next settlement conference, which was held on October 5, 2010, ASC/Wells offered a traditional, non-HAMP loan modification, in which the annual percentage rate (hereinafter APR) was lowered from 8.25% to 4%. ASC/Wells explained that it “had not made a HAMP offer because it was still trying to figure out what to do’ about the informal escrow account that . . . Sarmiento had set aside at [the Court Attorney Referee's] direction.”

 

Fourth HAMP Denial

 

Meanwhile, according to the Court Attorney Referee, “ASC/Wells sent . . . Sarmiento a denial letter [dated October 6, 2010], erroneously and preposterously stating that he was denied a HAMP modification because he was current on his mortgage loan and not at risk of default.

 

At a settlement conference held on October 12, 2010, ASC/Wells “reported for the first time that an NPV test had been run and that [Sarmiento] had failed,” meaning that a HAMP modification would not be more favorable to the plaintiff than a foreclosure sale. ASC/Wells provided none of the data or inputs it had used to conduct the NPV test, and reiterated its offer of a traditional, non-HAMP loan modification. Sarmiento rejected the non-HAMP loan modification as unaffordable.

 

A few weeks later, in an email message dated November 2, 2010, ASC/Wells provided some of the data and inputs it had used to conduct the NPV test. According to the Court Attorney Referee, this data showed that ASC/Wells conducted the NPV test in November 2010, which was 25 months after Sarmiento defaulted, and one year after ASC/Wells had initially denied Sarmiento’s HAMP application. The Court Attorney Referee calculated that, as a result of ASC/Wells’s delay, more than $40,000 in arrears accrued on the loan.

 

On November 5, 2010, ASC/Wells offered Sarmiento a second traditional, non-HAMP modification, in which the APR was initially dropped to 2%, but then increased to 4%. Sarmiento rejected that offer.

 

At a settlement conference held on January 14, 2011, ASC/Wells stated that it would make no further modification offers. ASC/Wells then retained Hogan Lovells, LLP (hereinafter Hogan) as cocounsel to Steven J. Baum, P.C., in anticipation of a hearing pursuant to CPLR 3408 before the Supreme Court to determine whether it had failed to negotiate in good faith. According to the Court Attorney Referee, at that conference, Hogan acknowledged that ASC/Wells had handled Sarmiento’s loan “poorly,” but stated that ASC/Wells could not “do anything for . . . Sarmiento because of excessive forbearance.”

 

No progress on a settlement was made in three subsequent settlement conferences. With the parties at an impasse, the Court Attorney Referee directed them to submit position statements for use in the preparation of the report. In her report, the Court Attorney Referee determined that the plaintiff and ACS/Wells had failed to negotiate a loan modification in good faith, and had not complied with HAMP guidelines. Thus, the Court Attorney Referee recommended, inter alia, that the Supreme Court conduct a hearing to determine whether sanctions should be imposed against the plaintiff and ASC/Wells and its counsel.

 

Sarmiento’s Motion for an Award of Sanctions

 

By notice of motion dated June 17, 2011, Sarmiento moved to bar the plaintiff from collecting interest or fees accrued on the subject loan from December 1, 2009, “to date,” to bar the plaintiff from collecting from him any attorney’s fee or costs incurred “to date” in this action, and to direct the plaintiff to review the subject loan for a HAMP modification using an unpaid principal balance that excluded interest, fees, and costs that had accrued from December 1, 2009, “to date.” In support of his motion, Sarmiento submitted, inter alia, his counsel’s affirmation, to which were appended, as exhibits, an affidavit from Sarmiento, excerpts from a handbook entitled “Making Home Affordable Handbook for Servicers of Non-GSE Mortgages,” letters and copies of email messages between ASC/Wells and Sarmiento that were sent during 2010, and a proposed order. In an affirmation, Sarmiento’s counsel argued that the conduct of ASC/Wells demonstrated an “egregious refusal to negotiate in good faith, including its repeated delays and baseless denials of Mr. Sarmiento’s request for a modification in violation of HAMP guidelines.”

 

The Plaintiff’s Opposition

 

In opposition to Sarmiento’s motion, the plaintiff submitted, inter alia, an affidavit from Kyle N. Campbell, Vice President of Loan Documentation for ASC/Wells.

 

Campbell averred as follows: on February 18, 2010, the plaintiff received all documents necessary to review Sarmiento’s HAMP application. By letter dated April 2, 2010, the application was denied because Sarmiento’s debt-to-income ratio exceeded HAMP limits, inasmuch as his monthly expenses were $7,823.64 and his monthly income was only $4,728.94. After receiving additional financial documents in late April 2010, the plaintiff again reviewed the loan file but, by letter dated May 13, 2010, Sarmiento’s HAMP application was again denied, as was the possibility of a traditional, non-HAMP loan modification, because his debt-to-income ratio remained excessive, specifically, he had monthly income of $3,839.91, and monthly expenses of $7,253.22.

 

In September 2010, the plaintiff offered Sarmiento a non-HAMP loan modification, lowering the APR of the loan from 8.25% to 4%. Sarmiento rejected that offer, as it was not made pursuant to HAMP. In response, the plaintiff made a second non-HAMP loan modification offer, in which the APR of the loan would be initially lowered to 2% and gradually increased to 4%. Sarmiento also rejected that offer. Campbell asserted that the plaintiff could not offer any further modifications because of Sarmiento’s “limited income and his delinquency in making any payments under the loan for more than two years.”

 

On August 2, 2011, the parties stipulated, among other things, that Sarmiento’s motion seeking, inter alia, to bar the plaintiff from collecting interest or fees that accrued on the subject loan since December 1, 2009, would be decided without an evidentiary hearing.

 

The Order Appealed From

 

Based upon the papers submitted, the Supreme Court, in the order appealed from, inter alia, granted Sarmiento’s motion to bar the plaintiff from collecting interest or fees that accrued on the subject loan since December 1, 2009, to bar the plaintiff from recovering any costs or attorneys’ fees it incurred in this action, and to direct the plaintiff to review the subject loan for a HAMP loan modification using correct information and without regard to interest or fees that have accrued on the subject loan since December 1, 2009. The Supreme Court determined that, while the plaintiff had failed to negotiate in good faith as required by CPLR 3408(f), Sarmiento had acted in good faith. The court determined that, while Sarmiento and his counsel acted quickly and had been in contact with the plaintiff and ASC/Wells, the plaintiff and ASC/Wells has failed to respond to Sarmiento’s “requests for very basic information” related to his HAMP application, and their counsel’s communications with Sarmiento had sown confusion, distress, and doubt by including, among other things, confusing and vague rejection notices and requests for duplicative documents. The court stated:

 

“To describe the Plaintiff’s attitude succinctly: it was happy to do equity when it brought the underlying action for foreclosure, but stubbornly refused to do equity when as a result of statute (CPLR 3408), it was forced to sit down at the negotiating table with the homeowner and attempt to work out a deal. Put otherwise, the only delay’ that is legal in a foreclosure action is the delay imposed by CPLR 3408, and good faith means participating honestly, cleanly, and mutually in that delay’ process. Otherwise, this Court may exercise its equitable powers to restrict any remedy otherwise available.”

 

The plaintiff appeals.

 

HAMP

 

The federal response to the mortgage foreclosure crisis included the creation of HAMP, which arose as part of the Emergency Economic Stabilization Act of 2008 (12 USC §§ 5201 et seq.) and the Helping Families Save Their Homes Act of 2009 (Pub L 111-22, § 1[a], 123 Stat 1632, 1632 [111th Cong, 1st Sess, May 20, 2009]) (see JP Morgan Chase Bank, N.A. v Ilardo, 36 Misc 3d 359, 366 [Sup Ct, Suffolk County]). HAMP is administered by the Federal National Mortgage Association (hereinafter Fannie Mae), as an agent of the United States Treasury Department (see id. at 366). The purpose of HAMP “is to provide relief to borrowers who have defaulted on their mortgage payments or who are likely to default by reducing mortgage payments to sustainable reduced levels, without discharging any of the underlying debt” (id.).

 

Fannie Mae entered into agreements with numerous home loan servicers, including Wells Fargo, pursuant to which the servicers “agreed to identify homeowners who were in default or would likely soon be in default on their mortgage payments, and to modify the loans of those eligible under the program” (Wigod v Wells Fargo Bank, N.A., 673 F3d 547, 556 [7th Cir]). HAMP provides lenders and loan servicers an incentive “to offer loan modifications to eligible homeowners” (Young v Wells Fargo Bank, N.A., 717 F3d 224, 228 [1st Cir]; see Edwards v Aurora Loan Servs., LLC, 791 F Supp 2d 144, 148 [D DC] [explaining that, under HAMP, the United States Treasury Department "pay(s) financial incentives to servicers and loan owners/investors that are sufficient to make a HAMP modification a better financial outcome than foreclosure for the servicer and investor"]).

 

When a borrower applies for a HAMP loan modification, the first step is to determine HAMP eligibility, which includes, among other things, consideration of whether the subject loan originated prior to January 1, 2009, the subject property is improved by a one-to-four-family house, the borrower resides in the house, and, prior to modification, the borrower’s monthly mortgage payment exceeded 31% of the borrower’s verified gross monthly income (see Making Home Affordable Handbook for Servicers of Non-GSE Mortgages vers 3.2, ch 2, § 1.1 [HAMP Eligibility Criteria]). If the initial HAMP eligibility criteria are met, upon the borrower’s submission to the servicer of the required financial information, the servicer must apply a “waterfall,” i.e., a multiple-step process that is to be applied in a particular sequence, one step at a time, which here involves a five-step review of the terms of the loan to determine whether modification of one or more of those terms might reduce the monthly mortgage payment to no more than 31% of the borrower’s gross monthly income. The five steps of the standard waterfall, in the order in which they are to be applied, are capitalization modification, interest rate reduction, term extension, principal forbearance, and principal forgiveness (see Making Home Affordable Handbook for Servicers of Non-GSE Mortgages vers 3.2, ch 2, § 6.3 [Standard Modification Waterfall]; see also Edwards v Aurora Loan Servs., LLC, 791 F Supp 2d at 149). Deviations from the standard waterfall are not precluded and, under certain circumstances, servicers may offer borrowers modifications more favorable than those required under HAMP (see Making Home Affordable Handbook for Servicers of Non-GSE Mortgages vers 3.2, ch 2, § 6.3.6 [Variation from Standard Modification Waterfall]).

 

Moreover, “[a]ll loans that meet HAMP eligibility criteria and are either deemed to be in imminent default or delinquent as to two or more payments must be evaluated using a standardized NPV test that compares the NPV result for a modification to the NPV result for no modification” (Making Home Affordable Handbook for Servicers of Non-GSE Mortgages vers 3.2, ch 2, § 7]; see Edwards v Aurora Loan Servs., LLC, 791 F Supp 2d at 149 [citations omitted]). Using the standard modification waterfall, if the NPV test result under the modification scenario is greater than the NPV test result without modification, the result is deemed “positive” and the servicer “must offer the [HAMP] modification” (Making Home Affordable Handbook for Servicers of Non-GSE Mortgages vers 3.2, ch 2, § 7]). If the opposite occurs, the result is deemed “negative,” and the servicer, with the express permission of the investor, has the discretion to offer the HAMP modification (id.). If, after a negative result, the servicer opts not to offer the borrower a modification, it “must send a Non-Approval Notice and consider the borrower for other foreclosure prevention options” (id.).

 

CPLR 3408(f) and Good Faith

 

We now turn from the federal response to the financial crisis, and address New York’s response to the 2008 mortgage crisis. New York’s response included the enactment of CPLR 3408, a remedial statute which required that, “in residential foreclosure actions involving the type of loans within the ambit of that section, in which the defendant was a resident of the subject property, the court would hold a mandatory conference for settlement discussions” (Wells Fargo Bank, N.A. v Meyers, 108 AD3d 9, 17; see L 2008, ch 472; CPLR 3408).

