MARK C. DILLON, J.P.
JOSEPH COVELLO
CHERYL E. CHAMBERS
SHERI S. ROMAN, JJ.
2010-11013
(Index No. 430/05)
[*1]Aames Funding Corporation, etc., respondent,
v
Leonard W. Houston, appellant, et al., defendants.
Leonard W. Houston, Middletown, N.Y., appellant pro se.
Hogan Lovells US, LLP, New York, N.Y. (Allison J.
Schoenthal, Victoria McKenney, and Jessica
L. Ellsworth of counsel), for
respondent.
DECISION & ORDER
In an action to foreclose a mortgage, the defendant Leonard W. Houston appeals from an order of the Supreme Court, Orange County (Cohen, J.), dated October 21, 2010, which denied his motion to stay a foreclosure sale until a determination of his application for a residential mortgage modification pursuant to the Home Affordable Mortgage Program.
ORDERED that the order is reversed, on the law and in the exercise of discretion, with costs, and the appellant’s motion is granted.
On August 15, 2006, a judgment of foreclosure and sale was entered against the appellant and in favor of the plaintiff. In January 2008 the Supreme Court granted a motion by the plaintiff to extend a notice of pendency for an additional three years. By letter dated December 10, 2009, the loan servicer, America’s Servicing Company (hereinafter ASC), notified the defendant Leonard W. Houston (hereinafter the appellant) that he might be eligible for the federal Home Affordable Mortgage Program (hereinafter HAMP). As a result, the appellant submitted an application to ASC. On March 24, 2010, the United States Department of the Treasury issued Supplemental Directive 10-02, which stated, in pertinent part, that “[a] servicer may not refer any loan to foreclosure or conduct a scheduled foreclosure sale unless and until . . . [t]he borrower is evaluated for HAMP and is determined to be ineligible for the program” (emphasis in original).
By letter dated April 30, 2010, ASC notified the appellant that his loan was “currently under review by [ASC’s] Loss Mitigation Department for a loan modification,” and that ASC “currently [had] all the necessary information.” ASC informed the appellant that he would “be contacted with the outcome of the review or if any additional information [was] needed.” The appellant sent additional documents to ASC on July 2, 2010, and August 5, 2010. Meanwhile, the plaintiff published a notice of a foreclosure sale scheduled for August 26, 2010.
By order to show cause dated August 23, 2010, the appellant moved for an emergency stay of the foreclosure sale pending a determination on his application for a residential mortgage modification pursuant to HAMP. The plaintiff opposed the appellant’s application, and requested an order “directing that the foreclosure sale take place immediately.” The plaintiff argued that [*2]Supplemental Directive 10-2 was “no longer in effect and was superseded by the Making Home Affordable Handbook,” and, therefore, that directive was “not controlling.” By order dated October 21, 2010, the Supreme Court denied the appellant’s motion, vacated all stays imposed by the court, and permitted the plaintiff to proceed with the foreclosure sale. We reverse.
The record establishes that ASC participated in the HAMP program and accepted the appellant’s application for loan modification under the HAMP program. Under the circumstances, the plaintiff should not have scheduled a foreclosure sale while the appellant’s loan modification application was pending (see Matter of Cruz v Hacienda Assocs., LLC, 446 BR 1). The plaintiff contends that the appellant is not entitled to a stay of the foreclosure sale because Supplemental Directive 10-2 was superseded by the Making Home Affordable Program Handbook. However, Version 2.0 of the “Making Home Affordable Program Handbook,” in effect at the time the order appealed from was issued, contained the same language as Directive 10-2, to wit: “[a] servicer may not refer any loan to foreclosure or conduct a scheduled foreclosure sale unless and until . . . [t]he borrower is evaluated for HAMP and is determined to be ineligible for the program [emphasis added].” Accordingly, the Supreme Court should have granted the appellant’s motion to stay the foreclosure sale pending a determination of his application for a residential mortgage modification pursuant to HAMP.
As we previously stated on a prior appeal in this matter, the appellant’s contention that the plaintiff lacked standing to commence the foreclosure action is barred by the doctrine of law of the case (see Aames Funding Corp. v Houston, 57 AD3d 808).
In light of our determination, we need not reach the appellant’s remaining contentions.
DILLON, J.P., COVELLO, CHAMBERS and ROMAN, JJ., concur.
Chanel Rosario was supposed to be one of the lucky ones. After years of sending and re-sending documents, waiting on hold and attending court hearings to avoid foreclosure on her Staten Island home, she’d finally received a much-needed reduction on her mortgage. Eagerly, she and her husband signed it and mailed it in last September. “We thought it was over.”
It wasn’t. After months of making payments, Rosario called the bank handling her mortgage, Chase Home Finance, and found out Chase was still reporting her as delinquent, damaging her credit score and putting her home in jeopardy. Despite months of trying to get an explanation with the help of a legal-aid attorney, she still doesn’t know why Chase isn’t abiding by the agreement.
The Federal Reserve Bank of New York is investigating whether Goldman Sachs’ (GS.N) mortgage servicing arm did not conduct proper reviews before denying borrowers the option to lower their payments under a government loan modification programme.
In its quarterly filing with the SEC earlier this month, Goldman said regulators had sought information on the foreclosure and servicing protocols and activities of its mortgage servicing unit Litton Loan Servicing.
“We are in possession of the letter and are conducting an inquiry,” a NY Fed spokesperson told Reuters, referring to a letter from a Litton employee sent to the NY Fed by the Financial Times. A spokesperson for Goldman Sachs declined to comment when contacted by Reuters.
American Home Mortgage Servicing, one of the largest subprime mortgage servicers, is urging the U.S. Treasury to organize a plan to boost principal reductions for up to 1 million homeowners by unlocking loans from securities.
The servicer is asking for amendments to contracts that govern treatment of delinquent loans in mortgage securities. Currently, most contracts don’t allow sales of loans prior to foreclosure, and in many cases don’t permit a servicer to lower principal when a loan is modified.
“We are doing everything we can to keep people in their homes that should stay in their homes.”
BLOOMBERG-
Jamie Dimon, JPMorgan Chase & Co. (JPM)’s chairman and chief executive officer, said he was sorry for foreclosure mistakes as hundreds of protesters at the annual meeting demanded he do more to help homeowners and small businesses recover from the financial crisis.
Certainly everyone knows to read the fine print by now…
ProPUBLICA-
A few months ago, Bank of America offered Sergio Cortez of Staten Island, N.Y., the help he desperately needed to stay in his home: a break on his mortgage. Like millions of others, he was facing foreclosure. But there was a catch buried in the fine print. Cortez had to waive any possibility of ever suing the bank for anything relating to the loan.
Cortez isn’t alone. While regulators have banned the practice, some banks and others who handle mortgages have still been forcing homeowners into a corner: You want a chance at saving your home? Then you’ll have to waive your rights.
RONALDO ALPINO and ILMA ALPINO, Plaintiffs,
v.
JPMORGAN CHASE BANK, NATIONAL ASS’N Defendants.
Civil No. 1:10-12040-PBS.United States District Court, D. Massachusetts.
April 21, 2011.
MEMORANDUM AND ORDER
PATTI B. SARIS, District Judge.
I. Introduction
This cases arises after the defendant’s foreclosure of the plaintiffs’ home. The plaintiffs have alleged the following: the defendant breached the duty of good faith and reasonable diligence inherent in every mortgage contract in Massachusetts (Count I); the defendant breached its contract with the United States under the Home Affordable Modification Program (Count II); the defendant violated Mass. Gen. L. c. 244, § 14, regarding the operation of a foreclosure sale (Count III); and the defendant intentionally inflicted emotional distress (Count IV).
On November 24, 2010, the case was removed to federal court on the basis of diversity and federal question jurisdiction, see 28 U.S.C. §§ 1331, 1332, the federal question being the defendant’s alleged breach of the HAMP government contract. The defendant then filed a motion to dismiss. After considering the record, the Court DENIES the motion in part and ALLOWS the motion in part without prejudice to the filing of an amended complaint.
II. Factual Background
A) The Alpinos’ Mortgage:
The Court derives the following facts from the complaint (“Compl.”). For the purposes of this motion to dismiss, the facts are taken to be true. See Ashcroft v. Iqbal, 129 S. Ct. 1937, 1941 (2009).
