This could be a virus!

Philly-

Federal prosecutors and FBI agents have subpoenaed financial information from five Philadelphia judges, sought campaign-donation records, and interviewed judges and political figures as part of a wide-ranging investigation over the last year, The Inquirer has learned.

Court officials and lawyers said they were unsure of the investigation’s focus. Two people said the FBI questioned them about what they called possible “fixing cases.” A third said agents asked about “pay-to-play,” the long-standing practice of campaign donors getting favors from public officials.

In an interview, Municipal Court Judge Joseph C. Waters Jr. said prosecutors subpoenaed his campaign-finance filings in August.

“My understanding is there’s certainly an investigation,” William Brennan, Waters’ lawyer, said. “My understanding further is that agents have spoken to a number of [Philadelphia court] employees, including judges and administrators. The focus, frankly, is unclear to me at this point.”

[PHILLY]

West Virginia Record-

Through a pair of settlements, Bank of America is rid of a plaintiff who obtained a default judgment of almost $900,000 against it.

Bank of America recently settled two lawsuits brought by Jason Prather, who sued the company in 2011 and 2013 over debt collection calls it allegedly made after being notified Prather was represented by counsel. Such calls are a violation of the West Virginia Consumer Credit and Protection Act.

Prather asked for and received default judgment in 2011 in the amount of $869,813.76, with $217,453.44 going to Prather’s attorneys.

[THE WEST VIRGINIA RECORD]

H/T B-G LAW

SUPERIOR COURT OF CALIFORNIA

COUNTY OF VENTURA

TROY BECKER, and individual, and JERI BECKER, an individual,

Plaintiffs,

vs.

WELLS FARGO, N.A.; and Does 1-
100, inclusive,
Defendants

EXCERPT:

3) Defendant is ordered to pay $1,500.00 in sanctions by September 11, 2013.

[…]

[ipaper docId=168940629 access_key=key-24gcfi0keib924rou3z4 height=600 width=600 /]

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

By Lainey Hashorva

I’m zig zagging as fast as I can through this perverse fun house of psychological terrorism called “Modification”. The biggest part of this game is that we feel that we are on our own. The protocol in place by the servicer has been to strip us of our good credit, our years of hard work and the building of our investment, not to mention our home. Try being a small business owner with no access to credit.

Their methods of leaving us no where to turn as we have left no stone unturned
in alerting the powers that be, the attorney blogs, the groups of like
minded others in the fight of their lives, have left us bankrupt in so many ways.
Until you learn all the layers of this and the mind blowing levels of corruption and
deceit that so many are apart of you feel as if you’re losing your mind. I think it
absolutely is spiritual warfare – psychological warfare. I wasn’t kidding when I
said the Hunger Games. “Hope. It is the only thing stronger than fear. A little hope
is effective. A lot of hope is dangerous.” So we call the “HOPE” hotline who reports
back to the banks. We somehow get a government grant to save our home
and they pay it to the BANK. We reach out to any and all govt officials and we get
back the same formulaic letters, the same inane questions. Apathetic dismissal
or no calls returned at all. It’s a test of tenacity and a robotic enterprise has no
shame, no humanity and no moral compass. The entire city of Richmond CA is
implementing Eminent Domain to try to do what the federal govt should be doing
and the city is being shredded by the bank cartel. They have the might and the
tenacity – and the insatiable greed that pays every level off. I think this is all a
huge awakening for those of us in the belly of it. We need to chew on the belly as
much as we can and make as much noise and discomfort, acid reflux. We are
making a difference. I know it doesn’t feel like it but we are. One thing that helps
to center your power is if you can TRY to take some of the emotion out of it
(nearly impossible), but it’s more empowering for YOU. Document everything, record
everything, share and write to the press and the media. We are showing
patterns of abuse, we are building our cases, we are helping one another and we
are turning the tide. Networking with one another is key, keeping a log of your
efforts is key, learning the lingo and the paths to appeal to is key. We are educating
each other, learning from each other and supporting each other in this cavernous
journey for justice and the “hope” that our system of laws will not continue
to betray us.

Lainey Hashorva is a Social Media Activist, Investigative Journalist and Entrepreneur. Join the discussion on Facebook  in her group,  Fraudclosure Fighters with like minded others. Please visit her ETSY store LaineyBean.

FOR IMMEDIATE RELEASE

September 17, 2013

Contact: Bryan Hubbard
(202) 649-6870

Should’ve helped out the homeowner!

Forbes-

A federal judge in California has dismissed a lawsuit by Wells Fargo and Deutsche bank that was seeking to halt the city of Richmond, California’s groundbreaking plan to seize mortgages on underwater properties to try and prevent future foreclosures.

Judge Charles Breyer, in a terse, 2-page order, said he must dismiss the case because the claims in it “are not ripe for adjudication.” The banks’ claims that Richmond is unconstitutionally depriving them of their property don’t “rest on contingent future events certain to occur, but rather on future events that may never occur.”

[FORBES]

[ipaper docId=168840313 access_key=key-blsm8uq5ow71q9wmk9b height=600 width=600 /]

.

.

John E. Campbell

University of Denver Sturm College of Law

October 19, 2012 Last revised: June 11, 2013

Catholic University Law Review, Vol. 63, 2014
U Denver Legal Studies Research Paper No. 13-22

Abstract:

Over 10 million foreclosures have been initiated in the United States since 2008. In almost half of these, there is no court review. Instead, the only safeguard to ensure that foreclosure is merited is a “trustee.” As such, the trustee is a central figure in foreclosure and has the potential to serve as a true failsafe against reckless or overtly fraudulent foreclosures. There is one problem; the trustee is not neutral. Instead, the modern trustee is unregulated and almost always financially and legally tied to the banks that initiate foreclosure. These banks are known bad actors that created the worldwide economic collapse through non-existent underwriting, rampant and reckless securitization, forged documents, and sloppy payment collection leading to over $33 billion dollars in settlements to date.

With these facts in mind, how is it that the law allows a bank to hand-pick a neutral? Who are these “neutrals” that are being picked? And what is the result of trusting the bank’s right-hand man to look out for homeowners? This article answers these questions by detailing the current role of trustees, telling the stories of real homeowners who are losing their homes despite being current on their payments, and analyzing the current system’s flaws. It then proposes a detailed set of reforms that will transform the trustee from a potential shill for banks into a meaningful gatekeeper who guards against wrongful foreclosure.

Anton Theunissen

Simon Fraser University (SFU)

November 14, 2012

Abstract:

This paper develops a continuous time, contingent claims model of mortgage valuation with strategic behavior to show that mortgages that are securitized are characterized by significantly higher loan to value ratios than mortgages held on the balance sheet of the originator, if securitized mortgages cannot be renegotiated. Insofar as securitization inhibits loan modification, it serves as a credible threat to the borrower that default will provoke foreclosure. This enhances the value of the lender’s claim on the loan collateral, the home, and she is willing to lend more per dollar of collateral value. An important implication of the analysis is that the higher loan to value ratio for the securitized mortgage does not imply that the securitized mortgage is characterized by looser underwriting standards than the mortgage held on balance sheet. Higher loan to value ratios for securitized mortgages do not necessarily constitute evidence that securitization encourages risky lending.

Aei-Ideas-

The Federal Deposit Insurance Corp. says it’s selling $2.4 billion in Citigroup bonds. That represents the last bit of the bank owned by a government agency because of Great Financial Crisis bailout. Washington has already cleared about $13 billion on the Citi bailout from selling a $45 billion investment in Citi preferred stock for $57 billion. The current sale, according to Bloomberg, “would bring the government’s overall profit on the Citi bailout to nearly $15.5 billion.”

[AEI-IDEAS]

Dallas Fed-

We conservatively estimate the loss of national output as a result of the financial crisis and its aftermath at between $6 trillion and $14 trillion. The high end of this range is equal to nearly one year of U.S. output. Including broader and more-difficult-to-quantify measures that reflect the lingering trauma experienced by millions of Americans pushes these costs still higher—possibly to as much as two years’ worth of forgone consumption.

[THE DALLAS FED]

The Economist-

AS THE dust settles on an extraordinary period of financial tumult, which reached its zenith five years ago this week with the bankruptcy of Lehman Brothers, two banks vie for the title of the world’s biggest by market capitalisation. One is Wells Fargo, a San Francisco-based institution; the other is China’s state-owned ICBC. It says something about the state of global finance that both are largely domestic, conventional lenders, and that both are buoyed and buffeted by the policies of their respective governments.

Some of Wells’s success is serendipitous. The business model that it has refined since its merger with, and managerial takeover by, Minnesota-based Norwest in 1998 left it perfectly placed to benefit from the crisis and its aftermath. Wells went into the bust with a strong but limited franchise encompassing the western half of America and focused on the prosaic business of cross-selling multiple products from a “store” (Wells-speak for a branch). It did not have a big capital-markets business to blow it up. Simply by remaining solvent, a tribute to years of careful management, it was in a position to emerge from the turmoil with a business covering the other half of the country, too.

But Wells has also made plenty of savvy decisions. In August 2008 it decided not to buy Countrywide, which had been the country’s largest mortgage underwriter and, as Bank of America would discover, a sinkhole for bad loans and litigation. Two months later, as panic consumed the markets, it gazumped Citigroup to acquire Wachovia, which had been assembled over decades of costly and disruptive mergers. It may have been the best bank acquisition ever. In a single move, Wells doubled its branch count and added the eastern half of the country. As John Stumpf, the chief executive, likes to point out, a Wells branch or ATM is now within two miles of half of America’s homes and half of its firms.

[THE ECONOMIST]

SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
X

PHOENIX LIGHT SF LIMITED, BLUE
HERON FUNDING V LTD., BLUE HERON
FUNDING VI LTD., BLUE HERON
FUNDING VII LTD., SILVER ELMS CDO
PLC, SILVER ELMS CDO II LIMITED and
KLEROS PREFERRED FUNDING V PLC,
Plaintiffs,

vs.

MORGAN STANLEY, MORGAN STANLEY
& CO. LLC, MORGAN STANLEY
MORTGAGE CAPITAL HOLDINGS LLC,
MORGAN STANLEY ABS CAPITAL I,
INC., MORGAN STANLEY CAPITAL I
INC., SAXON CAPITAL, INC., SAXON
FUNDING MANAGEMENT LLC and
SAXON ASSET SECURITIES COMPANY,
Defendants.

EXCERPTS:

440. Contrary to their affirmative representations in the Offering Documents, defendants
knew that the loan originators had, in fact, implemented loan underwriting policies and practices that
were simply designed to extend mortgages to as many borrowers as possible, regardless of whether
those borrowers could actually repay them. These policies and practices included, among other
things:

•  Falsifying borrowers’ incomes and/or coaching borrowers to misstate their income
  on loan applications to qualify them for loans they could not afford to repay, while
  making it appear the loans complied with the stated underwriting guidelines;
•  Coaching borrowers to omit or understate debts and expenses on loan applications to
  qualify them for loans they could not afford to repay, while making it appear the
  loans complied with the stated underwriting guidelines;
•  Steering borrowers to loans that exceeded their borrowing capacity;
•  Approving borrowers based on “teaser rates” for loans, despite knowing that the
  borrowers would not be able to afford the fully indexed rate when the loan rates
  adjusted; and
•  Approving non-qualifying borrowers for loans under “exceptions” to the originators’
  underwriting standards based on purported “compensating factors,” when no such
  compensating factors ever existed.

441. Further, the loan originators and their agents had become so aggressive at improperly
approving and funding mortgage loans that many of the loans at issue herein were made to
borrowers who had either not submitted required documents or had falsely altered the required
documentation. In many instances, required income/employment verifications were improperly
performed because the lenders’ clerical staff either did not have adequate verification skills or did
not care to exercise such skills, and oftentimes verifications were provided by inappropriate contacts
at a borrower’s place of employment (e.g., a friend of the borrower would complete the verification
instead of the human resources department at the borrower’s employer). In this way, many suspect
and false income verifications and loan applications were accepted by the originators at issue herein.

442. In addition, borrowers who submitted “stated income” loan applications were
routinely approved on the basis of stated income levels that were inflated to extreme levels relative
to their stated job titles, in order to give the appearance of compliance with stated underwriting
guidelines. In many cases, the loan originators herein actually coached the borrowers to falsely
inflate their stated incomes in order to qualify under the originators’ underwriting guidelines.
Inflation of stated income was so rampant that a study cited by Mortgage Asset Research Institute
later found that almost all stated income loans exaggerated the borrower’s actual income by 5% or
more, and more than half overstated income by at least 50%.

…

445. The constant pressure appraisers routinely faced from originators such as those at
issue herein was described by Jim Amorin, President of the Appraisal Institute, who stated in his
April 23, 2009 FCIC testimony that “[i]n many cases, appraisers are ordered or severely pressured
to doctor their reports and to convey a particular, higher value for a property, or else never see
work from those parties again. . . . [T]oo often state licensed and certified appraisers are forced
into making a ‘Hobson’s Choice.’” This complete lack of independence by appraisers was also
noted by Alan Hummel, Chair of the Appraisal Institute, in his testimony before the U.S. Senate,
where Hummel noted that the dynamic between lenders and appraisers created a “terrible conflict of
interest” by which appraisers “experience[d] systemic problems with coercion” and were “ordered
to doctor their reports” or else they would never “see work from those parties again” and were
placed on “‘exclusionary appraiser lists.’” Testimony on “Legislative Proposals on Reforming
Mortgage Practices” presented by Alan E. Hummel before the House Committee on Financial
Services, at 5 (Oct. 24, 2007).

446. As a result of such pressures, appraisers routinely provided the originators at issue
herein with falsely inflated appraisals that had no reasonable basis in fact, in direct contravention of
the Offering Documents’ false and misleading representations that the certificates’ underlying loans
had been originated pursuant to underwriting guidelines that required the lenders to evaluate the
adequacy of the mortgaged properties to serve as collateral for the loans. Moreover, the falsely
inflated property values also resulted in artificially understated LTV ratios, which caused the loans
and certificates to appear to plaintiffs to be of much higher credit quality and to be much less risky
than they actually were.

447. Following below are detailed allegations demonstrating that the loan originators for
the offerings at issue herein did not comply with the loan underwriting guidelines stated in the
Offering Documents, thereby rendering the Offering Documents false and misleading. While the
allegations concerning these originators cover most of the offerings, plaintiffs have not provided
such allegations for every originator at issue herein, in an attempt to streamline the allegations.
Nonetheless, on information and belief, plaintiffs allege that all of the loan originators at issue herein
engaged in similar conduct, and that such allegations are factually supported by both the
investigations of the FCIC and the U.S. Senate, each of which concluded, after extensive
investigations, that the breakdown in residential loan underwriting standards alleged herein was
systemic in the lending industry during the relevant time period (2004-2007). See The Financial
Crisis Inquiry Report (“FCIC Report”) at 125 (“Lending standards collapsed, and there was a
significant failure of accountability and responsibility throughout each level of the lending
system.”); Levin-Coburn Report at 12 (One of four major causes of worldwide financial collapse was
that “[l]enders introduced new levels of risk into the U.S. financial system by selling . . . home
loans with . . . poor underwriting.”); id. at 50 (“The Subcommittee investigation indicates that”
there were “a host of financial institutions that knowingly originated, sold, and securitized billions
of dollars in high risk, poor quality home loans.”).

…

451. The systemic abandonment of stated underwriting guidelines by all of the originators
identified herein during the period 2004-2007, which included the originators’ complete failure to
evaluate borrowers’ repayment ability, is further corroborated by the following allegations, which
demonstrate that the abandonment of loan underwriting guidelines was rampant, pervasive and
commonplace in the residential lending industry during 2004-2007.

