Bill Griffin, EVP at Lender Processing Services (LPS), has been elected to serve on the Mortgage Bankers Association’s (MBA) board of directors, the company announced.
Griffin joins a number of new board members who will work together with the existing members to set MBA’s strategic direction and oversee management of its initiatives. His appointment was first announced at the group’s 100th Annual Convention & Expo in late October.
NYPD Commissioner Ray Kelly, unwanted by Mayor-elect Bill de Blasio, is in the running for a top security job at JPMorgan Chase, sources at the financial giant told The Post.
The position would include overseeing the firm’s cyber-security, according to people familiar with the negotiations.
When asked for comment about Kelly’s potential career move, his personal attorney said in a statement, “The Police Commissioner has not accepted any post governmental offers. … Because of city [Conflict of Interest Board] rules, he has not even had discussions with, much less accepted any offer from anyone who does business with the city and will not do so until he leaves office.”
And saying their actions are a lack of respect for the law is an understatement…they are plain out CRIMINAL!
Foreclosure Fraud – CRIMINAL
LIBOR – CRIMINAL
Credit Card Fraud – CRIMINAL
Securities Fraud – CRIMINAL
Money Laundering – CRIMINAL
Business w/ Terrorist – CRIMINAL
Manipulating the Markets – CRIMINAL
Bribery – CRIMINAL
[…]
HuffPO-
The head of the Federal Reserve Bank of New York said Thursday that some of America’s largest financial institutions appear to lack respect for the law, a potentially explosive charge against an industry already roiling from numerous government investigations into alleged wrongdoing.
William Dudley, one of the nation’s top banking regulators whose organization helps oversee Wall Street banks including JPMorgan Chase and Citigroup, made the comment during a speech focused on the problems posed by banks perceived to be “too big to fail,” and possible solutions to correct them.
But in an abrupt turn, Dudley suggested that regulators may be stymied by “cultural” issues that have negatively affected the nation’s biggest banks.
Ask any foreclosure victim and they’ll probably say 5%!
Rasmussen Reports-
Judges are often criticized for legislating from the bench, and just one-in-three voters now believes most judicial rulings follow the law as written.
A new Rasmussen Reports national telephone survey finds that 39% of Likely U.S. Voters think most judges in their rulings try to make new law they like better. Only 33% believe most judges in their rulings follow the letter of the law. Nearly as many (28%) are not sure which is the case. (To see survey question wording, click here.)
Wells Fargo & Co. (WFC) is among firms facing federal scrutiny of mortgage-backed securities sales under a 1989 law that the government is using to extend probes of banks’ roles in the credit crisis, according to two people with knowledge of the matter.
U.S. attorneys in San Francisco have been examining Wells Fargo, the nation’s largest mortgage lender, for more than a year, said one of the people, who asked not to be named because the inquiry isn’t public. Authorities are investigating whether the firm violated the Financial Institution Reform and Recovery Act. The law, known as FIRREA, carries a 10-year statute of limitations and allows the government to sue for fraud affecting a federally insured financial institution.
ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS
SAMUEL CONTI, District Judge.
I. INTRODUCTION
Now before the Court is Defendant Wells Fargo Bank N.A.’s (“Defendant”) motion to dismiss Plaintiff Karthik Subramani’s (“Plaintiff”) first amended complaint. ECF Nos. 24 (“FAC”), 25 (“MTD”). The matter is fully briefed, ECF Nos. 27 (“Opp’n”), 28 (“Reply”), and appropriate for decision without oral argument, Civ. L.R. 7-1(b). As explained below, the Court GRANTS in part and DENIES in part Defendant’s motion to dismiss.
II. BACKGROUND
This action arises from a $479,600 mortgage loan (the “Loan”) obtained by Plaintiff from Defendant on October 18, 2006, recorded by an adjustable-rate promissory note and secured by a deed of trust (“DOT”) against residential real property in Livermore, California. Compl. ¶¶ 10-11, Ex. A (“DOT”). The DOT states that Plaintiff agreed to repay the borrowed $479,600 or risk foreclosure, and that “[t]he Note or a partial interest in the note (together with this Security Instrument) can be sold one or more times without prior notice to [Plaintiff].” Id. at 11 ¶ 20. Defendant was the original lender under the DOT, and Fidelity National Title Insurance Company (“FNTIC”) — purportedly not the same entity as the non-appearing defendant FNTC — was the original trustee.
Plaintiff alleges that Defendant first sold the Loan to Wells Fargo Asset Securities Corporation (“WFASC”) sometime around October 24, 2006. Soon after that, WFASC allegedly bundled Plaintiff’s Loan (consisting of the note and DOT) with other mortgages into a mortgage-backed securities pool, the Wells Fargo Mortgaged Backed Securities 2006-AR18 Trust, Mortgage Pass-Through Certificates, Series 2006-AR18 (the “WFMBS 2006-AR18 Trust”). Id. ¶ 5. The WFMBS 2006-ARIB Trust had been established on October 1, 2006 with the execution of a pooling and servicing agreement (“PSA”). Id. ¶ 15. According to Plaintiff, one effect of the PSA was to prohibit assignment of the DOT and note before the trust’s “Closing Date” of October 24, 2006. See id. ¶ 23.
On July 23, 2009, Plaintiff received a notice of default (“NOD”) from First American Title Insurance Company acting as an agent for First American Loanstar Trustee Services (“First American Loanstar”) as purported “Agent for the Current Beneficiary.” Compl. Ex. B (“NOD 1”). According to Plaintiff, statements associated with that NOD suggested without stating that Defendant was the “current beneficiary” of the Loan. See Compl. ¶ 19.
On August 25, 2009, First American Loanstar, acting as “attorney in fact for [Defendant],” issued a Substitution of Trustee (“SOT 1”), substituting itself as trustee. Id. ¶ 23, Ex. C (SOT).
Plaintiff’s first NOD was rescinded on September 10, 2010, id. Ex. D (“Rescission of NOD 1”), but Plaintiff defaulted again and a second NOD was recorded on May 10, 2011, id. Ex. E (“NOD 2”). The second NOD was issued on May 4, 2011, by LSI Title Company acting as agent for FNTC. According to Plaintiff, the second NOD stated that Defendant was the original beneficiary under the DOT, but did not state who the current beneficiary was. See id. ¶ 27.
On May 6, 2011, between the issuance and recordation of the second NOD, Defendant issued a second Substitution of Trustee (“SOT 2”) appointing FNTC as substitute in place of FNTIC as trustee under the DOT. Id. Ex. F (SOT 2). Three months later, on August 11, 2011, the second SOT was recorded. Id. ¶ 31.
Plaintiff did not cure his second default, and on August 11, 2011 — the same day the second SOT was recorded — FNTC, acting as trustee under the DOT, issued and caused recording of the Notice of Trustee Sale. Id. Ex. G (“NOTS”). A year later, on August 9, 2012, FNTC sold Plaintiff’s Property in a foreclosure sale to non-party California Equity Management Group, Inc., and issued the Trustee’s Deed Upon Sale (“TDUS”) on August 15, 2012. Id. Ex. H.
Plaintiff contends that all of the legal documents described above were void because Defendant was no longer the valid lender in the DOT, or even an agent of a successor beneficiary after it sold the Loan in 2006. See id. ¶¶ 22-23. According to Plaintiff, Defendant did not assign the DOT or endorse the note pursuant to the PSA. See id. at 3-4 ¶¶ 4-6. Nor did Defendant abide by California law regarding the endorsement, assignment, and recordation of notes and DOTs. See id. ¶ 14. Plaintiff therefore states that after Defendant sold the Loan, neither Defendant nor anyone else had any right to or interest in the Loan, so all legal notices associated with the note and DOT — including the SOTs, NODs, and the foreclosure sale itself — are illegal and void.