The Alpinos purchased their home in December of 2002. In early 2004, they refinanced their original mortgage loan with a new loan from Washington Mutual Bank, Federal Association (“Washington Mutual”) in the amount of $366,000, secured by a first mortgage on their property. The loan is a 30 year, adjustable rate mortgage, which annually adjusts to 2.65% above the average of the prior 12 monthly yields of the one year United States Treasury Securities.
Like many Americans, when the economy began failing in 2008, the Alpinos had difficulty keeping up on their mortgage payments. Meanwhile in September 2008, Washington Mutual collapsed, and JPMorgan Chase Bank (“JPMorgan”) became its successor in interest to a number of financial interests, including the Alpinos’ mortgage and refinancing loan. The Alpinos contacted JPMorgan to see about adjusting their payments in order to avoid default. They “diligently provided JPMorgan with all the information requested” and “negotiated in good faith for a forbearance agreement, loan modification, or any other way to save their home from foreclosure.” (Compl. ¶ 15.) JPMorgan refused to modify, and when the Alpinos failed to stay current on their mortgage, the bank scheduled a foreclosure sale.
Besides the failure to consider a mortgage payment modification, this action also concerns events occurring at the scheduled foreclosure sale. The Alpinos allege that they arrived at their property around 4:15 pm on March 2, 2010 — fifteen minutes after the scheduled foreclosure auction was supposed to take place — and found a group of approximately twenty people. Mr. Alpino asked some of the people gathered whether the sale had already occurred. He was told that it had not. At that point he went inside the home to call a lawyer. Ms. Alpino remained outside waiting for the auction. After about ten minutes, all but two of the potential purchasers had left. After several more minutes, these remaining two individuals had left as well. According to Ms. Alpino, at no time during this period did an auctioneer appear to fly an auction flag or hold an auction. Nonetheless, the defendant asserts that it conducted a sale and that it “became the absolute title holder to the [Alpinos’ home].” (Def. Mem. at 3.)
B) The Home Affordable Modification Program (HAMP):
In February 2009 the President announced the Homeowner Affordability and Stability Plan to help millions of Americans restructure their mortgages and stay in their homes in the face of impending default and foreclosure. (See Doc. 7, Ex. A (“Supp. Directive”) at 1.) As part of that plan the government created the Home Affordable Modification Program (HAMP).
Among other things, HAMP creates a cost sharing system, whereby the government helps reduce the impact of mortgage modifications on lenders. In exchange, the program asks servicers to standardize and systemize a process for mortgage modification, including the implementation of the net present value (NPV) test. NPV compares the expected cash flow from a modified loan with the cash flow from the unmodified loan. If the expected cash flow from the modified loan exceeds the amount from the unmodified loan, then the loan servicer must modify the loan. Id. at 4. In considering a loan for modification, servicers must perform a “Standard Modification Waterfall.” Id. at 8. This process requires servicers to apply a series of modification steps that work to reduce loan monthly payments to as close as possible to 31 percent of the homeowners gross monthly income. See generally Morris at 10 n.3.
Servicers opt into HAMP by executing Servicer Participation Agreements (SPAs). These agreements between servicers and Fannie Mae, in its capacity as a financial agent for the United States, require servicers to consider all eligible mortgage loans for modification unless prohibited by the rules of an application pooling and servicing agreement (PSA), which establish private label securitizations of mortgages. See id. at 1. But even in the face of PSAs that prohibit modification, “[p]articipating servicers are required to use reasonable efforts to remove any prohibitions and obtain waivers or approvals from all necessary parties in order to carry out any modification under HAMP.” Id.
Despite these provisions, homeowners have not always seen the benefits HAMP was intended to foster. During the first year of operation, HAMP resulted in the permanent modification of only 230,801 mortgages, well below the target objective of three to four million borrowers. See Jean Braucher, Humpty Dumpty and the Foreclosure Crisis: Lessons from the Lackluster First Year of the Home Affordable Modification Program (HAMP), 52 Ariz. L. Rev. 727, 739 (2010). In June 2010, the Government Accountability Office traced some of this underperformance to servicers’ failure to adequately solicit HAMP eligible borrowers and to promptly respond to borrower inquiries regarding HAMP modifications. See U.S. Gov’t Accountability Office, GAO-10-634, Troubled Asset Relief Program, Further Actions Needed to Fully and Equitably Implement Foreclosure Mitigation Programs i (2010).
The defendant allegedly signed an SPA with the government and is a HAMP participant. (Comp. ¶ 19.)
III. Standard
The plaintiffs’ burden is to plead “sufficient matter, accepted as true, to state a claim for relief that is plausible on its face.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (citing Bell Atlantic v. Twombly, 550 U.S. 544, 570 (2007)). “A case has `facial plausibility’ when plaintiff pleads factual content that allows the court to draw a reasonable inference that the defendant is liable for the misconduct alleged.” Id. Where a complaint pleads facts that are “merely consistent with” a defendant’s liability, it “stops short of the line between possibility and plausibility of `entitlement to relief.'” Id. In considering the adequacy of pleadings, a court must take as true the factual allegations in the plaintiff’s pleadings and must make all reasonable inferences in favor of the plaintiff. Rivera v. Rhode Island, 402 F.3d 27, 33 (1st Cir. 2005).
IV. Claims
Because it colors the resolution of the plaintiffs’ state law claims, the Court begins by discussing Count II, the plaintiffs’ claim for breach of the SPA between JPMorgan and the United States.
A) Count II
In order to bring a claim for breach of the SPA between the defendant and the United States Department of Treasury, the Alpinos must demonstrate that they are the third party beneficiaries of this agreement. See Speleos v. BAC Home Loans Servicing, 10-11503, 2010 WL 5174510, * 4 (D. Mass. Dec. 14, 2010)(“Speleos”). Of the number of federal courts to have considered this issue, the majority have held that homeowners are not the intended beneficiaries of these agreements and, thus, do not have a claim for breach of contract arising from lenders or servicers’ failures to abide by the terms of HAMP in considering inquiries related to mortgage modifications. See Speleos at * 3 (collecting cases). Only one court has held to the contrary. See Marques v. Wells Fargo Home Mortgage, Inc., 09-1985-L, 2010 WL 3212131 (S.D. Calif. Aug. 12, 2010) (“Marques”).
In December, this court denied a homeowner third party beneficiary status under HAMP. See Speleos (Gorton, J.). Quoting at length from the HAMP guidelines and Treasury announcements explaining the program, the court held that the borrower could make out a “colorable” claim that HAMP was intended to benefit homeowners. Id. at *5. However, the court ultimately concluded that a finding that homeowners could sue for the breach of an SPA was not consistent with the terms of the contract, which stated that the rights and remedies outlined in the SPA were “for our benefit and that of our successors and assigns.” Id.
The court in Marques arrived at the opposite conclusion after highlighting the numerous requirements HAMP imposes on servicers with regard to their interactions with borrowers. For example, the court noted that the “agreement expressly provides that the `[s]ervicer shall perform the Services for all mortgage loans it services. . . .'” Marques at *5 (quoting SPA at § 2(A)). Thus, the court held: “The Agreement on its face expresses a clear intent to directly benefit the eligible borrowers.'” Marques at *6.
There is compelling evidence that the government intended to benefit homeowners when it implemented the HAMP program, and the contractual language highlighted by the court in Marques requiring servicers to consider all eligible mortgages for HAMP modifications is illustrative of this design. But on its own, this language merely stresses that servicers are required to perform these obligations, not that private parties necessarily have third party beneficiary status to enforce them. As the Supreme Court recently illuminated in reversing the Ninth Circuit’s decision in Cnty. of Santa Clara v. Astra USA, Inc., 588 F.3d 1237 (9th Cir. 2009), rev’d, 131 S.Ct. 1342 (2011), the test for determining whether a plaintiff is a third party beneficiary to a government contract must focus on whether the contract intended to provide the plaintiff with a legal cause of action, not just whether the plaintiff falls within a class of individuals that the contract and its underlying policies seek to benefit. See Astra USA, Inc. v. Santa Clara Cnty., 131 S.Ct. 1342, 1348 (2011)(“The distinction between an intention to benefit a third party and an intention that the third party should have the right to enforce that intention is emphasized where the promisee is a governmental entity.” (quoting 9 J. Murray, Corbin on Contracts §45.6, p. 92 (rev. ed. 2007)(internal quotation marks omitted)).