 

In 2009, CPLR 3408 was amended by, among other things, requiring mandatory settlement conferences in mortgage foreclosure actions involving any home loan in which the defendant is a resident of the subject property—regardless of when the home loan was made—and requiring both the plaintiff and defendant to negotiate in “good faith” to reach a resolution of the action, including, if possible, a loan modification (L 2009, ch 507, § 9, amending CPLR 3408[a] and adding CPLR 3408[f]). The Chief Administrator of the Courts thereafter promulgated 22 NYCRR 202.12-a, a regulation setting forth the rules and procedures governing CPLR 3408 settlement conferences (see 22 NYCRR 202.12-a [directing the court to "ensure that each party fulfills its obligation to negotiate in good faith"]). “The purpose of the good faith requirement [in CPLR 3408] is to ensure that both plaintiff and defendant are prepared to participate in a meaningful effort at the settlement conference to reach resolution” (2009 Mem of Governor’s Program Bill, Bill Jacket, L 2009, ch 507, at 11). While the aspirational goal of negotiations pursuant to CPLR 3408 is that the parties “reach a mutually agreeable resolution to help the defendant avoid losing his or her home” (CPLR 3408[a]), the statute requires only that the parties enter into and conduct negotiations in good faith (see Wells Fargo Bank, N.A. v Van Dyke, 101 AD3d 638). In its present form, CPLR 3408 provides, in pertinent part, as follows:

 

“(a) In any residential foreclosure action involving a home loan . . . in which the defendant is a resident of the property subject to foreclosure, the court shall hold a mandatory conference . . . for the purpose of holding settlement discussions pertaining to the relative rights and obligations of the parties under the mortgage loan documents, including, but not limited to determining whether the parties can reach a mutually agreeable resolution to help the defendant avoid losing his or her home, and evaluating the potential for a resolution in which payment schedules or amounts may be modified or other workout options may be agreed to, and for whatever other purposes the court deems appropriate.

 

“(f) Both the plaintiff and defendant shall negotiate in good faith to reach a mutually agreeable resolution, including a loan modification, if possible” (CPLR 3408[a], [f] [emphasis added]).

 

A review of the legislative history does not reveal any discussion of the “good faith” standard envisioned by the Legislature (see L 2009, ch 507).

 

On this appeal, the plaintiff essentially argues that a party to a mortgage foreclosure action can only be found to have violated the good-faith requirement of CPLR 3408(f) when that party has engaged in egregious conduct such as would be necessary to support a finding of “bad faith” under the common-law. The plaintiff maintains that it did not engage in any egregious conduct such as gross negligence or intentional misconduct and, therefore, it satisfied the good-faith requirement of CPLR 3408(f).

 

In the absence of a statutory definition of “good faith,” we must first determine whether a lack of good faith should be measured by the common-law standard of bad faith or by a plaintiff’s failure to comply with HAMP guidelines. No published decision appears to specifically define “good faith,” as that term is employed in CPLR 3408(f). In Wells Fargo Bank, N.A. v Van Dyke (101 AD3d at 638-639), the Appellate Division, First Department, rejected a plaintiff mortgagee’s argument that compliance with the good faith requirement of CPLR 3408 is established “merely by proving the absence of fraud or malice on the part of the lender,” and briefly addressed the issue of what constitutes “good faith” by noting that “[a]ny determination of good faith must be based on the totality of the circumstances” taking into account that CPLR 3408 is a remedial statute. However, the standard to apply in determining what constitutes a lack of good faith pursuant to CPLR 3408(f) is a matter of first impression in this Court (cf. IndyMac Bank, F.S.B. v Yano-Horoski, 78 AD3d 895, 896 [the plaintiff did not challenge "bad faith" determination on appeal, but only contested the sanction of cancellation of the debt]).

 

A review of various trial-level court decisions shows that courts have not required a showing of intentional misconduct, malice, or gross negligence when determining whether a party has failed to negotiate in good faith as required by CPLR 3408(f). For example, one court observed that good faith is a subjective concept, generally meaning honest, fair, and open dealings, and a “state of mind motivated by proper motive” (HSBC Bank USA v McKenna, 37 Misc 3d 885, 905 [Sup Ct, Kings County] [internal quotation marks omitted]). Unreasonable, arbitrary, or unconscionable conduct is inconsistent with the statutory purpose of good faith negotiations aimed at achieving a resolution (see id. at 908). Several trial-level courts have found that, where a plaintiff lost financial documents, sent confusing and contradictory communications, inexcusably delayed a modification decision, or denied requests for HAMP loan modifications without setting forth grounds, such conduct constituted a lack of good faith within the meaning of CPLR 3408(f) (see e.g. Wells Fargo Bank, N.A. v Ruggiero, 39 Misc 3d 1233[A], 2013 NY Slip Op 50871[U] [Sup Ct, Kings County] [finding it appropriate to sanction the plaintiff for its failure to act in good faith where the plaintiff, inter alia, provided conflicting information, refused to honor agreements, engaged in unexcused delay, imposed unexplained charges, made misrepresentations, and failed to deal honestly, fairly, and openly]; HSBC Bank USA v McKenna, 37 Misc 3d at 888, 898-899, 910 [accepting a referee's recommendation that the plaintiff be found to have failed to act in good faith where the plaintiff rejected a proposed short sale at a sum the plaintiff had previously stated was its minimum sale amount and, in dicta, advising that, in determining whether the plaintiff failed to act in good faith in rejecting a short sale proposal, the factors to be considered included the outstanding debt, the likely market movement, and whether a short sale would result in a greater yield than a public foreclosure auction]; cf. Wells Fargo Bank, N.A. v Van Dyke, 101 AD3d 638 [the defendants did not establish lack of good faith by the plaintiff where the defendants did not submit evidence supporting their claimed rental income]; but see JP Morgan Chase Bank, N.A. v Ilardo, 36 Misc 3d at 366, 378-380 [the plaintiff's conduct did not constitute a lack of good faith because an interim modification plan applied on a trial basis did not contractually obligate the plaintiff to provide a permanent HAMP loan modification to the defendants]). In addition, while we were not expressly called upon to decide the proper standard to apply in Wells Fargo Bank, N.A. v Myers (108 AD3d 9), in that case we determined that the record supported the Supreme Court’s finding that the mortgagee had failed to satisfy its obligation to negotiate in good faith without applying the common-law standard of bad faith.

 

The plaintiff nevertheless urges this Court to adopt the common-law standard of bad faith and hold that in determining whether a party failed to act in good faith during mandatory settlement negotiations pursuant to CPLR 3408, a court should consider only whether the party acted deliberately or recklessly in a manner that evinced gross disregard of, or conscious or knowing indifference to, another’s rights. This standard for bad faith conduct has been articulated in various contexts to determine issues such as whether an insurance carrier may be held liable for the alleged bad-faith failure to accept a settlement offer (see Pavia v State Farm Mut. Auto. Ins. Co., 82 NY2d 445, 453-454 [to establish a prima facie case of bad faith, the plaintiff must establish that the insurer's conduct constituted a "gross disregard of the insured's interests—that is, a deliberate or reckless failure to place on equal footing the interests of its insureds with its own interests when considering a settlement offer"]); whether a “no-damage-for delay” clause in a contract may be enforced for delays allegedly actuated by bad faith (see Kalisch-Jarcho, Inc. v City of New York, 58 NY2d 377, 384-385 ["no-damage-for delay" clause will not exempt a party from liability for willful or gross negligence, intentional wrongdoing, fraudulent or malicious conduct]); and whether allegedly stolen bonds were taken in bad faith (see Manufacturers & Traders Trust Co. v Sapowitch, 296 NY 226, 229 [bad faith is "nothing less than guilty knowledge or willful ignorance"]).

 

Were this Court to adopt the plaintiff’s proposed standard for determining whether a party failed to act in good faith, we would undermine the remedial purpose of CPLR 3408. The purpose of the statute is “to address the problem of mortgage foreclosures” by “help[ing] struggling homeowners without harming all consumers by inadvertently driving up the cost of credit or limiting the availability of legitimate credit” (Letter of Sen Farley, Bill Jacket, L 2008, ch 472, at 5), and “providing additional protections and foreclosure prevention opportunities for homeowners at risk of losing their homes” (Senate Introducer’s Mem in Support, Bill Jacket, L 2008, ch 472, at 7). To reiterate, “[t]he purpose of the good faith requirement [in CPLR 3408] is to ensure that both plaintiff and defendant are prepared to participate in a meaningful effort at the settlement conference to reach resolution” (2009 Mem of Governor’s Program Bill, Bill Jacket, L 2009, ch 507, at 11).

 

Therefore, we hold that the issue of whether a party failed to negotiate in “good faith” within the meaning of CPLR 3408(f) should be determined by considering whether the totality of the circumstances demonstrates that the party’s conduct did not constitute a meaningful effort at reaching a resolution. We reject the plaintiff’s contention that, in order to establish a party’s lack of good faith pursuant to CPLR 3408(f), there must be a showing of gross disregard of, or conscious or knowing indifference to, another’s rights. Such a determination would permit a party to obfuscate, delay, and prevent CPLR 3408 settlement negotiations by acting negligently, but just short of deliberately, e.g., by carelessly providing misinformation and contradictory responses to inquiries, and by losing documentation. Our determination is consistent with the purpose of the statute, which provides that parties must negotiate in “good faith” in an effort to resolve the action, and that such resolution could include, “if possible,” a loan modification (CPLR 3408[f]; see Wells Fargo Bank, N.A. v Meyers, 108 AD3d at 11, 18, 20, 23; Wells Fargo Bank, N.A. v Van Dyke, 101 AD3d 638 [the defendants did not demonstrate that the plaintiff failed to act in good faith because nothing in CPLR 3408 requires a plaintiff to make the exact settlement offer desired by the defendants]; HSBC Bank USA v McKenna, 37 Misc 3d 885 [Sup Ct, Kings County] [the plaintiff failed to act in good faith based upon, inter alia, a referee's finding that the plaintiff rejected an all-cash short sale offer]).

 

Where a plaintiff fails to expeditiously review submitted financial information, sends inconsistent and contradictory communications, and denies requests for a loan modification without adequate grounds, or, conversely, where a defendant fails to provide requested financial information or provides incomplete or misleading financial information, such conduct could constitute the failure to negotiate in good faith to reach a mutually agreeable resolution.

 

In this case, the totality of the circumstances supports the Supreme Court’s determination that the plaintiff failed to act in good faith, as the plaintiff thwarted any reasonable opportunities to settle the action, thus contravening the purpose and intent of CPLR 3408. Sarmiento submitted his initial HAMP application on October 29, 2009, and provided updated financial documentation on November 18, 2009. Beginning on December 1, 2009, at the direction of the Court Attorney Referee, Sarmiento began placing $2,000 per month in an escrow fund, in part to demonstrate his ability to make modified monthly payments. On January 2, 2010, six weeks after receiving Sarmiento’s complete HAMP application, the plaintiff denied the application on the erroneous ground that the property was not Sarmiento’s primary residence.

 

Another month passed without a proper HAMP determination. On February 2, 2010, the plaintiff indicated that it needed a BPO to conduct an NPV test, a representation which suggested that Sarmiento’s HAMP application had satisfied the five-step waterfall test. Nevertheless, two months later, on April 2, 2010, the plaintiff again denied Sarmiento’s HAMP application, apparently for failing to satisfy the waterfall test since the plaintiff claimed that modification could not result in a monthly payment equal to or less than 31% of Sarmiento’s gross monthly income. However, the plaintiff apparently reached this conclusion using incorrect income data.

 

At the request of the Court Attorney Referee, Sarmiento submitted a second HAMP application on April 26, 2010. On May 13, 2010, the plaintiff denied the application, this time on the ground that the property was “not affordable.” The plaintiff ignored Sarmiento’s ensuing request for a more specific reason for denial and for the data that the plaintiff had used in conducting the NPV test.

 

On June 8, 2010, after Sarmiento sought the assistance of the HAMP support center, he was told that his HAMP application had been denied because of the escrow fund he had created at the direction of the Court Attorney Referee. This rationale, presumably relayed to the HAMP support center by the plaintiff, was a new ground for denial, and was inexplicable since the plaintiff was aware that the escrow fund existed at the direction of the Court Attorney Referee.

 

Nevertheless, despite the apparent denial of May 13, 2010, the plaintiff indicated, on July 1, 2010, that it was still reviewing Sarmiento’s HAMP application. Despite having indicated in February 2010 that it would soon conduct an NPV test, the plaintiff stated that no NPV test had yet been conducted. On July 19, 2010, the plaintiff indicated that the defendant’s HAMP application had been denied because of the creation and existence of the escrow fund.

 

Two months later, the plaintiff indicated that it again needed a BPO so that it could conduct an NPV test. Notably, the plaintiff had made an identical representation eight months earlier, and did not explain why it had not conducted the NPV test in February 2010. On October 5, 2010, the plaintiff offered Sarmiento a non-HAMP loan modification, while simultaneously indicating that his HAMP application was still under review. On the following day, the plaintiff again denied Sarmiento’s HAMP application, this time on the ground that he was current on his mortgage. The record demonstrates that it was not until October 12, 2010, nearly one year after Sarmiento made his initial HAMP application, that the plaintiff finally conducted an NPV test, which was negative.

 

Any one of the plaintiff’s various delays and miscommunications, considered in isolation, does not rise to the level of a lack of good faith. Viewing the plaintiff’s conduct in totality, however, we conclude that its conduct evinces a disregard for the settlement negotiation process that delayed and prevented any possible resolution of the action and, among other consequences, substantially increased the balance owed by Sarmiento on the subject loan. Although the plaintiff may ultimately be correct that Sarmiento is not entitled to a HAMP modification, the plaintiff’s conduct during the settlement negotiation process makes it impossible to discern such a fact, as the plaintiff created an atmosphere of disorder and confusion that rendered it impossible for Sarmiento or the Supreme Court to rely upon the veracity of the grounds for the plaintiff’s repeated denials of Sarmiento’s HAMP application.