On these facts, Plaintiff asserts eight causes of action: (1) wrongful foreclosure; (2) constructive fraud; (3) cancellation of fraudulent instruments; (4) violation of California’s nonjudicial foreclosure statute, Cal. Civ. Code § 2934a(a)(1)(A); (5) unjust enrichment; (6) violation of the federal Truth-in-Lending Act (“TILA”), 15 U.S.C. § 1601 et seq.; (7) violation of California’s Unfair Competition Law (“UCL”), Bus. & Prof. Code Section 17200; and (8) declaratory relief. Defendant now moves to dismiss.
III. LEGAL STANDARD
A. Motions to Dismiss
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) “tests the legal sufficiency of a claim.” Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). “Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1988). “When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). However, “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The allegations made in a complaint must be both “sufficiently detailed to give fair notice to the opposing party of the nature of the claim so that the party may effectively defend against it” and “sufficiently plausible” such that “it is not unfair to require the opposing party to be subjected to the expense of discovery.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).
On a motion to dismiss pursuant to Rule 12(b)(6), a district court may “consider unattached evidence on which the complaint `necessarily relies’ if: (1) the complaint refers to the document [and the document] is central to the plaintiff’s claim; and (3) no party questions the authenticity of the document.” United States v. Corinthian Colleges, 655 F.3d 984, 999 (9th Cir. 2011).
If the Court dismisses the complaint, it must then decide whether to grant leave to amend. The Ninth Circuit has “repeatedly held that a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000) (citations and internal quotation marks omitted).
B. Rule 9(b)
Claims sounding in fraud are subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b), which requires that a plaintiff alleging fraud “must state with particularity the circumstances constituting fraud.” See Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009). “To satisfy Rule 9(b), a pleading must identify the who, what, when, where, and how of the misconduct charged, as well as what is false or misleading about [the purportedly fraudulent] statement, and why it is false.” United States ex rel Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 (9th Cir. 2011) (internal quotation marks and citations omitted).
IV. DISCUSSION
A. Wrongful Foreclosure
Plaintiff alleges that Defendant wrongfully foreclosed on the Property, because the chain of title was broken when Defendant sold its interests in the Loan. Defendant moves to dismiss this claim for the reasons discussed below.
Defendant’s primary argument — that Plaintiff is claiming that securitization itself invalidates the initiation of foreclosure proceedings — subtly misconstrues Plaintiff’s complaint. See MTD at 5-6. Plaintiff’s point is that it was Defendant’s flawed procedures in attempting to securitize the loan that broke the chain of title on which Defendant relied. To be clear, Plaintiff is not simply alleging that assignment of the Loan to a trust pool provides standing to challenge the securitization. That argument has been roundly dismissed in this Court. See, e.g., Flores v. GMAC Mortg., LLC, No. C 12-794 SI, 2013 WL 2049388, at *2 (N.D. Cal. May 14, 2013) (listing cases) Niranjan v. Bank of America, N.A., No. 12-05706 WHA, 2013 WL 1701602, at *2 (N.D. CAl. Apr. 18, 2013) (same). Plaintiff brings a variety of other claims that are subtly different: Defendant’s transfers are void because Defendant did not assign the DOT or endorse the note in accordance with California law; Defendant tried to transfer the Loan after the PSA’s October 24, 2012 deadline; and Defendant did not even assign the Loan or the trusteeship to the correct parties.
To the extent Plaintiff relies on violations of the PSA or any other agreements among third parties, Plaintiff’s claim fails. As this Court has often explained, plaintiffs who are not parties to PSAs lack standing to challenge that aspect of the securitization process’s validity. See Almutarreb v. Bank of N.Y. Trust Co., N.A., No. C-12-3061 EMC, 2012 WL 4371410, at *2 (N.D. Cal. Sept. 24, 2012). On this point, Plaintiff contends that a recent California Court of Appeals case, Glaski v. Bank of America, N.A., 218 Cal. App. 4th 1079 (Cal. Ct. App. 2013), in which the court held that under New York law, a securitized mortgage trustee’s acceptance of a loan after the trust’s closing date would be void in contravention of the trust document and would jeopardize the trust’s special tax status, id. at 1094-95. Defendant counters that the Court should ignore Glaski as stating the minority rule. Defendant urges the Court to follow Jenkins v. JP Morgan Chase Bank, N.A., 216 Cal. App. 4th 497 (Cal. Ct. App. 2013). Jenkins held that an unrelated third party to an alleged securitization lacked standing to enforce any agreements (like a PSA) relating to such transactions, and that the third party could not have been a victim to any invalid transfer because her obligations under the note never changed. Id. at 515-16. On this point, absent guidance from the Ninth Circuit or the California Supreme Court, the Court follows Jenkins, which appears to state the majority rule. See Newman v. Bank of N.Y. Mellon, No. 1:12-CV-1629 AWI GSA, 2013 WL 5603316, at *3 n.2 (E.D. Cal. Oct. 11, 2013) (“Glaski is in a clear minority” on this issue); Diunugala v. J.P. Morgan Chase Bank, N.A., No. 12-cv-2106-WQH-NLS, 2013 WL 5568737, at *8 (S.D. Cal. Oct. 3, 2013) (stating same). Accordingly, the Court DISMISSES Plaintiff’s wrongful foreclosure claim to the extent that it is predicated on Defendant’s alleged violation of the PSA or any other third-party agreements related to the Loan’s securitization.
However, the Court finds that at the 12(b)(6) stage, Plaintiff has sufficiently stated a claim for wrongful foreclosure based on his allegations that Defendant’s 2006 sale of Plaintiff’s DOT precluded Defendant from retaining a beneficial interest in the DOT. See Barrionuevo v. Chase Bank, N.A., 885 F. Supp. 2d 964, 975 (N.D. Cal. 2012). Plaintiff has sufficiently alleged that Defendant directed the wrong party to issue Notices of Default, that Defendant is not the true beneficiary, and that Defendant failed to abide by the rules regarding transference of the Loan. All of these allegations are supported by specific enough facts to state a plausible claim at this point. This case is not like the cases Defendant cites, in which the plaintiffs rely solely on violations of a PSA or securitization in itself. See MTD at 5-6 (citing cases). Defendant’s motion to dismiss on these grounds is DENIED. Defendant may, of course, raise this issue again in a later motion.
Defendant also argues that tender is required to challenge a foreclosure sale or quiet title. Since Plaintiff failed to tender the amount of secured indebtedness in this case, Defendant contends that the case should be dismissed. MTD at 4-7. Plaintiff responds that California law does not require tender if he alleges that Defendant’s title is void, as he has in this case. Opp’n at 8.
Generally, the “tender rule” applies to claims to set aside a trustee’s sale for procedural irregularities or alleged deficiencies in the sale notice. See Lester v. J.P. Morgan Chase Bank, N.A., 926 F. Supp. 2d 1081, 1092 (N.D. Cal. 2013). “[T]he rationale behind the rule is that if plaintiffs could not have redeemed the property had the sale procedures been proper, any irregularities in the sale did not result in damages to the plaintiffs.” Id. (internal citations and quotations omitted). However, tender may not be required where doing so would be inequitable. Onofrio v. Rice, 55 Cal. App. 4th 413, 424 (Cal. Ct. App. 1997). Courts have found exceptions to the tender rule if “a sale is void, rather than simply voidable,” as when an incorrect trustee forecloses on a property. See Tamburri v. Suntrust Mortg., No. C-11-2899 EMC, 2011 WL 6294472, at *4 (N.D. Cal. Dec. 15, 2011) (citing Dimock v. Emerald Properties LLC, 81 Cal. App. 4th 868, 876 (Cal. Ct. App. 2000)). Under these circumstances, since Plaintiff has sufficiently alleged that the foreclosure sale was void, Compl. ¶¶ 81-85, the Court declines to dismiss the complaint based on Plaintiff’s failure to allege tender.
Defendant also contends that Gomes v. Countrywide Home Loan, Inc., 192 Cal. App. 4th 1149 (Cal. Ct. App. 2011), requires the Court to dismiss Plaintiff’s challenges to the foreclosure. MTD at 7-8. In Gomes, the California Court of Appeals held that California Civil Code § 2924(a)(1) does not “provide for a judicial action to determine whether the person initiating the foreclosure process is indeed authorized.” Id. at 1155.