Guided by this principle, the Court adopts the reasoning in Speleos. Despite HAMP’s general purpose to benefit homeowners, the SPA contains clear language limiting the class of actors who can enforce its terms. It states: “The Agreement shall inure to the benefit of and be binding upon the parties to the Agreement and their permitted successors-in-interest.” (See Pl. Ex. A (“SPA”) at § 11(B).) In the face of this language, and the Supreme Court’s recent holding in Astra, the Alpinos cannot demonstrate that they are the intended beneficiaries of the SPA. For this reason, Count II must be dismissed.
In dismissing Count II, the Court recognizes the difficulty homeowners have had in realizing the benefits of HAMP. HAMP enforcement tends to focus on servicers’ responsibilities after a loan has been modified and seek to protect “the Treasury for overpaying [incentives].” Marques at * 6. There has been little enforcement of the requirement that servicers consider eligible loans for modification. One recent article has noted that part of the problem Treasury has had in encouraging HAMP compliance may lie in the conflict between the incentives of loan servicers and mortgage loan holders. Servicers, who often administer mortgage loans that have been packaged and sold off to third-party holders in complicated securities instruments, will sometimes see greater returns from a foreclosure than a modification, even if the modification increases cash flows to mortgage holders. See, Adam J. Levitin & Tara Twomey, Mortgage Servicing, 28 Yale J. on Reg. 1 (2011).
This does not mean that homeowners like the Alpinos are without a means of redress. Even though the Alpinos cannot bring a claim directly for breach of the SPA agreement, the defendant’s failure to abide by HAMP’s terms may give rise to other causes of action under state law. Specifically, as this Court held in Morris, the Alpinos may have a cause of action under Mass. Gen. L. ch. 93A, the Consumer Protection Act, for the defendant’s failure to consider them for a HAMP modification, as long as they can show that this failure was deceptive or unfair under § 93A. See Morris at 7-8; see also Bosque v. Wells Fargo Bank, N.A., No. 10-10311, 2011 WL 304725, at *7-*8 (D. Mass. Jan. 26, 2011) (denying motion to dismiss Chapter 93A claim arising out of HAMP application). They may also be able to allege that the defendant’s failures amounted to negligence, for HAMP affects the mortgage lender’s legal duties. Speleos at *6 (stating, with regard to HAMP, that a “claim for negligence based on a statutory or regulatory violation can survive even where there is no private cause of action under that statute or regulation.”). In other words, even if the Alpinos do not have a federal cause of action under HAMP, some violations of HAMP may form the basis of state law causes of action. Count II is dismissed without prejudice.
B) Counts I and III
The Alpinos also allege that the defendant breached its “duty of good faith and reasonable diligence.” This claim does not concern HAMP or the SPA; rather, it posits the violation of independent state-law duties inherent in every mortgage contract in Massachusetts. Along with this claim, in Count III, the Alpinos allege that the defendant violated the Massachusetts foreclosure statute by failing to conduct an open public auction under the mortgage’s power of sale. See Mass. Gen. L. c. 244 § 14.
In Massachusetts “the basic rule of law applicable to the foreclosure of real estate mortgages is that `a mortgagee in exercising a power of sale in a mortgage must act in good faith and must use reasonable diligence to protect the interests of the mortgagor.'” Seppala & Aho Const. Co., Inc. v. Petersen, 373 Mass. 316, 367 N.E.2d 613, 616 (Mass 1977)(citations omitted). Technical compliance with the rules governing the foreclosure procedure does not necessarily ensure that a mortgagee has met its obligations under the law. If the mortgagee does not exercise good faith in the execution of a foreclosure, then the foreclosure sale is invalid. See Edry v. Rhode Island Hospital Trust Bank, 201 B.R. 604, 607 (Bankr. D. Mass. 1996) (finding that a mortgagee’s failure to make reasonable efforts to sell the property for the highest value possible invalidated a foreclosure sale). “[T]his responsibility is [even] `more exacting’ where the mortgage holder becomes the buyer at the foreclosure sale. .. .” U.S. Nat. Bank Ass’n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40, 50 n. 16 (citations omitted).
Here, the Alpinos press two different theories of liability under Count I. First, they allege that the defendant breached its duties by failing to consider the Alpinos for a mortgage modification. Second, they argue that the defendant’s alleged failure to hold the auction in a reasonable manner is a violation of the inherent duty of good faith and reasonable diligence.
The Court need not address the first theory of liability, for it finds that the Alpinos have alleged sufficient facts to surpass a motion to dismiss on their second theory. In claims for a breach of the duty of good faith and reasonable diligence, Massachusetts courts have placed emphasis on a mortgagee’s duty to protect the mortgagor’s interests by seeking a reasonable foreclosure price and ensuring that the mortgagor has notice of the sale. For example, in Bon v. Graves, 216 Mass. 440, 130 N.E. 1023 (1914), the Supreme Judicial Court held that the fact that a mortgagee gave notice of a foreclosure sale in publications of limited circulation, along with the mortgagee’s failure to provide the mortgagor with personal notice of the sale, amounted to a breach of its duties under state law. Id. at 1026 (“The duty of one acting under a power of sale in a mortgage is to use that reasonable degree of effort and diligence to secure and protect the interests of the mortgagor, the owner of the equity of redemption and junior lienors, to the observance of which he is bound by the obligation in good faith.”).
Here, the Alpinos have alleged sufficient facts to raise a plausible claim that the defendant failed to make reasonable efforts to protect the Alpinos’ interests by conducting a fair and open foreclosure sale. See Aurea Aspasia Corp. v. Crosby, 331 Mass. 515, 120 N.E.2d 759, 760-61 (Mass. 1954)(finding that the appearance of an auctioneer, who announced the terms of the sale, and flew a red flag was sufficient to conclude that a foreclosure action had occurred). This would implicate the defendant’s duty to protect the plaintiff’s interests by securing the highest possible price in the foreclosure sale and its duty to ensure that the homeowner had adequate notice of the auction, a duty that is heightened in this case because the defendant allegedly purchased the property at issue.
The plaintiffs have also alleged sufficient facts to establish that the defendant may have violated the Massachusetts foreclosure statute. Mass. Gen. L. c. 244, § 14 addresses a mortgagee’s “foreclosure under power of sale.” Id. Among other things, this section assumes the conducting of a public auction. See id. (providing a model form for the “Mortgagee’s Sale of Real Estate,” which includes specific mention of a “Public Auction” and leaves space for the time, date, and location of the auction.). If the defendant indeed failed to hold a public auction at the time and date noticed, then it violated both the letter and the spirit of the provision.
The fact that the foreclosure sale may not have been properly conducted does not necessarily mean that the Alpinos have asserted valid claims for relief. The plaintiffs allege that the defendant’s actions entitle them to, among other things, the issuance of a preliminary injunction preventing their eviction, a preliminary injunction preventing JPMorgan from selling the property, the granting of “unclouded title” in the property, reasonable damages, and a lis pendens. At a hearing before this Court, the plaintiffs stated that they were also seeking rescission of the mortgage contract. The defendant argues that the only cause of action available to the Alpinos is one in equity for redemption of the mortgage and seeks to dismiss Counts I and III because the Alpinos have not explicitly made a claim for redemption.
Massachusetts law recognizes two different types of actions that can be brought by a mortgagor alleging that his property has been transferred in a wrongful foreclosure sale: “[a]n action of tort, and a proceeding to set aside the foreclosure.” Cambridge Sav. Bank v. Cronin, 289 Mass. 379, 194 N.E. 289, 290 (Mass. 1935). The plaintiffs appear not to be pursuing a tort claim, for such a claim would be inconsistent with their stated desire to retain title to their home. See Rogers v. Barnes, 169 Mass. 179, 47 N.E. 602, 604 (Mass. 1897) (explaining that in cases where the plaintiff successfully brings an action in tort for wrongful foreclosure, which is similar to an action for conversion of personal property, the plaintiff surrenders legal title to the property at issue). Instead, the Court understands them to be seeking an invalidation of the foreclosure sale. Historically, this type of claim was styled as a “bill to set aside the foreclosure and redeem.” See Cambridge Savings Bank, 194 N.E. at 290. Nowhere in their complaint do the Alpinos explicitly state their intent to exercise their right of redemption. But, even assuming that this is the only form of relief available, a failure to explicitly seek a right of redemption does not require dismissal of a claim for equitable relief from an allegedly invalid foreclosure sale. Cf. State Realty Co. of Boston v. MacNeil Bros., Co., 334 Mass. 294, 135 N.E.2d 291, 294-95 (Mass. 1956)(finding that there “was no error in overruling the demurrer of” the mortgagee in a suit for redemption where the “bill for redemption [was] somewhat inartifically drawn” but identified the “mortgage and the parties interested in it, allege[d] that the mortgage is upon property of the plaintiff, and offer[ed] redeem.”). A determination that the foreclosure sale was unlawful will void the sale and return the plaintiffs to the position they were in before the sale allegedly occurred. See Ibanez, 941 N.E.2d at 50 (“[O]ne who sells under a power of sale must follow strictly its terms. If he fails to do so there is no valid execution of the power, and the sale is wholly void.” (internal quotation marks and citations omitted)); see also Rogers v. Barnes, 169 Mass. 179, 47 N.E. 602, 603 (Mass. 1897)(noting that a wrongful foreclosure sale gives rise to a “cloud upon the title of the plaintiff to an equity of redemption in the premises, which cannot be removed without some expense to the plaintiff, and the damages might be more than nominal.”).