 

Therefore, the totality of the circumstances supports the Supreme Court’s determination that the plaintiff failed to negotiate in good faith, in violation of CPLR 3408(f) (see Wells Fargo Bank, N.A. v Meyers, 108 AD3d at 17).

 

Sanction

 

The plaintiff further argues that, even if it failed to act in good faith, the Supreme Court lacked the authority to sanction it absent express statutory or regulatory authority. In the plaintiff’s view, CPLR 3408(f) and 22 NYCRR 202.12-a(c)(4) require the parties to negotiate in good faith, but provide no mechanism to enforce that requirement. In order to address this particular contention, we must first look to our recent holding in Wells Fargo Bank, N.A. v Meyers (108 AD3d 9).

 

In Meyers, the plaintiff in a foreclosure action had, among other things, commenced the action even though its loan modification proposal was pending, denied a permanent loan modification based on the defendants’ purported debt-to-income ratio without submitting evidence of its calculations, and provided conflicting information regarding its denials of requests for a loan modification. This Court observed that, upon finding that foreclosing plaintiffs failed to negotiate in good faith pursuant to CPLR 3408(f), the trial-level courts have imposed a variety of sanctions, including barring them from collecting interest, legal fees, and expenses, imposing exemplary damages against them, staying the proceedings, imposing a monetary sanction pursuant to 22 NYCRR part 130, and vacating the judgment of foreclosure and sale and cancelling the note and mortgage (see Wells Fargo Bank, N.A. v Meyers, 108 AD3d at 20-21). We noted that, save for our determination in IndyMac Bank, F.S.B. v Yano-Haroski (78 AD3d 895), in which we reversed the severe sanction of cancellation of the note and mortgage, based on the plaintiff’s failure to negotiate in good faith as required by CPLR 3408(f), this Court had not otherwise reviewed the propriety of other means of enforcing the good-faith negotiation requirement of CPLR 3408(f).

 

In Meyers, this Court determined that there was no basis to disturb the Supreme Court’s finding, made after a hearing, that the plaintiff failed to negotiate in good faith, in violation of CPLR 3408(f). While acknowledging that CPLR 3408(f) does not set forth a specific remedy for a party’s failure to negotiate in good faith (see Wells Fargo Bank, N.A. v Meyers, 108 AD3d at 19; Hon. Mark C. Dillon, The Newly-Enacted CPLR 3408 for Easing the Mortgage Foreclosure Crisis: Very Good Steps, but not Legislatively Perfect, 30 Pace L Rev 855, 875 [Spring 2010]), this Court found that the particular remedy imposed by the Supreme Court—compelling the plaintiff to permanently abide by the terms of a HAMP trial loan modification—was “unauthorized and inappropriate” (Wells Fargo Bank, N.A. v Meyers, 108 AD3d at 21). This Court did not rule on the possibility of other remedies for a violation of the good-faith negotiation requirement set forth in CPLR 3408(f) and cautioned that the courts may not rewrite the loan agreements into which the parties freely entered merely upon finding that one party failed to satisfy its obligation to negotiate in good faith pursuant to CPLR 3408(f) (see id.).

 

Contrary to the plaintiff’s contention, the Supreme Court did not lack authority to impose a sanction for the plaintiff’s failure to negotiate in good faith pursuant to CPLR 3408(f). This Court has specifically held that the Supreme Court has “authority to impose a sanction or remedy in the event it determined . . . that [a] plaintiff had failed to negotiate in good faith in the mandatory foreclosure settlement conferences” (Bank of Am. v Lucido, 114 AD3d 714, 715, citing Wells Fargo Bank, N.A. v Meyers, 108 AD3d at 11). Although CPLR 3408 is silent as to the sanctions or remedies that may be employed for violation of the good faith negotiation requirement, “[i]n the absence of a specifically authorized sanction or remedy in the statutory scheme, the courts must employ appropriate, permissible, and authorized remedies, tailored to the circumstances of each given case” (Wells Fargo Bank, N.A. v Meyers, 108 AD3d at 23).

 

Notably, unlike the borrower in Meyers (108 AD3d 9), Sarmiento specifically moved to impose the sanctions ultimately imposed by the Supreme Court, based upon the court’s finding that the plaintiff violated the good faith requirement of CPLR 3408(f). Therefore, the plaintiff was on notice that the Supreme Court would entertain such a remedy.

 

We also note that in contrast to Meyers, the plaintiff does not argue that the sanctions actually imposed in the instant case were excessive or improvident. Therefore, the propriety of the particular sanctions imposed herein is not before us. To the extent that the arguments raised in the plaintiff’s reply brief may be viewed as a challenge to the propriety of the sanction imposed by the Supreme Court in this case, these arguments are not properly before us since they are raised for the first time in a reply brief, to which Sarmiento had no opportunity to respond (see Monadnock Constr., Inc. v DiFama Concrete, Inc., 70 AD3d 906; Congel v Malfitano, 61 AD3d 809; Borbeck v Hercules Constr. Corp., 48 AD3d 498).

 

We are cognizant that, in a foreclosure action, “[t]he court’s role is limited to interpretation and enforcement of the terms agreed to by the parties, and the court may not rewrite the contract or impose additional terms which the parties failed to insert” (131 Heartland Blvd. Corp. v C.J. Jon Corp., 82 AD3d 1188, 1189; see Wells Fargo Bank, N.A. v Meyers, 108 AD3d 9; Maser Consulting, P.A. v Viola Park Realty, LLC, 91 AD3d 836, 837). Thus, in fashioning a remedy for a violation of the good-faith negotiation requirement set forth in CPLR 3408(f), courts should be mindful not to rewrite the contract at issue or impose contractual terms which were not agreed to by the parties. As the nature of the sanction in this case is unchallenged, our determination herein should not be construed as a deviation from the above-stated principle.

 

Accordingly, the order is affirmed insofar as appealed from.

 

RIVERA, J.P., SKELOS and LOTT, JJ., concur.

 

ORDERED that the order is affirmed insofar as appealed from, with costs.

 

[1] ACS/Wells was represented by the law firm of Steven J. Baum, P.C.

 

[2] HAMP is a federal program that is intended to help homeowners avoid foreclosure “by modifying loans to a level that is affordable for borrowers now and sustainable over the long term” (https://www.hmpadmin.com/portal/programs/hamp.jsp, last accessed July 16, 2014).

R

 

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Bank of America raises settlement offer for toxic mortgage deals to $7B cash. DOJ wants $10B

Bank of America raises settlement offer for toxic mortgage deals to $7B cash. DOJ wants $10B

NY TIMES-

Bank of America and federal prosecutors have accelerated their negotiations to resolve an investigation into the bank’s sale of troubled mortgage securities before the financial crisis. The two sides, however, remain far apart on crucial issues and a settlement remained elusive late Wednesday, even after the bank significantly raised its offer.

The bank’s lawyers and Justice Department prosecutors met in Washington on Wednesday to discuss the size of a potential cash penalty, a major sticking point in the settlement talks, according to people briefed on the meeting. Heading into the meeting, the Justice Department was demanding roughly $17 billion to settle the case, more than $10 billion in the form of a cash penalty and the rest in so-called soft dollar payments to help struggling homeowners.

The bank was offering a total of $13 billion, the people said, including $4 billion in cash. The bank narrowed the gap on Wednesday, the people said, raising its cash offer to about $7 billion and its total proposal to roughly $14 billion.

[NEW YORK TIMES]

image: Victoria Will/Reuters

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BANK OF NEW YORK MELLON v. Lopes, NM: Court of Appeals 2014 | Another Bad Day for MERS–This Time in New Mexico (MERS cannot assign the note and thus create standing in RMBS Trust)

BANK OF NEW YORK MELLON v. Lopes, NM: Court of Appeals 2014 | Another Bad Day for MERS–This Time in New Mexico (MERS cannot assign the note and thus create standing in RMBS Trust)

THE BANK OF NEW YORK MELLON f/k/a THE BANK OF NEW YORK, NOT IN ITS INDIVIDUAL CAPACITY BUT SOLELY AS TRUSTEE FOR THE BENEFIT OF THE CERTIFICATE HOLDERS OF THE CWABS INC., ASSET-BACKED CERTIFICATES, SERIES 2006-16, Plaintiff-Appellee,
v.
SUZANNE LOPES, Defendant-Appellant, and
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. (SOLELY AS NOMINEE FOR LENDER AND LENDER’S SUCCESSOR AND ASSIGNS) and OSCAR D. FREITES, Defendants.

Docket No. 32,310.
Court of Appeals of New Mexico.

July 22, 2014.
The Castle Law Group, LLC, Peggy A. Whitmore, Elizabeth Mason, Albuquerque, NM, for Appellee.

Suzanne Lopes, Albuquerque, NM, Pro Se Appellant.

OPINION

VIGIL, Judge.

{1} Defendant, Suzanne Lopes (Homeowner), appeals from the district court order granting summary judgment in favor of Plaintiff, The Bank of New York Mellon (the Bank). Homeowner contends, among other things, that the Bank failed to show that it had standing to bring its foreclosure claim. We agree with Homeowner and reverse.

I. BACKGROUND

{2} Homeowner executed a promissory note to Countrywide Home Loans, Inc. (Countrywide), in the amount of $140,000 for the purchase of a home. Homeowner also signed a mortgage contract with Mortgage Electronic Registration Systems (MERS), as nominee for Countrywide, as security for the loan. On July 6, 2011, MERS assigned Homeowner’s mortgage to the Bank. On August 4, 2011, the Bank filed a complaint for foreclosure, asserting that the loan was in default. The complaint asserted that “[the Bank] is the owner of the [m]ortgage and the holder in due course of the [n]ote.” The Bank attached to the complaint copies of the mortgage and the mortgage assignment. Representing herself, Homeowner answered, asserting that to bring the action, the Bank was required to own both the mortgage and the promissory note. Because there was no evidence that the Bank owned the note, Homeowner contended that the Bank had no standing.

{3} On September 22, 2011, as an exhibit to the Bank’s response to a motion filed by Homeowner to disqualify counsel, the Bank attached a copy of a promissory note from Homeowner to Countrywide. The note was indorsed in blank by Michelle Sjolander, Executive Vice President of Countrywide. The indorsement was undated and appears to be signed by stamp rather than by hand. No evidence was presented to show when or how the Bank came into possession of the note. In any case, the Bank asserted that the assignment of the mortgage by MERS “effectively assign[ed] the [n]ote as well because . . . the [n]ote is secured by the [m]ortgage.” The Bank then filed a motion for summary judgment, which the district court granted, and it filed a decree of foreclosure on the home in favor of the Bank.

{4} Homeowner appeals, arguing that the Bank has no right to foreclose, which we construe to mean it has no standing to bring the action. In its amended answer brief, the Bank asserts that a copy of the mortgage and assignment of mortgage were attached to the original complaint and that substantial evidence supports the finding by the district court that it was a holder under the New Mexico Uniform Commercial Code (UCC) of Homeowner’s note.

II. DISCUSSION

{5} On appeal, Homeowner raises several issues in addition to standing. Because our disposition of the standing issue is dispositive, we do not reach the merits of the other issues.

A. Standard of Review

{6} “Summary judgment is appropriate where there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law.” Self v. United Parcel Serv., Inc., 1998-NMSC-046, ¶ 6, 126 N.M. 396, 970 P.2d 582. We review issues of law de novo. Id. “The movant need only make a prima facie showing that he is entitled to summary judgment. Upon the movant making a prima facie showing, the burden shifts to the party opposing the motion to demonstrate the existence of specific evidentiary facts which would require trial on the merits.” Roth v. Thompson, 1992-NMSC-011, ¶ 17, 113 N.M. 331, 825 P.2d 1241. Because we hold that there are material issues of fact and matters of law that preclude summary judgment, we reverse the order granting summary judgment to the Bank.

B. The Bank Lacks Standing

{7} Our Supreme Court “clarified that standing is a jurisdictional prerequisite.” Deutsche Bank Nat’l Trust Co. v. Beneficial N.M. Inc., 2014-NMCA-___, ___ P.3d ___, ¶ 8 (No. 31,503, May 1, 2014); see also Bank of N.Y. v. Romero, 2014-NMSC-007, ¶ 15, 320 P.3d 1 (“[L]ack of standing is a potential jurisdictional defect.” (alteration, internal quotation marks, and citation omitted)). Therefore, standing must be established as of the commencement of a suit. Bank of N.Y., 2014-NMSC-007, ¶ 17 (“[S]tanding is to be determined as of the commencement of suit.” (alteration in original) (internal quotation marks and citation omitted)); Deutsche Bank, 2014-NMCA-___, ¶ 8 (“[S]tanding . . . must be established at the time the complaint is filed.”); Lujan v. Defenders of Wildlife, 504 U.S. 555, 570 n.5 (1992) (“[S]tanding is to be determined as of the commencement of suit[.]“).