2. The Offering Documents Misrepresented the New Century
Originators’ Underwriting Guidelines

452. New Century Mortgage Corporation, Home 123 Corporation, and NC Capital
Corporation are three affiliated companies that originated loans for the offerings at issue herein. All
three companies were subsidiaries of New Century Financial Corporation. New Century Mortgage
Corporation and Home123 Corporation originated and/or acquired loans directly and sold them to
the sponsors for the offerings at issue herein. For the offerings at issue herein identifying NC
Capital Corporation as an originator, NC Capital Corporation acquired the loans from New Century
Mortgage Corporation and then transferred the loans to the sponsors for such offerings. Because
New Century Mortgage Corporation, Home 123 Corporation, and NC Capital Corporation all
operated under the dominion and control of New Century Financial Corporation, and because the
loans they contributed to the trusts at issue herein were all products of the same dubious loan
origination practices, these three originators are collectively referred to herein as “New Century.”

453. As detailed supra, defendants’ Offering Documents purported to describe the
underwriting guidelines that were supposedly used by New Century in originating loans underlying
plaintiffs’ certificates. See §V. For the reasons set forth immediately below, these representations
were false and misleading at the time defendants made them. In truth, New Century had completely
abandoned its stated underwriting guidelines and was routinely originating loans without any regard
for the borrowers’ true repayment ability or the actual adequacy of the mortgaged properties to serve
as collateral.

454. The U.S. Senate investigation found that New Century “w[as] known for issuing poor
quality subprime loans,” but “[d]espite [its] reputation[] for poor quality loans, leading investment
banks [such as the Morgan Stanley Defendants] continued to do business with [New Century] and
helped [it and other lenders] sell or securitize hundreds of billions of dollars in home mortgages.”
Levin-Coburn Report at 21.

455. In 2007, New Century went into bankruptcy. An examiner was appointed by the
bankruptcy court to investigate New Century and its collapse. After reviewing “a large volume of
documents” from numerous sources, including New Century, and interviewing over 100 fact
witnesses, the bankruptcy examiner filed a detailed report concerning New Century. See Final
Report of Michael J. Missal, In re: New Century TRS Holdings, Inc., No. 07-10416 (D. Del. Feb. 29,
2008) (“Examiner’s Report”) at 14, 16. The examiner confirmed that New Century routinely failed
to follow its stated underwriting guidelines when originating loans during the relevant time period.
The examiner, after his comprehensive fact-gathering process, “conclude[d] that New Century
engaged in a number of significant improper and imprudent practices related to its loan
originations.” Id. at 2. Among other things, the examiner found that:

•  “New Century had a brazen obsession with increasing loan originations, without
  due regard to the risks associated with that business strategy . . . and trained
  mortgage brokers to originate New Century loans in the aptly named ‘CloseMore
  University.’” Id. at 3.
•  “The increasingly risky nature of New Century’s loan originations created a
  ticking time bomb that detonated in 2007.” Id.
•  “New Century . . . layered the risks of loan products upon the risks of loose
  underwriting standards in its loan originations to high risk borrowers.” Id.
•  A New Century employee had informed the company’s senior management in 2005
  that, under New Century’s underwriting guidelines, “‘we are unable to actually
  determine the borrowers’ ability to afford a loan.’” Id.
•  “New Century also made frequent [unmerited] exceptions to its underwriting
  guidelines for borrowers who might not otherwise qualify for a particular loan,” so
  much so that a senior officer of New Century warned internally that the “‘number
  one issue is exceptions to guidelines.’” Id. at 3-4.
•  New Century’s Chief Credit Officer had noted as early as 2004 that New Century
  had “‘no standard for loan quality.’” Id. at 4 “‘[L]oan quality’” referred to “New
  Century’s loan origination processes, which were supposed to ensure that New
  Century loans met its own internal underwriting guidelines . . . .” Id. at 109.
•  “Instead of focusing on whether borrowers could meet their obligations under the
  terms of the mortgages, a number of members of [New Century’s] Board of
  Directors and Senior Management told the Examiner that their predominant
  standard for loan quality was whether the loans New Century originated could be
  sold or securitized . . . .” Id. at 4.
•  A large number of New Century’s loans did not meet its underwriting guidelines,
  suffering from defects such as “defective appraisals, incorrect credit reports and
  missing documentation.” Id. at 109.
•  From 2003 forward, New Century’s Quality Assurance and Internal Audit
  departments identified “significant flaws in New Century’s loan origination
  processes.” Id. at 110.
•  Notwithstanding all the foregoing facts, New Century’s Board of Directors and
  Senior Management did little to nothing to remedy the company’s abandonment of
  its stated underwriting guidelines. Id.

…

535. These massive downgrades – in many cases, from “safest of the safe” “AAA” ratings
to “junk” (anything below Baa3 or BBB-) – show that, due to defendants’ knowing use of bogus
loan data, the initial ratings for the certificates, as stated in the Offering Documents, were false.
Indeed, the fact that all of the certificates are now rated at “junk” status or below, and more than
64% of the certificates are now in default, is compelling evidence that the initial high ratings touted
by defendants in the Offering Documents were grossly overstated and false.

E. Defendants Materially Misrepresented that Title to the Underlying
Loans Was Properly and Timely Transferred

536. An essential aspect of the mortgage securitization process is that the issuing trust for
each RMBS offering must obtain good title to the mortgage loans comprising the pool for that
offering. This is necessary in order for plaintiffs and the other certificate holders to be legally
entitled to enforce the mortgage and foreclose in case of default. Accordingly, at least two
documents relating to each mortgage loan must be validly transferred to the trust as part of the
securitization process – a promissory note and a security instrument (either a mortgage or a deed of
trust).

537. The rules for these transfers are governed by the law of the state where the property is
located, by the terms of the pooling and servicing agreement (“PSA”) for each securitization, and by
the law governing the issuing trust (with respect to matters of trust law). Generally, state laws and
the PSAs require that the trustee have physical possession of the original, manually signed note in
order for the loan to be enforceable by the trustee against the borrower in case of default.

538. In addition, in order to preserve the bankruptcy-remote status of the issuing trusts in
RMBS transactions, the notes and security instruments are generally not transferred directly from the
mortgage loan originators to the trusts. Rather, the notes and security instruments are generally
initially transferred from the originators to the sponsors of the RMBS offerings. After this initial
transfer to the sponsor, the sponsor in turn transfers the notes and security instruments to the
depositor. The depositor then transfers the notes and security instruments to the issuing trust for the
particular securitization. This is done to protect investors from claims that might be asserted against
a bankrupt originator. Each of these transfers must be valid under applicable state law in order for
the trust to have good title to the mortgage loans.

539. Moreover, the PSAs generally require the transfer of the mortgage loans to the trusts
to be completed within a strict time limit – three months – after formation of the trusts in order to
ensure that the trusts qualify as tax-free real estate mortgage investment conduits (“REMICs”). In
order for the trust to maintain its tax free status, the loans must have been transferred to the trust no
later than three months after the “startup day,” i.e., the day interests in the trust are issued. See
Internal Revenue Code §860D(a)(4). That is, the loans must generally have been transferred to the
trusts within at least three months of the “closing” dates of the offerings. In this action, all of closing
dates occurred in 2005, 2006 or 2007, as the offerings were sold to the public. If loans are
transferred into the trust after the three-month period has elapsed, investors are injured, as the trusts
lose their tax-free REMIC status and investors like plaintiffs may face several adverse draconian tax
consequences, including: (1) the trust’s income becoming subject to corporate “double taxation”; (2)
the income from the late-transferred mortgages being subject to a 100% tax; and (3) if latetransferred
mortgages are received through contribution, the value of the mortgages being subject to
a 100% tax. See Internal Revenue Code §§860D, 860F(a), 860G(d).

540. In addition, applicable state trust law generally requires strict compliance with the
trust documents, including the PSAs, so that failure to strictly comply with the timeliness,
endorsement, physical delivery, and other requirements of the PSAs with respect to the transfers of
the notes and security instruments means the transfers would be void and the trust would not have
good title to the mortgage loans.

541. To this end, all of the Offering Documents relied upon by plaintiffs stated that the
loans would be timely transferred to the trusts. For example, in the MSAC 2006-HE2 Offering
Documents, the Morgan Stanley Defendants represented that “[p]ursuant to the pooling and
servicing agreement, the depositor will sell, without recourse, to the trust, all right, title and interest
in and to each mortgage loan, including all principal outstanding as of, and interest due on or after,
the close of business on the cut-off date.” See MSAC 2006-HE2 Pros. Supp. at S-55. The Offering
Documents for each of the offerings at issue herein contained either the same or very similar
language, uniformly representing that defendants would ensure that the proper transfer of title to the
mortgage loans to the trusts occurred in a timely fashion.

542. However, defendants’ statements were materially false and misleading when made.
Contrary to defendants’ representations that they would legally and properly transfer the promissory
notes and security instruments to the trusts, defendants in fact systematically failed to do so. This
failure was driven by defendants’ desire to complete securitizations as fast as possible and maximize
the fees they would earn on the deals they closed. Because ensuring the proper transfer of the
promissory notes and mortgages hindered and slowed defendants’ securitizations, defendants
deliberately chose to disregard their promises to do so to plaintiffs.

543. Defendants’ failure to ensure proper transfer of the notes and the mortgages to the
trusts at closing has already resulted in damages to investors in securitizations underwritten by
defendants. Trusts are unable to foreclose on loans because they cannot prove they own the
mortgages, due to the fact that defendants never properly transferred title to the mortgages at the
closing of the offerings. Moreover, investors are only now becoming aware that, while they thought
they were purchasing “mortgaged-backed” securities, in fact they were purchasing non-mortgagedbacked
securities.

…

 SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
X

PHOENIX LIGHT SF LIMITED, BLUE
HERON FUNDING II LTD., BLUE HERON
FUNDING V LTD., BLUE HERON
FUNDING VI LTD., BLUE HERON
FUNDING VII LTD., SILVER ELMS CDO
PLC, SILVER ELMS CDO II LIMITED and
KLEROS PREFERRED FUNDING V PLC,
Plaintiffs,

vs.

CREDIT SUISSE AG, CREDIT SUISSE
SECURITIES (USA) LLC, DLJ MORTGAGE
CAPITAL, INC., CREDIT SUISSE FIRST
BOSTON MORTGAGE SECURITIES CORP.
and ASSET BACKED SECURITIES CORP.,
Defendants.

EXCERPTS:

285. The constant pressure appraisers routinely faced from originators such as those at
issue herein was described by Jim Amorin, President of the Appraisal Institute, who stated in his
April 23, 2009 FCIC testimony that “[i]n many cases, appraisers are ordered or severely pressured
to doctor their reports and to convey a particular, higher value for a property, or else never see
work from those parties again. . . . [T]oo often state licensed and certified appraisers are forced
into making a ‘Hobson’s Choice.’” This complete lack of independence by appraisers was also
noted by Alan Hummel, Chair of the Appraisal Institute, in his testimony before the U.S. Senate,
where Hummel noted that the dynamic between lenders and appraisers created a “terrible conflict of
interest” by which appraisers “experience[d] systemic problems with coercion” and were “ordered
to doctor their reports” or else they would never “see work from those parties again” and were
placed on “‘exclusionary appraiser lists.’” Testimony on “Legislative Proposals on Reforming
Mortgage Practices” presented by Alan E. Hummel before the House Committee on Financial
Services, at 5 (Oct. 24, 2007).

…

408. These massive downgrades – in many cases, from “safest of the safe” “AAA” ratings
to “junk” (anything below Baa3 or BBB-) – show that, due to defendants’ knowing use of bogus
loan data, the initial ratings for the certificates, as stated in the Offering Documents, were false.
Indeed, the fact that all of the certificates are now rated at “junk” status or below, and more than
80% of the certificates are now in default, is compelling evidence that the initial high ratings touted
by defendants in the Offering Documents were grossly overstated and false.

E. Defendants Materially Misrepresented that Title to the Underlying
Loans Was Properly and Timely Transferred

409. An essential aspect of the mortgage securitization process is that the issuing trust for
each RMBS offering must obtain good title to the mortgage loans comprising the pool for that
offering. This is necessary in order for plaintiffs and the other certificate holders to be legally
entitled to enforce the mortgage and foreclose in case of default. Accordingly, at least two
documents relating to each mortgage loan must be validly transferred to the trust as part of the
securitization process – a promissory note and a security instrument (either a mortgage or a deed of
trust).

410. The rules for these transfers are governed by the law of the state where the property is
located, by the terms of the pooling and servicing agreement (“PSA”) for each securitization, and by
the law governing the issuing trust (with respect to matters of trust law). Generally, state laws and
the PSAs require that the trustee have physical possession of the original, manually signed note in
order for the loan to be enforceable by the trustee against the borrower in case of default.

411. In addition, in order to preserve the bankruptcy-remote status of the issuing trusts in
RMBS transactions, the notes and security instruments are generally not transferred directly from the
mortgage loan originators to the trusts. Rather, the notes and security instruments are generally
initially transferred from the originators to the sponsors of the RMBS offerings. After this initial
transfer to the sponsor, the sponsor in turn transfers the notes and security instruments to the
depositor. The depositor then transfers the notes and security instruments to the issuing trust for the
particular securitization. This is done to protect investors from claims that might be asserted against
a bankrupt originator. Each of these transfers must be valid under applicable state law in order for
the trust to have good title to the mortgage loans.

412. Moreover, the PSAs generally require the transfer of the mortgage loans to the trusts
to be completed within a strict time limit – three months – after formation of the trusts in order to
ensure that the trusts qualify as tax-free real estate mortgage investment conduits (“REMICs”). In
order for the trust to maintain its tax free status, the loans must have been transferred to the trust no
later than three months after the “startup day,” i.e., the day interests in the trust are issued. See
Internal Revenue Code §860D(a)(4). That is, the loans must generally have been transferred to the
trusts within at least three months of the “closing” dates of the offerings. In this action, all of the
closing dates occurred in 2005, 2006 or 2007, as the offerings were sold to the public. If loans are
transferred into the trust after the three-month period has elapsed, investors are injured, as the trusts
lose their tax-free REMIC status and investors like plaintiffs may face several adverse draconian tax
consequences, including: (1) the trust’s income becoming subject to corporate “double taxation”; (2)
the income from the late-transferred mortgages being subject to a 100% tax; and (3) if latetransferred
mortgages are received through contribution, the value of the mortgages being subject to
a 100% tax. See Internal Revenue Code §§860D, 860F(a), 860G(d).

413. In addition, applicable state trust law generally requires strict compliance with the
trust documents, including the PSAs, so that failure to strictly comply with the timeliness,
endorsement, physical delivery, and other requirements of the PSAs with respect to the transfers of
the notes and security instruments means the transfers would be void and the trust would not have
good title to the mortgage loans.

414. To this end, all of the Offering Documents relied upon by plaintiffs stated that the
loans would be timely transferred to the trusts. See §V, supra. For example, in the HEAT 2006-4
offering materials, the Credit Suisse Defendants represented:
On the closing date for the initial mortgage loans and on any subsequent
transfer date for the subsequent mortgage loans, the depositor will sell, transfer,
assign, set over and otherwise convey without recourse to the trustee in trust for the
benefit of the certificateholders all right, title and interest of the depositor in and to
each mortgage loan.
HEAT 2006-4 Pros. Supp. at S-34. The Offering Documents for each of the offerings at issue herein
contained either the same or very similar language, uniformly representing that defendants would
ensure that the proper transfer of title to the mortgage loans to the trusts occurred in a timely fashion.
See §V, supra.

415. However, defendants’ statements were materially false and misleading when made.
Contrary to defendants’ representations that they would legally and properly transfer the promissory
notes and security instruments to the trusts, defendants in fact systematically failed to do so. This
failure was driven by defendants’ desire to complete securitizations as fast as possible and maximize
the fees they would earn on the deals they closed. Because ensuring the proper transfer of the
promissory notes and mortgages hindered and slowed defendants’ securitizations, defendants
deliberately chose to disregard their promises to do so to plaintiffs.

416. Defendants’ failure to ensure proper transfer of the notes and the mortgages to the
trusts at closing has already resulted in damages to investors in securitizations underwritten by
defendants. Trusts are unable to foreclose on loans because they cannot prove they own the
mortgages, due to the fact that defendants never properly transferred title to the mortgages at the
closing of the offerings. Moreover, investors are only now becoming aware that, while they thought
they were purchasing “mortgaged-backed” securities, in fact they were purchasing non-mortgagedbacked
securities.