D) Count IV: Intentional Infliction of Emotional Distress:
Though the defendant may have engaged in some legally cognizable wrongdoing, and though the Alpinos may have suffered greatly, there is no indication that the defendant’s actions were extreme and outrageous. “The usage of the terms outrageous and extreme have become commonplace in today’s society, however, as used by the Agis Court they mean more than `annoyances, or even threats and petty oppressions.'” Harvard Univ. v. Goldstein, No. 961020, 2000 WL 282537, * 2 (Mass. Super. Ct. Feb. 15, 2000) (quoting Conway v. Smerling, 635 N.E.2d 268, 273 (1994)). The plaintiffs have not alleged that the defendant ever asked for more money than they actually owed on the mortgage, see Beecy v. Pucciarelli, 387 Mass. 589, 441 N.E.2d 1035, 1045 (D. Mass. 1982)(finding that attorney’s negligent actions in bringing a collection action against the wrong defendant did not constitute extreme and outrageous conduct), nor do they claim that they have been removed from their home in the wake of the wrongful foreclosure. At most, the defendant failed to consider the plaintiff for a mortgage modification under HAMP and then failed to operate an open and fair foreclosure sale. The Alpinos claim for intentional infliction of emotional distress is dismissed.
ORDER
The Court ALLOWS the motion to dismiss Count II and Count IV. The Court ALLOWS the request for a lis pendens. The Court DENIES the motion to dismiss the remaining counts.
ELLERY G. PENNINGTON AND
LAURA M. PENNINGTON, on behalf
of themselves and all others similarly
situated,
v.
HSBC BANK USA, NATIONAL
ASSOCIATION and WELLS FARGO
BANK, N.A.,
Excerpt:
Plaintiffs bring this action against Wells Fargo Bank, N.A., its division Wells Fargo Home Mortgage, and HSBC Bank USA (collectively, “Defendants”) on behalf of Texas resident home equity loan borrowers who were offered loan modifications by Defendants after March 3, 2007.
<SNIP>
Defendants then railroaded borrowers into foreclosure by setting up so many roadblocks to modification that borrowers would finally cry uncle in the face of bureaucratic stonewalling, incompetence, misrepresentations, deception, and fraud. Meanwhile, borrowers subjected to Defendants’ misconduct would have interest charges running against them during the pendency of Defendants’ purported “review” of their loans. An already distressed loan situation became all but impossible to escape because of Defendants’ misconduct and deception. Borrowers’ interest arrearages for the months and years they got chewed up in Defendants’ maniacal mortgage meatgrinder made any loan modification prospect remote almost to the point of impossibility.
Lenders say ‘dual tracking’ protects their investment if the homeowner is unable to qualify for new loan terms. But regulators seeking to ban the practice say it lulls some borrowers into thinking they won’t have their homes taken away.
Must read to understand the frustration this single parent, nurse and strong-willed individual was put through. Absolutely NO excuse and this is another reason why HAMP was such a disaster!
Again, where exactly do these “trial payments” go to?
US Bank National Association, as Trustee For CMLTI 2007-WFHE3, Plaintiff,
against
Alejandra Padilla et al., Defendants.
8979/09
Steven J. Baum, P.C.
Attorneys for Plaintiff
220 Northpointe Parkway, Suite G
Amherst, New York 14228
Ms. Alejandra Padilla
Defendant, Pro Se
One Vine Street
Beacon, New York 12508
James D. Pagones, J.
Excerpt:
ORDERED that plaintiff is directed to re-open the homeowner’s file and consider her for a modification taking into consideration the bank’s delay in reaching a decision; and it is further
ORDERED that plaintiff is barred from collecting any interest incurred from October 4, 2010, until the date the matter is released from the settlement part; and it is further
ORDERED that any unpaid late fees are waived; and it is further
ORDERED that any loan modification fees are to be either waived or refunded to the homeowner; and it is further;
ORDERED that any attorney’s fees and other bank fees claimed to have been incurred from the date of the default until the date of this matter is released from the settlement part are not to be included in the calculation of the homeowner’s modified mortgage payment or otherwise imposed on the homeowner, but, rather, any request for attorney’s fees is hereby severed and to be submitted to the court for separate, independent review as to their reasonableness; and it is further
ORDERED that a bank representative fully familiar with the file and with full authority to approve and enter into a loan modification appear in person at the next conference, and it is further
ORDERED that an attorney associated with plaintiff’s firm must appear at the hearing (local counsel may not appear); and it is further
ORDERED that the parties appear for a further conference in the Foreclosure Settlement Part on April 25, 2011 at 3:00 p.m. Adjournments are granted only with leave of the Court.
Failure to comply with this order may result in sanctions.
Segment from an actual call, recorded on October 20, 2008, between a homeowner and a lawyer, Heather Johnson, of the notorious foreclosure mill, Steven J Baum, representing Litton Loan Servicing. Mr.Christopher Wyatt, part of Litton’s “Executive Resolution Team,” begged out of the call when told it would be filmed an recorded. Loan modifications were offered on a take-it-or leave it basis; however requests for follow-up documentation were ignored. This same lawyer then signed off on a foreclosure, nearly ten months later, initiated by the trustee, Wells Fargo, on behalf of the securitized pool holding the homeowner’s mortgage. The “foreclosure mill” law firm, in this case, Steven J Baum, was specifically cited in a New York Times article about NY State Supreme Court Judge Arthur M Shack on August 31st, 2009, and has engendered criticism for its faulty filing practices. The firm has done extensive work for Litton Loan and its host of robo-signers, including Marti Noriega (who also does double duty for MERS). Hedge Fund Tailwind Capital has a hefty investment in this foreclosure mill. Guess they figured that throwing families out of their homes had a financial upside. Now, the Steven J Baum firm believes that any attempt to make them produce evidence is, simply, a “fishing expedition.” Why? Because actually producing evidence would be enough to get them and their clients thrown in the proverbial shitcan (judicial or otherwise). This call will become part of Pacific Street’s upcoming feature documentary, FORECLOSURE DIARIES.
Reading between the lines of settlement proposals, the states attorneys general aren’t speaking the same language as the big banks. And struggling homeowners are paying the price.
By Abigail Field, contributor
FORTUNE — Over the past several months regulators have finally noticed what consumer attorneys have been saying for years: the big banks have routinely committed fraud in their foreclosure filings and their records of how much people owe are too often wrong. And the mortgage modification process, which was meant to help homeowners, has been exposed as an abject failure.
Fannie Mae and Freddie Mac aren’t going to be writing down loan balances any time soon unless someone else is willing to pay for it, the head of the firms’ federal regulator said on Thursday.
The Obama administrationpressured the firmslast fall to use a program that allows homeowners who owe more than their homes are worth to refinance into smaller government-backed loans. Under the program, Fannie and Freddie would have had to take a loss to get rid of the loan.
Congresswoman Jaime Herrera Beutler today sent a letter to the Federal Deposit Insurance Corporation (FDIC) seeking answers regarding a troubling pattern of Clark County foreclosures resulting from the failure of the Bank of Clark County.
What has been particularly troublesome to Congresswoman Herrera Beutler is what she learned from several Bank of Clark County borrowers: they made all of their scheduled payments on time, in full. Why Rialto Capital has chosen to foreclose on borrowers who have honored their loan agreements remains unclear.