Gomes is inapposite. It involved whether the party selling the foreclosed property was authorized to do so by the owner of the promissory note, not whether there was some infirmity in the assignment process leading to wrongful foreclosure. Id. In this case, Plaintiff does not seek a determination of whether Defendant may foreclose. He alleges that it cannot and provides factual support for this contention. See Lester, 926 F. Supp. 2d at 1092. The Court therefore finds that Gomes does not preclude Plaintiff from challenging Defendant’s standing to foreclose.
Accordingly, Plaintiff’s wrongful foreclosure claim survives except to the extent that it is based on Defendant’s alleged violation of the PSA.
B. Cancellation of Fraudulent Instruments
California Civil Code section 3412 provides that a “written instrument, in respect to which there is a reasonable apprehension that if left outstanding it may cause serious injury to a person against whom it is void or voidable, may, on that person’s application, be so adjudged and ordered to be delivered up or canceled.”
Plaintiff contends that the legal documents at issue in this case — the SOTs, the TDUS, as well as the DOT — are void for the reasons explained above. Compl. ¶¶ 99-101. Defendant argues, as it did under Plaintiff’s wrongful foreclosure claim, that because those claims are based on the Loan securitization and the foreclosing beneficiary’s standing to commence foreclosure, this cause of action must fail. MTD at 9. As discussed above, the Court rejects Defendant’s arguments and declines to dismiss Plaintiff’s Section 3412 claim on those grounds.
However, since Defendant is correct that California Civil Code section 2932.5 does not apply to deeds of trust — only to mortgages — Plaintiff’s claim is dismissed to the extent that it relies on a violation of Civil Code section 2932.5. Calvo v. HSBC Bank USA, N.A. 199 Cal. App. 4th 118, 123 (Cal. Ct. App. 2011) (“It is well established that section 2932.5 does not apply to trust deeds, in which the power of sale is granted to a third party, the trustee . . . Section 2932.5 applies to mortgages, in which the mortgagor or borrower has granted a power of sale to the mortgagee or lender.”)
C. Constructive Fraud
To state a prima facie claim for constructive fraud, a plaintiff must allege (1) a fiduciary or confidential relationship; (2) an act, omission or concealment involving a breach of that duty; (3) reliance; and (4) resulting damage. Assilzadeh v. Cal. Fed. Bank, 82 Cal. App. 4th 399, 414 (Cal. Ct. App. 2000). Plaintiff alleges that because Defendant knew it had no beneficial interest in the Loan after its sale in October 2006, Defendant’s post-sale behavior toward Plaintiff — including taking payments on the Loan and not revealing to Plaintiff that Defendant was going to take out insurance and obtain Temporary Asset Relief Program (“TARP”) funds based on the Loan — was fraudulent. See Compl. ¶¶ 91-97. Plaintiff also appears to contend that some of the documents, at least the NOD, were forgeries. Id.
Defendant argues that Plaintiff’s fraud claim fails primarily because Plaintiff fails to allege a fiduciary relationship between himself and Defendant, and that Plaintiff could not do so as a matter of law, since Defendant was proceeding in the capacity of an ordinarily lender of money and therefore was not in a fiduciary relationship with Plaintiff. MTD at 10-11 (citing Mangindin v. Wash. Mut. Bank, 637 F. Supp. 2d 700, 710 (N.D. Cal. 2009)). Defendant also contends that Plaintiff fails to plead fraud with particularity. Id. at 11. Plaintiff does not join these arguments, requesting only that he be given leave to amend his complaint to allege justifiable reliance based on Glaski. Opp’n at 8.
Defendant is correct on all points. First, Plaintiff’s fraud claim mixes theories, factual allegations, and outright legal conclusions in a way that makes it impossible for the Court to find Plaintiff’s claims plausible and specific. This fails to meet the standards of Rules 8 and 9(b), which require only that Plaintiff lay out the “who, what, when, where, and how” of his fraud claim in a way that is minimally plausible.
Second, Plaintiff fails to allege a fiduciary relationship anywhere in his complaint, and without that necessary element, Plaintiff’s constructive fraud claim fails as a matter of law. In any event, under California law, “a financial institution owes no duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money,” and commercial lenders “[are] entitled to pursue [their] own economic interests in a loan transaction.” Nymark v. Heart Fed. Sav. & Loan Ass’n, 231 Cal. App. 3d 1089, 1095-96 & 1093 n.1 (Cal. Ct. App. 1991) (citations omitted). In California, the test for determining whether a financial institution exceeded its role as money lender and thus owes a duty of care to a borrower-client involves “the balancing of various factors, among which are (1) the extent to which the transaction was intended to affect the plaintiff, (2) the foreseeability of harm to him, (3) the degree of certainty that the plaintiff suffered injury, (4) the closeness of the connection between the defendant’s conduct and the injury suffered, (5) the moral blame attached to the defendant’s conduct, and (6) the policy of preventing future harm.” Heritage Oaks Partners v. First Am. Title Ins. Co., 155 Cal. App. 4th 339, 345 (Cal. Ct. App. 2007).
Neither party addresses these matters. The Court finds that the face of the complaint does not establish that Defendant has exceeded its role as money lender and would therefore owe a duty of care to Plaintiff. The Court therefore does not find that Defendant’s activities fall outside the Nymark rule. Accordingly, the Court DISMISSES Plaintiff’s constructive fraud claim with leave to amend, provided that Plaintiff take careful note of the guidelines above.
D. California Civil Code Section 2934a(a)(1)(A)
Plaintiff asserts a claim against Defendant under California Civil Code section 2934a(a)(1)(A), which provides that all beneficiaries to a DOT must execute and record Substitutions of Trustee if those instruments are to be effective — otherwise the substitution will be void. Plaintiff alleges that the trustee sale referenced above is void under California law, because no beneficiary effectively executed or recorded a Substitution of Trustee. Compl. ¶¶ 106-08. Defendant argues that Plaintiff agreed, in executing the DOT, that Defendant could appoint successor trustees, and that on August 11, 2011, Defendant caused to be recorded a duly executed and acknowledged Substitution of Trustee. ECF No. 26 (“Def.’s RJN) Ex. E.[1] Defendant is correct. Plaintiff may have alleged that the SOTs were void, but Defendant did not breach the procedural requirements of the Civil Code. This claim is DISMISSED WITH PREJUDICE.
E. Unjust Enrichment
Plaintiff asserts an unjust enrichment claim against Defendant on the theory that Defendant accepted loan payments to which it was not entitled. Defendant argues that unjust enrichment is not a cause of action in California, and that in any event, Plaintiff agreed to repay the money it borrowed, so Plaintiff fails to state a claim based on Defendant’s receipt of money it was not owed. MTD at 12-13.
Defendant’s second argument — that Plaintiff agreed to repay money it borrowed and therefore cannot contend that Defendant retained money unjustly — ignores the fact that Plaintiff’s claim is based on his allegation that the relevant contract is void. Defendant’s motion to dismiss on this ground is DENIED. Plaintiff’s unjust enrichment claim survives.
F. UCL
The UCL prohibits unfair competition, which is defined as “any unlawful, unfair or fraudulent business act or practice.” Cal. Bus. & Prof. Code § 17200. Each one of these prongs is a different cause of action. Cel-Tech Comm’cns, Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163, 180 (Cal. 1999). Plaintiff does not specify under which prong he brings this claim, other than the fraudulent prong, and much of this claim does not actually map to what Plaintiff pled. See Compl. ¶¶ 121. Despite this failing, the Court finds that Plaintiff has adequately pled a UCL fraud claim, based on his allegation that Defendant’s behavior, described above, is likely to deceive consumers. See id. ¶¶ 119-121.
Without addressing fraud, the sole UCL claim Plaintiff has specifically pled, Defendant moves to dismiss this cause of action, arguing that the UCL requires a predicate legal violation and that Plaintiff has failed to plead damages. See MTD at 15. Defendant is wrong. First, Plaintiff has adequately pled predicate causes of action — which are not necessarily required, except so far as the unlawfulness prong borrows from violations of other laws, see Cel-Tech, 20 Cal. 4th at 180 — and second, Plaintiff adequately alleged damages, as discussed above.