{8} In order for the Bank to establish standing to bring a suit for foreclosure against Homeowner, it was required to demonstrate the right to enforce both the promissory note and the mortgage lien on the property at the time it filed its complaint. See Bank of N.Y., 2014-NMSC-007, ¶ 17 (stating that the bank had the burden of establishing ownership of the note and the mortgage under the UCC at the time it filed suit); see also Deutsche Bank, 2014-NMCA-___, ¶ 8 (stating that in order to demonstrate standing in a foreclosure case, a lender must establish at the time of the complaint: “(1) a right to enforce the note, which represents the debt, and (2) ownership of the mortgage lien upon the debtor’s property”). The standing issue in this case pivots on whether the Bank demonstrated that it was entitled to enforce the note.

{9} The right to enforce negotiable instruments, which include notes for home loans like that of Homeowner, is governed by the UCC. See Bank of N.Y., 2014-NMSC-007, ¶ 19 (stating that notes for home loans are negotiable instruments and that the UCC governs enforcement of negotiable instruments). To establish the right to enforce Homeowner’s note under the UCC, the Bank was required to prove that at the time suit was filed, it was: “(i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument.” NMSA 1978, § 55-3-301 (1992). Because the Bank asserted in its complaint that it was a “holder in due course[,]” and on appeal argues that it was a holder,[1] we consider only whether the Bank had standing to bring suit as a holder, the first of the three ways to establish the right to enforce a negotiable instrument under the UCC.

{10} “Holder” is a term of art within the UCC. While it is necessary to possess a negotiable instrument to qualify as a holder, possession of a negotiable instrument is not of itself necessarily sufficient. See Bank of N.Y., 2014-NMSC-007, ¶ 21 (“The first requirement of being a holder is possession of the instrument. However, possession is not necessarily sufficient to make one a holder.” (internal quotation marks and citation omitted)). Because Homeowner’s note was originally made payable to Countrywide, not the Bank, this case concerns a non-payee to a note asserting the right to enforce as a holder. The UCC provides two paths by which a third party to a note can establish the right to enforce as a holder: (1) possession of the note properly indorsed specifically to the third party; or (2) possession of the note properly indorsed in blank—that is, properly indorsed but not to an identified person or entity. See NMSA 1978 § 55-1-201(b)(21) (2005) (stating that a holder is a person in possession of a negotiable instrument payable: (1) to bearer, or (2) to an identified person and who is that person); see § 55-1-201(b)(5) (identifying bearer paper as a negotiable instrument that has an indorsement in blank).

{11} The Bank argues that because it attached the assignment of mortgage made to the Bank by MERS that the Bank was entitled to enforce the note. This is not consistent with Bank of N.Y., which was decided by our Supreme Court while this case was pending. In Bank of N.Y., our Supreme Court concluded that MERS “is merely a nominee for [the lender] in the underlying [m]ortgage” and, as such, “lacked any authority to assign [the homeowners'] note.” 2014-NMSC-007, ¶ 35 (internal quotation marks omitted). The Court observed that a note and a mortgage serve distinct contractual functions—the note is the debt while the mortgage is a pledged security for the debt. Id. ¶ 17. Accordingly, the MERS assignment of mortgage to the Bank was ineffective to establish the Bank’s right to enforce the note.

{12} Neither the Bank’s attachment of a copy of Homeowner’s note, indorsed in blank, to its September 22, 2011 pleading nor its production of that note at the summary judgment hearing on July 17, 2012 established the Bank’s standing to bring the suit for foreclosure against Homeowner on July 6, 2011. Under the UCC, possession of a note properly indorsed in blank establishes the right to enforce that note. See id. ¶ 24 (stating a blank indorsement makes the negotiable instrument bearer paper and therefore payable to the person who is in possession). But again, in order to establish standing to bring a suit for foreclosure, the right to enforce the note must be established at the time the complaint is filed. See id. ¶ 17 (“Standing is to be determined as of the commencement of the suit . . . . the [bank] had the burden of establishing timely ownership of the note and the mortgage to support its entitlement to pursue a foreclosure action.” (alteration, internal quotation marks, and citation omitted)). In Deutsche Bank, we concluded that a note with an undated indorsement in blank, which was not produced at the time the complaint was filed, but only at trial, was insufficient to establish a bank’s standing to foreclose. 2014-NMCA-___, ¶ 13. As in Deutsche Bank, the Bank’s failure to establish that it had the right to enforce Homeowner’s note as of the date the complaint for foreclosure was filed constitutes a failure to establish the Bank’s standing to bring the suit and a jurisdictional defect.

{13} Because the Bank failed to establish that it had the right to enforce Homeowner’s note as of the time of the complaint, the Bank lacked standing to file a suit for foreclosure against Homeowner.

CONCLUSION

{14} The district court order is reversed, and this case is remanded for further proceedings consistent with this Opinion.

{15} IT IS SO ORDERED.

JAMES J. WECHSLER, Judge and TIMOTHY L. GARCIA, Judge, concurs.

[1] Holders in due course under the UCC are a subset of holders who “took the instrument (i) for value, (ii) in good faith, [and] (iii) without notice that the instrument is overdue or has been dishonored[,]” among other requirements. NMSA 1978, Section 55-3-302(a)(2) (1992). Holders in due course are immunized from certain “personal defenses” generally available to the maker of a note. See Cadle Co., Inc. v. Wallach Concrete, Inc., 1995-NMSC-039, ¶ 8, 120 N.M. 56, 897 P.2d 1104. We do not consider the Bank’s assertion of holder in due course status because the parties ignore it and because disposition of the case does not require our consideration thereof.

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CITI Group to Buy OneWest for $3.4 Billion

CITI Group to Buy OneWest for $3.4 Billion

NYT-

The CIT Group, a lender to small and midsize businesses run by John A. Thain, said on Tuesday that it had agreed to acquire the parent company of OneWest Bank for $3.4 billion in cash and stock.

The deal will bolster CIT’s lending abilities by more than doubling its deposit base. OneWest currently manages $15 billion in deposits, as well as $23 billion in assets, including commercial and home mortgages.

It will merge with CIT’s own bank, creating a commercial bank with $28 billion in deposits and $67 billion in assets — putting it above the $50 billion threshold for increased regulatory oversight of banks deemed systemically important.

[NEW YORK TIMES]

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Housing Ponzi Scheme Losses: American Homeowners Battling Wall Street

Housing Ponzi Scheme Losses: American Homeowners Battling Wall Street

Relief for Homeowners?

Will the BlackRock/PIMCO suit help homeowners? Not directly. But it will get some big guns on the scene, with the ability to do all sorts of discovery, and the staff to deal with the results.

Fraud is grounds for rescission, restitution and punitive damages. The homeowners may not have been parties to the pooling and servicing agreements governing the investor trusts, but if the whole business model is proven to be fraudulent, they could still make a case for damages.


Global Research-

For years, homeowners have been battling Wall Street in an attempt to recover some portion of their massive losses from the housing Ponzi scheme. But progress has been slow, as they have been outgunned and out-spent by the banking titans.

In June, however, the banks may have met their match, as some equally powerful titans strode onto the stage. Investors led by BlackRock, the world’s largest asset manager, and PIMCO, the world’s largest bond-fund manager, have sued some of the world’s largest banks for breach of fiduciary duty as trustees of their investment funds. The investors are seeking damages for losses surpassing $250 billion. That is the equivalent of one million homeowners with $250,000 in damages suing at one time.

The defendants are the so-called trust banks that oversee payments and enforce terms on more than $2 trillion in residential mortgage securities. They include units of Deutsche Bank AG, U.S. Bank, Wells Fargo, Citigroup, HSBC Holdings PLC, and Bank of New York Mellon Corp. Six nearly identical complaints charge the trust banks with breach of their duty to force lenders and sponsors of the mortgage-backed securities to repurchase defective loans.

[GLOBAL RESEARCH]

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Merritt v. Countrywide Financial Corp. || “….district courts may evaluate RESPA claims case-by-case; and, therefore, in this case, the court vacated the dismissal of plaintiffs’ Section 8 of RESPA claims on limitations grounds and remanded for reconsideration. ….”

Merritt v. Countrywide Financial Corp. || “….district courts may evaluate RESPA claims case-by-case; and, therefore, in this case, the court vacated the dismissal of plaintiffs’ Section 8 of RESPA claims on limitations grounds and remanded for reconsideration. ….”

 

DAVID MERRITT; SALMA MERRITT, Plaintiffs-Appellants,
v.
COUNTRYWIDE FINANCIAL CORPORATION, a Delaware corporation; COUNTRYWIDE HOME LOANS, INC., a New York corporation; ANGELO MOZILO, an individual; MICHAEL COLYER, an individual; DAVID SAMBOL, an individual; BANK OF AMERICA, NA; KEN LEWIS, an individual; JOHN BENSON, Defendants-Appellees.

No. 09-17678.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted November 9, 2012—San Francisco, California.
Filed July 16, 2014.
Jacob N. Foster (argued), Kasowitz, Benson, Torres & Friedman LLP, San Francisco, California, for Plaintiffs-Appellants.

James Goldberg (argued) and Stephanie A. Blazewicz, Bryan Cave LLP, San Francisco, California; Douglas E. Winter and Angela Buenaventura, Bryan Cave LLP, Washington D.C., for Defendants-Appellees Countrywide Home Loans, Inc., Countrywide Financial Corporation, Bank of America Corporation, Michael Coyler, David Sambol, and Kenneth Lewis.

Charles Elder and Caleb Bartel, Irell & Manella LLP, Los Angeles, California, for Defendant-Appellee Angelo Mozilo.

Susan H. Handelman, Ropers, Majeski, Kohn & Bently, Redwood City, California, for Defendant-Appellee John Benson.

Before: Andrew J. Kleinfeld and Marsha S. Berzon, Circuit Judges, and William E. Smith, District Judge.[*]

Opinion by Judge Berzon, Dissent by Judge Kleinfeld

OPINION

BERZON, Circuit Judge.

Once again, we address issues arising from Countrywide Financial Corporation’s residential lending business during the period shortly before novel practices by lenders resulted in widespread distress in the housing markets. See, e.g., Balderas v. Countrywide Bank, N.A., 664 F.3d 787 (9th Cir. 2011); Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034 (9th Cir. 2011). David Merritt and Salma Merritt (“the Merritts”) sued Countrywide Financial Corporation and various other defendants (collectively “Countrywide” or “CHL”) involved in their residential mortgage, alleging violations of numerous federal statutes. The district court dismissed the claims pleaded, with prejudice.[1] This appeal followed.

We consider in this opinion two issues raised by that dismissal: (1) whether the district court properly dismissed the Merritts’ Truth in Lending Act (“TILA”) rescission claim because they did not tender the rescindable value of their loan prior to filing suit or allege ability to tender its value in their complaint; and (2) whether the Merritts’ claims under Section 8 of the Real Estate Settlement Practices Act (“RESPA”) may proceed, including whether the RESPA limitations period, 12 U.S.C. § 2614, may be equitably tolled.[2]

Factual & Procedural Background

In March 2006, the Merritts took out both an adjustablerate mortgage[3] and a home equity line of credit (“HELOC”) with Countrywide on a home they purchased in Sunnyvale, California.[4] Initially, the Merritts’ Countrywide agent had told them, “I can pretty much guaranty you that we can get you in your new home for $1800 per month and possibly even as low as $1,500.” Three days before closing, however, the agent told the Merritts that he had completed their loan package and that their monthly payments would be $4,400 a month for the first five years: $3,200 for the mortgage, plus $1,200 for the HELOC. When the Merritts balked, the agent replied that “the market had shifted” since his initial estimates. He told the Merritts that the $4,400 monthly payment was “the lowest that you’ll find anywhere,” and if they did not close right away, they would lose their goodfaith deposit. He did not disclose that the $4,400/month figure was based on a temporary, “teaser” interest rate rather than a fixed rate, and that the Merritts’ monthly payments would be much higher once the teaser rate expired. The Merritts would not have accepted the loan if they had understood the terms.

The home’s owner falsely represented himself throughout the process as the selling agent. As the sale approached, he spoke with the Merritts’ Countrywide agent about getting the home appraised. The seller stated that he had found an appraiser who would provide an inflated appraisal of $739,000, above the home’s actual value of about $690,000, so as to justify a higher sale price. The Countrywide agent responded that he preferred to select the appraiser himself, but that since Countrywide had used the seller’s recommended appraiser before, he would agree to using him for this sale. The Countrywide agent, the seller, and the appraiser spoke over the phone, and the appraiser agreed to provide a $739,000 appraisal before having reviewed the property. The Merritts allege that Countrywide maintained a company practice of encouraging agents to select appraisers who would provide inflated appraisals, so as to increase the total amounts financed and thereby maximize Countrywide’s profits.