[…]
“I’m deeply concerned by what I’ve learned so far about FDIC’s deal with Rialto Capital,” said Herrera Beutler. “If borrowers who have lived up to the terms of their original loans are facing foreclosure, I want to know why. It certainly seems like the FDIC has a responsibility and moral obligation to ensure entities like Rialto act in a decent and ethical manner.
.
“The FDIC has not been completely forthright about its decision-making process, even after multiple requests for information by my office. While Southwest Washington families and businesses suffer the consequences of its decisions, the FDIC may have made it possible for real estate investor Rialto to end up with large tracts of Clark County land at a bargain price by breaking contracts. That doesn’t seem right.
“I am going to remain vigilant with FDIC and with Rialto until we get answers.”
The text of Congresswoman Herrera Beutler’s letter to the FDIC is below, and attached:
Chairman Sheila C. Bair
Federal Deposit Insurance Corporation 3501 N. Fairfax Dr. Arlington, VA 22226
Chairman Bair,
In recent weeks I have been contacted by a number of my constituents with concerns about the closing of the Bank of Clark County in Vancouver, Washington. More specifically, the concern is with the FDIC’s decision to sell many of the bank’s outstanding loans to Rialto Capital Management LLC and the management of those loans by Rialto and the FDIC.
Since the closing of the Bank of Clark County a large number of construction properties have been forced into foreclosure. Many of these foreclosures are due to Rialto Capital’s refusal to work with builders in honoring the existing loan agreement, even when the builders are current in their loan payments. Instead, Rialto moves to simply collect on collateral.
In order to understand the FDIC’s role in these procedures I respectfully request that you answer the following questions:
•To my knowledge when the FDIC sells a loan package it retains a certain percentage of the package in order to ensure a return on investment. What oversight does the FDIC perform on Rialto Capitol and its management of the loans?
•Numerous builders with whom my office has spoken had not missed a single payment on their loans when Rialto Capital took over. What consideration, if any, is given to the lendee’s payment record when deciding to terminate loans?
•As a holder of a percentage of the loan package, does the FDIC require Rialto to honor the conditions of previous contracts made and carried out in good faith? What steps has the FDIC taken to ensure that any ensuing foreclosures are not directly attributable to changes in contract conditions made without the consent of the customer by Rialto?
•How many construction loans did Rialto Capitol take over from the Bank of Clark County? Of those contracts how many have Rialto and the FDIC continued to honor?
•Rialto Capitol calls itself a real estate investment management company. It is my understanding that typically other banks buy these loans. Why is the FDIC selling bank loans to non-banks?
I realize the FDIC closed the Bank of Clark County due to poor performance and bad loan approvals played a role in that. However, many of the people Rialto and the FDIC have decided to foreclose on made sound loan decisions, made their payments on time, and through no fault of their own still lost their loans. In some cases those loans were worth millions of dollars, and in many cases the loss of loans cost people their livelihood.
I do not know what Rialto ultimately intends to do with the large tracts of land it would hold as a result of these foreclosures, but it is clear the company purchased these loans with no intention of working with the citizens of Southwest Washington. Surely the FDIC did not close the Bank of Clark County in order to give real estate investors the opportunity to obtain land for pennies on the dollar by breaking contracts signed and honored by local builders.
The FDIC has a responsibility and moral obligation to ensure the companies that obtain loans as the result of a bank closure act in an ethical and decent manner toward their customers. I strongly urge you to take a hand in this matter and review with great diligence the actions of Rialto Capital.
I appreciate your attention to this matter and look forward to a response. Please contact Chad Ramey in my Washington, D.C. office at (202) 225-3536 for further detail or clarifications.
Principal write down, forgiveness, whatever you want to call it, will be the big sticking point and the whatever billion dollar number will be too much and not enough at the same time.
I just have to throw out my own caution that if and when banks are forced to lower the amount of America’s mortgages, suddenly you are going to see a whole lot more Americans “unable” to pay back what they promised. Those of us who are paying what we owe will get nothing, and this will be the overwhelming, and everlasting lesson of this latest crisis in history.
I will disagree and say this… Although I do understand your frustrations Diane, I think the “overwhelming and everlasting lesson” will not be your ideas but instead the overwhelming result of millions left homeless who were victims of the greatest scam uncovered in US history. Lastly, crime did pay with be the everlasting lesson IMO.
Edward J. Rukab says it might have been “bailout fever” that convinced him to apply for a mortgage modification.
With banks getting assistance left and right, he figured the federal Home Affordable Modification Program would help struggling homeowners such as himself who were underwater on mortgages.
Today, he bitterly regrets ever applying to Bank of America for a mortgage modification under the federal program, which has faced persistent complaints about changing rules midstream, losing paperwork and taking too long to act on applications.
For over two years I’ve had a front row seat for the foreclosure crisis, the by-product of our government’s complete mishandling of the worst economic downturn in seventy years.
During that time I’ve been exposed to some pretty horrific things… people living in their cars with a child sleeping in the trunk… the eviction of an 89 year-old couple… I’ve gotten to know what that fear sounds like and feels like… the fear of losing one’s home while the country talks about you as being nothing more than an “irresponsible borrower,” someone who never should have bought your home in the first place, even though you may have lived in it for 30 years.
What I saw this past week, however, was something new for me… I’d heard of things like this happening before, written about them, even. But, I had never seen anything like it, up close and personal.
As a warning… this story is not for the squeamish. If you’re pregnant, or have heart disease, or just want to go on pretending that your country is still a place of which you’re proud… it’s better that you click off now… because this one isn’t going to make you laugh.
An Anaheim couple with an eight year-old daughter has lost their home… that would be one way of phrasing it. Another way to describe what happened would be to say that JPMorgan Chase, an outfit that I now see clearly is significantly worse than any crime family… has thus far been permitted by the courts and the laws in California to STEAL an Anaheim couple’s home.
Why do I say that Chase stole it? Well, there are lots of reasons, but I think the one that tops my list would have to be, because they never missed or were late on a payment… in every single month that JPMorgan Chase told the couple to make a payment… they paid the exact amount they were told to pay… on time and as agreed… never missed even one… never were late, not even once.
“We trusted the bank,” the Mom says, “like idiots.”
The husband in this family worked for the City of Placentia in Southern California for some 27 years. The wife and mother has her own small business. Their adorable eight year-old daughter, whose life is about to be inalterably changed at the hand of JPMorgan Chase, goes to school near by and loves her home. Her parents haven’t told her anything about this yet, and I pray to God they never have to… that JPMorgan Chase comes forward and stops this egregious wrong that they have let happen… that they have created.
I can barely tell this story… I can’t imagine it ever happening to me… I can’t imagine it ever happening to anyone in this country… a place I used to proudly think of as my country. Not so much anymore though.
The husband in this family became ill a few years ago… advanced diabetes… his kidneys have failed, he’s on dialysis… heart disease… he’s spent time on a respirator while hospitalized.
Yet, they’ve made it through everything, this family, through all of that and more… stayed together… raised a daughter… found ways to laugh and play together… they must love each other very much.
They had bought their 2-bedroom home in August of 2006… as it turns out… terrible timing… but who knew that the bankers, who had leveraged themselves 40-100 to one, were about to blame homeowners for their defrauding of the investment community, bankrupting the global financial system, and destroying the credit markets? Bernanke didn’t know… Paulson didn’t know… personally, I think that lets this couple off the hook about the whole should-have-known thing.
So, for three years they made their payments without fail. And maybe if it would have just been the economy or just the medical bills, they would have made it through this… but both was too much, and they received a Notice of Default in July of 2009.
They applied to JPMorgan Chase for a loan modification, and Chase granted them a trial modification in February of 2010. Chase told them to pay $869 for three months, and entered them into another program in May, telling them to make monthly payments of $1358.
They paid every month, on time every time… by cashier’s check, as required by Chase. The trial modification paperwork said something to the effect of:
“If all payments are payments are made as agreed, we will reevaluate you to determine if we can offer you a permanent modification.”
“We trusted the bank,” the Mom says, “like idiots.”
In August, they received a Notice of Sale. They called Chase… and imagine their relief when they were told not to worry one bit about that notice. Apparently, it was just the fault of Chase’s stupid computer system that just spits things like that out without anyone telling it to do so. False alarm, what a relief.