Plaintiff’s UCL fraud claim survives, but Plaintiff’s other UCL claims are DISMISSED without prejudice. They are inadequately pled, but Plaintiff has leave to amend his UCL claim in order to explain how or whether Defendant violated the UCL unfairness or unlawfulness prongs. The Court finds that Plaintiff’s references to the Unfair Practices Act (“UPA”), Cal. Bus. & Prof. Code § 17000 et seq., in his UCL claim are impermissibly vague and conclusory. If Plaintiff chooses to re-allege any violations of the UPA, he must do so in accordance with Rule 8.
G. TILA
Plaintiff alleges a TILA violation against Defendant for failing to record documents reflecting any defendant as a lawful lender, rendering the NODs and foreclosure sale fraudulent, defective, and void. Compl. ¶¶ 112-115. TILA was enacted to ensure “a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.” 15 U.S.C. § 1601(a). See also King v. California, 784 F.2d 910, 915 (9th Cir. 1986); Hubbard v. Fid. Fed. Bank, 91 F.3d 75, 79 (9th Cir. 1996).
Defendant moves to dismiss Plaintiff’s TILA claim on three grounds: first, that the claim is time-barred because TILA has a one-year limitations period accruing upon consummation of the loan; second, that the claim does not allege specific facts that could support recovery; and third, that Plaintiff’s allegations about the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq., are inapposite because Defendant is not a debt collector, and foreclosure pursuant to a DOT is not collection of a debt per the FDCPA. MTD at 13-14.
Plaintiff’s TILA claim is DISMISSED with leave to amend, so that Plaintiff can explain how (if so) his TILA claim’s statute of limitations is tolled. King, 784 F.2d at 915 (equitable tolling of civil damages claims brought under TILA may, in the appropriate circumstances, suspend the limitations period until the borrower discovers or had reasonable opportunity to discover the fraud or nondisclosures that form the basis of the TILA action). Plaintiff may not reassert a TILA claim that depends on the FDCPA. That portion of the claim is DISMISSED WITH PREJUDICE.
H. Declaratory Relief
Plaintiff seeks declaratory relief under California Code of Civil Procedure section 1060, in order to decide the rights and interests of Plaintiff and Defendant and to issue an injunction as to Defendant’s behavior. Compl. ¶¶ 132-37. This claim lacks specificity, and in any event, declaratory relief is a remedy, not a cause of action. This claim is DISMISSED WITH PREJUDICE.
V. CONCLUSION
As explained above, the Court GRANTS in part and DENIES in part Defendant Wells Fargo Bank N.A.’s motion to dismiss Plaintiff Karthik Subramani’s first amended complaint. The Court orders as follows:
(1) Plaintiff’s wrongful foreclosure claim is undisturbed.
(2) Plaintiff’s constructive fraud claim is DISMISSED with leave to amend.
(3) Plaintiff’s cancellation of fraudulent instruments claim is undisturbed.
(4) Plaintiff’s claim under California Civil Code section 2934a(a)(1)(A) is DISMISSED WITH PREJUDICE.
(5) Plaintiff’s unjust enrichment claim is undisturbed.
(6) Plaintiff’s TILA claim is DISMISSED with leave to amend.
(7) Plaintiff’s UCL fraud claim is undisturbed, but his claims under the unfair and unlawful prongs of the UCL are DISMISSED with leave to amend.
(8) Plaintiff’s declaratory relief claim is DISMISSED WITH PREJUDICE.
Plaintiff is on notice that any amended pleading must comport with Rules 8 and 9(b).
IT IS SO ORDERED.
[1] The Court GRANTS Defendant’s unopposed request for judicial notice under Federal Rule of Evidence 201.
image: Chen Wenling’s sculpture “What You See Might Not Be Real”
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-1330-12T2
APPROVED FOR PUBLICATION November 4, 2013 APPELLATE DIVISION
WILLIAM SUSER, Plaintiff-Appellant,
v.
WACHOVIA MORTGAGE, FSB f/k/a WORLD SAVINGS BANK, FSB, and DEUTSCHE BANK NATIONAL TRUST COMPANY, f/k/a WASHINGTON MUTUAL BANK, FA, Defendants-Respondents,
and
PORT IMPERIAL CONDOMINIUM ASSOCIATION and UNITED STATES DEPARTMENT OF THE TREASURY – INTERNAL REVENUE SERVICE, and/or his, her, their or its successor in right, title and interest, Defendants.
The opinion of the court was delivered by FISHER, P.J.A.D.
In this appeal, we consider whether the trial judge correctly granted summary judgment in this convoluted quiet- title action, which sought, in part, to remove a mortgage because of alleged inadequacies in its assignment.
Many of the relevant facts are undisputed. Plaintiff William Suser obtained and recorded, on July 29, 2006, a mortgage on a West New York condominium unit securing his $150,000 loan to the prior owner. Plaintiff later sued for and obtained a foreclosure judgment and, after making a successful $100 bid, obtained a sheriff’s deed which acknowledged title was subject to prior encumbrances. Plaintiff then commenced this action seeking to quiet title through the removal of the two prior mortgages on the property, one of which was recorded by World Savings Bank, FSB (the World Savings mortgage), on September 23, 2004, to secure a $200,000 loan to the original owner, and the other recorded by Washington Mutual Bank, FA (the WaMu mortgage), on October 8, 2004, to secure a $999,999 loan to the original owner. Defendant Wachovia Mortgage FSB, doing business as Wells Fargo Bank, N.A. (Wells Fargo), appeared with regard to the World Savings mortgage, and defendant Deutsche Bank National Trust Company, as Trustee WAMU 2005-AR2 (Deutsche) appeared to defend the WaMu mortgage.
In his quiet-title complaint, plaintiff claimed the World Savings and WaMu mortgages “should not be recognized in equity because they have been satisfied, settled, obtained by mistake and/or [sic] improperly encumber the subject premises without legal right or standing to enforce same.” Despite this allegation’s broad tone, the main thrust of plaintiff’s arguments in the trial court related to defendants’ standing to seek foreclosure of the mortgages and not the validity of the mortgages.
After a discovery dispute between plaintiff and Deutsche resulted in a protective order favorable to the latter, both defendants moved for summary judgment, and plaintiff cross-moved for summary judgment. The trial judge granted defendants’ motions and denied plaintiff’s, and plaintiff now appeals, arguing with respect to Deutsche that he was erroneously denied discovery into the circumstances surrounding the assignment of the WaMu mortgage and that both defendants should have been “estopped and barred from maintaining their liens on the subject property under doctrines of laches and waiver.”1 We separately consider plaintiff’s arguments as to each defendant.
I
Plaintiff’s arguments regarding defendants’ standing to seek foreclosure – based on concerns of “robo-signing” in any relevant assignments of a nature that led to the Supreme Court’s emergent amendments in December 2010 to Rule 4:64 – have no bearing on Wells Fargo. The record does not suggest that Wells Fargo’s authority to seek foreclosure of the World Savings mortgage was based on an assignment. Instead, Wells Fargo asserted, without substantial contradiction, that the original mortgage holder – World Savings Bank, FSA – changed its name to Wachovia Mortgage, FSB, effective December 31, 2007, and that Wachovia was acquired by and merged into Wells Fargo effective November 1, 2009. It would appear that Wells Fargo’s right to enforce the mortgage arises by operation of its ownership of the asset through mergers or acquisitions, not assignment. Accordingly, plaintiff’s assertions regarding standing have no bearing on Wells Fargo; in addition, the discovery issue raised by plaintiff relates only to Deutsche.