On the date of closing, a Countrywide representative arrived at the Merritts’ home with loan documents and said, “I will not have time to wait for you to read any of the documents, but just need you to sign these and if you have any questions or concerns afterwards, you can contact your loan agent.” The Merritts signed the documents, but between the small print and “confusing language,” did not understand the documents provided. The Countrywide representative did not give the Merritts copies of the signed documents to keep, only form notices of their right to rescind. The spaces where the lender would ordinarily fill in the relevant dates and deadlines on the form notices were left blank. The Merritts similarly were given a form for TILA disclosures, but with the spaces left blank for the annual percentage rate, finance charge, amount financed, total of payments, schedule of payments, and variable interest rate.

The day after the closing, the Merritts called their Countrywide agent and asked him to clarify the terms of their mortgage. The agent assured them that he would send them further documentation but never did. He also promised that they could refinance their mortgage at a lower interest rate after a year of on-time payments.

Over the next three years, the Merritts repeatedly requested from Countrywide the completed disclosures, to no avail. Meanwhile, Countrywide continued to send the Merritts monthly billing statements that did not disclose that the “minimum payment due” would only be applied to interest, and that they should pay more if they wanted to begin paying down the principal.

In 2009, Countrywide sent the Merritts the loan documents that they had been requesting for three years. By then, the Merritts had made about $200,000 in payments to Countrywide. The Merritts consulted with lawyers, who told them that they had been victims of “predatory lending.” They had their loan materials audited by an underwriter, who told them that he had identified numerous violations of state and federal law, including TILA, in the documentation provided by Countrywide.

Meanwhile, in August 2008, the Merritts suffered a loss of income that made them unable to afford their monthly payments. They repeatedly asked Countrywide to refinance or modify their mortgage into a conventional loan, but Countrywide refused.

In February 2009, the Merritts notified Countrywide that they wished to rescind their loan. Countrywide did not respond to the rescission request, instead offering to modify the loan. The modified loan offered was one the Merritts still could not afford.[5]

The Merritts filed this case pro se on March 18, 2009 and shortly thereafter amended the complaint.[6] Countrywide moved to dismiss the complaint in its entirety. The district court granted the motion, with prejudice. As relevant to the issues in this opinion, the district court dismissed the Merritts’ claim for rescission under TILA because the Merritts did not tender the value of their HELOC to Countrywide before filing suit, and dismissed their claims under Section 8 of RESPA as time-barred.

This appeal followed. We appointed pro bono counsel to represent the Merritts before this court.

Discussion

A. TILA rescission

TILA provides two remedies for loan disclosure violations — rescission and civil damages, each governed by separate statutory procedures.[7] Under TILA, an obligor has the “right to rescind . . . until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required under this section . . . whichever is later.” 15 U.S.C. § 1635(a). Regardless of whether the required information and forms have been delivered, “[the] obligor’s right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property.” Id. § 1635(f).

The TILA rescission provisions set out the following sequence of events for pursuing rescission: First, the obligor must notify the creditor of his intention to rescind, id. § 1635(a); then, within 20 days after receipt of notice of rescission, the creditor must return to the obligor any security interest, id. § 1635(b); and lastly, “[u]pon the performance of the creditor’s obligations under this section [i.e., upon return of the security interest], the obligor shall tender the property to the creditor.” Id. These procedures “shall apply except when otherwise ordered by a court.” Id.

Notably, “[t]he sequence of rescission and tender set forth in § 1635(b) is a reordering of the common law rules governing rescission.” Williams v. Homestake Mortg. Co., 968 F.2d 1137, 1140 (11th Cir. 1992) (citing 17A Am. Jur. 2d Contracts § 590, at 600-01 (1991)). Specifically, “[a]lthough tender of consideration received is an equitable prerequisite to rescission, the requirement was abolished by the Truth in Lending Act.” Palmer v. Wilson, 502 F.2d 860, 861 (9th Cir. 1974) “Under § 1635(b),” consequently,

all that the consumer need do is notify the creditor of his intent to rescind. The agreement is then automatically rescinded and the creditor must, ordinarily, tender first. Thus, rescission under § 1635 places the consumer in a much stronger bargaining position than he enjoys under the traditional rules of rescission.

Williams, 968 F.2d at 1140 (internal quotation marks and alteration omitted). By reversing the traditional sequence for common law rescission claims, TILA “shift[s] significant leverage to consumers,” consistent with the statute’s general consumer-protective goals. Lea Krivinskas Shepard, It’s All About the Principal: Preserving Consumers’ Right of Rescission under the Truth in Lending Act, 89 N. C. L. Rev. 171, 188 (2010).

At the same time, consumer protection is not the only goal of statutory rescission under TILA; “another goal of § 1635(b) is to return the parties most nearly to the position they held prior to entering into the transaction.” Williams, 968 F.2d at 1140. Balancing the two goals, the case law construing TILA has long recognized courts’ equitable power to modify the statutory rescission process. See id. at 1140; Palmer, 502 F.2d at 862. Congress confirmed this equitable role for courts overseeing TILA rescission proceedings when it amended TILA in 1980 to clarify that the § 1635(b) sequence of procedures “shall apply except when otherwise ordered by a court.” See Truth in Lending Simplification and Reform Act, Pub. L. No. 96-221, § 612(a)(4), 94 Stat. 175 (1980), codified at 15 U.S.C. § 1635(b).

Invoking this permission, the district court dismissed the Merritts’ TILA rescission claim because their complaint did not “allege that they tendered the Home Equity Line of Credit or its reasonable value to CHL or Bank of America when they sought rescission.” In so ruling at the pleading stage, the district court erred.

In accordance with the statutory provision that courts may order an alteration of the sequence of events otherwise prescribed by the TILA rescission provision, see id., we have held that district courts may, if warranted by the circumstances of the particular case, require the obligor to provide evidence of ability to tender as a condition for denial of a summary judgment motion advanced by the creditor. See Yamamoto v. Bank of New York, 329 F.3d 1167, 1171-73 (9th Cir. 2003). Yamamoto concluded that where “it is clear from the evidence that the borrower lacks capacity to pay back what she has received (less interest, finance charges, etc.), the court does not lack discretion to do before trial what it could do after,” i.e., refuse to enforce rescission. Id. at 1173. In so ruling, Yamamoto relied on earlier cases which had permitted judges after a resolution of the TILA claim on the merits to condition rescission on tender. Palmer, one of those earlier cases, had instructed courts considering such a condition to take into account “the equities present in a particular case, as well as consideration of the legislative policy of full disclosure that underlies [TILA] and the remedial-penal nature of the private enforcement provisions of the Act.” Id. at 1171 (quoting Palmer, 502 F.2d at 862); see also LaGrone v. Johnson, 534 F.2d 1360, 1362 (9th Cir. 1976) (holding that court should condition rescission on tender where TILA violations “were not egregious and the equities heavily favor the creditors”).

Like some other district courts in this circuit, the district court in this case extended Yamamoto to require that plaintiffs plead ability to tender in their complaint. See Botelho v. U.S. Bank, N.A., 692 F. Supp. 2d 1174, 1180 (N.D. Cal. 2010) (collecting cases). We reject this extension.

As Botelho noted, Yamamoto “was decided in the procedural context of summary judgment, when the district court was in a position to consider a full range of evidence in deciding whether to condition rescission on tender.” Id. at 1180. Without such evidentiary development, a district court is in no position to evaluate equitable considerations of the sort identified in Yamamoto and its predecessors. The equities to be considered, Yamamoto noted, might include the nature of the TILA violations (such as whether they were or were not egregious); whether the obligor had gone into bankruptcy; and the borrower’s ability to repay the proceeds (including, perhaps, whether that ability to repay was itself dependent upon a rescission order because without such an order, the obligor could not refinance or sell the property). 329 F.3d at 1171, 1173. “Whether the call is correct must be determined on a case-by-case basis, in light of the record adduced.” Id. at 1173. In making the call, the court may consider evidence such as affidavits and deposition testimony or may hold an evidentiary hearing. See Palmer, 502 F.2d at 862. To prescribe the pleading of ability to tender in every TILA rescission case would be inconsistent with this evidencegrounded, case-by-case approach.[8]

Further, our approach better comports with the TILA statutory text, which prescribes an enforcement sequence except when “otherwise ordered by a court.” 15 U.S.C. § 1635(b). If all obligors had to allege ability to tender payment when seeking rescission and so allege in a complaint for enforcement of the rescission obligation, then (1) the requirement of doing so would no longer be an exception, and (2) the requirement would not be “otherwise ordered by a court,” as a complaint initiates suit before any court order issues.

Moreover, Yamamoto recognized that if a creditor acquiesces at the outset in the notice of rescission, “then the transaction [is] rescinded automatically, thereby causing the security interests to become void and triggering the sequence of events laid out in subsections (d)(2) and (d)(3) [of Regulation Z, 12 C.F.R. § 226.23, which implements 15 U.S.C. § 1635(b)].” 329 F.3d at 1172. Yamamoto‘s holding allowing district courts to vary that sequence was targeted at situations in which the creditor “produce[s] evidence sufficient to create a triable issue of fact about compliance with TILA’s disclosure requirements.” Id. Where no such evidence (or viable legal argument) is produced, then the situation is legally indistinguishable for judicial remedy purposes from one in which the creditor initially acquiesced in the rescission; that is what should have happened in the absence of a tenable defense. Automatically to require tender in the pleadings before any colorable defense has been presented would encourage creditors to refuse to honor indisputably valid rescission requests, because doing so would allow the security interest to remain in place absent tender. The result would be to allow creditors to vary the statutory sequence simply through intransigence.

In addition, in many cases, it will be impossible for the parties or the court to know at the outset whether a borrower asserting her TILA rescission rights will ultimately be able to return the loan proceeds as required by the statute. That ability may depend upon the merits of her TILA rescission claim or on other claims related to the same loan transaction. See, e.g., Prince v. U.S. Bank Nat’l Ass’n, 2009 WL 2998141, at *5 (S.D. Ala. Sept. 14, 2009) (denying creditor’s motion to dismiss as based on “mere speculation” that plaintiffs would be unable to tender, and indicating that court would address the proper sequences for implementing the rescission, if necessary, only after resolving the rescission claim on the merits). For instance, if a TILA rescission claim is meritorious and the creditor relinquishes its security interest in the property upon notice of rescission as required by the default § 1635(b) sequence, the obligor may then be able to refinance or sell the property and thereby repay the original lender. Cf. Burrows v. Orchid Island TRS, LLC, 2008 WL 744735, at *6 (C.D. Cal. Mar. 18, 2008) (declining to require pleading of tender where the court inferred that borrower would be able to tender by selling or refinancing the property if rescission was found to be appropriate); Williams v. Saxon Mortg. Co., 2008 WL 45739, at *6 n.10 (S.D. Ala. Jan. 2, 2008) (declining to condition rescission on tender as was done in Yamamoto, because it was not clear that borrower would not be able to refinance the loan). Or her complaint may allege damages claims arising from the same loan transaction, the proceeds of which, if successful, could then be used to satisfy her TILA tender obligation. See Shepard, supra, at 205 & n.200, 210.

For all these reasons, any requirement that all TILA rescission plaintiffs allege ability to tender cannot be reconciled with the statute, Yamamoto‘s holdings, and Yamamoto‘s underpinnings. Any suggestion that such a pleading requirement may apply in some cases but not others fares no better, for two reasons:

First, requiring a subset of TILA rescission plaintiffs to plead tender would effectively impose a special pleading requirement upon those plaintiffs, without any advance notice as to who those plaintiffs are. After Ashcroft v. Iqbal, 556 U.S. 662 (2009), as before, “Rule 8(a)’s simplified pleading standard applies to all civil actions, with [only] limited exceptions.” Swierkiewicz v. Sorema N.A., 534 U.S. 506, 513 (2002) (emphasis added); see Starr v. Baca, 652 F.3d 1202, 1215-16 (9th Cir. 2011) (discussing how to reconcile Iqbal and Swierkiewicz). Under this standard, a plaintiff need only plead “sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively,” and “the factual allegations that are taken as true must plausibly suggest an entitlement to relief.” Starr, 652 F.3d at 1216. There is no authority for altering the pleading requirements for a given statutory claim for some plaintiffs making that claim and not for others.

Second, there would be no principled way to determine which plaintiffs should be required to plead tender in the complaint. Yamamoto and its predecessors indicate that major factors as to whether to require tender in advance of rescission are the strength of any defense to rescission and the egregiousness of any TILA violation. Neither of these considerations can be evaluated before the creditor advances its defense, factually and legally. Nor do we see how the other “case-by-case” considerations pertinent under Yamamoto can be set out in such a way as to notify TILA plaintiffs in advance of any special, heightened pleading requirements applicable to them in particular.