So, they paid their September payment… and paid their October payment… and it was around October 10th when they received another Notice of Sale. Again, they called Chase, perhaps a little less nervous than the last time the same thing had happened… and wouldn’t you know it… another false alarm… it was that darn computer system again. Nothing to worry about, Chase told them… just keep those payments coming.
Oh, but while we’ve got you on the phone, we need you to send in some current paycheck stubs and other miscellaneous pieces of information, which they did… and then did again… you know the standard operating procedures for servicers by now I’m sure.
I know, it’s not Chase’s fault… they’ve reportedly been having trouble hiring minimum wage people for the last three years. Or was it the investor’s who won’t let them modify? I can never remember which lie was Chase’s favorite… Bank of America was having the phone problems… Wells couldn’t stop their employees from losing stuff over and over… Yep, Chase was the can’t-hire-anyone-and-investors-won’t-modify, I’m almost positive.
Right around the third week of October, they come home to find a notice of sale pinned to their front door. Oh my God… they called Chase again. “Oh, just ignore it once again,” Chase lied. “You don’t have to worry about that, silly, you’re under consideration for a loan modification, why would we sell your house?”
A few more days and another notice on the door… Chase back on the phone… but this time everything was different… Chase said they were selling their home in ONE HOUR. To stop the sale, they would need to get down to the courthouse with about twenty-five grand… in 55 minutes, 50… 45… 40…
I suppose we needed another vacant home in Anaheim in a hurry, because predictably, the home went back to Fannie Mae at the Trustee Sale. Gone, in the blink of an eye… sold October 21, 2010… just 21 days after they had made their October payment. Chase had told them not to worry… it was just the computer system… no one would sell their home.
And now it was gone.
“We trusted the bank,” the Mom says, “like idiots.”
The father has a hospital bed in the living room, he requires special care… their daughter… in school close by… eight years old… is that second or third grade?
The couple pleaded with Chase that day on the phone, I can only imagine what that felt like for them on that day. Here’s what the mom said to me:
We’re not people who simply decided to skip out on our mortgage. We did everything as upright and by the book as we were instructed to do by Chase yet we still lost our home. On the day they took back the property, I called Chase pleading for an alternative to this. Their reply to me was “I suggest you find a new place to live.”
The Unlawful Detainer or UD hearing was the next indignity the couple would suffer… and I haven’t been able to stop thinking about this next part all week.
With the medical bills they were receiving, and the uncertainty about the future, they didn’t feel they could afford a lawyer for the Unlawful Detainer trial. As the date for the UD neared, the husband was still in the hospital; he would be released roughly 48 hours before he would have to be in court.
They found an attorney who would help them and she called the opposing council, a lawyer from one of those scum-of-the-earth foreclosure mills that have no doubt been making untold millions intimidating homeowners, already scared to death and almost always without council, McCarthy & Holthus. They look like rich young men who don’t care at all about what the banks are doing to their neighbors… well, maybe not their neighbors… they probably live in some zillion-dollar beach pad.
(Hey fellas… looking forward to seeing you on Google! If you’ve been spending money on SEO trying to rank up at the top, I’ve got outstanding news… I’m going to put you right up there. May not be exactly what you had in mind, but then I don’t give a rat’s ass what’s in your under-developed minds.)
The couple’s lawyer asked the McCarthy & Holthus lawyer if there could be a continuance as the husband would be only a day or two out of the hospital…. they said they’d check with Fannie Mae… then said that Fannie said no. I guess Fannie Mae, a bankrupt and tax-payer owned mortgage company really wanted another empty condo in Anaheim.
The lawyer asked, what if the couple comes in and asks the judge for a continuance, would McCarthy & Holthus object? No, she was told, they would not object “vigorously.” So, the couple went to the UD expecting to ask the judge for a continuance, she pushing him in his wheelchair.
As soon as they walked in, another McCarthy & Malthus lawyer, Kevin Mello was walking towards them. As he approached, the couple overheard Kevin say to another, “I’m so sick of all these sob stories.”
Oh, no he didn’t… Oh, yes he did.
(And boy oh boy, is Kevin going to regret saying that… LOL… Yoohoo, Kevy, baby… you hang in the courthouse right near my house… do you know how lucky you’re aren’t? I’m actually making a documentary about the foreclosure crisis, and hadn’t yet cast the shithead. How lucky is that?)
Mello asked the couple when they could be out of their home. They said that they would need six weeks. Mello made a call and said they could have 30 days. The husband asked to talk to the judge, but our guy Kevin said, “Why, the judge has no authority… he’ll tell you to be out in 4 days… the bank has all the authority.”
Does it now, Kevin? The bank? Fannie Mae? The scandal-ridden, morally and financially bankrupt, already absorbed into the federal government, Fannie Mae?
Kevin had some papers he said that the couple needed to sign. They said no, they didn’t want to sign anything. Kevin said they had no choice… either sign or be out in four days. He put the documents in front of them… they couldn’t move his hospital bed in 4 days… they signed. Stipulated to a judgment and waved future claims.
When they appeared before the judge, he said that they should be GRATEFUL that the bank gave them 30 days.
When the couple tried to relay the story of the loan modification con job and Chase lying and then the stealing of the home… well, they didn’t use those terms, I did, but someone has to, right? Because that’s what happened, and I don’t give a damn what other factors are involved, that’s what happened, sure as shootin’.
And, even though I’ve been covering the inconceivable tragedy that is the foreclosure crisis, after learning of what happened to this this couple, I couldn’t help but wonder how or why this could possibly happen… and no one cared… in this country… and no one cared. Because I know I’ve been hard on the servicers, and deservedly so, but is it really possible that they are actually inherently evil… are they literally lying to everyone and intentionally try to sabotage the nation? How could that be true? It couldn’t, right?
And something occurred to me, something that I had not previously considered. And maybe it’s important to consider.
Prior to the last three to four years tops, foreclosures were a very different animal than what we have going on today, but I’m starting to think that maybe a lot of people don’t know that. You see, prior to this crisis, foreclosures were exceedingly rare. When someone got into financial trouble they either sold their home, or borrowed against it to get through the storm. But this housing market was pushed off a cliff, the credit markets froze almost overnight, prices fell through the floor and fast. People losing homes today bear no resemblance to the foreclosures of the last 50 years… no resemblance whatsoever.
So, maybe our entire system, including the inadequate and fraudulent documentation, and the incredibly uncaring and incompetent treatment of the homeowners involved… maybe it’s happening because we haven’t stopped to realize that although today we have foreclosures and years ago we had foreclosures… they really shouldn’t be called the same thing because they’re not the same thing. In fact, they’re so different they shouldn’t share the same moniker.
Maybe we should call today’s foreclosures, fraudclosures… I mean, like all the time… like as in someone call Webster’s. Maybe if our society understood the substantive nature of the distinction, things would improve… no? I think maybe yes. Like, do the bankers think that today we’re just having more of the same foreclosures we had years ago… same thing… just more of them? Because that’s not the case.
Because in the days before this crisis, you’d never modify a loan… the person who went into foreclosure wasn’t a person that anyone would ever consider modifying a loan for, because by the time they went into foreclosure there was no hope for anything but repossession and after that, of course, liquidation was a certainty. That’s not a description of today’s situation.
Look, what happened to this couple… is it not the kind of thing that you might expect to happen in some totalitarian regime?
So, why is that okay with even one single American? We treat criminals better than this. But today’s homeowners aren’t losing homes for the same reasons as before, they’re not deadbeats, they’re victims. And something has to be done to change this, because as sure as I’m sitting here, what’s happening is going to end badly and I fear, violently. People are going to get hurt… I don’t know how, when or where… but no way does this just keep going and everyone’s okay.
Chase’s conduct was so offensive that a highly experienced trial attorney agreed to take their case.
A complaint will be filed on Tuesday in Orange County Superior court seeking compensatory and punitive damages.
The couple’s lawyer would later ask a McCarthy Holthus lawyer about the apparent preference for coercion and intimidation, and she basically replied by saying, “Hey, look… I’m not their lawyer, I’m the bank’s lawyer. If they wanted a lawyer they should have had their own.” My words, not hers… but that’s what she was saying.
No, I’m sorry McCarthy Holthus… on that point you’re entirely wrong. I mean, everyone know you don’t need to pay a lawyer when you’re applying for a loan modification… just ask the California State Bar, the Attorney General’s office… President Obama… come on… everyone knows that.