…

ABC-

What would you do if you suddenly found out your mortgage company had sold your house right out from under you even though you always paid on time? An Altadena family suddenly facing eviction turned to Eyewitness News when that happened to them.

The Altadena house has been home for Ceith and Louise Sinclair, who bought it in 2003. They’ve been living in it with four of their kids.

Last year, they got a loan modification with Ocwen Financial Corporation. Then they say they got a call, and later a letter, notifying them Ocwen had sold their loan to Nationstar Mortgage. In June, they got a knock at the door.

“They came and knocked on our door. That’s how we found out our house had been sold,” said Louise Sinclair.

[ABC]

.

.

Filed 9/13/13 Merritt v. Mozilo CA6
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SIXTH APPELLATE DISTRICT

SALMA MERRITT et al., H037414
(Santa Clara County
Plaintiffs and Appellants, Super. Ct. No. CV159993)

v.

ANGELO MOZILO et al.,

Defendants and Respondents.

Plaintiffs Salma Merritt and David Merritt obtained two loans to purchase their
home. After the Merritts were unable to repay the loans, they filed an action against
multiple defendants for alleged predatory lending practices. The named defendants are
Angelo R. Mozilo, David Sambol, Michael Colyer, Countrywide Home Loans, Inc., and
Countrywide Financial Corporation (collectively Countrywide defendants), Kenneth
Lewis, and Bank of America Corporation (Bank of America), MERSCORP Holding, Inc.
(MERS), First American Title Company (First American), and Johnny Chen.1 The third
amended complaint alleged causes of action for conspiracy to commit the following:
fraud (first cause of action); breach of fiduciary duty (second cause of action); unfair
business practices (third, fourth, and fifth causes of action); breach of title insurance
contract (sixth cause of action); and intentional infliction of emotional distress (seventh

1
Johnny Chen is not a party to this appeal.
cause of action). The trial court overruled Countrywide defendants’ demurrer to four
causes of action and sustained their demurrer without leave to amend to three causes of
action. The trial court also sustained the demurrers of First American, MERS, Lewis, and
Bank of America without leave to amend to all causes of action.
On appeal, the Merritts contend that the trial court erred: (1) by failing to apply
the elements of conspiracy law; (2) by refusing the proffered amendment to the third
amended complaint and by failing to grant leave to amend; (3) by sustaining the
demurrers to the conspiracy to commit breach of fiduciary duty, conspiracy to commit
breach of title insurance contract, and conspiracy to inflict emotional distress causes of
action as to Lewis, Bank of America, MERS and First American; and (4) by sustaining
certain causes of action as to Countrywide defendants.
We conclude that this court lacks jurisdiction to consider the appeal as to
Countrywide defendants and that the trial court did not err when it sustained the
demurrers of First American and MERS. We also conclude that the trial court erred in
sustaining the demurrers of Bank of America and Lewis. Accordingly, the judgments in
favor of First American and MERS are affirmed and the judgments in favor of Bank of
America and Lewis are reversed.

I. Statement of Facts2
A. The Merritts’ Initial Loan Transaction
In February 2006, the Merritts entered into an agreement to purchase a townhouse
in Sunnyvale for $729,000. The Merritts spoke to one lender who offered to provide
2
The Merritts are representing themselves. The statement of facts is based on the
allegations in the 100-page third amended complaint. This court has augmented the
record on appeal to include 279 pages of exhibits that were attached to the third amended
complaint. We “ ‘accept as true both facts alleged in the text of the complaint and facts
appearing in exhibits attached to it. If the facts appearing in the attached exhibit
contradict those expressly pleaded, those in the exhibit are given precedence.
[Citations.]’ ” (Sarale v. Pacific Gas & Electric Co. (2010) 189 Cal.App.4th 225, 245.)
2
them with a loan with monthly payments of $4,600 per month while another offered a
loan with monthly payments of $4,800. The Merritts then contacted Colyer, who was
employed by Countrywide. Colyer told them that he could arrange a loan with payments
“maybe 40 percent lower” than what the other lenders had quoted. The Merritts provided
Colyer with their financial information, which stated that David Merritt’s gross income
for 2006 would be $60,000 and Salma Merritt would receive temporary disability
payments of $5,200.3 The disability payments would decrease to $1,400 in
September 2008.
On March 15, 2006, two days before the deadline to remove the loan contingency
from the purchase agreement, Colyer gave the Merritts a good faith estimate based on a
30-year Federal Housing Administration (FHA) loan for $729,000 with an interest rate
between 1 and 3 percent. This written estimate indicated that monthly payments would
be between $1,800 and $2,200 for principal and interest if the Merritts made a down
payment of 5 percent of the purchase price. Relying on the estimate, the Merritts
removed the loan contingency on their purchase agreement.
On March 20, 2006, Colyer informed the Merritts that his underwriters were
reluctant to approve their loan. About five days later, he informed the Merritts that he
was able to work out a loan with monthly payments of $5,200. When the Merritts told
him that they could not afford this loan, he told them that they would be subject to a
lawsuit if they did not close escrow. The Merritts then contacted the two lenders from
whom they had previously obtained estimates, and they were told that there was not
enough time to underwrite the loan prior to the close of escrow.
On March 26, 2006, Colyer called the Merritts and told them that he was able to
secure “ ‘the best loan possible.’ ” This new loan was actually two loans or a “ ‘Combo
loan’ ” that consisted of a 30-year adjustable rate mortgage for $591,200 (first loan) and a

3
There is no indication as to how frequently Salma Merritt would receive these
payments.
3
home equity line of credit (HELOC) for $147,800. The interest-only payments on the
first loan were $3,202.33 per month and the interest rate was 6.5 percent for the first five
years. The interest rate on the HELOC was 7.5 percent the first month and adjusted
periodically thereafter. The Merritts would eventually be required to pay $6,693 per
month on the first loan and an additional $2,400 per month in interest on the HELOC.
On March 26, 2006, Financial Title Company (FTC) provided Javani Wyatt, its
escrow agent, with two sets of documents that were partially filled out with financial
information. FTC also “instructed her to do whatever she could to convince [the
Merritts] to sign their set of documents, leave [them] with the second mostly blank
documents and return them to her supervisor.” When David Merritt began reading the
documents, Wyatt stated that she did not have time for him to read them and that she
would provide the Merritts with a copy of every document so they could read them later.
The Merritts signed the documents. When David Merritt began making copies of the
signed documents, Wyatt told him that they would be able to get signed copies from
Countrywide.
On March 29, 2006, Colyer filled in the blank portions of the documents that the
Merritts had signed and returned them to First American. Does 91-95 of First American
recorded the deeds of trust and the notes, and transmitted the deeds of trust to Bear
Stearns and the notes to MERS. MERS transmitted the notes to Wells Fargo. The deeds
of trust for the first loan and the HELOC, which were recorded on March 30, 2006, stated
that the borrowers were the Merritts, the lender was Countrywide Home Loans, Inc., the
trustee was Recontrust Company, N.A., and MERS was the nominee for the lender.
Between October 2006 and October 2008, the Merritts contacted Countrywide
defendants, Lewis, Chief Executive Officer (CEO) of Bank of America, and Wells Fargo,
and requested their signed loan documents. The documents were not provided. The
Merritts also asked that their loans be replaced with an FHA loan “or other traditional
loan that they could afford to repay.”
4
 Between May 2006 and October 2008, Countrywide defendants, Lewis, and Bank
of America charged the Merritts four to seven interest rate points above the amount set
forth in the HELOC agreement. On January 20, 2009, Bank of America provided the
Merritts with copies of their loan documents, but “these documents were different,
specifically the HELOC Agreement and Note than what [the Merritts] recall[ed].”

B. Loan Modification
In February 2009, Does 71-80 of Bank of America “produced a modification of
original loans on orders of Wells Fargo” pursuant to its agreement with Bear Stearns “in
order to cover up . . . March 2006 fraudulent acts” and “the 2006 to 2008 overcharges.”
The loan modification “was a continuation of predatory lending practices of
Countrywide.” Though the new loan provided a temporary 4.5 percent interest rate, Does
71-80 “continued to mislead [the Merritts] b[]y representing that they only needed to pay
the interest and was in fact designed to not pay down the principle.” They also failed to
disclose that the payments did not include the HELOC payments, payment of property
taxes, homeowners insurance, and other fees.

C. Allegations of Defendants’ Roles in Alleged Conspiracy
1. Background
Beginning in January 1993, James Cayne, CEO of Bear Stearns, directed brokers
to encourage private investors to place their funds into mortgage-backed security pools,
which would be lent to individuals seeking residential loans. Cayne then began
implementing a plan in which Bear Stearns would identify real estate brokers “who
would agree to represent to borrowers that they were purchasing loans that were
traditional loans – i.e. fixed 30 year loan[s] – and conceal the fact that the loans were not
conventional loans at all[.]”

5
 2. First American and MERS
In January 1995, Does 2-30 of Bear Stearns first met with Kennedy, CEO of First
American, and R.K. Arnold, CEO of MERS. Additional meetings were held in February
and March 1995, in which Does 2-30 of Bear Stearns explained how they wished to work
with Kennedy, Arnold, and Wells Fargo “to make enormous amounts of money from
residential mortgage borrowers.” Does 2-30 informed them that “they were going to
solicit billions in private dollars to fund mortgages for borrowers and needed to employ
brokers willing to craft loans designed to strip equity from Americans, increase
likelihood of loan defaults and to give Investors the opportunity to foreclose and resell
properties to make more profit. . . . Bear Stearns with Does 2-30 stated that in order to
conceal their identities from public record they would need Loan Brokers, Escrow and
Title agents, to not record Investors names with local County Clerk Recorders, but to
falsify local County Recorder Records by naming some entity in their place who would
be bound to not divulge their identities publicly.”
On February 15, 1995, Arnold informed Bear Stearns that he would form MERS,
which would record its name with county recorders in place of Bear Stearns, and thus
conceal Bear Stearns’ identity from borrowers. Between January 2000 and December
2010, Arnold instructed MERS members not to disclose to borrowers, including the
Merritts, that MERS was acting as a front man for Bear Stearns.
In February 1995, Kennedy presented the Bear Stearns proposal to the First
American Board of Directors. The board of directors then approved the agreement with
Bear Stearns that called for First American “to instruct and train its Escrow and Title
Insurance staff to falsify county records and not report title defects to borrowers or the
public.”
In early 2000, MERS agreed to enroll Countrywide as a member if Mozilo would
agree to “lead Countrywide into falsifying loan documents and county records, as well as
keeping secret the fraudulent nature of [MERS], its activities and purposes.”
6
 Between January 2000 and March 2006, First American entered into agreements
with various title companies to produce escrow and title search functions that First
American could underwrite. Between January 2006 and March 2006, First American
also required these companies to ignore title defects.
On March 20, 2006, First American directed its agent FTC to conduct a title
search of the subject property. The subject property “was recorded as belonging to
MERS,” the “Note was separated from deed of trust,” and there were “multiple breaks in
the title, possibly more than a dozen holders in due course claiming rights to Property and
no way to validate a clean title.” First American directed its FTC agent to ignore the title
defects, to issue a preliminary title report, and to withhold certain documents from the
Merritts so that they would not learn of the title defects.
On March 27, 2006, Does 91-95 of First American instructed Wyatt, pursuant to
its agreement with Bear Stearns, to take two sets of documents, which consisted of two
notes and two deeds of trust, to the Merritts’ home for their signatures. Does 91-95,
acting on instructions from Colyer, did not include material terms of the loan in the set of
documents that were to be given to the Merritts, such as the amount of payments and the
interest rates. These documents, however, stated that the amount of the first loan was
$591,200 and that of the HELOC was $147,800, and that MERS was a beneficiary.
3. Bank of America and Lewis
Between January and May 2000, Does 2-30 of Bear Stearns held talks with Lewis,
CEO of Bank of America, and Mozilo, CEO of Countrywide, “about lending money to
mortgage borrowers which they wished to hire Countrywide to broker for Bear Stearns.”
During these discussions, Lewis informed Countrywide that Bank of America wanted to
lend subprime loans to achieve greater profits, but “they did not wish to lend predatory
loans directly . . . and wished to use Countrywide to broker their funds with certain types
of borrowers.”

7
 On April 15, 2000, Does 2-30 of Bear Stearns and Lewis explained to Mozilo and
other Countrywide officers that Bear Stearns and Bank of America “would provide
Countrywide with the loan contract agreements” that they “needed Countrywide to get
borrowers to sign, and such contracts required Mozilo to design loans in a way which
would strip borrowers savings, income and property equity before leading to default and
foreclosure after statute of limitations had run out on breach of contract, fraud and other
civil limitations.” A month later, Does 2-30 of Bear Stearns and Lewis told Mozilo that
Countrywide would have to conceal that it was acting as a broker for Bear Stearns or
Bank of America. If Mozilo agreed to the terms discussed during the meetings, Bear
Stearns would lend funds to borrowers for whom Mozilo brokered loans. Bear Stearns
provided Mozilo with a “Master Repurchase Agreement” which committed Countrywide
to broker loans for Bear Stearns and Bear Stearns would fund such loans as long as the
terms of the loans met the specifications that Bank of America and Bear Stearns required.
The Countrywide Board of Directors then authorized Mozilo and others to enter into
agreements with Bear Stearns, Bank of America, Wells Fargo, MERS, and First
American.
Between March 2000 and March 2006, Does 2-30 of Bear Stearns and Lewis, on
behalf of Bank of America, entered into agreements that committed them to providing
funds for Countrywide “to find borrowers who could be induced into buying subprime
and later HELCO/Pay Option ARM ‘Combo’ loans.”
Between March and December 2000, Mozilo, Lewis, Does 2-30, and Wells Fargo
spoke with each other monthly regarding Mozilo’s “efforts to move Countrywide to
broker subprime loans for them.” In June 2000, Bear Stearns and Lewis asked Mozilo to
“disregard California laws regarding his real estate broker fiduciary duties, and to
manage Countrywide in a way which publicly presented Countrywide as the actual lender
of the funds being loaned out.” Mozilo agreed to do so.

8
 Between July and September 2000, Sambol, president of marketing for
Countrywide, instructed Does 31-50 of Countrywide to prepare training programs for
brokers, such as Colyer, on how to conceal from borrowers Countrywide’s predatory
lending practices. Between January 2001 and March 2006, Sambol also worked with
others to design loans “with payments that increased over time to take 75, 90 and more
than 100% of borrowers income so they could ensure that borrower would default and be
subjected to foreclosure.” These loans were designed pursuant to agreements Mozilo
made with Bear Stearns and Bank of America.
Between 2003 and 2007, “approximately 50% of the loans produced by
Countrywide were loans brokered for” Bear Stearns and Bank of America. Lewis spoke
with Mozilo between January 2006 and December 2007. Mozilo told Lewis that he
would sell Countrywide “at a very cheap price” to Bank of America if Lewis “would do
whatever he could to cover up Mozilo et al deeds in the event their fraud became known
and they were prosecuted.” Lewis presented this proposal to the Bank of America Board
of Directors in December 2007. The board of directors authorized Lewis “to enter into
this and other details of agreement with Mozilo and his team.”
Between December 2007 and July 2008, Lewis and Mozilo negotiated the terms of
the sale of Countrywide to Bank of America. Lewis assured Mozilo that he “would cover
up the predatory loan practices and other frauds committed by Mozilo, Sambol and
others.” After an audit of Countrywide was conducted, Lewis learned that “most of the
Countrywide loans which they had sold, including [the Merritts’ loan] were predatory
loans . . . and that Countrywide was intentionally falsifying monthly charges to
borrowers,” including the Merritts. After Lewis lobbied the board of directors to view
this as “a good opportunity” for Bank of America, the board of directors accepted Lewis’
assessment and his agreement with Mozilo to cover up Countrywide’s fraud. The board
of directors also “agreed that since they were generating hundreds of millions of dollars
in additional profits by falsely overcharging borrowers, that they would not stop
9
overcharging borrowers, including [the Merritts], unless borrowers complained.”
Between July 2008 and March 2009, Bank of America sent the Merritts monthly billing
statements which overcharged them.