For all these reasons, we hold that plaintiffs can state a claim for rescission under TILA without pleading that they have tendered, or that they have the ability to tender, the value of their loan. Only at the summary judgment stage may a court order the statutory sequence altered and require tender before rescission — and then only on a “case-by-case basis,” Yamamoto, 329 F.3d at 1173, once the creditor has established a potentially viable defense.

In light of this holding, we reverse the district court’s Rule 12(b)(6) dismissal of the Merritts’ TILA rescission claim and remand for further proceedings on that claim.

B. The RESPA Section 8 claims

Congress enacted RESPA in 1974 in response to abusive practices that inflate the cost of real estate transactions. 12 U.S.C. § 2601(a); see Sosa v. Chase Manhattan Mortg. Corp., 348 F.3d 979, 981 (11th Cir. 2003). Section 8 of RESPA prohibits kickbacks and unearned fees and may be enforced criminally or civilly. 12 U.S.C. § 2607. Civil actions under this section must be brought within one year of the alleged violation. Id. § 2614. The district court dismissed the Merritts’ claims under Section 8 of RESPA as “barred by the one-year statute of limitations because Plaintiffs filed suit nearly three years after closing on their loan.” The district court held that “the [RESPA] limitations period begins to run as of the date of the closing,” and did not address whether the statute might have been equitably tolled to the date in 2009 when the Merritts allege that they actually received their loan documents.

There is no direct precedent in this court on the RESPA equitable tolling issue, although we have held that the closely similar TILA limitations period provision may be equitably tolled. See King v. California, 784 F.2d 910, 914-15 (9th Cir. 1986). Before proceeding to the question whether we should reach the same conclusion as to tolling under RESPA as we did under TILA, we first consider whether we should pretermit that issue by affirming on a separate ground.

1. Plaintiffs’ RESPA Section 8 claims

We may affirm a dismissal on any properly preserved ground supported in the record. Johnson v. Riverside Healthcare Sys., LP, 534 F.3d 1116, 1121 (9th Cir. 2008); Papa v. United States, 281 F.3d 1004, 1009 (9th Cir. 2002). However, we are not required to do so, “and as a prudential matter can properly remand to the district court” rather than “decide ab initio issues that the district court has not had an opportunity to consider and that present questions of first impression in our circuit.” Badea v. Cox, 931 F.2d 573, 575 n.2 (9th Cir. 1991) (internal quotation marks omitted).

After considering the two RESPA Section 8 claims briefly, we have determined, as we shall explain shortly, that each raises fairly complex legal questions of first impression in this circuit neither decided by the district court nor fully briefed before this court. We therefore conclude that prudence counsels against addressing those claims on the merits in advance of any district court decision on them.

Plaintiffs alleged two theories of liability under Section 8 of RESPA, which we address in turn.

a. Section 8(b)

RESPA Section 8(b) prohibits the “giv[ing] . . . [of] any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service . . . other than for services actually performed.” 12 U.S.C. § 2607(b). The Merritts allege that defendants violated Section 8(b) by “charg[ing] [them] . . . cost[s] for copying, insurance and other costs associated with the loan, which cost Defendants significantly less,” thereby “pass[ing] on charges which falls within the definition of `markups’ and were charges not actually earned for any service.”

A case closely similar, but not identical, to this one as to the RESPA Section 8 “markup” issue, Martinez v. Wells Fargo Home Mortg., Inc., 598 F.3d 549, 553 (9th Cir. 2010), held that RESPA Section 8(b) “prohibits only the practice of giving or accepting money where no service whatsoever is performed in exchange for that money” (emphasis added). “By negative implication, Section 8(b) cannot be read to prohibit charging fees, excessive or otherwise, when those fees are for services that were actually performed.” Id. at 553-54.

The plaintiffs in Martinez did not press a third-party “markup” theory on appeal — that is, a theory that depended on the provision of services by a party other than by the defendant who charged the fee and collected it from the consumer. See id. at 552 n.2. The Merritts, therefore, urge us to distinguish Martinez and follow the Second Circuit’s decision in Kruse v. Wells Fargo Home Mortg., Inc., 383 F.3d 49 (2d Cir. 2004). Kruse held that while straight overcharges are not actionable under Section 8(b), markups for services provided by a third party are actionable. Id. at 58-62.

The circuits are divided on the third-party markup issue under RESPA. In holding that third-party markups were actionable under Section 8(b), Kruse held that the statute itself was ambiguous and therefore deferred to a HUD policy statement interpreting the provision to prohibit markups. See Kruse, 383 F.3d at 57. Santiago v. GMAC Mortg. Corp., Inc., 417 F.3d 384, 388-89 (3d Cir. 2005), like Kruse, held that markups are actionable under Section 8(b), although it relied on the statutory language as unambiguous, rather than on an agency interpretation of an ambiguous statute. In contrast, several circuits have held or strongly implied that third-party markups are not actionable under RESPA Section 8(b). See Freeman v. Quicken Loans, Inc., 626 F.3d 799, 804 (5th Cir. 2010) (“RESPA is an anti-kickback statute, not an anti-price gouging statute”); Haug v. Bank of Am., N.A., 317 F.3d 832, 836 (8th Cir. 2003) (holding that charging plaintiffs more for third-party services than defendant paid for them, “standing alone, does not violate Section 8(b) of RESPA”); Boulware v. Crossland Mortg. Corp., 291 F.3d 261, 266, 268 (4th Cir. 2002) (“§ 8(b) requires fee-splitting or a kickback”; “Congress chose to leave markups . . . to the free market”); Krzalic v. Republic Title Co., 314 F.3d 875, 881 (7th Cir. 2002) (holding that markups are not actionable under RESPA, which “is not a price-control statute”).[9]

This question, which raises complicated issues of statutory interpretation and administrative law of first impression in this circuit, was not addressed by the district court and only minimally briefed before this court. We therefore decline to decide the question in the first instance on appeal.

b. Section 8(a)

Section 8(a) prohibits the “giv[ing] . . . [of] any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” 12 U.S.C. § 2607(a). Plaintiffs’ theory of Section 8(a) liability is that Countrywide referred appraisal business to the appraiser, Benson, in exchange for a “thing of value,” namely, an inflated appraisal.

At oral argument, defendants disputed the facts underlying the Section 8(a) claim. Specifically, defendants argued that the Merritts have admitted that the appraisal referral was made “before [they] first contacted Countrywide.” These factual claims rely on documents that were not before the district court, and in any event, are unavailing in light of this court’s duty to accept the plaintiffs’ allegations as true at the pleading stage of the litigation. Contrary to defendants’ representation at oral argument, the operative complaint alleges that the Merritts were in contact with their Countrywide agent as early as February 2006, and that the agent and the appraiser were in contact in early March. To the extent that there are possible inconsistencies in the timeline alleged in the complaint, the district court as well as this court must construe the complaint in the light most favorable to the plaintiffs and grant leave to amend if any defects could be cured. See Lucas v. Dep’t of Corr., 66 F.3d 245, 248 (9th Cir. 1995) (per curiam) (pro se complaints should be dismissed without leave to amend only if it is clear that deficiencies could not be cured by amendment).

Countrywide also argued in its brief that the Merritts’ Section 8(a) claim cannot survive dismissal because the statute only provides for liability “to the person or persons charged for the settlement service involved in the violation,” 12 U.S.C. § 2607(d)(2), and the Merritts did not allege that they were charged for the appraisal. However, this failing could be cured if the Merritts were granted leave to amend the complaint to allege that, as they contend in their reply brief, they paid the appraiser directly.

A more complicated question is whether an inflated appraisal would qualify as a “thing of value” as that term is defined for RESPA purposes. The answer is not self-evident, the parties briefed this question only in passing, and the district court did not decide it. Moreover, the determination of this question may depend on factual development as to the precise structure of the agreement and the sequence of events. We therefore do not decide this question in the first instance either. We conclude only that we are not prepared to affirm at this juncture on the ground that the inflated appraisal was not a “thing of value” for RESPA purposes, and so must reach the limitations issue.

2. Equitable tolling

The district court dismissed the Merritts’ claims under Section 8 of RESPA as “barred by the one-year statute of limitations because Plaintiffs filed suit nearly three years after closing on their loan,” and, although the issue was raised, did not consider whether the statute might have been equitably tolled to the date in 2009 when the Merritts allege that they actually received their loan documents. Only at that time, the Merritts allege, did they learn about the markups charged, as well as key information about their loan that could help to tip them off to the appraisal kickback scheme, including that the individual they thought had been the home’s selling agent was actually also its owner.

The pertinent RESPA limitations provision states:

Jurisdiction of courts; limitations. Any action pursuant to the provisions . . . of this title may be brought in the United States district court or in any other court of competent jurisdiction, for the district in which the property involved is located, or where the violation is alleged to have occurred, within . . . 1 year in the case of a violation of section 2607 . . . of this title from the date of the occurrence of the violation

. . . .

12 U.S.C. § 2614.

We have not previously decided whether the RESPA statutory limitations period may be equitably tolled. King did, however, address a closely similar question concerning the TILA limitations period. King, 784 F.2d 910. King held that the TILA limitations period was subject to equitable tolling. Id. at 195. We reach the same conclusion here with regard to the RESPA limitations period.

There has, however, been considerable development since King in the general principles governing the availability of equitable tolling of statutory limitations periods. Consequently, we conduct a somewhat more extensive analysis of the pertinent considerations than did King, albeit with the same result.

Our departure point under post-King case law is the proposition that “[t]ime requirements in lawsuits between private litigants are customarily subject to `equitable tolling.’” Irwin v. Dep’t of Veterans Affairs, 498 U.S. 89, 95 (1990) (citing Hallstrom v. Tillamook Cnty., 493 U.S. 20, 27 (1989)). To determine whether the RESPA limitations period falls within that customary rule, we must first determine whether it is jurisdictional; courts “[have] no authority to create equitable exceptions to jurisdictional requirements.” Bowles v. Russell, 551 U.S. 205, 214 (2007). If the RESPA limitations period is non-jurisdictional, we must assess whether Congress has clearly precluded equitable tolling. See United States v. Brockamp, 519 U.S. 347, 350 (1997).

a. The RESPA limitations period is not jurisdictional

In a series of recent cases, the Supreme Court has “pressed a strict[] distinction between truly jurisdictional rules, which govern `a court’s adjudicatory authority,’ and nonjurisdictional `claim-processing rules,’ which do not.” Gonzalez v. Thaler, 132 S. Ct. 641, 648 (2012) (quoting Kontrick v. Ryan, 540 U.S. 443, 454-55 (2004)). In doing so, the Court has clarified that “the term `jurisdictional’ properly applies only to prescriptions delineating the classes of cases (subject-matter jurisdiction) and the persons (personal jurisdiction) implicating [the court's adjudicatory] authority.” Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 160-61 (2010) (emphasis added) (internal quotation marks omitted). Moreover, a rule is “jurisdictional” only if “Congress has `clearly state[d]‘ that the rule is jurisdictional.” Sebelius v. Auburn Reg’l Med. Ctr., 133 S. Ct. 817, 824 (2013) (quoting Arbaugh v. Y & H Corp., 546 U.S. 500, 515-516 (2006) (alteration in original)). To determine whether Congress clearly intended a statutory restriction to be jurisdictional, courts review factors such as the statute’s language, “context, and relevant historical treatment.” Reed Elsevier, 559 U.S. at 166. Applying this test, the Court has repeatedly held that “filing deadlines ordinarily are not jurisdictional; indeed, [the Court has] described them as `quintessential claim-processing rules.’” Sebelius, 133 S. Ct. at 825 (quoting Henderson ex rel. Henderson v. Shinseki, 131 S. Ct. 1197, 1203 (2011)). With these precepts in mind, we proceed to examine the relevant factors.

i. Language

By its terms, § 2614 provides that any RESPA Section 8 action “may be brought . . . within 1 year . . . from the date of the occurrence of the violation.” 12 U.S.C. § 2614 (emphasis added). This non-mandatory language is far more permissive than several limitations provisions that have been held amenable to equitable tolling. For example, the limitations provision held to be non-jurisdictional and tollable in Henderson, 131 S. Ct. at 1204, stated that a claimant “shall file . . . within 120 days” (emphasis added). If not all “mandatory prescriptions, however emphatic, are . . . properly typed jurisdictional,” Henderson, 131 S. Ct. at 1205 (emphasis added) (internal quotation marks omitted), then the use of permissive, non-mandatory language such as RESPA’s “may file” language weighs considerably against a finding that the limitations period is jurisdictional.

ii. Statutory placement

In examining whether or not a rule is jurisdictional, a few of the Supreme Court’s recent cases have assigned some significance to whether the rule is “located in a jurisdictiongranting provision.” Reed Elsevier, 559 U.S. at 166; see also Henderson, 131 S. Ct. 1205; Payne v. Peninsula Sch. Dist., 653 F.3d 863, 870-71 (9th Cir. 2011) (en banc), overruled in part on other grounds by Albino v. Baca, 747 F.3d 1162 (9th Cir. 2014). Countrywide primarily relied upon this factor to support its argument against equitable tolling, citing the D.C. Circuit’s holding that “the [RESPA] time limitation is a jurisdictional prerequisite to suit and as such not subject to equitable tolling.” Hardin v. City Title & Escrow Co., 797 F.2d 1037, 1038 (D.C. Cir. 1986). To reach its conclusion, Hardin relied upon the placement of the RESPA time limitation in “the same sentence” that, in Hardin‘s characterization, “creates federal and state court jurisdiction” under RESPA, and upon the subtitle of the section, “Jurisdiction of Courts.” See id. at 1039.