Mandelman out.
P.S. Hey bloggers… Facebookers… please help me get the word out on this… post, repost, tweet, re-tweet. I’m hoping Chase sees this and stops the eviction… otherwise this couple could be fighting this from a homeless shelter. We can’t save everybody, so let’s save one at a time.
By Brady Dennis
Washington Post Staff Writer
Thursday, February 24, 2011; 12:18 AM
State and federal officials, who have been negotiating with financial firms over how to address widespread abuses in foreclosure practices, are moving closer to a settlement that could force banks to reduce the principal on mortgages for some borrowers who owe more than their homes are worth.
An official familiar with discussions between the government and the financial industry said the settlement also could require that banks increase their efforts to modify mortgages for distressed borrowers and pay penalties that could be used as restitution for homeowners who have wrongfully faced foreclosure.
“State attorneys general are working closely with a number of federal agencies on a potential settlement,” Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller (D), who is leading a 50-state investigation of the foreclosure mess, said in an interview Wednesday. He added, “We haven’t finalized anything, and we’re still working on some very complicated issues.”
By: David Dayen Wednesday February 9, 2011 8:45 am
I attended a Huffington Post Mortgage Madness Meetup in Los Angeles last night, which suffered from some late planning, the buggy nature of the Meetup tool and the general difficulty of self-organizing. Only a half-dozen people showed, and most of them were either media (a guy from NPR’s Marketplace) or interested observers in the foreclosure mess. In fact, the one homeowner with a story to tell arrived late and almost didn’t make it because he went to the wrong location initially. But oh, what a story he had to tell. And while I’ve heard a lot of these HAMP horror stories in the past year, I’ve never heard anything like this.
Jeremy Fletcher is a swimming pool builder from Northridge, California. His business jumped along with the inflation of the housing bubble, as people bought new homes and made improvements. He made enough money in those years to purchase a $900,000 home for him, his wife and two kids in late 2007. “Ironically, the reason I was doing so well ended up tied to the same thing that got me in this mess,” Fletcher, a surfer and former musician who lived with the Lovin’ Spoonful growing up, told the group.
As the bubble popped, his business tanked. He went from $250,000 in sales in 2007 to $40,000 in 2008. By early 2009, “I was totally broke,” paying for his $4,200 mortgage out of savings and barely hanging on.
He called his servicer, Citi Mortgage, early in 2009, when HAMP was announced, to see if he could get help. “I thought I was being responsible, looking forward before I got into trouble,” he said. The servicer didn’t see it that way. Citi told him they wouldn’t help because he hadn’t missed a payment and showed no sign of default.
In re: JOSE D CRUZ, Chapter 13, Debtor.
JOSE D CRUZ, Plaintiff,
v.
HACIENDA ASSOCIATES, LLC and WELLS FARGO BANK, N.A., Defendants.
Case No. 10-43793-MSH, Adv. Pro. No. 11-04006.
United States Bankruptcy Court, D. Massachusetts, Central Division.
January 26, 2011.
MEMORANDUM OF DECISION ON PLAINTIFF’S EMERGENCY MOTION FOR PRELIMINARY INJUNCTION
MELVIN S. HOFFMAN, Bankruptcy Judge
Before me is the emergency motion of the plaintiff, Jose D. Cruz, for a preliminary injunction barring defendant Wells Fargo Bank, N.A. from foreclosing its mortgage on the plaintiff’s residence at 73 Bolton Street, Marlborough, Massachusetts. After a preliminary hearing on the motion on January 18, 2011, I entered a temporary restraining order enjoining the foreclosure sale, which had been scheduled for that day, but permitted Wells Fargo to postpone the sale by public proclamation to a date after January 25, 2011. On January 25th, I held an evidentiary hearing on the motion. After reviewing the complaint and the evidence submitted by the parties, and for the reasons stated below, I will grant the plaintiff’s motion and enter a preliminary injunction subject to certain conditions.
In accordance with Fed. R. Civ. P. 65, made applicable to this proceeding by Fed. R. Bankr. P. 7065, my decision whether or not to grant a preliminary injunction must be based on the evidence before me, including the verified complaint and affidavits submitted by the parties. I consider the plaintiff’s complaint to be a verified complaint because the plaintiff filed an affidavit dated January 13, 2011 in which he verified the facts alleged in the complaint. The plaintiff also filed the affidavit of Joseph Molina of GIM Services, Inc., who averred that his office submitted a loan modification application to Wells Fargo on behalf of the plaintiff on November 29, 2011. According to Mr. Molina’s affidavit, after several inquiries regarding the status of the loan modification application, his office was informed by telephone on January 19, 2011 (after the complaint had been filed) that the plaintiff’s loan modification application had been denied, and that the reason given for the denial was the approaching foreclosure sale. Mr. Molina also averred that Wells Fargo has not yet communicated this denial to the plaintiff in writing. Lastly, the plaintiff submitted the affidavit of his attorney, Michael Shepsis, who averred that he had contacted Wells Fargo’s foreclosure counsel on several occasions regarding the status of the loan modification and as of January 18, 2011, he had not received any notice that the application had been denied.
In order to obtain a preliminary injunction, the requesting party must demonstrate that (i) there is a likelihood of success on the merits of his claim; (ii) that he will suffer irreparable harm if the injunction is not granted; (iii) that the harm to the requesting party if the injunction is not granted is greater than the harm to the opposing party if it is granted; and (iv) that the public interest would not be adversely affected by the issuance of the injunction. See Sunshine Development, Inc. v. F.D.I.C., 33 F.3d 106, 110-11 (1st Cir. 1994).
On the issue of irreparable harm, the plaintiff seeks in Counts I (breach of contract) and V of his complaint (breach of duty of good faith and reasonable diligence) judgment canceling the pending foreclosure sale of his home. Accordingly, I find that absent an injunction the plaintiff will be irreparably harmed because a foreclosure sale will effectively deprive him of the relief requested in those counts of his complaint.
The question of whether the plaintiff is likely to succeed on the merits of his complaint is really the critical factor to be determined here. See Narragansett Indian Tribe v. Guilbert, 934 F.2d 4, 6 (1st Cir. 1991). The plaintiff argues that Wells Fargo, which is a participant in the federal government’s Home Affordable Modification Program (“HAMP”), breached its obligation under the program by scheduling a foreclosure sale of the plaintiff’s property while the plaintiff’s application for a loan modification was under consideration by it. HAMP arose out of the Emergency Economic Stabilization Act of 2008, and is administered by the Federal National Mortgage Association (“Fannie Mae”) as the agent of the Department of the Treasury. Speleos v. BAC Home Loans Servicing, L.P., 2010 WL 5174510, *1 (D. Mass. 2010). The program requires that all mortgage loans owned or guaranteed by Fannie Mae or the Federal Home Loan Mortgage Corporation (“Freddie Mac” and together with Fannie Mae, the government-sponsored agencies or “GSEs”) that meet certain requirements be evaluated by the loan servicers for loan modifications. If a borrower qualifies, then the servicer is obligated to modify the loan in accordance with a predefined formula that reduces the borrower’s monthly payment to 31% of his gross income for the first five years.[1] In addition, many servicers of mortgage loans not owned by the GSEs have executed so-called Servicer Participation Agreements (“SPAs”) with Fannie Mae, as agent for the Treasury Department, by which they agree to review and modify loans on similar terms. The Treasury Department, through Fannie Mae, has established guidelines that servicers must follow in evaluating and approving loan modification requests by borrowers. These guidelines are binding on each servicer by way of its servicing agreements with the GSEs or the SPA to which it was a party. I take judicial notice of the fact that Wells Fargo has executed an SPA, and is thus obligated to follow the HAMP requirements with respect to evaluating a loan modification application.[2]
The plaintiff points to Supplemental Directive 09-01, the first of the Treasury Department’s HAMP guidelines, to support his allegation that servicers such as Wells Fargo are prohibited from foreclosing on mortgages that are under review for loan modification. This directive also requires servicers to seek alternatives to foreclosure in the event that a loan modification is denied.[3] The plaintiff alleges that Wells Fargo scheduled the foreclosure sale of his property while his loan was being reviewed for a HAMP modification, and that this alleged violation of the HAMP guidelines constituted a breach of contract and of Wells Fargo’s duty to act in good faith and with reasonable diligence, justifying, among other things, cancellation of the foreclosure.