II. Statement of the Case
In December 2009, the Merritts filed a complaint against Countrywide defendants,
Lewis, Bank of America, Wells Fargo, Chen, and John Stumpf for restitution, injunctive
relief, rescission, and civil penalties. The complaint alleged causes of action for
conspiracy to commit fraud, misleading statements, unfair business practices, violation of
Civil Code section 1920, race discrimination in housing, and conspiracy. After Bank of
America filed a demurrer to the complaint, the trial court sustained the demurrers with
leave to amend to five causes of action and overruled the demurrers to the conspiracy
cause of action.
In August 2010, prior to the deadline for First American to file its response to the
initial complaint, the Merritts filed a first amended complaint pursuant to Code of Civil
Procedure section 472 against Countrywide defendants, Lewis, Bank of America, Chen,
John Benson, MERS, and First American. The causes of action alleged in the first
amended complaint included fraud, conspiracy, breach of fiduciary duty, unfair business
practices, breach of contract, breach of title insurance contract, and intentional infliction
of emotional distress. Following demurrers to the first amended complaint, the trial court
sustained the demurrers of Countrywide defendants, Lewis, Bank of America, and MERS
with leave to amend. However, the trial court sustained Wells Fargo’s demurrer without
leave to amend. The Merritts filed an appeal from the order sustaining the demurrer of
Wells Fargo without leave to amend.
Before the hearing on First American’s demurrer to the first amended complaint in
December 2010, the Merritts filed a second amended complaint against the same
defendants with the exception of Wells Fargo. The second amended complaint alleged
10
causes of action for fraud and misrepresentation, conspiracy, breach of fiduciary duty,
unfair business practices, breach of contract, breach of title insurance contract, and
intentional infliction of emotional distress. The trial court then sustained demurrers to the
second amended complaint with leave to amend.
In April 2011, the Merritts filed their third amended complaint. The third
amended complaint alleged causes of action for conspiracy to commit the following:
fraud, breach of fiduciary duty, unfair business practices, breach of title insurance
contract, intentional infliction of emotional distress. In July 2011, the Merritts filed an
amendment to their third amended complaint. Following a hearing in August 2011 on the
demurrers to the third amended complaint, the trial court issued an order striking the
amendment to the third amended complaint. The trial court also sustained the demurrers
of First American, MERS, Lewis, and Bank of America without leave to amend to all
causes of action. However, the trial court overruled Countrywide defendants’ demurrer
to four causes of action and sustained their demurrer without leave to amend to three
causes of action.
In October 2011, the Merritts filed a notice of appeal.
In December 2011, this court reversed the judgment in Merritt v. Wells Fargo
Bank, N.A. (Dec. 19, 2011, H036259) [nonpub. opn.] and directed the trial court to enter
a new order sustaining Wells Fargo’s demurrer to the first and second causes of action
with leave to amend to state a single cause of action for conspiracy to defraud.4 This
court also rejected the Merritts’ procedural claims and concluded that they had waived
their claims of error regarding their causes of action for unfair business practices, breach
of fiduciary duty, breach of contract, breach of the title insurance contract, and intentional
infliction of emotional distress.

4
This court has taken judicial notice of the opinion in case No. H036259, Merritt v.
Wells Fargo Bank, N.A.
11
 III. Discussion
A. Jurisdiction
Countrywide defendants contend that this court lacks jurisdiction to consider the
appeal as to them. They point out that the trial court overruled their demurrer to the first,
third, fourth, and fifth causes of action.
“In general, the right to an appeal is entirely statutory; unless specified by statute
no judgment or order is appealable.” (Garau v. Torrance Unified School Dist. (2006)
137 Cal.App.4th 192, 198.) Code of Civil Procedure section 904.1, subdivision (a)
provides that only final judgments are appealable. “Judgments that leave nothing to be
decided between one or more parties and their adversaries . . . have the finality required
by section 904.1, subdivision (a).” (Morehart v. County of Santa Barbara (1994) 7
Cal.4th 725, 741.) Here, as the Merritts concede, a final judgment has not been entered
against Countrywide defendants. Thus, this court lacks jurisdiction to consider the appeal
as to them.
The Merritts’ reliance on Kuperman v. Great Republic Life Ins. Co. (1987) 195
Cal.App.3d 943 (Kuperman) is misplaced. In that case, the trial court struck the
plaintiffs’ third amended complaint in its entirety, thereby leaving no issues to be
determined between the plaintiffs and one of the defendants. (Id. at pp. 946-947.) The
Court of Appeal held the order was appealable as a final judgment. In contrast to
Kuperman, here, issues remain to be determined between the Merritts and Countrywide
defendants.
The Merritts also argue that policy reasons support treating the trial court’s order
as an appealable order. However, appellate review is available only where authorized by
statute, and Code of Civil Procedure section 904.1 does not grant us jurisdiction on this
basis.
The Merritts alternatively request that we treat their appeal as a petition for a writ
of mandate. “ ‘A petition to treat a nonappealable order as a writ should only be granted
12
under [the most] extraordinary circumstances, “ ‘compelling enough to indicate the
propriety of a petition for writ . . . in the first instance . . . .’ [Citation.]” ’ ” (Wells
Properties v. Popkin (1992) 9 Cal.App.4th 1053, 1055.) Since the circumstances before
us are neither extraordinary nor compelling, we decline to treat the present appeal as to
Countrywide defendants as a petition for a writ of mandate.
We next consider the issue of our jurisdiction as to the other defendants. Though
the record contains a judgment of dismissal in favor of First American and thus is
appealable under Code of Civil Procedure section 904.1, there is no judgment of
dismissal in favor of Lewis, Bank of America or MERS. “The general rule of
appealability is this: ‘An order sustaining a demurrer without leave to amend is not
appealable, and an appeal is proper only after entry of a dismissal on such an order.’
[Citation.] But ‘when the trial court has sustained a demurrer to all of the complaint’s
causes of action, appellate courts may deem the order to incorporate a judgment of
dismissal, since all that is left to make the order appealable is the formality of the entry of
a dismissal order or judgment.’ ” (Melton v. Boustred (2010) 183 Cal.App.4th 521, 528,
fn. 1.) Thus, we will treat the order sustaining the demurrers of Lewis, Bank of America,
and MERS as appealable.

B. Sufficiency of the Third Amended Complaint
1. Waiver
We first consider whether the Merritts have failed to substantively address their
conspiracy to commit fraud cause of action (first) and conspiracy to commit unfair
business practices causes of action (third, fourth, and fifth), and thus have waived any
argument of error by the trial court in sustaining the demurrer without leave to amend to
these causes of action.
We presume that the judgment is correct and the appellant has the burden of
overcoming this presumption by affirmatively showing error. (Ketchum v. Moses (2001)
13
24 Cal.4th 1122, 1140-1141.) “When an appellant fails to raise a point, or asserts it but
fails to support it with reasoned argument and citations to authority, we treat the point as
waived. [Citations.]” (Badie v. Bank of America (1998) 67 Cal.App.4th 779, 784-785.)
In challenging the trial court’s ruling on the conspiracy to commit fraud and the
conspiracy to commit unfair business practices causes of action, the Merritts rely on the
legal principles on conspiracy and fraud as set forth in Merritt v. Wells Fargo Bank, N.A.
Thus, they have met their burden as to the conspiracy to commit fraud cause of action.
However, there was no discussion in that case regarding the conspiracy to commit unfair
business practices. In the present appeal, the Merritts have failed to present any reasoned
argument with citations to authority as to the underlying tort of unfair business practices.
They do not set forth the elements of unfair business practices and how their third, fourth,
and fifth causes of action survive the demurrers. Merely summarizing the allegations in
the third amended complaint and claiming that the trial court did not understand the
elements of conspiracy law is insufficient.5 Though we conclude that they have not
waived the issue of whether the trial court erred in sustaining the demurrer to the first
cause of action for conspiracy to commit fraud, the Merritts have waived any further
claim of error on appeal with regard to the third, fourth, and fifth causes of action.
2. Standard of Review
“In determining whether plaintiffs properly stated a claim for relief, our standard
of review is clear: ‘ “We treat the demurrer as admitting all material facts properly
pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We
also consider matters which may be judicially noticed.” [Citation.] Further, we give the
complaint a reasonable interpretation, reading it as a whole and its parts in their context.

5
We remind the Merritts that self-represented litigants are “held to the same
standards as attorneys. [Citation.]” (Kobayashi v. Superior Court (2009) 175
Cal.App.4th 536, 543.) “[S]elf-representation is not a ground for exceptionally lenient
treatment.” (Rappleyea v. Campbell (1994) 8 Cal.4th 975, 984.)
14
[Citation.] When a demurrer is sustained, we determine whether the complaint states
facts sufficient to constitute a cause of action. [Citation.] And when it is sustained
without leave to amend, we decide whether there is a reasonable possibility that the
defect can be cured by amendment: if it can be, the trial court has abused its discretion
and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.]
The burden of proving such reasonable possibility is squarely on the plaintiff.’
[Citations.]” (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.)
3. Conspiracy
Since each cause of action alleges a conspiracy to commit a specified tort, we
summarize the general principles regarding conspiracy. “Conspiracy is not a cause of
action, but a legal doctrine that imposes liability on persons who, although not actually
committing a tort themselves, share with the immediate tortfeasors a common plan or
design in its perpetration. [Citation.] By participation in a civil conspiracy, a
coconspirator effectively adopts as his or her own the torts of other coconspirators within
the ambit of the conspiracy. [Citation.] In this way, a coconspirator incurs tort liability
co-equal with the immediate tortfeasors.” (Applied Equipment Corp. v. Litton Saudi
Arabia Ltd. (1994) 7 Cal.4th 503, 510-511 (Applied Equipment).) However, “[b]y its
nature, tort liability arising from conspiracy presupposes that the coconspirator is legally
capable of committing the tort, i.e., that he or she owes a duty to plaintiff recognized by
law and is potentially subject to liability for breach of that duty.” (Id. at p. 511.)
“The elements of a civil conspiracy are ‘(1) the formation and operation of the
conspiracy; (2) the wrongful act or acts done pursuant thereto; and (3) the damage
resulting. [Citations.]’ ” (Mosier v. Southern Cal. Physicians Ins. Exchange (1998) 63
Cal.App.4th 1022, 1048.) Because civil conspiracy is easy to allege, “plaintiffs have a
weighty burden to prove it. [Citation.] They must show that each member of the
conspiracy acted in concert and came to a mutual understanding to accomplish a common
and unlawful plan, and that one or more of them committed an overt act to further it.
15
[Citation.] It is not enough that the conspiring officers knew of an intended wrongful act,
they had to agree—expressly or tacitly—to achieve it. Unless there is such a meeting of
the minds, ‘ “the independent acts of two or more wrongdoers do not amount to a
conspiracy.” ’ ” (Choate v. County of Orange (2000) 86 Cal.App.4th 312, 333.)
“[A] plaintiff is entitled to damages from those defendants who concurred in the
tortious scheme with knowledge of its unlawful purpose. [Citation.] Furthermore, the
requisite concurrence and knowledge ‘ “ ‘may be inferred from the nature of the acts done,
the relation of the parties, the interests of the alleged conspirators, and other
circumstances.’ ” ’ [Citation.] Tacit consent as well as express approval will suffice to
hold a person liable as a coconspirator.” (Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d
773, 784-785.)6
a. First Cause of Action – Conspiracy to Commit Fraud
The Merritts contend that “the CEO’s with Boards of Directors of Bear Stearns,
Wells Fargo, MERS[], [First American, Bank of America] and Countrywide . . . entered
into agreements as early as 2000 and onward, to help Bear Ste[a]rns defraud borrowers.”
“The elements of fraud are: (1) a misrepresentation (false representation,
concealment, or nondisclosure); (2) knowledge of falsity (or scienter); (3) intent to
defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage.”
(Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 990.) “ ‘Promissory
fraud’ is a subspecies of the action for fraud and deceit. A promise to do something
necessarily implies the intention to perform; hence, where a promise is made without
such intention, there is an implied misrepresentation of fact that may be actionable fraud.
[Citations.] [¶] An action for promissory fraud may lie where a defendant fraudulently

6
The Merritts allege in the first, second, sixth and seventh causes of action that
defendants “knowingly and willfully conspired and agreed among themselves to” commit
the underlying torts. Conclusory allegations regarding the formation and operation of a
conspiracy are insufficient and are disregarded. (Choate v. County of Orange, supra, 86
Cal.App.4th at p. 333.)
16
induces the plaintiff to enter into a contract. [Citations.]” (Lazar v. Superior Court
(1996) 12 Cal.4th 631, 638 (Lazar).)
“In California, fraud must be pled specifically; general and conclusory allegations
do not suffice. [Citations.] ‘. . . [¶] This particularity requirement necessitates pleading
facts which “show how, when, where, to whom, and by what means the representations
were tendered.” ’ [Citation.] A plaintiff’s burden in asserting a fraud claim against a
corporate employer is even greater. In such a case, the plaintiff must ‘allege the names of
the persons who made the allegedly fraudulent representations, their authority to speak, to
whom they spoke, what they said or wrote, and when it was said or written.’ [Citation.]”
(Lazar, supra, 12 Cal.4th at p. 645.)
In the present case, the third amended complaint alleges that, executives of Bear
Stearns, Bank of America, and Countrywide held talks to discuss lending money to
mortgage borrowers beginning in 2000. Lewis informed Countrywide that Bank of
America wanted to lend subprime loans to achieve greater profits, it did not want to be
publicly identified with predatory lending, and it wanted Countrywide to target certain
borrowers. Bank of America would also provide Countrywide with contracts for
borrowers to sign that would be designed “so borrowers would not be able to pay off
loans,” thereby leading to default and foreclosure. Between March and December 2000,
executives of Countrywide, Bank of America, and Wells Fargo spoke monthly regarding
Mozilo’s “efforts to move Countrywide to broker subprime loans for them.” Lewis also
asked Mozilo to “disregard California laws regarding his Real Estate Broker fiduciary
duties” which Mozilo agreed to do. Pursuant to this plan, Countrywide began a training
program for its brokers on predatory lending practices as well as a deceptive marketing
campaign. Between 2003 and 2007, approximately 50 percent of the loans produced by
Countrywide were funded by Bear Stearns and Bank of America. Beginning in January
2006, Lewis and Mozilo discussed Bank of America’s purchase of Countrywide “at a
very cheap price” if Bank of America agreed to cover up Countrywide’s fraudulent
17
conduct. In December 2007, the Bank of America Board of Directors authorized Lewis
to enter into the agreement with Countrywide, and Bank of America purchased
Countrywide in July 2008. Bank of America then learned that “most of Countrywide’s
loans which they had sold, including [the Merritts], were predatory loans” and that
“Countrywide was intentionally falsifying monthly charges to borrowers” including the
Merritts. Between July 2008 and March 2009, Bank of America continued
Countrywide’s practice of overcharging the Merritts. In 2009, the Merritts signed a loan
modification agreement with Bank of America, which “was a continuation of predatory
lending practices of Countrywide,” and Bank of America misled them as to the terms of
the agreement.
Here, there are no allegations that Bank of America had any interest in the
Merritts’ first loan or the HELOC or that they funded these loans, thus distinguishing it
from Wells Fargo’s participation in the conspiracy to defraud the Merritts. However,
Lewis, on behalf of Bank of America, agreed before the Merritts obtained their loans
from Countrywide to supply Countrywide with funds if Countrywide would sell
subprime loans for Bank of America. Bank of America also specified the terms of the
loans that Countrywide would offer to borrowers. Thus, Lewis and Bank of America
participated in the formation of the conspiracy with Countrywide and came to a mutual
understanding of how to accomplish their unlawful goal. After Countrywide
implemented the plan, Lewis and Bank of America agreed to cover up Countrywide’s
fraudulent conduct, continued Countrywide’s practice of overcharging the Merritts, and
misled them as to the terms of the loan modification agreement. Thus, these allegations
were sufficient to state a cause of action against Bank of America and Lewis for
conspiracy to commit fraud.
As to First American and MERS, the first cause of action alleges that Kennedy
and Arnold met with Bear Stearns and agreed to conceal Bear Stearns’ identity from
borrowers. First American and Arnold would ignore “title defects.” These title defects
18
consisted of: (1) deeds of trust showing MERS as the beneficiary, and (2) the
“separation” of deeds of trusts and the underlying notes resulting from loan
securitization.
“As case law explains, ‘MERS is a private corporation that administers the MERS
System, a national electronic registry that tracks the transfer of ownership interests and
servicing rights in mortgage loans. Through the MERS System, MERS becomes the
mortgagee of record for participating members through assignment of the members’
interests to MERS. MERS is listed as the grantee in the official records maintained at
county register of deeds offices. The lenders retain the promissory notes, as well as the
servicing rights to the mortgages. The lenders can then sell these interests to investors
without having to record the transaction in the public record. MERS is compensated for
its services through fees charged to participating MERS members.’ [Citation.]” (Gomes
v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1151 (Gomes).) Under
California law, MERS has authority to act as the beneficiary under a deed of trust.
(Gomes, at pp. 1155-1156 [MERS authorized to initiate foreclosure as deed of trust
beneficiary]; Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 270-271
[MERS has the authority to act as nominee for the lender] (Fontenot).) Here, the deeds
of trust state that MERS was “the beneficiary.” However, the deeds of trust also
specifically restrict MERS’ interest to that of a “ ‘nominee’ ” for the lender. “A ‘nominee’
is a person or entity designated to act for another in a limited role—in effect, an agent.”
(Fontenot, at p. 270.) The Merritts have not alleged that they were unable to make their
payments or negotiate a modification of their loans because they did not know who the
lender was. Thus, the Merritt’s contention that MERS is not a proper beneficiary under
the deed of trust cannot support their claim that First American and MERS engaged in
any fraudulent conduct by recording MERS as a beneficiary.
Similarly, the Merritts’ allegations that securitization of the loans constituted a
title defect do not state a claim of conspiracy to commit fraud against First American and
19
MERS. Securitization does not affect the validity of a loan. A secured promissory note
that is traded on the secondary market remains secured because the mortgage or deed of
trust follows the note. (Civ. Code, § 2936 [“The assignment of a debt secured by
mortgage carries with it the security.”].) Thus, a lender or trustee does not lose its
interest in the loan when it “was packaged and resold in the secondary market, where it
was put into a trust pool and securitized.” (Lane v. Vitek Real Estate Industries Group
(E.D.Cal. 2010) 713 F.Supp.2d 1092, 1099; Hafiz v. Greenpoint Mortgage Funding, Inc.
(N.D.Cal. 2009) 652 F.Supp.2d 1039, 1043 [rejecting the plaintiff’s theory that
“defendants lost their power of sale pursuant to the deed of trust when the original
promissory note was assigned to a trust pool”].)
The Merritts also alleged that First American was liable for misrepresentation and
concealment of material facts because it was an agent of the other defendants. However,
conclusory agency or secondary liability allegations are insufficient to state a cause of
action. (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 133-134, fn.
12 (Moore).) The Merritts further alleged that Wyatt, who was an agent of First
American, gave the Merritts documents which “were partially filled out with financial
information.” These allegations are also insufficient to state a claim that First American
participated in a conspiracy to defraud the Merritts. First American was the escrow agent
in the transaction, and its only duty was to comply with the written instructions of the
parties to the escrow. (Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co.
(2002) 27 Cal.4th 705, 711 (Summit).) First American had nothing to do with arranging,
brokering, processing, underwriting, or making the loans to the Merritts.
In sum, the Merritts stated a cause of action for conspiracy to commit fraud
against Bank of America and Lewis. However, the trial court properly found that it failed
to state a cause of action against First American and MERS.