As to Wells Fargo, plaintiff only argues that the World Savings mortgage should not further burden his title because, in plaintiff’s view, Wells Fargo’s failure to enforce its interest equitably bars any future attempt to enforce it. In this regard, plaintiff alludes to the fact that in July 2008 Wells Fargo commenced a foreclosure action which was dismissed without prejudice a few months later when the prior owner cured the default. With that factual event as background, plaintiff argues Wells Fargo has had “three previous bites at the apple,” referring to the undisputed facts that Wells Fargo did not intervene in plaintiff’s foreclosure action, did not bid at the sheriff’s sale, and did not commence its own foreclosure action after the prior owner again defaulted. Absent evidence that plaintiff obtained ownership of the property in the good faith belief title was free and clear of the World Savings mortgage, Wells Fargo was under no obligation to commence its own foreclosure action, join in another’s, or bid at a sheriff’s sale to protect its interest.
In support of his theory, plaintiff cites only Last v. Audubon Park Assocs., 227 N.J. Super. 602 (App. Div. 1988). The application of the doctrine of laches in Last, however, was necessary in light of the new owner’s good faith belief that senior mortgage rights had been cut off by a tax sale together with the owner’s investment of millions of dollars in a housing project on the land that the mortgagee “silently observed . . . from the sidelines” over a period of years. Id. at 608. Those compelling circumstances materially distinguish Last from the case at hand. And plaintiff has failed to demonstrate any other compelling circumstances that warrant the extraordinary relief of extinguishing a valid mortgage of which he was aware when he took title.
We find insufficient merit in any of plaintiff’s other arguments – to the extent they are intended as an attack on the summary judgment entered in favor of Wells Fargo – to warrant further discussion in a written opinion. R. 2:11-3(e)(1)(E).
II
Plaintiff’s argument regarding the propriety of summary judgment in favor of Deutsche is somewhat different. To be sure, Deutsche’s position is similar to Wells Fargo insofar as it was stipulated between plaintiff and Deutsche that plaintiff made his loan to the original owner with knowledge of: the existence of the WaMu mortgage; that the WaMu mortgage was senior to plaintiff’s; and that the interest conveyed by the sheriff to plaintiff remained encumbered by all “[p]rior mortgage[s] or liens.” Plaintiff claimed, however, that Deutsche lacks standing to seek foreclosure based upon some irregularity in the assignment to Deutsche – a fact which plaintiff claims warrants removing that encumbrance from his title to the property.
In examining the summary judgment entered in favor of Deutsche, we must assume the truth of plaintiff’s assertion that the assignment of the mortgage to Deutsche was defective or otherwise precludes Deutsche from foreclosing on the mortgage pursuant to the procedures contained in Rule 4:64. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). The fact that the trial judge barred discovery into the assignment amplifies the importance of our assumption of the truth of plaintiff’s allegations. See Velantzas v. Colgate Palmolive Co., 109 N.J. 189, 193 (1988) (recognizing “it is especially inappropriate to grant summary judgment when discovery is incomplete”). Because the suit was dismissed before the facts were fully developed, we are required to review summary judgment “from the standpoint of whether there is any basis upon which plaintiff should be entitled to proceed further.” Bilotti v. Accurate Forming Corp., 39 N.J. 184, 193 (1963).
Notwithstanding the caution militated by the incomplete record, the existing evidence permitted an inference of insufficiencies in the assignment of the WaMu mortgage. The record reveals that Deutsche commenced a foreclosure action against the prior owner in July 2009, alleging its right to foreclose the WaMu mortgage based on the following:
[The WaMu mortgage] was assigned by an assignment dated 06/03/2009 from JPMORGAN CHASE BANK, NATIONAL ASSOCIATION to DEUTSCHE BANK NATIONAL TRUST COMPANY AS TRUSTEE WAMU 2005-AR2, plaintiff herein, which is unrecorded at this time.
The real party in interest in the proceeding is JPMorgan Chase Bank, National Association, as purchaser of the loan and other assets of Washington Mutual Bank, formerly known as Washington Mutual Bank, FA (the “Savings Bank”) from the Federal Deposit Insurance Corporation, acting as receiver for the Savings Bank and pursuant to its authority under the Federal Deposit Insurance Act[,] 12 U.S.C. § 1821(d), as further evidenced by Affidavit of the Federal Deposit Insurance Corporation dated October 2, 2008, recorded in the office of the Director of Records and Licensing, King County, State of Washington on October 3, 2008.
The absence of a recorded assignment and these other confusing and otherwise unexplained allegations, which alone cast a shadow over Deutsche’s claim of standing to foreclose the WaMu mortgage, were not tested or adjudicated in this earlier suit. Instead, Deutsche dismissed the action without prejudice in September 2010 and, apparently, has made no attempt to enforce its interest since.
Until discovery casts greater illumination on the subject, we must conclude there is a legitimate dispute as to whether Deutsche obtained an effective assignment of the WaMu mortgage. And, in viewing the facts and inferences in the light most favorable to plaintiff, Brill, supra, 142 N.J. at 540, we proceed in determining the maintainability of this quiet-title action on the assumption that the assignment did not validly transfer the mortgage to Deutsche. That does not, however, end the matter. If the assignment was invalid or otherwise defective, it does not automatically follow that the WaMu mortgage must be extinguished. A finding of a defect in the assignment would simply mean that the right to foreclose would reside with the assignor or some other entity.
On the other hand, that the relief to which plaintiff may be entitled is so limited does not mean plaintiff is barred from pursuing this quiet-title action. N.J.S.A. 2A:62-1 permits a person “in the peaceable possession of lands” to bring an action to “clear up all doubts and disputes” concerning some other person’s claim to “a lien or encumbrance thereon.” Here, there is no legitimate dispute that the WaMu mortgage was valid when executed, has not been satisfied, and was recorded prior to plaintiff’s mortgage. But there is a dispute about whether Deutsche is the proper holder of the WaMu mortgage and that question may be adjudicated in a quiet-title action.
One of the purposes of N.J.S.A. 2A:62-1 is to permit a landowner to sue for clarification of the validity or reach of his title in circumstances that otherwise preclude a forum for the resolution of such a dispute. Albro v. Dayton, 50 N.J. Eq. 574, 575 (Ch. 1892). Stated another way, a plaintiff in a quiet-title action must show not only that there is no other forum for an adjudication of the dispute but also that there is no other adequate remedy at law.2 Here, plaintiff has not claimed the WaMu mortgage is invalid or unenforceable,3 only that Deutsche has no standing to enforce or foreclose the WaMu mortgage. Although an adjudication of that question may not lead to the relief plaintiff most fervently desires – extinguishment of the mortgage – he is certainly entitled to a ruling as to whether Deutsche, and not some other entity, possesses the right to foreclose by way of a quiet-title action.
As the record demonstrates, that Deutsche believes it possesses and may some day assert such a right is not illusory. Deutsche has already sued on the mortgage; that Deutsche may in the near or distant future hale plaintiff into court seeking foreclosure of the WaMu mortgage is not inconceivable. That cloud sufficiently enshrouds plaintiff’s title as to permit invocation of the rights provided by N.J.S.A. 2A:62-1.4 Plaintiff is entitled to an adjudication of Deutsche’s right to pursue such an action even though the outcome of that dispute might only be that some other entity is found to be the proper mortgage holder.
Because the trial judge mistakenly precluded discovery into the circumstances surrounding Deutsche’s assignment and Deutsche’s entitlement to sue on the mortgage, we find it necessary to: vacate the order denying plaintiff’s motion for summary judgment against Deutsche; vacate the order granting Deutsche’s motion for summary judgment; reverse the protective order; and remand for discovery and other proceedings in conformity with this opinion.5
Affirmed in part; vacated in part; reversed in part; and remanded. We do not retain jurisdiction.
feetnotes 🙂
1Both Wells Fargo and Deutsche argue that plaintiff never presented his laches and waiver arguments in the trial court and that, as a consequence, they should not be considered now. The record on appeal, however, is not sufficiently clear for us to agree with that contention, so we have considered the merits of plaintiff’s equitable arguments.