The plaintiff’s breach of contract claim in Count I of the complaint is premised on the proposition that he is a third party beneficiary of the Wells Fargo’s SPA or its servicing agreements with the GSEs. While the HAMP program was intended to benefit homeowners by helping them avoid foreclosure, the majority of courts considering the issue have held that consumers have no private cause of action as third party beneficiaries to enforce HAMP violations by their servicers. See McKensi v. Bank of Am., N.A., 2010 WL 3781841, *5-6 (D. Mass. 2010) (“the existing case law weighs decisively in favor of defendant: numerous district courts have interpreted identical HAMP agreements and have come to the conclusion that a borrower is not a third party beneficiary.”) (quoting Hoffman v. Bank of Am., N.A., 2010 WL 2635773 (N.D. Cal.) and citing additional cases); but see Reyes v. Saxon Mortgage Services, Inc., 2009 WL 3738177, *2 (S.D. Cal.) (plaintiff’s complaint alleging a third party beneficiary status with respect to a HAMP violation was “sufficient to state a plausible claim for breach of contract under a third party beneficiary theory”). Very recently, Judge Gorton of the U.S. District Court in Massachusetts cited the proposition in Restatement (Second) of Contracts § 311(b) that one must look to a contract itself to determine whether the parties intended to give rights to third party beneficiaries. Speleos, 2010 WL 5174510 at *5. He held that although the various SPAs and servicing agreements related to HAMP serve to benefit borrowers, nothing in the contracts themselves indicate an intent to create a private right of action in favor of borrowers. I agree with the majority view that the plaintiff is not a third party beneficiary of Wells Fargo’s SPA or other relevant HAMP servicing agreements and, therefore, I find that the plaintiff is not likely to succeed on Count I of the complaint.
In Count V of his complaint, the plaintiff alleges that Wells Fargo breached its duty to act in good faith and with reasonable diligence by attempting to foreclose its mortgage on the plaintiff’s property. Massachusetts courts have consistently held that in addition to complying with the statutory requirements governing mortgage foreclosure set forth in Mass. Gen. Laws ch. 244, a mortgagee must act in good faith and must use reasonable diligence to protect the interests of the mortgagor. Williams v. Resolution GGF OY, 417 Mass. 377, 382-83 (1994). In Snowden v. Chase Manhattan Mortgage Corp., 2003 WL 22519518 (Mass. Super.), the court held that a lender breached this duty by foreclosing a mortgage the day after receiving notice that the borrower had negotiated an agreement to sell the property at a price beneficial to the lender. The court noted that mortgagees in Massachusetts must act as a “trustee for the benefit of all persons interested.” Id. at *2 (quoting Taylor v. Weingartner, 233 Mass. 243, 247 (1916)).
The plaintiff argues that by scheduling a foreclosure sale while the plaintiff’s loan modification request was pending, Wells Fargo breached its duty to act in good faith and with reasonable diligence to protect the plaintiff’s interests. The plaintiff’s argument finds support in Speleos, which concluded that even though the borrowers had failed to state a claim for relief under third party beneficiary theory, they could state a claim for negligence on the theory that the defendants had a duty under the HAMP guidelines not to proceed with a foreclosure sale while evaluating the borrowers for a loan modification. Speleos, 2010 WL 5174510 at *6. The plaintiff’s allegation in Count V of the complaint that Wells Fargo breached its duty of good faith and reasonable diligence is comparable to the negligence claim in Speleos.
The evidence thus far indicates that Wells Fargo scheduled and intended to conduct a foreclosure sale of the plaintiff’s property while the plaintiff’s request for a loan modification was pending before it. Even if the modification was denied on January 19, 2011, eight days prior to the rescheduled foreclosure sale, the plaintiff was not given written notice of the denial nor was he offered other foreclosure mitigation options as required under HAMP guidelines. I find, therefore, that there is a substantial likelihood that the plaintiff will prevail on Count V of his complaint.
In addition, I find that the plaintiff has satisfied the remaining requirements for injunctive relief. While it is possible that the value of the plaintiff’s property may depreciate as this case proceeds (although Wells Fargo offered no evidence on this point), I find that any potential detriment to Wells Fargo from depreciation is outweighed by the enormity of the harm to the plaintiff from a foreclosure sale. Further, my order that the plaintiff make payments to the Chapter 13 trustee will protect Wells Fargo from depreciation and unpaid real estate taxes in the event it ultimately prevails in this action. Finally, I find that it is in the public interest to ensure that lenders foreclose on properties only when they are entitled to do so. Also, the neighbors surrounding the plaintiff’s property will likely benefit if foreclosure can be avoided.
Under Fed. R. Bankr. P. 7065 the court may require a party who benefits from a preliminary injunction to post security to protect the enjoined party in the event that the injunction turns out to have been wrongly issued. Here, the plaintiff’s first and second amended Chapter 13 plans filed in the main case, dated September 24 and October 11, 2010 respectively, each contained provisions in which the plaintiff agreed to make monthly payments to Wells Fargo while his loan modification application was under review. At the evidentiary hearing on the plaintiff’s motion, the plaintiff’s counsel conceded that these payments have not been made to date. The Chapter 13 trustee noted that the plaintiff’s amended Schedule J accompanying his bankruptcy petition lists a total of $1800 in expenses to be dedicated to home mortgage and real estate tax payments. In his memorandum of law in support of his motion for injunctive relief, the plaintiff indicates that his current monthly income is $5829, plus $1,200 in rental income from a tenant. Based on these amounts, a hypothetical HAMP loan modification would involve an initial monthly payment of $1806.99, equal to 31% of total income, after subtracting 25% of the rental income to account for vacancy risk. Accordingly, the preliminary injunction will be conditioned on the plaintiff’s making monthly payments of $1800 to the Chapter 13 trustee. This payment requirement shall be retroactive to October 1, 2010 (the first month after the plaintiff proposed to make these payments in his September 24, 2010 amended Chapter 13 plan). Payments shall be held by the trustee for the benefit of Wells Fargo and paid to Wells Fargo in the event it prevails in this action.
The plaintiff shall make payments of $1800 per month to the Chapter 13 trustee on the first day of each month beginning on February 1, 2011, with a ten day grace period for late payment. In order to catch up on payments due for October through January, the plaintiff shall make a double payment of $3600 on the first day of March, April, May and June. The failure of the plaintiff to make any payment when due will be grounds for vacating the injunction.
A separate order shall enter.
[1] See, e.g., Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, Version 3.0 (hereinafter “HAMP Handbook”) at 65, available at https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/mhahandbook_30.pdf.
[2] See Wells Fargo Servicer Participation Agreement, available at http://www.treasury.gov/initiatives/financial-stability/housing-programs/mha/Documents_Contracts_Agreements/093010wellsfargobanknaSPA(incltransmittal)-r.pdf; see also HAMP Handbook, supra note 1 at 17 (explaining the role of the SPA).
[3] Each of the GSEs has its own version of this directive, but all contain the prohibition against foreclosure while loans are under review for modification.
On Jan. 27, a California appeals court ruled that U.S. Bank conned Claudia Aceves out of her home. Specifically, the court found that U.S. Bank (USB) told Aceves that if she gave up bankruptcy court protection on her home, it would negotiate a loan modification with her. But, the court found, the bank had no intention of negotiating. Instead, as soon as the bankruptcy court protection was removed, the bank foreclosed. As a result, the court ruled, Aceves can sue U.S. Bank for damages and fraud.
What she can’t do, unfortunately, is get her house back. The court found the foreclosure, once Aceves was duped into allowing it, was done legitimately. In further bad news for Aceves, the opinion contains enough information to make it likely that U.S. Bank didn’t have standing to foreclose when it did, but her lawyers did not raise those issues at trial, and weren’t asked by the court to raise them on appeal, so the court refused to consider them. One of her attorneys, Nick Alden, said that because of that, he considered the case a loss despite the ruling against the bank.
Key to the decision was the bank’s promise, and Aceves’s reliance on that promise to her significant detriment. Specifically, the bank promised to negotiate a mortgage loan modification, and relying on that promise, Aceves gave up her bankruptcy protections, so she was significantly damaged when the bank reneged. For the fraud claim, the court found that the bank not only failed to keep its promise, it never had any intent of keeping it. As Aceves’s other attorney, Dennis Moore, put it, “borrowers should be able to rely on the banks when negotiating.”
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