20
 b. Second Cause of Action – Conspiracy to
Commit Breach of Fiduciary Duty
“In order to plead a cause of action for breach of fiduciary duty, there must be
shown the existence of a fiduciary relationship, its breach, and damage proximately
caused by that breach.” (Pierce v. Lyman (1991) 1 Cal.App.4th 1093, 1101, superseded
by statute on another ground as stated in Pavicich v. Santucci (2000) 85 Cal.App.4th 382,
396.) To state a cause of action for conspiracy to breach a fiduciary duty, a plaintiff must
establish that each of the coconspirators owed a fiduciary duty to him or her and are
potentially subject to liability for breach of that duty. (Applied Equipment, supra, 7
Cal.4th at p. 511.)
It is not clear what the Merritts’ arguments are as to this cause of action. They
begin by summarizing the allegations in the third amended complaint and assert that
these facts “support fiduciary claim.” They then rely on Smith v. Home Loan Funding,
Inc. (2011) 192 Cal.App.4th 1331 (Smith) for the proposition that “it is not a Company’s
name or how a Company is registered, or even mostly conducts business with most
borrowers, but how they actually behave on a case-by-case basis. That is what
determines whether a registered mortgage broker forms a fiduciary relationship or not.” 7
Smith recognized that “[a] mortgage broker has a fiduciary duty to a borrower. A
mortgage lender does not.” (Smith, supra, 192 Cal.App.4th at p. 1332.) In Smith, the
defendant funded most of its loans to borrowers and brokered other loans to third party
lenders. (Ibid.) One of the defendant’s loan officers told the plaintiff that he was a
mortgage broker and that he could “ ‘shop the loan’ ” for her. (Id. at. p. 1333.) Though
the loan officer repeatedly told the plaintiff that the loan would not have a prepayment
penalty, a prepayment penalty was included in a rider to the promissory note. (Id. at

7
The Merritts also alleged that each of the defendants was an agent for the other
defendants. As previously stated, conclusory agency or secondary liability allegations
are insufficient to state a cause of action. (Moore, supra, 51 Cal.3d 120, 133-134, fn. 12.)
21
p. 1334.) Smith held that there was substantial evidence that the defendant and its loan
officer acted as mortgage brokers and breached their fiduciary duties to the plaintiff. (Id.
at pp. 1335-1336.)
Here, the Merritts have not alleged any facts that Bank of America and Lewis
acted as mortgage brokers. Since they acted as lenders, they owed no fiduciary duty to
the Merritts.8
We next consider the nature of the duty owed by First American and MERS to the
Merritts. First American owed a fiduciary duty to the parties to the escrow. (Summit,
supra, 27 Cal.4th at p. 711.) However, as previously stated, First American’s duty was to
comply with the written escrow instructions. (Ibid.) “Absent clear evidence of fraud, an
escrow holder’s obligations are limited to compliance with the parties’ instructions.”
[Citations.]” (Ibid.) Here, the Merritts did not allege that First American breached any
escrow instructions. They appear to be arguing that First American breached its fiduciary
duty by recording MERS as the beneficiary under the deed of trust, thereby falsifying
records and failing to inform the Merritts of title defects. As previously discussed,
neither First American nor MERS engaged in any fraudulent conduct. Moreover, the
Merritts cite no authority for the proposition that MERS owed a fiduciary duty to them.
c. Sixth Cause of Action – Conspiracy to
Breach of Title Insurance Contract
The Merritts also contend that though they titled the cause of action as conspiracy
to breach title insurance contract, “the allegations show[] . . . [First American] and its

8
For the same reason, Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773 does not
assist the Merritts’ position. In Wyatt, the defendants were engaged in the loan brokerage
business. Prior to signing the loan documents, the plaintiffs asked the broker about “the
rate of interest, late payments, and the size of the balloon payment due at the end of the
loan period.” (Id. at p. 782.) Since the broker provided “materially misleading and
incomplete information,” Wyatt held that there was substantial evidence to support the
finding that the defendants had breached their fiduciary duties to the plaintiffs. (Id. at
pp. 782-783.)
22
agent FTC, was hired by the Merritts with its promise to perform fraud-free Title Search,
fraud-free Title Report and fraud-free Close of Escrow.”
In this cause of action, the Merritts alleged that First American issued a policy of
title insurance to them, breached the policy by recording MERS as the beneficiary and
refused to indemnify them for their losses pursuant to the terms of the policy. The
Merritts also alleged that Countrywide defendants, Bear Stearns, Wells Fargo, MERS,
and First American “conspired and agreed among themselves to breach the Title
Insurance purchased” by the Merritts.
However, the Merritts cannot state a claim for conspiracy to breach a title
insurance contract, because no such cause of action exists. “Conspiracy is not a cause of
action, but a legal doctrine that imposes liability on persons who, although not actually
committing a tort themselves, share with the immediate tortfeasors a common plan or
design in its perpetration. [Citation.]” (Applied Equipment, supra, 7 Cal.4th at pp. 510-
511.) Given that there can be no cause of action for conspiracy to breach a title insurance
contract, the trial court properly sustained the demurrer to the sixth cause of action as to
Bank of America, Lewis, MERS, and First American.
Moreover, to the extent that the Merritts are now contending that First American
breached its contract with them, their contention fails. First, as previously discussed,
recordation of the deeds of trust which designated MERS as the beneficiary is not
actionable under California law. Second, schedule B of the policy, which was attached to
the third amended complaint, states that “this Policy does not insure against loss, costs,
attorneys’ fees, and expenses resulting from . . . [¶] . . . [¶] [the] Deed of Trust . . . .”
Third, the Merritts’ claim that First American breached the title policy by refusing to
deliver copies of the loan documents, failing to close escrow at the title company,
discouraging them from reading the loan documents, not preparing the appropriate
number of copies of the loan documents, failing to deliver a notice of their right to
rescind the loans with filled in dates, not delivering Truth in Lending disclosures filled in,
23
and refusing to allow David Merritt to make copies of their signed loan documents has no
merit. “Title insurance is a contract by which the title insurer agrees to indemnify its
insured against losses caused by defects in or encumbrances on the title not excepted
from coverage. [Citation.]” (Vournas v. Fidelity Nat. Title Ins. Co. (1999) 73
Cal.App.4th 668, 675.) The Merritts’ allegations are not covered under the policy and
thus cannot constitute a breach of the title policy.
d. Seventh Cause of Action – Conspiracy to Commit
Intentional Infliction of Emotional Distress
The Merritts next contend that Countrywide defendants, First American, MERS,
Lewis, Bank of America, and Bear Stearns conspired to intentionally inflict emotional
distress on them. They argue that they were promised “one 30-year fixed loan with
payments between $1,800 and $2,200; but were given at the very last moment two loans
totaling $5,000 and set to balloon into $10,000 monthly installments” and were
overcharged on their loans.
The elements of an intentional infliction of emotional distress claim are (1) the
defendant’s conduct was extreme and outrageous; (2) the defendant intended to cause
emotional distress or recklessly disregarded the probability of causing emotional distress;
(3) the plaintiff suffered severe emotional distress; and (4) the defendant’s outrageous
conduct was the cause of the severe emotional distress. (Davidson v. City of Westminster
(1982) 32 Cal.3d 197, 209 (Davidson).)
Sanchez-Corea v. Bank of America (1985) 38 Cal.3d 892 (Sanchez-Corea)
provides an example of outrageous conduct by a lender. In Sanchez-Corea, McGowen, a
vice-president with the defendant bank, handled the account for the plaintiffs’ company
and used bank funds to cover overdrafts on this account without the bank’s knowledge.
(Id. at pp. 896-897.) The bank also provided a loan of $70,000 to the plaintiffs. (Id. at
p. 897.) After the bank discovered that McGowen had embezzled funds, including
$240,000 that was allegedly credited to the plaintiffs’ account, the bank demanded
24
$240,000 from the plaintiffs and refused to extend additional credit. (Ibid.) The
plaintiffs disagreed with the bank as to the amount of money that they owed and
eventually brought suit against the bank. (Ibid.) The California Supreme Court
concluded that there was sufficient evidence to support the award of damages to the
plaintiffs for intentional infliction of emotional distress, and summarized the evidence as
follows: “There is evidence from which the jury could have determined that the Bank
acted outrageously in reaction to the plight in which the Sanchez-Coreas found
themselves as a result of vice president McGowen’s conduct. Testimony indicated that
Bank officers Jones and Timerman failed to advise plaintiffs that the Bank had
determined not to give [the plaintiffs’ company] any further loans. According to
Sanchez-Corea, the Bank’s office misrepresented to him that further financial assistance
would be forthcoming but only if plaintiffs assigned all their past, present and future
accounts receivable to the Bank. A day after the plaintiffs made such an assignment, the
Bank refused the further loan. There was evidence that the Bank forced the Sanchez-
Coreas to execute excessive guarantees and security agreements. In addition to [the
plaintiffs’ company’s] pledge of over $262,000 of accounts receivable for a $70,000 note,
Mrs. Sanchez-Corea executed a $50,000 guaranty for a $30,000 note, and Mr. Sanchez-
Corea was directed to purchase a life insurance policy in the amount of $40,000 naming
the Bank as beneficiary. Furthermore, there was extensive testimony about an incident at
the San Franciscan Hotel in San Francisco. According to the testimony, Bank officials
publicly ridiculed Mr. and Mrs. Sanchez-Corea, using profanities in their statements. A
friend who was with the Sanchez-Coreas testified that Bank employees were pointing at
the Sanchez-Coreas and the employees were laughing about the financial plight of [the
plaintiffs’ company].” (Id. at pp. 908-909.)
In contrast to Sanchez-Corea, here, as a matter of law, none of the conduct alleged
by the Merritts was “ ‘so extreme as to exceed all bounds of that usually tolerated in a
civilized community. [Citations.]’ ” (Davidson, supra, 32 Cal.3d at p. 209.)
25
Accordingly, the trial court did not err by sustaining the demurrer to the seventh cause of
action for intentional infliction of emotional distress as to Bank of America, Lewis,
MERS, and First American.9
Relying on Bird v. Saenz (2002) 28 Cal.4th 910 (Bird), the Merritts contend that
“when a plaintiff witnesses a third-party victim being inflicted with harm, a cause of
action exist[s] for the party who witnessed infliction.” Thus, they claim that they have
stated a cause of action for negligent infliction of emotional distress under the bystander
theory since they “witnessed each other going through certain damage as a result of the
continuous fraud over an initial 3 year period; after they tried fruitlessly to rescind their
loans; loss thousands, faced financial ruin and homelessness.” There is no merit to this
contention.
Bird stated the elements of a cause of action for negligent infliction of emotional
distress under a bystander theory: “ ‘a plaintiff may recover damages for emotional
distress caused by observing the negligently inflicted injury of a third person if, but only
if, said plaintiff: (1) is closely related to the injury victim; (2) is present at the scene of
the injury-producing event at the time it occurs and is then aware that it is causing injury
to the victim; and (3) as a result suffers serious emotional distress—a reaction beyond
that which would be anticipated in a disinterested witness and which is not an abnormal
response to the circumstances.’ [Citation.]” (Bird, supra, 28 Cal.4th at p. 915.) Bird
held that the plaintiffs could not state a negligent infliction of emotional distress cause of
action because they were not present in the operating room when their relative’s artery
was transected and they did not know that the care she was receiving was inadequate.
(Id. at pp. 921-922) Here, the alleged injury occurred when the loan documents were

9
Kendall Yacht Corp. v. United California Bank (1975) 50 Cal.App.3d 949 does
not assist the Merritts. In Kendall, the defendant bank did not challenge the sufficiency
of the evidence to support the award of damages for infliction of emotional distress. (Id.
at p. 955.)
26
signed by the Merritts and they were unaware that it was causing injury. Accordingly,
they cannot state a cause of action under this theory.