2For example, if plaintiff challenged the legitimacy of the WaMu mortgage, he could sue to quiet title without being required to wait until the mortgage holder sued him. Additionally, if a plaintiff’s interest in property could be adequately vindicated through an ejectment action, the court need not invoke its equitable jurisdiction to quiet title. The quiet-title action, which, even though codified by statute retains its equitable underpinnings, see Holland v. Challen, 110 U.S. 15, 24-25, 3 S. Ct. 495, 500-01, 28 L. Ed. 52, 56 (1884); Estate of Smith v. Cohen, 123 N.J. Eq. 419, 425 (E. & A. 1938); Brady v. Carteret Realty Co., 70 N.J. Eq. 748, 754 (E. & A. 1906), is generally appropriate only in the absence of an adequate remedy at law, McGrath v. Norcross, 71 N.J. Eq. 763, 765 (E. & A. 1907).
3As mentioned – and rejected – earlier, plaintiff has argued that neither Wells Fargo nor Deutsche may seek foreclosure based on the doctrines of laches, estoppel and waiver. Plaintiff has not otherwise argued that the World Finance or WaMu mortgages are unenforceable or do not have priority over his interest.
4To be clear, although what constitutes a cloud on title has always been broadly interpreted, see 65 Am. Jur. 2d, Quieting Title § 13 (2011), we do not suggest every perceived or imagined cloud on title is entitled to adjudication. Courts need not entertain doubts about title that are trifling or suggest only immaterial damage. See Paternoster v. Shuster, 296 N.J. Super. 544, 559 (App. Div. 1997). Each case must be assessed in view of its particular facts and the magnitude of the threat to the plaintiff’s title and use of the property.
IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
MONTGOMERY COUNTY, PENNSYLVANIA, RECORDER OF DEEDS, by and through NANCY J. BECKER, in her official capacity as the Recorder of Deeds of Montgomery County, Pennsylvania, on its own behalf and on behalf of all others similarly situated, Plaintiff,
vs.
MERSCORP, INC., and MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., Defendants.
PLAINTIFF’S MEMORANDUM IN OPPOSITION TO DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT AND IN SUPPORT OF PLAINTIFF’S CROSS MOTION FOR PARTIAL SUMMARY JUDGMENT
EXCERPTS
The MERS system was set up and operates for the explicit purpose of attempting to avoid the recording of mortgage assignments in public land record offices. MERS operates upon a series of legal fictions that courts and commentators have labeled as absurd, and which violate Pennsylvania law. In essence, MERS and its members seek to use these fictions to enjoy the benefits of the legal system—the right to have the mortgage assigned so they can use it in judicial foreclosure proceedings whenever they deem it needed—but to avoid the burdens of recording the assignments of these same mortgages, so that there will be a public record of the chain of title. The result is a now-you-see-it-now-you-don’t crazy quilt that has played havoc with public land records. Because there is no dispute as to how MERS operates, nor that MERS’ actions contravene Pennsylvania Statute 21 P.S. §351 and constitute unjust enrichment, Defendants’ motion for summary judgment should be denied, and Plaintiff’s cross motion for summary judgment should be granted.
I. THE SUMMARY JUDGMENT STANDARD
Summary judgment is proper where “there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law.” Liberty Lincoln-Mercury, Inc. v. Ford Motor Co., 676 F.3d 318, 323 (3d Cir. 2012), quoting Fed. R. Civ. P. 56(a). Summary judgment is awarded to plaintiff where, as here, the material facts are not in dispute and plaintiff is entitled to prevail under the governing law. See Genter v. Acme Scale & Supply Co., 776 F.2d 1180, 1181 (3d Cir. 1985) (“We …grant summary judgment in plaintiff’s favor.”). Accord Green Party of Connecticut v. Garfield, 616 F.3d 189, 213 (2d Cir. 2010) (“we … instruct the Court to grant summary judgment to plaintiffs”); Te-Moak Tribe of Western Shoshone of Nevada v. U.S. Dept. of Interior, 608 F.3d 592, 606 (9th Cir. 2010) (remand with instructions to enter summary judgment for plaintiff).
As Judge Clary of this Court held, in granting summary judgment to plaintiff in an antitrust price fixing case: “With every document admitted as genuine, it would be futile for the defendants at this late date to attempt to explain away the contents of documents which so clearly express the actual business transactions of the respective defendants.” U.S. v. Krasnov, 143 F. Supp. 184, 202 (E.D. Pa. 1956). The Supreme Court affirmed. Krasnov v. U.S., 355 U.S. 5 (1957).1
II. MERS’ ACTIONS CONTRAVENE 21 PA. STAT. §351
A. The Promissory Note And Mortgage Are Inseparable
When a lender, such as a bank, lends money for a homeowner to purchase a home, the homeowner executes a promissory note, agreeing to repay the principal and interest of the loan in monthly installments over time. The bank requires that the homeowner grant to the bank a mortgage as security for the loan, i.e. the legal right to foreclose and obtain the house and property in the event the homeowner does not repay the promissory note according to its terms. Montgomery County, Pa. v. MERSCORP, Inc., 904 F.Supp.2d 436, 439-440 (E.D. Pa. 2012) (hereinafter, Montgomery County). The mortgage recites that it exists as security for the note, and the note recites the attendant mortgage.
An example of a typical note and mortgage from a mortgage loan file produced by a Montgomery County bank, which cross-reference each other, are attached a Exhibit 1 to the Declaration of Craig W. Hillwig (“Hillwig Decl.”, Exh. A to this Memorandum). Paragraph 10 of the note provides that the mortgage, “protects the Note Holder from possible losses which might result if I do not keep the promises which I make in this Note,” and quotes at length from the mortgage’s provisions for acceleration of payments. The mortgage in turn identifies the note, and details at length the borrower’s payment obligations under the note, the imposition of charges by the lender, and the provisions for subsequent sales of the note (at ¶¶ 1-2, 14, 20). Each instrument incorporates and complements the terms of the other. See, e.g., In re Sacko, 394 B.R. 90, 101 (Bankr. E.D. Pa. 2008) (“[T]he Mortgage and the Note together constitute ‘the underlying agreement’”). When the bank sells the note to another bank, the interest in the land created by the mortgage is transferred with the note as a matter of law. They are not legally decoupled. A promissory note without a mortgage is unsecured debt. Conversely, a mortgage decoupled from its promissory note is a nullity:
The note and mortgage are inseparable; the former is essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.
Carpenter v. Longan, 83 U.S. 271, 274 (1872).
The familiar maxim that “the mortgage follows the note,” and that they are transferred together, is a bedrock of U.S. real property law, as Carpenter held. The note is a negotiable instrument under U.C.C. Article 3. When a note is transferred the attendant transfer of the mortgage is a conveyance of an interest in land, which is therefore recorded in the public land recording system, so that there is a transparent chain of title. As the Pennsylvania Supreme Court held:
A mortgage is a charge upon the land; whatever will give the money, will carry the estate in the land along with it. The estate in
land is the same thing as the money due upon it … the assignment
of the debt, or forgiving it, will draw the land after it, as a
consequence.
McCall v. Lenox, 9 Serg. & Rawle 302, 305 (Pa. 1823) (emphasis added). As the first Restatement of Property stated:
[T]he rule is that the security follows or accompanies the obligation it was given to secure…Thus a real estate mortgage given to secure the payment of a promissory note passes with the note by any form of transfer sufficient to produce a succession to the rights of the owner of the note.
Restatement (First) Property §553 (“Running of Benefit of Lien”). See also 13 P.S. § 9203(g), cmt. 9 (“Subsection (g) codifies the common law rule that a transfer of an obligation secured by a security interest or other lien on personal or real property also transfers the security interest or lien”).
This has long been the law of Pennsylvania. See, in addition to McCall, supra: Moore v. Cornell, 68 Pa. 320, 322 (Pa. 1871) (“an assignment of the debt transfers the right to the mortgage itself; for whatever will give the money secured by the mortgage, will carry the mortgaged premises with along with it”) (emphasis added); Beaver Trust Co. v. Morgan, 103 A. 367, 369 (Pa. 1918) (“When the Peoples National Bank purchased from the Monaca Bank the obligation of the Jacks, it acquired as well, by operation of law, whatever was pledged for its payment”); Appeal of Brice, 95 Pa. 145, 150 (Pa. 1880) (“When the note to secure which the mortgage was given was negotiated, the interest in the mortgage, which was given for no other purpose than to secure that note, passed of course”).