In light of Supreme Court cases decided since Hardin, we cannot agree with the D.C. Circuit that the RESPA time limitation is placed in a sentence that “creates federal and state court jurisdiction.” It is true that the provision appears under the heading “Jurisdiction of courts; limitations.” But, as the Supreme Court has noted in recent years, “jurisdiction” has “many, too many meanings.” Arbaugh, 546 U.S. at 510. In particular, use of the word “jurisdiction” does not make a provision “jurisdiction-granting.Reed Elsevier so indicated, rejecting the argument that the “presence of the word `jurisdiction’” in a provision renders the entire provision jurisdictional. 559 U.S. at 163. Moreover, “[a] requirement we would otherwise classify as nonjurisdictional . . . does not become jurisdictional simply because it is placed in a section of a statute that also contains jurisdictional provisions.” Sebelius, 133 S. Ct. at 825 (citing Gonzalez, 132 S. Ct. at 651-52). “Mere proximity will not turn a rule that speaks in nonjurisdictional terms into a jurisdictional hurdle.” Gonzalez, 132 S. Ct. 651.

Here, although the RESPA limitations period appears in a provision that references the court’s “jurisdiction,” the section, read as a whole, is not a “jurisdiction-granting provision.” Reed Elsevier, 559 U.S. at 166 (emphasis added). The provision’s reference to “United States district court[s]. . . [and] other court[s] of competent jurisdiction” implies, instead, that the source of the referenced courts’ “competent jurisdiction” lies elsewhere. And that is in fact the case with regard to federal district courts, which have jurisdiction to hear claims “arising under” RESPA because it is a “law[]. . . of the United States.” See 28 U.S.C. § 1331. Other than providing for a limitations period, then, the RESPA provision at 12 U.S.C. § 2614 simply clarifies that, when determining in which court of competent jurisdiction they will file their claim, RESPA litigants have a choice of venue: either “the district in which the property involved is located,” or, if it differs, “where the violation is alleged to have occurred.” 12 U.S.C. § 2614.

iii. Historical treatment

In some statutory contexts, there is a venerable, consistent line of Supreme Court cases construing whether a particular limitations provision is jurisdictional. See, e.g., Bowles, 551 U.S. at 210-13; John R. Sand & Gravel Co. v. United States, 552 U.S. 130, 137-39 (2008). Here we have no such historical guidance, as the Supreme Court has not addressed whether RESPA’s limitations period is jurisdictional, nor has our court. In the absence of Supreme Court precedents the case for deference to historical guidance is much weaker here than in cases such as Bowles, 551 U.S. 205.

We do, however, have pertinent established law in this circuit, namely King, 784 F.2d 910; see also Ramadan v. Chase Manhattan Corp., 156 F.3d 499, 501-05 (3d Cir. 1998) (following King‘s holding as to TILA). King is precedent in this circuit, and is persuasive authority in this case.

King construed TILA’s similarly worded limitations period, and held it amenable to equitable tolling. The TILA limitations provision is as follows:

(e) Jurisdiction of courts; limitations on actions; State attorney general enforcement

Except as provided in the subsequent sentence, any action under this section may be brought in any United States district court, or in any other court of competent jurisdiction, within one year from the date of the occurrence of the violation. . . .

15 U.S.C. § 1640(e). Like the RESPA limitations period, then, the parallel TILA provision appears in the same sentence as a reference to “jurisdiction” and under the heading “Jurisdiction of courts; limitations on actions.”[10]

King was decided without the benefit of the Supreme Court’s recent admonitions against “profligate use” of the term “jurisdiction[al].” Payne, 653 F.3d at 868 (internal quotation marks omitted); see Arbaugh, 546 U.S. at 510. But King necessarily relied upon an understanding that the TILA limitations period was non-jurisdictional; otherwise, King could not have held the limitations period contained in the subsection subject to equitable tolling. Reflecting that understanding of King, the Seventh Circuit, in Lawyers Title Insurance Corp. v. Dearborn Title Corp., 118 F.3d 1157 (7th Cir. 1997), relied in part upon King‘s reasoning when it expressly declined to follow the D.C. Circuit’s contrary holding in Hardin. Lawyers Title held, instead, that the RESPA limitations period is not jurisdictional and may be equitably tolled. See Lawyers Title, 118 F.3d at 1166-67.[11]

Countrywide argues that Judge Posner’s opinion for the court in Lawyers Title is not persuasive, because it relies upon the premise that federal limitations periods “are universally. . . nonjurisdictional” unless they involve “actions against the United States.” Id. at 1166 (quoting Cent. States, Se. & Sw. Areas Pension Fund v. Navco, 3 F.3d 167, 173 (7th Cir. 1993)). The Supreme Court’s more recent equitable tolling jurisprudence indicates that the line is not quite so bright. For example, in Bowles, the Court held that “time limits for filing a notice of appeal are jurisdictional in nature.” 551 U.S. at 206.

But Irwin, decided before Lawyers Title, began from a similar premise — that “time requirements in lawsuits between private litigants are customarily subject to `equitable tolling.’” Irwin, 498 U.S. at 95. The difference between the “universally” adverb in Lawyers Title, 118 F.3d at 1166, and the “customarily” adverb in Irwin, 489 U.S. at 95, appears to reflect hyperbole in the former, but not a difference in fundamental concept. In contrast, Hardin applied the sort of rigidly formalistic jurisdictional analysis that the Supreme Court’s recent cases have eschewed.

All of these factors point towards a conclusion that the RESPA limitations period does not “implicat[e] [the district court's adjudicatory] authority,” Reed Elsevier, 559 U.S. at 161, but, instead, is an ordinary “filing deadline,” a “quintessential claim-processing rule[].” See Sebelius, 133 S. Ct. at 825. We so conclude.

b. The presumption of equitable tolling applies

As the RESPA limitations period is not jurisdictional, RESPA claims are presumptively amenable to equitable tolling, see Irwin, 489 U.S. at 95, unless Congress has clearly indicated otherwise. There is no such indication in the statute.

Many of the considerations on which we relied as to the jurisdictional issue, particularly the permissive language used in the limitations provision, also help to negate any clear barrier to equitable tolling. In addition, we are guided by the analysis in King, 784 F.2d 910, which applied an approach with respect to equitable tolling generally consistent with the recent cases. King‘s logic with regard to the TILA limitation period applies equally to the parallel RESPA provision.

King began by asking “whether tolling the statute in certain situations [would] effectuate the congressional purpose” of the statute, always “our basic inquiry” when determining whether a limitations period may be equitably tolled. Id. at 914-15. Because TILA is a broadly remedial consumer-protection statute, King reasoned, “an inflexible rule that bars suit one year after consummation [of the loan]” would be “inconsistent with legislative intent.” Id. at 914. King also recognized, however, that Congress did not intend to expose lenders “to a prolonged and unforeseeable liability.” Id. King therefore struck the balance between consumer protection and predictable liability by holding that the TILA limitations period could, “in the appropriate circumstances,” be equitably tolled, but only “until the borrower discovers or had reasonable opportunity to discover the fraud or nondisclosures that form the basis of the TILA action.” Id. at 915.

As we have recently recognized, RESPA is, like TILA, “intended . . . to serve consumer-protection purposes.” Medrano v. Flagstar Bank, FSB, 704 F.3d 661, 665 (9th Cir. 2012). Consistent with those purposes, we have concluded that “RESPA’s provisions relating to loan servicing procedures should be construed liberally to serve the statute’s remedial purpose.” Id. at 665-66 (internal quotation marks omitted). By the same token, “tolling the statute [of limitations] in certain situations [would] effectuate the congressional purpose” of protecting consumers. King, 784 F.2d at 915. There may be situations in which a consumer is unable to file suit within the statutory limitations period precisely because of a real estate service provider’s obfuscation or failure to disclose.

We hold, therefore, that although the limitations period in 12 U.S.C. § 2614 ordinarily runs from the date of the alleged RESPA violation, “the doctrine of equitable tolling may, in the appropriate circumstances, suspend the limitations period until the borrower discovers or had reasonable opportunity to discover” the violation. King, 784 F.2d at 915. Just as for TILA claims, district courts may evaluate RESPA claims case-by-case “to determine if the general rule would be unjust or frustrate the purpose of the Act and adjust the limitations period accordingly.” Id.

* * *

The district court dismissed plaintiffs’ RESPA Section 8 claims as time-barred, holding that “the [RESPA] limitations period begins to run as of the date of closing,” and thereby assuming that the period could not be equitably tolled. Rather than “decide ab initio issues that the district court has not had an opportunity to consider and that present questions of first impression in our circuit,” Badea, 931 F.2d at 575 n.2, we decline, for the reasons explained, to affirm the dismissal of the Merritts’ Section 8 claims on alternate grounds. Instead, we reach the issue that was the basis for dismissal, failure to comply with the statutory limitations period. In light of our holding today regarding equitable tolling, we vacate the dismissal of the Section 8 claims on limitations grounds and remand for reconsideration. On remand, the district court may consider such evidence as it deems appropriate to determine on what date the Merritts discovered or had reasonable opportunity to discover the alleged Section 8 violations and whether they filed their complaint within a year of that date. If the district court determines that the plaintiffs’ RESPA Section 8 claims are not time-barred, it should permit substantive amendment of the claims upon an appropriate request and continue with further proceedings consistent with this opinion. See Lucas, 66 F.3d at 248 (“Unless it is absolutely clear that no amendment can cure the defect . . . a pro se litigant is entitled to notice of the complaint’s deficiencies and an opportunity to amend.”).

Conclusion

We reverse the district court’s dismissal of plaintiffs’ TILA rescission claim and remand for further proceedings on that claim. As to plaintiffs’ RESPA Section 8 claims, we vacate the dismissal and remand to the district court for further consideration in accordance with this opinion.

REVERSED IN PART, VACATED IN PART, AND REMANDED FOR FURTHER PROCEEDINGS.

KLEINFELD, Senior Circuit Judge, dissenting:

I respectfully dissent.

We review a 12(b)(6) dismissal de novo,[1] and can affirm on any ground, regardless of whether the district court relied on it.[2]

This complaint violated Federal Rule of Civil Procedure 8(a)(2). The Rule requires a “short and plain statement of the claim showing that the pleader is entitled to relief.”[3] We are indulgent with pro se complaints, but even for them, there are limits.

The Merritt complaint is neither “short” nor “plain.” It is 68 pages long, 398 paragraphs. Nor were they deprived of opportunities to clarify what their claims were. Though they call the complaint their “Second Amended Complaint,” the truth is that it is their fifth version. They got leave to file this version of their complaint by filing a motion explaining that the amendments would be “clarifications,” along with a “stipulation” to which Countrywide did not stipulate. The leave to amend they thus obtained mooted out Countrywide’s pending motion to dismiss, so it was not adjudicated. The plaintiffs then filed their amended complaint which was materially different from the one submitted to the district court with their motion for leave to amend. Far from “clarifying” their previous complaints, this new complaint added an additional 69 paragraphs, 16 pages, and yet another cause of action.

We have articulated five factors for evaluating whether a plaintiff should be given leave to amend: “(1) bad faith, (2) undue delay, (3) prejudice to the opposing party, (4) futility of amendment; and (5) whether plaintiff has previously amended his complaint.[4] We have held that the “district court’s discretion to deny leave to amend is particularly broad where plaintiff has previously amended the complaint.”[5] Here, the Merritts have submitted five different complaints to the district court. Further amendment would unduly prejudice the defendants. The defendants have responded to two of the Merritts’ five prolix, incomprehensible complaints, doubtless at great expense for their own lawyers. Defendants have filed numerous motions addressing those complaints, for violation of Rule 8, misrepresentations, failure to state claims upon which relief may be granted, and lack of appropriate service. That is a lot of wasted money. Plaintiffs imposed this unfair prejudice on defendants by their vague prolixity and multiple filings.