C. Amendment to Third Amended Complaint
The Merritts argue that the trial court erred by striking the amendment to their
third amended complaint. We disagree.
The trial court found that the Merritts “filed . . . a document purported to be an
Amendment to the Third Amended Complaint. This document was filed without leave of
court and was objected to by the moving Defendants. As such, the Court finds that it was
filed improperly and strikes this filing.”
Code of Civil Procedure section 472 provides in relevant part: “Any pleading may
be amended once by the party of course, and without costs, at any time before the answer
or demurrer is filed, or after demurrer and before the trial of the issue of law thereon, by
filing the same as amended and serving a copy on the adverse party . . . .” “ ‘[A] litigant
does not have a positive right to amend his pleading after a demurrer thereto has been
sustained. “His leave to amend afterward is always of grace, not of right. [Citation.]”
[Citation.]’ . . . After expiration of the time in which a pleading can be amended as a
matter of course, the pleading can only be amended by obtaining the permission of the
court. [Citations.]” (Leader v. Health Industries of America, Inc. (2001) 89 Cal.App.4th
603, 612-613.)
Here, demurrers had been filed, and thus the Merritts no longer had a right to
amend as a matter of course. Instead, they were required to obtain the trial court’s
permission to file the amendment to the third amended complaint. Since the Merritts
failed to follow the proper procedure, the trial court did not err by striking the amendment
to the third amended complaint.
We next consider whether the Merritts have failed to carry their burden that they
could amend their complaint to cure any defects. “To satisfy that burden on appeal, a
27
plaintiff ‘must show in what manner he can amend his complaint and how that
amendment will change the legal effect of his pleading.’ [Citation.] The assertion of an
abstract right to amend does not satisfy this burden. [Citation.] The plaintiff must clearly
and specifically set forth the ‘applicable substantive law’ [citation] and the legal basis for
amendment, i.e., the elements of the cause of action and authority for it. Further, the
plaintiff must set forth factual allegations that sufficiently state all required elements of
that cause of action. [Citations.] Allegations must be factual and specific, not vague or
conclusionary. [Citation.]” (Rakestraw v. California Physicians’ Service (2000) 81
Cal.App.4th 39, 43-44.)
Here, the Merrits request that this court review the amendment to the third
amended complaint. This amendment adds allegations primarily against the Countrywide
defendants and causes of action for negligent torts. However, the Merritts have failed to
state how this amendment will cure the defects in their third amended complaint. They
have not set forth the applicable law and specific factual allegations that satisfy the
elements of a cause of action. Accordingly, we conclude that the Merritts have failed to
carry their burden on appeal.

IV. Disposition
The judgments in favor of First American and MERS are affirmed and the
judgments in favor of Bank of America and Lewis are reversed. Costs are awarded to
First American and MERS. Bank of America, Lewis, and the Merritts are to bear their
own costs.

28
 _______________________________
Mihara, J.

WE CONCUR:

______________________________
Elia, Acting P. J.

______________________________
Márquez, J.

Merritt et al. v. Mozilo et al.
H037414

29

SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK

X

PHOENIX LIGHT SF LIMITED, BLUE
HERON FUNDING II LTD., BLUE HERON
FUNDING V LTD., BLUE HERON
FUNDING VI LTD., BLUE HERON
FUNDING VII LTD., BLUE HERON
FUNDING IX LTD., SILVER ELMS CDO II
LIMITED and KLEROS PREFERRED
FUNDING V PLC,
Plaintiffs,

vs.

THE GOLDMAN SACHS GROUP, INC.,
GOLDMAN SACHS & CO., GOLDMAN
SACHS MORTGAGE COMPANY and GS
MORTGAGE SECURITIES CORP.,
Defendants.

EXCERPT:

E. Defendants Materially Misrepresented that Title to the Underlying
Loans Was Properly and Timely Transferred

539. An essential aspect of the mortgage securitization process is that the issuing trust for
each RMBS offering must obtain good title to the mortgage loans comprising the pool for that
offering. This is necessary in order for the plaintiffs and other certificate holders to be legally
entitled to enforce the mortgage and foreclose in case of default. Two documents relating to each
mortgage loan must be validly transferred to the trust as part of the securitization process – a
promissory note and a security instrument (either a mortgage or a deed of trust).

540. The rules for these transfers are governed by the law of the state where the property is
located, by the terms of the pooling and servicing agreement (“PSA”) for each securitization, and by
the law governing the issuing trust (with respect to matters of trust law). Generally, state laws and
the PSAs require that the trustee have physical possession of the original, manually signed note in
order for the loan to be enforceable by the trustee against the borrower in case of default.

541. In addition, in order to preserve the bankruptcy-remote status of the issuing trusts in
RMBS transactions, the notes and security instruments are generally not transferred directly fromthe
mortgage loan originators to the trusts. Rather, the notes and security instruments are generally
initially transferred from the originators to the sponsors of the RMBS offerings. After this initial
transfer to the sponsor, the sponsor in turn transfers the notes and security instruments to the
depositor. The depositor then transfers the notes and security instruments to the issuing trust for the
particular securitization. This is done to protect investors fromclaims thatmight be asserted against
a bankrupt originator. Each of these transfers must be valid under applicable state law in order for
the trust to have good title to the mortgage loans.

542. Moreover, the PSAs generally require the transfer of themortgage loans to the trusts
to be completed within a strict time limit – three months – after formation of the trusts in order to
ensure that the trusts qualify as tax-free real estate mortgage investment conduits (“REMICs”). In
order for the trust to maintain its tax free status, the loans must have been transferred to the trust no
later than three months after the “startup day,” i.e., the day interests in the trust are issued. See
Internal Revenue Code §860D(a)(4). That is, the loans must generally have been transferred to the
trusts within at least threemonths of the “closing” dates of the offerings. In this action, all of closing
dates occurred in 2005, 2006 or 2007, as the offerings were sold to the public. If loans are
transferred into the trust after the three-month period has elapsed, investors are injured, as the trusts
lose their tax-free REMIC status and investors like plaintiffs face several adverse draconian tax
consequences: (1) the trust’s income is subject to corporate “double taxation”; (2) the income from
the late-transferred mortgages is subject to a 100% tax; and (3) if late-transferred mortgages are
received through contribution, the value of the mortgages is subject to a 100% tax. See Internal
Revenue Code §§860D, 860F(a), 860G(d).

543. In addition, applicable state trust law generally requires strict compliance with the
trust documents, including the PSAs, so that failure to strictly comply with the timeliness,
endorsement, physical delivery, and other requirements of the PSAs with respect to the transfers of
the notes and security instruments means the transfers would be void and the trust would not have
good title to the mortgage loans.

544. To this end, all of the Offering Documents relied upon by plaintiffs stated that the
loans would be timely transferred to the trusts. For example, in the GSAA 2006-13 offering, the
Goldman Sachs Defendants represented that “[p]ursuant to the trust agreement, the Depositor will
sell, without recourse, to the trust, all right, title and interest in and to each mortgage loan.” GSAA
2006-13 Pros. Supp. at S-74. The Offering Documents for each of the offerings at issue herein
contained either the same or very similar language, uniformly representing that defendants would
ensure that the proper transfer of title to the mortgage loans to the trusts occurred in a timely fashion.

545. However, defendants’ statements were materially false and misleading when made.
Rather than ensuring that they legally and properly transferred the promissory notes and security
instruments to the trusts, as they represented they would do in the Offering Documents, defendants
instead did not do so. This failure was driven by defendants’ desire to complete securitizations as
fast as possible and maximize the fees they would earn on the deals they closed. Because ensuring
the proper transfer of the promissory notes and mortgages hindered and slowed defendants’
securitizations, defendants deliberately chose to disregard their promises to do so to plaintiffs.

546. Defendants’ failure to ensure proper transfer of the notes and the mortgages to the
trusts at closing has already resulted in damages to investors in securitizations underwritten by
defendants. Trusts are unable to foreclose on loans because they cannot prove they own the
mortgages, due to the fact that defendants never properly transferred title to the mortgages at the
closing of the offerings. Moreover, investors are only now becoming aware that, while they thought
they were purchasing “mortgaged-backed” securities, in fact they were purchasing non-mortgagedbacked
securities.

[…]

MAINE SUPREME JUDICIAL COURT

DEUTSCHE BANK NATIONAL TRUST COMPANY, AS TRUSTEE OF THE
HARBORVIEW MORTGAGE LOAN TRUST 2005-5, MORTGAGE LOAN
PASS-THROUGH CERTIFICATES, SERIES 2005-5 UNDER POOLING AND
SERVICING AGREEMENT DATED JUNE 1, 2005

v.

KEVIN WILK et al.

Justia.com Opinion Summary: Deutsche Bank filed a complaint for foreclosure against Wilk, 14 M.R.S. 6321, attaching documents, including a 2005 mortgage ($459,375) from Wilk in favor of the original lender’s nominee, MERS; a 2008 assignment from MERS to IndyMac; and a 2010 assignment by the FDIC, as the receiver for IndyMac, to Deutsche Bank. Trial evidence included a 2011 assignment from OneWest Bank to Deutsche Bank, executed approximately two weeks prior to the FDIC conveyance to OneWest Bank, purporting to grant “all interest” OneWest Bank then held in the mortgage to Deutsche Bank. On cross-examination, Deutsche Bank’s only witness confirmed that the assignment from OneWest Bank to Deutsche Bank was prior in time to the assignment from the FDIC to OneWest Bank. Deutsche Bank did not introduce the 2010 mortgage assignment, which it had attached to the complaint and which purported to transfer the mortgage from the FDIC to Deutsche Bank. The court entered a judgment of foreclosure. The Maine Supreme Court vacated, holding that Deutsche Bank failed to prove that it is the assignee of the mortgage.

[…]

The plight of the Americans that were hurt most has been largely forgotten in the power politics that have overcome financial reform.

Fortune-

I told myself I wasn’t going to do a “Lehman” column given the media frenzy over this month’s five-year anniversary of that institution’s bankruptcy. But in researching a new book I am writing for young adults about the 2008 financial crisis, I have been uncomfortably reminded of the hardship so many families encountered because of the crisis, particularly their kids.

Their plight has been largely forgotten in the power politics that have overcome financial reform. It’s all about winners and losers, with regulators and reform advocates pitted against a powerful industry lobbying machine, oiled by political money and the grease of revolving door jobs. The objective of protecting the public from another recession brought on by an unstable financial sector seems lost in the Washington shuffle.

So let me recount the heartbreaking memories of the families I have interviewed. They bear tragic similarities. Their problems usually started with a steeply resetting mortgage payment, or job loss or cutback, frequently combined with an unexpected health problem not covered by insurance. Whatever the catalyst, it is almost always followed by high levels of stress for the family, sleepless nights for parents and kids, deteriorating grades at school, lost hope as savings are depleted, and finally the loss of a home. The kids give up their rooms, their pets, their schools, their neighborhoods, and will always live with the traumatic memories of their forced dislocation.

[FORBES]

The Denver Post-

The once-fierce legal battle between Attorney General John Suthers’ office and Denver’s biggest foreclosure law firms trying to protect themselves from investigative subpoenas is rustling from a slumber.

Denver District Judge Edward Bronfin last week ruled that a 62-page agreement attorney Wayne Vaden — who you’ll recall was Denver’s public trustee when he served as the city’s appointed clerk and recorder under then-mayor, now-Governor John Hickenlooper — has with Bank of America to handle its foreclosure cases isn’t subject to the protection of attorney-client privilege.

As such, Vaden and his Vaden Law Firm, must turn over the agreement to Suthers’ crew as part of the AG’s investigation into billing practices of foreclosure attorneys. Bronfin reviewed the agreement in camera and said it was akin to a “boiler-plate claims-handling-procedure-manual.” But did agree it was subject to trade-secret protection for Bank of America.

Vaden has until Friday the 13th (hmmm?) to hand it over to Suthers’ office.

[DENVER POST]

Footnote 5: Each day of delay allegedly costs Shinaba $120.00 in interest. A year of delay allegedly added over $40,000 in accrued interest to Shinaba’s debt.

Decided on July 31, 2013

381917-09

Davidson Fink LLP, Rochester, New York (Chelsea Rackmyer, Esq., of counsel) for the plaintiff, and The Legal Aid Society, New York, New York (Oda Friedheim, Esq., of counsel) for the defendant.

Robert E. Torres, J.

Defendant Jumoke Shinaba’s (Shinaba or the defendant) asks this court to determine whether the plaintiff U.S. Bank National Association (U.S. Bank or the plaintiff) as Successor Trustee by merger to several prior trusts as indicated in the caption, and its loan servicer, Bank of America (BOA), violated CPLR 3408 (f)’s “good faith” requirement when they processed her loan modification application. In an attempt to avert the fore- closure of her home, Shinaba applied for a loan modification in December 2009 under the federal Home Affordable Modification Program (HAMP).

HAMP was launched to alleviate the national foreclosure crisis by permitting qualified defaulting borrowers to modify their mortgage payments at lower rates, without discharging the underlying debt (see U.S. Dept. Of the Treasury, Supplemental Directive 09-01, available at https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/sd0901.pdf). Shinaba seeks an order directing U.S. Bank and BOA to negotiate in good faith; to properly evaluate her application; and to toll the interest on her loan from September 22, 2010 until the parties enter into a loan modification.

Shinaba alleges that the two entities violated the good faith provision of CPLR 3408 (f) by: (1) failing to offer her a HAMP loan modification even though she is eligible for relief under the HAMP guidelines; (2) unduly delaying and failing to provide notification of her loan modification status; (3) routinely demanding documents she had previously submitted; (4) failing to conduct an NPV analysis; (5) failing to provide her with timely, accurate and consistent information about the status of her loan; (6) failing to offer her a reasonable superseding loss mitigation alternative; and (7) failing to comply with court orders directing the speedy review of her application. Shinaba alleges that, because of BOA’s actions, she has suffered, and is threatened with substantial financial injury, including the loss of her home. Plaintiff and BOA oppose the motion, insisting that they negotiated in good faith to reach a mutually agreeable solution, but no resolution amenable to both parties was reached.

Having reviewed the motion, the papers submitted on the motion, and the applicable case law, the court hereby grants the defendant’s motion for the reasons set forth below.

BACKGROUND

A. The HAMP Program [*2]

In February 2009, the United States Department of Treasury established HAMP, a foreclosure prevention program, under authority delegated to the agency by the Emergency Economic Stabilization Act of 2008 and the Troubled Asset relief Program (TARP)(see USC §§ 5201, 5211-5241). Loan servicers voluntarily enter the program by executing a Servicer Participation Agreement (SPA) with the Federal National Mortgage Association (Fannie Mae). These servicers are provided with financial incentive payments for each permanent mortage loan modification completed (id. at 23).^[FN1]

A series of directives provide guidance to loan servicers implementing HAMP. These guidelines set forth basic eligibility criteria ^[FN2] and require the servicer to perform a net present value (NPV) evaluation, comparing the NPV of a modified loan to the NPV of an unmodified loan (Supplemental Directive [SD 09-01], at 4-5). Greatly simplified, the loan servicer is required to apply a series of calculations, the “Standard Modification Waterfall,” in evaluating a potential loan modification that would lower the borrower’s future payment to no greater than 31% of the borrower’s gross monthly income (see SD 09-01 at 8-10). The Standard Modification Waterfall includes reducing the interest rate in increments of .125% down to the lowest interest rate of 2%, extending the term of the loan, and forgiving principal (id. at 9-10). According to the guidelines, “[i]f the NPV result for the modification scenario is greater than the NPV result for no modification, the result is deemed positive’ and the servicer MUST offer the modification” (id. at 4). However, “[i]f the NPV result for no modification is greater than NPV result for the modification scenario, the modification result is deemed negative’ and the servicer has the option of performing the modification at its discretion” (id.). [*3]

“Servicers must use a two-step process for HAMP modifications. Step One involves providing a Trial Period Plan outlining the terms of the trial period, and step two involves providing the borrower with an Agreement that outlines the terms of the final modification” (SD 09-01 at 14). Before June 1, 2010, loan servicers were allowed to rely on a borrower’s unverified verbal representations when determining whether that borrower was eligible for a Trial Period Plan (TPP)(SD 09-01 at 6-7). Those guidelines were part of a decision to roll out HAMP very quickly. The U.S. Treasury changed this policy in 2010, however, to allow loan servicers to offer a trial modification only after reviewing a borrower’s documented financial information (see Supplemental Directive [SD] 10-1]).^[FN3]

Supplemental Directive 09-07 was issued by the U.S. Treasury on October 8, 2009, requiring that within thirty days of receiving a borrower’s application and supporting documentation, servicers were to notify the borrower if he or she failed to qualify for trial period modification, and consider the borrower for another foreclosure prevention alternative. On November 3, 2009, the U.S. Treasury issued Supplemental Directive 09-08 (SD 09-08), which explicitly requires that servicers send notice to every borrower who was evaluated for HAMP and was not offered a trial period plan or an official modification, or who is at risk of losing eligibility for HAMP because he or she failed to provide the required financial documentation. SD 09-08 also includes Exhibit A which provides “model clauses for borrower

notices” detailing over twelve different reasons why borrowers might be denied (id. at A-1-4). The model clauses highlight the level of specificity that is deemed to be in compliance with the language requirements of HAMP (id. at A-1). Moreover, if a borrower is denied because the NPV of the transaction is negative, the notice to the borrower must include an explanation of the NPV test and a list of the inputs used, which gives the borrower an opportunity to correct values that impact upon the servicer’s analysis of the borrower’s eligibility (see A-2).