B. An Assignment Of Mortgage Is A Recordable Conveyance Of Title In Land
The transfer of a mortgage is an assignment, and is a conveyance of an interest in real property. Pines v. Farrell, 848 A.2d 94, 100 (Pa. 2004). Because Pennsylvania is a “title theory” jurisdiction, a mortgage constitutes more than just a lien. It represents a conveyance of an interest in real property. Both a mortgage and every conveyance of that mortgage serve to convey conditional title to each successive owner of the note:
The ‘title theory’ of mortgages deems a mortgage to be a conveyance …. It is well settled in Pennsylvania that a mortgage … in form [is] a conveyance of title.
…… Petitioners suggest that it would be absurd not to regard a mortgage assignment as a transfer of property. In other words, if an assignment is not a transfer, then title of the mortgaged property theoretically remains with the original mortgagee even after assignment. This circumstance would be absurd since the very point of an assignment is to convey all of the original mortgagee’s rights to the assignee….Given our conclusion that a mortgage conditionally conveys the subject property, it logically follows that an assignment of the mortgagee’s rights likewise effects a conditional transfer of the subject property to the assignee.
848 A.2d at 99-100 (emphasis added). MERS pretends to the contrary: “When secured debt is transferred, legal title to the land securing the debt is not transferred.” (Def. Br. p. 22).
In Pennsylvania, all conveyances of interests in land must be recorded with the applicable county recorder of deeds. 21 P.S. § 351. Earlier in this case, MERS argued that 21 P.S. § 351 was merely “permissive” and did not require the recording of mortgage assignments. (See Docket No. 6 [Motion to Dismiss] at pp. 8-14). This Court rejected that argument, holding the recording statute was mandatory. Montgomery County, 904 F.Supp.2d at 445-46:
21 Pa. Stat. § 351, which makes recording of certain types of documents compulsory, appears under the heading “NECESSITY OF RECORDING AND COMPULSORY RECORDING.”
Accordingly, we conclude that “all … conveyances … shall be recorded,” 21 Pa. Stat. § 351, means that all conveyances shall be recorded.
This holding is the law of the case, and controls here. “The law of the case doctrine directs courts to refrain from re-deciding issues that were resolved earlier in the litigation.” Pub. Interest Research Grp. of N .J., Inc. v. Magnesium Elektron, Inc., 123 F.3d 111, 116 (3d Cir. 1997).
The standard Pennsylvania mortgage assignment form specifically recites that the mortgage and the debt obligation are assigned together. Kenneth E. Gray, Mortgages in Pennsylvania with Forms §11:4 (3d Ed. West) (assigning the mortgage, and also “the bond—or obligation—in the said indenture—of mortgage recited, and all moneys, principal and interest, due and to grow due thereon”). The Pennsylvania Housing Finance Agency’s mortgage assignment form provides that the mortgage is assigned “together with the Note secured thereby.”2 Ladner on Conveyancing in Pennsylvania, §12.29(a) at 88 (4th ed. 1979 & Supp. 2003) states that a mortgage assignment is “a writing under seal, signed, witnessed, acknowledged and recorded, assigning the bond and mortgage to an assignee”.
C. The MERS System Seeks To Circumvent Public Recording Of Mortgage Assignments
MERS is based on accepting the benefits of the legal system while trying to skirt the burdens of complying with that same system. By that, Plaintiff means the following. MERS believes that the note and mortgage are inseparable, and are transferred together from one owner of the note to another. As MERS stated to a federal court in New York:
[N]egotiation or transfer of the note can be accomplished by mere delivery of the note to the transferee, therefore, the mortgage will follow the note and pass as an inseparable incident to the note. Fryer v. Rockefeller, 63 N.Y. 268, 276 (1875); In Re Falls’ Estate, 31 Misc. 658, aff’d 67A.D. 619 (1st Dep’t 1900); Becker v. Wells, 297 N.Y. 275 (1948); Flyer v. Sullivan, 284 A.D.(1st Dep’t 1954).
Hillwig Decl. Exh. 8 at p.14. (emphasis added). And as MERS then-President testified to the U.S. Senate:
A fundamental legal principle is that the mortgage follows the note, which means that as the note changes hands, the mortgage remains connected to it legally even though it is not physically attached.
Testimony of R.K. Arnold, President and CEO of MERSCORP, Inc., Before the Senate Committee on Banking, Housing and Urban Affairs, November 16, 2010.3
IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
MONTGOMERY COUNTY, PENNSYLVANIA, RECORDER OF DEEDS, by and through NANCY J. BECKER, in her official capacity as the Recorder of Deeds of Montgomery County, Pennsylvania, on its own behalf and on behalf of all others similarly situated, Plaintiff,
vs.
MERSCORP, INC., and MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., Defendants.
EXCERPTS:
TABLE OF CONTENTS …………………………………………………………. 2 SUMMARY ……………………………………………………………………….. 3 SUBJECT ………………………………………………………………………….. 3 MONTGOMERY COUNTY LAND RECORDS ……………………………… 3 MERS WEBSITE …………………………………………………………………. 4 MERS MIN SUMMARY ……………………………………………………….. 4 MERS MILESTONES …………………………………………………………… 4 SECURITIZATION ANALYSIS ……………………………………………… 6 ASSIGNMENT ANALYSIS …………………………………………………… 7 CONCLUSIONS ………………………………………………………………….. 7 RESEARCH ……………………………………………………………………….. 8 TRANSACTION DETAILS …………………………………………………….. 8 LOAN LEVEL DETAILS ……………………………………………………….. 8 SECURITIZATION DETAILS ………………………………………………… 8 LOOKUP REFERENCES ……………………………………………………….. 9 BLOOMBERG RESEARCH …………………………………………………….. 9 MERS WEBSITE ………………………………………………………………… 10 TITLE DOCUMENTS RECORDED …………………………………………… 10 MERS’ TRANSFER BENEFICIAL RIGHTS ……………………………….. 10 ASSIGNMENT ANALYSIS …………………………………………………… 11
ASSIGNMENT ANALYSIS
When all of the available information collected from the Recorder’s Office, MERS and the SEC is compiled and integrated, I found that there are five (5) missing assignments that should have been recorded with the Montgomery County Recorder of Deeds as follows:
1. From Countrywide Home Loans, Inc. to CWABS, Inc. (SEC); 2. From CWABS, Inc. to The Bank of New York as Trustee for CWABS Asset-Backed Certificates Trust 2005-8 (SEC); 3. From REDACTED to REDACTED (MERS); 4. From REDACTED to REDACTED (MERS); 5. From REDACTED to REDACTED (MERS).
When analyzed together, the MERS data and the SEC data reveal redundancies, gaps and contradictions. For example, the SEC data shows that Countrywide Home Loans, Inc. sold the Farkas Mortgage Loan to CWABS, Inc. on August 30, 2005, and subsequently, CWABS, Inc. conveyed the Mortgage Loan to The Bank of New York as Trustee for CWABS Asset- Backed Certificates Trust 2005-8. On the other hand, MERS states that REDACTED, (rather than Countrywide) sold the Mortgage Loan directly to the Trustee, REDACTED on August 31, 2005 (who was not the Trustee at the time).
CONCLUSIONS
Based on all of the data to which I had access concerning transfers of the Farkas Mortgage Loan, I make the following conclusions:
There are five (5) unrecorded assignments of mortgage that should have been filed with the Montgomery County Recorder of Deeds.
The MERS Milestones data is incomplete. Two (2) transfers reflected in the securitization Deal Documents are not contained in the Milestones Report for the Farkas Mortgage Loan.
The MERS Milestones data contradict the securitization Deal Documents, suggesting that REDACTED transferred the Mortgage Loan twice.