The Merritts’ most recent amendments made their complaint even more prolix, and less “short and plain.” Countrywide’s combined motion to strike and dismiss placed the Merritts on notice that their complaint failed to comply with Rule 8, but they made no attempt to bring their complaint into compliance with the rules. Because of this history, dismissal with prejudice was justified. Although dismissal with prejudice for failure to comply with the rules requires consideration of less drastic alternatives,[6] here there were none, as it did not appear that plaintiffs were prepared, even after five tries, to make a short and plain statement of claims for which they were entitled to relief. Their misleading stipulation had already burdened Countrywide with the need to brief a second motion to dismiss. Allowing the Merritts a sixth attempt to plainly state their claims would be too prejudicial to the defendants to be a fair alternative under these circumstances.

The majority opinion does a heroic job of stating claims clearly on behalf of the Merritts. But plaintiffs did not state them. It is not fair to defendants to perform these legal services for plaintiffs, even pro se plaintiffs, where the plaintiffs do not evidently have good claims. “Prolix, confusing complaints such as the ones plaintiffs filed in this case impose unfair burdens on litigants and judges. As a practical matter, the judge and opposing counsel, in order to perform their responsibilities, cannot use a complaint such as the one plaintiffs filed, and must prepare outlines to determine who is being sued for what. Defendants are then put at risk that their outline differs from the judge’s, that plaintiffs will surprise them with something new at trial which they reasonably did not understand to be in the case at all, and that res judicata effects of settlement or judgment will be different from what they reasonably expected. [T]he rights of the defendants to be free from costly and harassing litigation must be considered.”[7]

If plaintiffs had what looked like a strong claim that ought to be adjudicated on the merits, judicial creation of a complaint for them might not be so unfairly prejudicial.[8] But they do not. What they appear to be saying in their 398-paragraph complaint is that they bought a $729,000 house, and borrowed $739,000 for it, because the seller lowballed them into thinking they were going to get the house for $719,000. They seem to be saying that Countrywide’s agent persuaded them to lie, which they did, in their loan application, such as by saying that Mrs. Merritt was employed when she was actually receiving disability payments (later terminated). And they seem to be saying that because they were minorities they were offered a more ample adjustable rate mortgage instead of a less ample fixed rate mortgage loan than they would otherwise be entitled to.

Were we limited to 12(b)(6) dismissal, we would have to assume for purposes of decision that the plausible factual statements (but not the legal conclusions and editorializing rhetoric) in the complaint were true.[9] We are not so limited under Rule 8 analysis, which I suggest ought to be applied. Under Rule 12 analysis, some of the claims are plausible at least in part. Obviously, if Countrywide did not properly provide the loan papers to the Merritts, a claim if timely could be made. Tender of the full amount received is not in all circumstances a sine qua non for a pleading claiming rescission, though some sort of equitable judgment requiring tender must be made if rescission is granted, to assure that the plaintiff does not get to keep what it bought and also get all the money back.[10]

It is hard to say whether plaintiffs even seek a rescission remedy that could be allowed. The prayer in their complaint seeks a return of all the money they have “invested in their property,” plus compensatory damages, plus $2,000,000 in punitive damages, plus a “prime loan at current market rates” (far lower than the housing bubble interest rates that prevailed when they bought their $729,000 house), or for them to be able to walk away with the reimbursements and damages. Their appellate brief is more modest, but was not before the district court.

Their pleading seems to say that they have been living in a $729,000 house for what is now almost six years without paying anything toward the price. If they got past their Rule 8 problems, and their Rule 12 problems, their equities appear to be weak. The Merritts have had five chances to state this claim. Prejudice and futility counsel against giving them a sixth try. We ought to let the dismissal with prejudice stand.

[*] The Honorable William E. Smith, District Judge for the U.S. District Court the District of Rhode Island, sitting by designation.

[1] The district court dismissed the claims not on Rule 8 grounds but on the merits for failure to state a claim upon which relief may be granted, pursuant to Rule 12(b)(6). The dissent suggests we affirm on the basis of Rule 8(a)(2). The enforcement of Rule 8 rests within the district court’s discretion, and defendants do not raise any Rule 8(a)(2) questions before us. Under these circumstances, it would be improper for us to affirm on Rule 8 grounds. See Gillibeau v. City of Richmond, 417 F.2d 426, 431 (9th Cir. 1969).

[2] We address the Merritts’ other claims, and the parties’ motions for judicial notice, in a memorandum disposition issued concurrently with his opinion.

[3] As is generally true in California, the legal instrument for the Merritts’ home loan was a deed of trust and not, technically speaking, a mortgage. See Siegel v. Am. Savings & Loan Ass’n, 258 Cal. Rptr. 746, 747 (Cal. Ct. App. 1989) (defining a deed of trust); 27 Cal. Jur. 3d Deeds of Trust § 1 (2011) (same); Cal. Civ. Code § 2920(b) (distinguishing mortgage from deed of trust for certain purposes under California state law). We refer to the Merritts’ home loan throughout this opinion as a mortgage, because that is how the parties have referred to it in their pleadings and briefs, and the precise financing instrument is not legally material to the issues addressed in this opinion.

[4] Because we are evaluating a district court’s dismissal pursuant to Rule 12(b)(6), we take the facts from the Merritts’ complaint and assume that they are true. See Cervantes v. United States, 330 F.3d 1186, 1187 (9th Cir. 2003).

[5] Countrywide had, in the meantime, been acquired by Bank of America. The Merritts’ loan was eventually sold to Wells Fargo.

[6] We refer to the amended complaint throughout simply as “the complaint.”

[7] Plaintiffs’ TILA claims relate solely to their home-equity line of credit, or “HELOC.” TILA does not apply to residential mortgages used to finance the initial acquisition or construction of a dwelling. See 15 U.S.C. §§ 1635(e)(1) & 1602(x). Countrywide presents for the first time on appeal the argument that plaintiffs’ HELOC falls within this residential mortgage exception. Because this argument was not previously raised in the district court, we do not address it here.

[8] Indeed, even in a common-law equitable rescission action where the plaintiff is required to tender first, the plaintiff need not necessarily plead ability to tender in the complaint. See 1 Dan B. Dobbs, Law of Remedies: Damages—Equity—Restitution § 4.8, at 463 (2d ed. 1993).

[9] The Eleventh Circuit has reserved whether a third-party markup theory might be viable under RESPA Section 8(b). See Sosa, 348 F.3d at 982-84.

[10] There is one distinction. The TILA limitations provision, as passed by Congress, appeared as one subsection in a section headed “Civil liability.” See Consumer Credit Protection Act, Pub. L. 90-321, § 130(e), 82 Stat. 146, 157 (1968). The subheading “Jurisdiction of courts” was added in the codification process. In contrast, the RESPA limitations provision, as passed by Congress, appeared under the heading “Jurisdiction of Courts.” See Real Estate Settlement Procedures Act of 1974, Pub. L. 93-534, § 16, 88 Stat. 1724, 1731 (1974). We do not ascribe significance to this distinction for present purposes. Whatever its origin, the heading just identifies a subject matter; it does not identify the subsection as jurisdiction-creating.

[11] Two other circuits have reserved the question of whether RESPA’s limitations period may be equitably tolled. See Egerer v. Woodland Realty, Inc., 556 F.3d 415, 424 n.18 (6th Cir. 2009); Snow v. First Am. Title Ins. Co., 332 F.3d 356, 361 n.7 (5th Cir. 2003).

[1] Edwards v. Marin Park, Inc., 356 F.3d 1058, 1061 (9th Cir. 2004).

[2] Janicki Logging Co. v. Mateer, 42 F.3d 561, 564 (9th Cir. 1994). The majority cites dicta in Gillibeau v. City of Richmond, 417 F.2d 426, 431 (9th Cir. 1969), a 1969 case, for the proposition that we should not, in the first instance, affirm a dismissal on Rule 8 grounds where the district court did not act upon the Rule 8 motions. On the other hand, we said, possibly in dicta, but possibly in holding, in a 1988 case, Sparling v. Hoffman Construction Co., 864 F.2d 635, 640 (9th Cir. 1988), that even if the pleading did state a claim upon which relief could be granted, “the complaint would be deficient under Rule 8(a) of the Federal Rules of Civil Procedure which requires `a short and plain statement of the claim showing that the pleader is entitled to relief.’” In the case before us, the court noted that the Merritts’ second amended complaint was “mostly unintelligible.” The district court further noted that the Merritts’ allegations and claims purported to be “made, at least in part, `hypothetically.’” It took note of the defendant’s motion to dismiss under Rule 8, but treated it as moot, because of the dismissal for failure to state a claim under Rule 12. I think we should affirm on Rule 8 grounds, and may, under Sparling.

[3] Fed. R. Civ. P. 8(a)(2).

[4] Allen v. City of Beverly Hills, 911 F.2d 367, 373 (9th Cir. 1990) (emphasis added).

[5] Id. (quoting Ascon Properties, Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir. 1989)).

[6] See, e.g., Nevijel v. N. Coast Life Ins. Co., 651 F.2d 671, 674 (9th Cir. 1981).

[7] McHenry v. Renne, 84 F.3d 1172, 1179-80 (9th Cir. 1996) (internal quotation marks omitted) (alteration in original).

[8] See, e.g., Von Poppenheim v. Portland Boxing & Wrestling Comm’n, 442 F.2d 1047, 1052 n.4 (9th Cir. 1971) (“Since harshness is a key consideration in the district judge’s exercise of discretion, it is appropriate that he consider the strength of a plaintiff’s case if such information is available to him before determining whether dismissal with prejudice is appropriate.”).

[9] Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir. 2012).

[10] See Yamamoto v. Bank of New York, 329 F.3d 1167, 1171, 1173 (9th Cir. 2003).

Merritt v. Countrywide Financial Corp.

Docket: 09-17678 Opinion Date: July 16, 2014
Judge: Berzon
Areas of Law: Banking, Real Estate & Property Law

Plaintiffs filed suit against Countrywide and others involved in their residential mortgage, alleging violations of numerous federal statutes. The district court dismissed the claims with prejudice and plaintiffs appealed. The court held that plaintiffs can state a claim for rescission under the Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq., without pleading that they have tendered, or that they have the ability to tender, the value of their loan; only at the summary judgment stage may a court order the statutory sequence altered and require tender before rescission – and then only on a case-by-case basis; and, therefore, the court reversed the district court’s dismissal of plaintiffs’ rescission claim and remanded for further proceedings. The court held that, although the limitations period in the Real Estate Settlement Practices Act (RESPA), 12 U.S.C. 2614, ordinarily runs from the date of the alleged RESPA violation, the doctrine of equitable tolling may, in the appropriate circumstances, suspend the limitations period until the borrower discovers or had reasonable opportunity to discover the violation; just as for TILA claims, district courts may evaluate RESPA claims case-by-case; and, therefore, in this case, the court vacated the dismissal of plaintiffs’ Section 8 of RESPA claims on limitations grounds and remanded for reconsideration.

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Courthouse News-

A California couple did not have to show that they could pay back a home-equity loan before legally challenging an allegedly predatory Countrywide mortgage, the 9th Circuit ruled Wednesday.
     After the lender refused to let them rescind a more-than $700,000 home loan and home equity line of credit, David and Salma Merritt sued Countrywide Financial Corp under the Truth in Lending Act (TILA) in 2009
     The Merritts claimed that their Countrywide agent had lied to them in 2006 about the details of their loan, promising a relatively low monthly payment but then jacking it up nearly threefold days before closing. They said that the agent also had failed to inform them that the final $4,400 monthly mortgage payment for their Sunnyvale home was based on “teaser rate,” and that their payments would rise even higher in the coming years.
     Countrywide’s agent, the home’s seller and an appraiser also all faced allegations of having conspired to inflate the value of the home in violation of the Real Estate Settlement Practices Act (RESPA). The couple further argued that the agent had failed to provide proper loan documentation, and that the home’s owner had lied about being the “selling agent.”

[COURTHOUSE NEWS]

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JPMorgan pulls back from mortgage lending on foreclosure worries

JPMorgan pulls back from mortgage lending on foreclosure worries

Pulling away from sub-prime lending…the same lending that got these idiots into trouble in the first place and our asses rescuing them every-time. Folks, this is a good thing!


REUTERS-

JPMorgan Chase & Co, the second-largest U.S. mortgage lender, is backing away from making home loans to less creditworthy borrowers after losing faith in its ability to recover much money from foreclosing on homes, even with government guarantees.

The shift reflects a change in the way JPMorgan runs its mortgage business: while it used to regard collateral and U.S. government lending programs as key backstops to most of its loans, it now pays closer attention to the credit quality of borrowers. The bank wants to reduce the chances of having to foreclose on a loan, because it’s bad business.

“The cost to take a customer through the foreclosure process is just astronomical now,” Kevin Watters, chief executive of JPMorgan Chase’s residential mortgage banking business in New York, told Reuters in an interview.

[REUTERS]

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