A change to HAMP, that became effective on October 1, 2010, is the Principal Reduction Alternative (PRA), in which participating servicers are required to consider reducing principal balances as part of HAMP modifications for homeowners who owe at least 115% of the value of their home. Under the PRA, [*4]servicers have to run two NPV tests for borrowers: the first will be the standard NPV test, and the second will include principal reduction. If the NPV of the loan modification is higher under the test that includes principal reduction, loan servicers have the option of reducing the principal. However, they are not required to reduce the principal. If the principal is reduced, the amount of the principal reduction will initially be treated as principal forbearance; the forborne amount will then be forgiven in three equal amounts over three years as long as the borrower remains current on his or her mortgage payments (see Supplemental Directive 10-05).

B. Shinaba’s Efforts to Participate in the HAMP Loan Modification Program

In March 2007, Shinaba entered into a $532,000 mortgage loan transaction with non-party First Franklin Financial Corporation (First Franklin) to refinance her first mortgage on her property located at 964 East 230th Street in Bronx County. It is a loan with an adjustable rate (Shinaba claims it is a subprime rate with a floor of 8.45%) and a balloon payment. This two-family house was purchased in 2005, and Shinaba raised her two children there. She still lives there with her 22-year old son. Shinaba contends that she took out the loan to make certain repairs to her home. At the time of the loan, she held two jobs, and was receiving rental income from her upstairs tenant.

After refinancing, Shinaba lost her part-time job as a car salesperson. She continued making her monthly $4,000 mortgage payments until February 2009. In May 2009, Shinaba was laid off from her social worker job, which she had held for over 10 years. Shortly thereafter, Shinaba struggled to make her monthly payments. Eventually, Shinaba could no longer make payments on the mortgage, and she defaulted on the loan. Shinaba maintains that as soon as she fell behind in her mortgage payments, she contacted First Franklin to obtain a loan modification. Beginning on December 9, 2009, she sought a loan modification by submitting her first HAMP application to First Franklin.

It is unclear when U.S. Bank took over the note and mortgage, and when BOA began servicing the loan. This foreclosure action was commenced on September 1, 2009 by U.S. Bank, and it was represented by the now defunct law firm of Steven J. Baum. On December 20, 2011, another firm, that usually hired per diem counsel for court appearances, was substituted, by consent, for the Baum firm (see plaintiff’s affirmation in opposition, exhibit A). On March 11, 2010, the Legal Aid Society [*5]began representing Shinaba in the residential foreclosure part.

In April 2010, Shinaba was able to find work as a social worker at Abbott House, which provides child welfare services, including foster care, group homes, and adoptive placement to children and the developmentally delayed in New York City and Westchester. Subsequently, First Franklin offered her a HAMP Trial Period (TPP) which required her to make three payments of $1,522.72 each, with the first payment due on March 1, 2010, and the last payment due on May 1, 2010. The TPP was issued under the pre-June 1, 2010 HAMP guidelines. Under the original guidelines that were in effect when Shinaba applied for a modification, a loan servicer could initiate a TPP based on a borrower’s undocumented representations about her finances (see SD 09—01 (“Servicers may use recent verbal [sic] financial information to prepare and offer a Trial Period Plan. Servicers are not required to verify financial information prior to the effective date of the trial period.”).

The TPP Agreement stated, in pertinent part, that:

“If I am in compliance with this Trial Period Plan (the “Plan”) and my representation in Section 1 continue to be true in all material aspects, the Servicer will provide me with a Home Affordable Agreement (“Modification Agreement”), as set forth in Section 3, that would amend and supplement (1) the Mortgage on the Property, and (2) the Note Secured by the Mortgage.”

(See affidavit of Shinaba, exhibit A, TPP Plan, dated February 15, 2010, at 3, ¶ 3).

Shinaba accepted the offer, executed the TPP Agreement, returned the executed TPP Agreement along with supporting financial documentation, and timely made all three modified monthly payments as dictated by the TPP Agreement. Despite her performance, Shinaba received a denial letter, dated August 2, 2010, from First Franklin, stating that Shinaba had failed to submit certain requested financial documentation (affidavit of Shinaba, exhibit B, Denial Letter). However, the letter failed to specify what documents were missing. Shinaba contends that she timely submitted all requested documentation, and that the bank failed to previously indicate that the financial information submitted by Shinaba was incorrect, incomplete or inconsistent with the information that led it to offer Shinaba a TPP Agreement in the first place. BOA requested that Shinaba resubmit the entire HAMP loan modification packet, which she did on August 26, 2010. [*6]

A mandatory settlement conference was scheduled pursuant to CPLR 3408 and the New York Uniform Civil Rules for the Supreme and County Courts 202.12—a (22 NYCRR 202.12—a). Based on the court records, the first settlement conference with U.S. Bank and BOA took place on August 24, 2010. Thereafter, Shinaba attended a settlement conference on September 22, 2010. On that day, Judge Howard Sherman wrote “all docs in Bank needs to complete review HAMP @30 days” and adjourned the matter to November 23, 2010.^[FN4] On November 23, 2010, BOA requested a two-month adjournment until January 26, 2011 to finish reviewing Shinaba’s loan modification application.

At the January 26, 2011 conference, BOA once again

represented to the court that it needed additional time to review Shinaba’s application, and the matter was adjourned to March 4, 2011. As of March 4, 2011, no decision had been made on her HAMP application. The matter was adjourned to April 4, 2011.

Sometime in March 2011, Shinaba contacted BOA to check on the status of her application. She was asked by Terri Barrigan, a bank representative, to submit additional information to “research [her] account” (affidavit of Shinaba, at 6, ¶ 19).

Shinaba claims that after she met with her attorney after March 2011, she realized that she had mistakenly underrepresented her income on her application. To rectify the mistake, Shinaba submitted a new and corrected HAMP application on April 6, 2011 (id.). Subsequently, her attorney informed her that a BOA representative had contacted her, and advised her that a judgment by Shinaba’s oil company against Shinaba needed to be satisfied. Shinaba had previously worked out a payment plan with the oil company. In order to be considered for a HAMP modification, however, Shinaba satisfied the judgment with a lump sum payment of $1,550.

At the settlement conference held on April 12, 2011, the court noted “Def recently submitted updated docs. Bank is to expedite review.” Instead of getting approval for a HAMP loan modification, however, on May 20, 2011, BOA offered her an “in-house” TPP, requiring three payments of $2,292.06 for July through September 2011, which she accepted (see exhibit E, TPP) and successfully completed. On or about August 15, 2011, Shinaba submitted another HAMP application after the bank deemed the earlier submission “stale.” [*7]

Two months later, at the October 18, 2011 settlement conference, the court observed that her HAMP application was still under consideration. A month later, at the next settlement conference held on November 15, 2011, the court emphasized that the “Bank is to have HAMP decision by next cof, Bank reps to be available by phone” (see affidavit of Shinaba, exhibit C, Conference Orders). However, at the next conference date on December 6, 2011, the court noted “No decision made as yet on HAMP, Bank is to appear at next conf.” At the December 21, 2011 conference date, no BOA representative, however, appeared. A per diem attorney for the new firm appeared, and stated that the case file had not yet been transferred to the new firm. The matter was adjourned to January 12, 2012.

Incredibly, after almost six months of waiting for a response on her HAMP application, at the following settlement conference date, a bank representative appeared and represented to the court that Shinaba had been denied HAMP. The bank representative then pulled out a letter dated March 11, 2011, which stated that Shinaba was denied a modification based on missing documents. Shinaba and her attorney informed the court that this letter was never received by any of them. Shinaba’s attorney also pointed out that the letter was contradicted by the record maintained by the court, showing that all documents had been submitted and that it had been the plaintiff’s attorney who had requested more time to review Shinaba’s application. The conference order for that day states: “P’s bank rep will attempt to generate a trad. Mod offer, mirroring HAMP, utilizing a balloon as part of the calculation (see exhibit C, Conference Orders). The court directed the bank to communicate its decision to Shinaba’s counsel by February 1, 2012. The record further notes that “H/O’s Esq. Still reserves w/o prej. to seek retro tolling of int.” (id.). However, on February 7, 2012, the lender’s attorney represented that the “Bank needs 2 more weeks.” As a result of the long delay, the court tolled interest payments from February 1, 2012 through February 28, 2012.

Plaintiff and BOA failed to comply with the court’s directive. In fact, it was not until February 14, 2012, that BOA sent its offer, via Federal Express, of an in-house loan modification to Shinaba. The letter was dated February 8, 2012. Shinaba was informed that she had until February 23, 2012 to accept or reject the offer. The offer required payments for the first three years of $2,378.20 per month (this amount included the estimated escrow) (see affidavit of Shinaba, exhibit G, In-House Modification Offer). For Year Four, the total monthly payment would be $2,719.74. Starting in Year Five, and for the remaining loan term, the monthly payments would be $3,035.04. [*8]The proposal would have resulted in a loan modification with an initial annual interest rate of 2%, then 3% with the final rate being 3.875% and an extension of the amortization period to 40 years. A balloon payment would be due on 2037, the year at which her loan matured. The monthly payments were more than the monthly payment under the HAMP trial modification that had been successfully executed. Shinaba rejected the proposal at the February 28, 2012 settlement conference for fear that she would be placed at risk of defaulting again.

Shinaba contends that the loan modification offered to her fails to mirror HAMP. Furthermore, the proposed monthly payments are based on fully amortizing her entire unpaid principal balance, claimed by the plaintiff as $663,405.16, and allegedly inflated with the accrued interest caused by the plaintiff’s delay.^[FN5] Moreover, Shinaba contends that the monthly payments as proposed would consume in year four, and the remaining 35-year term of the loan, almost 60% of her income at $3,035.04 per month. Finally, Shinaba maintains that the offer fails to take into account that her mortgage is significantly “under water” as the New York City Department of Finance has estimated the market value of her home at $375,000; $288,000 less than what the plaintiff and BOA claim Shinaba owes.

A counteroffer was communicated by letter, dated March 9, 2012, to the plaintiff’s attorney. The counteroffer proposed monthly payments of $1,750 for principal, interest, taxes and insurance (see exhibit I, Counteroffer Letter). It also requested that the plaintiff consider a “HAMP-like” forbearance or partial principal write-down. Shinaba requested a response prior to the next settlement conference scheduled for March 28, 2012. In response to the counter offer, BOA sent a one-line form letter to Shinaba, simply stating “We are unable to accommodate your request for modification received on March 9, 2012”

(see exhibit J, BOA Rejection Letter). A hearing was scheduled before this court on May 15, 2012. On April 20, 2012, Shinaba filed her CPLR 3408 (f) motion. Shinaba alleges that BOA’s actions were in violation of CPLR 3408 (f).

DISCUSSION

In assessing Shinaba’s claim of alleged violations of HAMP and CPLR 3408 (f), the core issues for the court are: (1) whether [*9]there is a CPLR 3408 (f) “good faith” violation; and (2) if the alleged misconduct represents a good faith violation, whether an appropriate sanction is the tolling of interest on the mortgage loan. The court answers “yes” to both questions.

The New York State Legislature attempted to cope with the formidable increase in mortgage foreclosures by enacting a number of statutes that are known, in omnibus form, as the Subprime Residential Loan and Foreclosure Laws. The statutes included in the omnibus legislation are RPL 265-b, RPAPL 1302, 1303 and 1304, Banking Law 6-l, 6-m, 590-b and 595-599, GOL 5-301(3), and, relevant to this decision, CPLR 3408 (see 2008 NY Laws ch 472; see also Wells Fargo Bank v Edsall, NA,22 Misc 3d 1113 [A], 2009 NY Slip Op 50112 [U], *3 [Sup Ct, Suffolk County 2009]).

CPLR 3408 requires a mandatory settlement conference in every “residential foreclosure action” involving a home loan as defined in RPAPL 1304 “in which the defendant is a resident of the property subject to foreclosure” (CPLR 3408 [a]). Settlement conferences are required in order to, “determin[e] whether the parties can reach a mutually agreeable resolution to help the defendant avoid losing his or her home” (CPLR 3408 [a]; see also Wells Fargo Bank, N.A. v Meyers, ___ AD3d ___ , 2013 NY Slip Op 03085, **5 [2d Dept 2013]). There is, however, no obligation on the part of a lender to modify the terms of its mortgage loan after a default in payment (see Graf v Hope Bldg. Corp., 254 NY 1, 4-5 [1930]; Wells Fargo Bank, NA v Van Dyke, 101 AD3d 638, 638 [1st Dept 2012]; JP Morgan Chase Bank Natl. Assn. v Ilardo, 36 Misc 3d 359, 373 [Sup Ct, Suffolk County 2012]).

The recent amendment of CPLR 3408 includes a new subdivision which provides, “Both the plaintiff and defendant shall negotiate in good faith to reach a mutually agreeable resolution, including a loan modification, if possible” (CPLR 3408 [f]).The “good faith” requirement of CPLR 3408 (f) was imposed to prevent one party to a mortgage contract from behaving in a manner that evades the spirit of the settlement conferences or denies the borrower the opportunity to reach a mutually acceptable solution. It is, therefore, the duty of each party to cooperate with the other to enable achievement of a reasonable resolution. The good faith requirement, as well, extends to the manner in which the lender employs its discretion in reviewing a borrower’s loan modification application.

Additionally, 22 NYCRR 202.12-a ( c) (4) provides, in part, that: “The court shall ensure that each party fulfills its obligation to negotiate in good faith and shall see that [*10]conferences are not to be unduly delayed or subject to dilatory tactics so that the rights of both parties may be adjudicated in a timely manner.”

The U.S. Treasury’s own HAMP directive, as well, states that servicers must implement the program in compliance with state common law and statutes (see SD 09-01 [“Each servicer . . . must be aware of, and in full compliance with, all federal state,

and local laws (including statutes, regulations, ordinances,

administrative rules and orders that have the effect of

law, and judicial rulings and opinions) . . . .”)]).

The court in Flagstar Bank, FSB v Walker (37 Misc 3d 312, 318 [Sup Ct, Kings County 2012]) recently stated that the most appropriate benchmark for the “good faith” requirement is compliance with the HAMP guidelines. In HSBC Bank USA v McKenna (37 Misc 3d 885, 905-906 [Sup Ct, Kings County 2012]), the lower court analyzed the meaning of “good faith,” finding:

“Generally, good faith’ under New York law is a subjective concept, necessitat[ing] examination of a state of mind’ (see Credit Suisse First Boston v Utrecht-America Finance Co., 80 AD3d 485, 487 [1st Dept 2011], quoting Coan v Estate of Chapin, 156 AD2d 318, 319 [1st Dept 1989]). Good Faith’ is an intangible and abstract quality with no technical meaning or statutory definition” (Adler v 720 Park Ave. Corp., 87 AD2d 514, 515 [1st Dept 1982], quoting Doyle v Gordon, 158 NYS 2d 248, 249 [Sup Ct, New York County 1954]). It encompasses, among other things, an honest belief, the absence of malice and the absence of a design to defraud or to seek an unconscionable advantage.’ (Doyle v Gordon, 158 NYS2d at 259-260; see also Uniform Commercial Code 1-201 [19] [“Good Faith’ means honesty in fact in the conduct or transaction concerned.”]). Good faith is . . . lacking when there is a failure to deal honestly, fairly, and openly’ (Matter of CIT Group/ Commerical Servc., Inc. v 160-09 Jamaica Ave. Ltd. Partnership, 25 AD3d 301, 303 [1st Dept 2006] [internal quotation marks and citation omitted]; see also Southern Indus. v Jeremias, 66 AD2d 178, 183 [2d Dept 1978]).”

Similarly, the absence of agreement does not itself establish the lack of good faith (see Brookfield Indus. v Goldman,87 AD2d 752, 753 [1st Dept 1982]). Ordinarily, a lack of good faith in CPLR Rule 3408 settlement conferences is determined from the conduct of the mortgagee/plaintiff. “Conduct such as providing conflicting information, refusal to honor agreements, unexcused delay, unexplained charges, and misrepresentations have been held to constitute bad faith” (Flagstar Bank, FSB v Walker, [*11]37 Misc 3d at 318; see also Wells Fargo Bank, N.A. v Ruggiero, 39 Misc 3d 1233 (A), *6 [Sup Ct, Kings County 2013]; One W. Bank, FSB v Greenhut, 36 Misc 3d 1205 (A), 2012 NY Slip Op 51197 [U], *4-5 [Sup Ct, Westchester Cty 2012]).

Plaintiff and BOA make several arguments that are unpersuasive. To begin, their reliance on JP Morgan Chase v Illardo is misplaced. Unlike the circumstances of this case, the defendants in Illardo sought to dismiss the foreclosure action, and direct the lender to convert a trial period modification into a permanent modification. Here, Shinaba is simply seeking to enforce the good faith requirement of CPLR 3048 (f) and 22 NYCRR 202.12-a ( c)(4).

Next, the plaintiff and BOA assert that the note and mortgage are to be enforced as written (see plaintiffs’opposing affirmation, ¶¶ 7-8). That is certainly the lender’s prerogative. The court agrees that banks that have negotiated loan agreements are entitled to enforce them to the letter, without being attacked for lack of good faith. However, Shinaba’s motion to the court is not an appeal to the court to determine whether the plaintiff exercised rights expressly reserved in the loan agreement. The term “good faith” refers to not taking opportunistic advantage of Shinaba’s weaker bargaining position.

Moreover, plaintiff’s stance completely disregards the public policy behind federal and state foreclosure prevention statutes, programs and initiatives. HAMP is structured with several goals in mind: The first is to encourage banks to adopt uniform standards for modification. The second is to ensure that modifications for qualified borrowers are entered into. The fact is that mortgage servicers and federal, state and local governments incur thousands of dollars in expenses and costs to foreclose upon a home (see generally Jean Braucher, Humpty Dumpty and the Foreclosure Crisis: Lessons from the Lackluster First Year of the Home Affordable Modification Program, 52 Ariz L Rev 727, 748—53 (2010) (providing background on HAMP’s features). Preventing a foreclosure from ever occurring is a cost effective approach, and it has the added benefit of preserving a family’s home. In sum, none of those goals were met here.

Plaintiff and BOA’s other assertion that Shinaba does not have an absolute right to a loan modification also misses the point. The court recognizes that the duty of good faith cannot be used to override explicit contractual terms. Therefore, a failure to modify an existing loan, in itself, does not constitute bad faith. However, the issue here is whether the [*12]plaintiff and BOA kept their promise, pursuant to CPLR 3408 (f), to negotiate in good faith. Once the parties agreed to participate in the scheduled settlement conferences, the plaintiff and BOA were obligated to deal “honestly, fairly and openly” with Shinaba. They have failed in this regard.

Nor does the court accept their argument that they demonstrated good faith during their review of Shinaba’s loan modification application. To be sure, this is not the first time that BOA, as loan servicer, has faced allegations of bad faith. However, whether what happened to Shinaba is essentially part of a national effort by BOA to deny homeowners HAMP modifications is irrelevant to the resolution of Shinaba’s CPLR 3408 (f) motion.

In this particular case, the plaintiff and BOA’s dilatory, and dishonest, conduct is troubling. Shinaba has alleged facts that describe conduct that is not only a violation of HAMP, but is independently unjust. As noted, Shinaba applied for relief under HAMP in 2009, but she was never properly evaluated for that relief even after two years. To be clear, Shinaba was asked to attend 17 settlement conferences, submit multiple applications for HAMP review, timely comply with every request for financial information, and successfully complete two trial periods. Yet as evidenced by the record, BOA, for the most part, ignored her application and failed to make an accurate NPV calculation as to her HAMP eligibility. More importantly, despite unambiguous rules designed to protect the integrity of the loan modification process, they egregiously failed to comply with the rules regarding timely review and notice.

Good faith contemplates the necessity of open communication between the parties. It is obvious that the plaintiff and BOA provided conflicting information, made several misrepresentations that repeatedly offered Shinaba an answer within a specific time frame, disobeyed several court orders to speed up the review process and unduly delayed the review of Shinaba’s HAMP loan modification application without a valid explanation, only to ultimately refuse to render any decision on her HAMP application, and instead, offer her an in-house modification with less than favorable terms. In essence, the in-house modification would have extended the term of the loan by ten years, added thousands of dollars in interest, and eaten over 60% of her monthly income. Lastly, both statute and court rules require a foreclosure plaintiff to appear at foreclosure settlement conference with counsel “fully authorized to dispose of the case” (CPLR 3408 [c], Uniform Rule § 202.12—a[c][3]). That never happened here. In the meantime, Shinaba waited anxiously for a determination while [*13]her late fees and interest payments kept rising. Certainly, there is nothing about this conduct that could reasonably be interpreted as giving rise to a basis of “good faith.”

It is well-settled that a mortgage foreclosure is an equitable remedy (see Notey v Darien Constr. Corp., 41 NY2d 1055, 1055 [1977]; Mortgage Elec. Registration Systems, Inc. v Horkan, 68 AD3d 948, 948 [2d Dept 2009]). Under CPLR 5001 (a), “in an action of an equitable nature, interest and the rate, and date from which it shall be computed shall be in the court’s discretion.” When a mortgagee has been found to breach the duty of good faith, New York courts have ordered that no interest be collected on the underlying loan, either from the date of the mortgagee’s breach or from the date of the mortgagor’s default on the loan, including a bar on attorneys’ fees and costs (see e.g. BAC Home Loans Servicing v Westervelt, 29 Misc 3d 1224 [A], 2010 NY Slip Op 51992 [U] [Sup Ct, Dutchess County 2010]; Wells Fargo Bank, N.A. v Hughes, 27 Misc 3d 628, 634 [Sup Ct, Erie County 2010]).

Equitable considerations warrant a finding that Shinaba should not be held liable for interest payments and other costs which occurred during the long and unexcused delay at issue. It is therefore the order of the court that the plaintiff be assessed as costs the forfeiture of all interest on the subject loan, late fees, plus accrued attorney’s fees since October 22, 2010 (the date by which the review of Shinaba’s application should have been completed) to the date this order is entered. Plaintiff is directed to make the mentioned costs computation and to submit the results and methodology employed to arrive at the final sum to the court for its review on notice to Shinaba, through her attorney, within 30 days of this order.

Notwithstanding the court’s sanction, Shinaba must have a real opportunity to have her HAMP application properly reviewed by the plaintiff and BOA as per the HAMP guidelines and its applicable time frames. Therefore, the plaintiff and BOA are directed to provide a supportable answer on her HAMP loan modification at the next scheduled settlement conference. In the event that Shinaba is denied a permanent HAMP modification, the plaintiff and BOA are to give a full and detailed explanation as to the reason for the denial. If the modification is denied, then Shinaba is to be considered for PRA. And, if no answer is given on the next conference date, other sanctions, including exemplary damages will be considered. [*14]

CONCLUSION

ORDERED that the plaintiff and BOA are directed to re-open Shinaba’s file and consider her for a HAMP modification taking into consideration their delay in reaching a decision; and it is further

ORDERED that plaintiff is barred from collecting any interest incurred from October 22, 2010, to the date that this order is entered; and it is further

ORDERED that unpaid late fees, if any, from October 22, 2010 until the date that this order is entered are forfeited by the plaintiff; 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 attorneys’ fees claimed to have been incurred from October 22, 2010 until the date this order is entered are not to be included in the calculation of the defendant-homeowner’s modified mortgage payment or otherwise imposed on the homeowner, but, rather, any request for attorneys’ fees is hereby severed and must be submitted to the court for a 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 settle the matter must appear at the next settlement conference and at all future settlement conferences until the case is released from the settlement part or until further order of the court; and it is further

ORDERED that the parties are to appear for a settlement conference in the Foreclosure Settlement Part on September __, 2013 at 10:00 a.m.

Dated: July 31, 2013

ENTER:

_______________________

ROBERT E. TORRES J.S.C.

.

Footnote 1: Fannie Mae, acting as financial agent of the United States, compensates participating servicers who receive $1,000 for each completed modification, payable upon the borrower’s successful completion of the 90-day trial period. Servicers may also receive additional payments for up to three years provided that they meet other requirements.

Footnote 2: Borrowers may be eligible for a loan modification under HAMP if the mortgage loan originated before January 1, 2009; if the mortgage has not been previously modified under HAMP; if the mortgage is secured by the borrower’s primary residence; if the borrower has experienced financial hardship; if the borrower lacks the liquid assets to meet the monthly mortgage payments; and if the mortgage payments amount to more than 31% of the borrower’s monthly income (id. at 2). These eligibility requirements, however, do not automatically qualify a borrower for a HAMP modification.

Footnote 3: The reason for the change was that loan servicers were converting trial modifications to permanent ones at a rate far below the U.S. Treasury’s expectations.

Footnote 4: Copies of all conference orders were submitted as exhibit C as part of Shinaba’s affidavit in support of the motion,

Footnote 5: Each day of delay allegedly costs Shinaba $120.00 in interest. A year of delay allegedly added over $40,000 in accrued interest to Shinaba’s debt.

BusinessWeek-

When the largest U.S. banks agreed to pay $25 billion last year to settle claims of abusive foreclosure practices, they promised to stop seizing homes from borrowers who had completed applications for mortgage help.

Now regulators say lenders may be flouting the spirit of the deal by repeatedly asking for additional paperwork from borrowers seeking loan modifications and then foreclosing while treating the applications as incomplete.

The Consumer Financial Protection Bureau and the court-appointed monitor of the 2012 foreclosure settlement are among those moving to tighten oversight of the process known as dual-tracking, when borrowers facing the loss of their homes are simultaneously negotiating changes in their loans. Mortgage servicers who violate the rules or the terms of the deal could face sanctions including fines of $1 million per infraction.

[BUSINESS WEEK]

DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
July Term 2013

MICHAEL SEALE and ELAINE SEALE,
Appellants,

v.

REGIONS BANK d/b/a REGIONS MORTGAGE, Successor by Merger to
UNION PLANTERS BANK, National Association,
Appellee.

No. 4D12-3869

[September 11, 2013]

CIKLIN, J.

Michael a n d Elaine Seale (the “Homeowners”) appeal the final
summary judgment of foreclosure entered in favor of Regions Bank (the
“Bank”). The Homeowners argue that the trial court erred in entering
summary judgment when their affirmative defenses were not factually
refuted or found to be legally insufficient. Because one of the legally
sufficient defenses was not factually refuted, we must reverse.
In their answer, the Homeowners asserted five affirmative defenses,
only three of which are relevant to this appeal.1 The Homeowners alleged
that the Bank lacked standing, that it failed to provide the required
notice of default, acceleration, and opportunity to cure,2 and that the
Bank was not authorized to bring the action on behalf of the owner of the
note. The defenses were struck as insufficiently pled, and on appeal, the
Homeowners argue that the court erred in striking these defenses. We
agree with the Homeowners that these defenses were sufficiently pled
and thus erroneously struck. See Gonzalez v. NAFH Nat’l Bank, 93 So.
3d 1054, 1057 (Fla. 3d DCA 2012) (“‘Where . . . a defense is legally
sufficient on its face and presents a bona fide issue of fact, it is improper
to grant a motion to strike.’” (quoting Hulley v. Cape Kennedy Leasing
Corp., 376 So. 2d 884, 885 (Fla. 5th DCA 1979))).

Because the legally sufficient defenses were improperly struck,
summary judgment was precluded if the defenses were not factually
refuted. A wealth of case law makes it clear that in mortgage foreclosure
cases, summary judgment is precluded if affirmative defenses are not
factually refuted or shown to be legally insufficient. See Gonzalez v.
Deutsche Bank Nat’l Trust Co., 95 So. 3d 251 (Fla. 2d DCA 2012);
Thomas v. Ocwen Loan Servicing, LLC, 84 So. 3d 1246 (Fla. 1st DCA
2012); Taylor v. Bayview Loan Servicing, LLC, 74 So. 3d 1115 (Fla. 2d
DCA 2011); Konsulian v. Busey Bank, N.A., 61 So. 3d 1283 (Fla. 2d DCA
2011); Alejandre v. Deutsche Bank Trust Co. Ams., 44 So. 3d 1288 (Fla.
4th DCA 2010); Leal v. Deutsche Bank Nat’l Trust Co., 21 So. 3d 907 (Fla.
3d DCA 2009); Frost v. Regions Bank, 15 So. 3d 905 (Fla. 4th DCA 2009).

The record reflects that the defenses related to standing and authority
to bring suit were refuted. However, nothing in the record refuted the
Homeowners’ claim that the Bank did not provide the required notice of
default and acceleration. Consequently, the trial court erred in entering
summary judgment.

Reversed and remanded for further proceedings.
WARNER and CONNER, JJ., concur.

* * *
Appeal from the Circuit Court for the Nineteenth Judicial Circuit, St.
Lucie County; Kathryn Nelson, Judge; L.T. Case No. 562010CA005108.
Andrea H. Duenas of the Law Office of A. Duenas, P.A., Lantana, and
Brian K. Korte of Korte & Wortman, P.A., West Palm Beach, for
appellants.

Kimberly Hopkins and Ronald M. Gache of Shapiro, Fishman &
Gache, LLP, Tampa, for appellee.

Not final until disposition of timely filed motion for rehearing.

footnote:
1 The Homeowners raised five affirmative defenses, all of which were struck by
the trial court. On appeal, they discuss only three of those defenses. As such,
we do not address the other two.
2 Additionally, the Homeowners filed an affidavit attesting that the required
notice was never received.

Zero Hedge-

Below are some of the key points of Part I of my interview with Ms. Hudes:

Regarding the “revolving door” of banker criminality at the global level: “The banks are all interconnected…there’s one big conglomerate…These bankers have a group of board members that migrate from one bank to another.”

Regarding why so many people still are unaware of the underlying criminal actions of banking conglomerates: “The bankers have bought up all the media to keep people ignorant of their agenda… These central banks are nothing but crooks. They have no right to buy up all the media and trick all the citizenry…we have documented this. It’s not just that we are saying this and you may or may not believe us. We have documented this…These private groups have seized power that they’re not entitled to and they did it secretly…Anybody inside the world bank that saw money going in the wrong direction, that saw the accounting was not adding up, was getting fired.”

Regarding if Central Bankers are concerned that awareness of their nefarious crimes against humanity are coming to the forefront of global consciousness: “We have fired these Central Bankers. And there is going to be more and more accountability…A lot of these [bankers] understand that there will be a day of reckoning” for them because more and more of the world’s citizens are awakening to what bankers really are up to these days, and they are not happy with what they are discovering about the banking industry.

On why more and more people will be increasingly turning away from paper currencies and towards the use of sound money to store their wealth: “Paper has no intrinsic value. It is only valuable if people agree that it has value. Fiat currencies are now under siege and we have a limited amount of time to set up alternative monies. If we have permanent gold backwardation, international trade will simply stop and we will have a world depression that will make what happened in the 1930s and 2008 look like nothing.”

[ZERO HEDGE] and [smartknowledgeu]