The Assignment of Mortgage recorded on November 14, 2011 with the Montgomery County Recorder of Deeds is untimely; the Closing Date for the CWABS Asset- Backed Certificates Trust 2005-8 was August 30, 2005.
In addition, the Depositor, CWABS, Inc. – and only the Depositor – was authorized by the Pooling and Servicing Agreement to convey the Mortgage Loan into the Trust.
Title to the Property has been corrupted by the failure to record a complete chain of title by Mortgage Electronic Registration Systems, Inc.
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FHFA Directs Fannie Mae and Freddie Mac to Restrict Lender-Placed Insurance Practices
Washington, DC – The Federal Housing Finance Agency (FHFA) announced today that it has directed Fannie Mae and Freddie Mac to prohibit servicers from being reimbursed for expenses associated with captive reinsurance arrangements. The announcement follows a Notice that FHFA published in the Federal Register last March regarding its views on these lender-placed insurance practices and accepting public input. The Notice also cited concerns that the practices expose Fannie Mae and Freddie Mac to potential losses as well as litigation and reputation risks.
FHFA also established a Regulatory Working Group consisting of federal and state regulatory agencies to ensure that all parties with an interest and role in the subject of lender-placed insurance are engaged in the discussions. The views of the Working Group were carefully considered along with the more than 30 replies FHFA received from consumer advocates, state regulators, lender-placed insurance carriers, servicers, managing general agents, individuals, and trade associations in response to the Notice. Today’s action reflects this input.
“FHFA remains concerned about the cost of lender-placed insurance for Fannie Mae, Freddie Mac, and consumers,” said FHFA Acting Director Edward J. DeMarco. “One of our primary responsibilities as conservator of Fannie Mae and Freddie Mac is to preserve and conserve their assets on behalf of taxpayers. This directive is intended to reduce their costs as we consider additional measures.”
Fannie Mae and Freddie Mac will provide aligned guidance to sellers and servicers to prohibit these practices, including implementation schedules.
### The Federal Housing Finance Agency regulates Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks. These government-sponsored enterprises provide more than $5.5 trillion in funding for the U.S. mortgage markets and financial institutions
District Court of Appeal of Florida, Fifth District.
Opinion filed November 1, 2013.
Barbara Billiot Stage, of Law Office Stage & Associates, P.A., Orlando, for Appellant.
Cynthia David and Michael A. Ungerbuehler, of The Association Law Firm, PLLC, Orlando, for Appellee.
ORFINGER, J.
David S. Higgins appeals from a final judgment of foreclosure entered in favor of Timber Springs Homeowners Association, Inc. Mr. Higgins contends that the trial court erred by denying his request to stay the proceedings and to vacate the final summary judgment of foreclosure in Timber Springs’s favor. We agree and reverse.
Timber Springs, claiming that it was owed $363.33 in unpaid homeowner’s fees, filed a foreclosure action against Mr. Higgins and his property. Mr. Higgins was personally served with the suit papers. The affidavit proving service stated that Mr. Higgins “is in the military service of the United States of America.” Mr. Higgins, representing himself, filed an answer, stating, in relevant part:
I am currently serving on active duty, with the US Army . . . . I respectfully ask that those [late] fees be waved [sic] in accordance with the SCRA. Servicemembers Civil Relief Act (SCRA) 50 U.S.C. App. §§ 501-597b. The Soldiers and Sailor’s Civil Relief Act precludes active Duty [sic] service members from civil cases such as this.
Undeterred, Timber Springs filed a motion for summary judgment and noticed it for hearing. In response, Mr. Higgins filed another letter, again indicating that he was an active member of the military and asserting that the SCRA afforded protection for the members of the military from civil matters when they are unable to appear before the court due to their military obligations. He included a copy of his military orders that showed that his permanent duty station had been changed from Orlando, Florida, to Coraopolis, Pennsylvania, and that he was required to report to Pennsylvania on August 27, 2012, two weeks prior to the scheduled summary judgment hearing. Notwithstanding Mr. Higgins’s military status, the summary judgment hearing proceeded in his absence and a summary foreclosure judgment was entered in favor of Timber Springs.[1] Prior to the foreclosure sale, Mr. Higgins filed yet another letter, asking the court to postpone the proceedings due to his active military status. The court treated the letter as a motion for extension of time and denied it. This appeal follows.
The SCRA was enacted “to protect those [servicemembers] who have been obliged to drop their own affairs to take up the burdens of the nation” from exposure to personal liability without first having an opportunity to appear and defend themselves in person or through counsel.[2]Boone v. Lightner, 319 U.S. 561, 575 (1943). One of the purposes of the SCRA is “to provide for the temporary suspension of judicial and administrative proceedings and transactions that may adversely affect the civil rights of servicemembers during their military service.” 50 U.S.C. app. § 502(2). As such, the SCRA allows a servicemember on military duty to move to stay any judicial or administrative proceeding initiated against him or to move to stay the execution of any judgment entered against him.[3] See 50 U.S.C. app. §§ 522, 524 (2011).
At any stage before final judgment in a civil action or proceeding, a court may, on its own motion, and shall, on the application by the servicemember, stay the proceeding not less than 90 days if the servicemember satisfies two requirements. The servicemember must submit a “letter or other communication setting forth facts stating the manner in which current military duty requirements materially affect the servicemember’s ability to appear and stating a date when the servicemember will be available to appear.” 50 U.S.C. app. § 522(b)(2)(A) (2011). The servicemember must also submit a “letter or other communication from the servicemember’s commanding officer stating that the servicemember’s current military duty prevents appearance and that military leave is not authorized for the servicemember at the time of the letter.” 50 U.S.C. app. § 522(b)(2)(B) (2011).
While Mr. Higgins did not file an explicit request to invoke the provisions of § 522, he did submit multiple letters, which, among other things, informed the trial court of his active duty military status, advised the court regarding the SCRA protections, and attached a copy of his military orders, requiring him to be in Pennsylvania two weeks before the scheduled summary judgment hearing. However, the court never considered a stay. Instead, the court held the hearing and granted final summary judgment in Timber Springs’s favor without Mr. Higgins present. Indeed, the court struck Mr. Higgins’s motion to vacate the final judgment, without ruling on his request to stay the execution of the final judgment under 50 U.S.C. app. § 524.
Timber Springs argues that Mr. Higgins was not entitled to a stay because he failed to satisfy the statutory requirements of § 522. While Mr. Higgins established that he was on active military duty, and was ordered to permanently relocate and report to Pennsylvania just prior to the summary judgment hearing, Timber Springs correctly observes that he did not provide a letter or other evidence from his commanding officer stating that his military duty prevented his appearance. 50 U.S.C. app. § 522(b)(2)(B). Still, the courts have frequently granted stays despite the servicemember’s failure to comply strictly with the requirements of the SCRA. See, e.g., In re Amber M., 110 Cal. Rptr. 3d 25 (Cal. Ct. App. 2010) (holding servicemember entitled to stay even if letter did not strictly comply with SCRA technical requirements).
The SCRA is to be liberally construed in favor of those “who dropped their affairs to answer their country’s call.” Boone, 319 U.S. at 575. Given the equitable nature of foreclosure proceedings, and because the SCRA is liberally construed in favor of servicemembers, the trial court should have given Mr. Higgins an opportunity to supplement his request for a stay under the SCRA before proceeding. Accordingly, we conclude the trial court erred in holding the summary judgment hearing and later striking Mr. Higgins’s motion to vacate the final judgment of foreclosure. This conclusion renders the remaining issue moot.
REVERSED and REMANDED.
COHEN, J., concurs in result only.
TORPY, C.J., dissents, without opinion.
NOT FINAL UNTIL TIME EXPIRES TO FILE MOTION FOR REHEARING AND DISPOSITION THEREOF IF FILED
[1] Excluding attorneys’ fees and court costs, the past due homeowner’s fees were determined to be $308.24.
[2] Since Mr. Higgins did not invoke below the Florida Uniformed Servicemembers Protection Act, sections 250.80-.84, Florida Statutes, we do not consider it.
[3] Because Mr. Higgins had notice of the foreclosure proceedings against him, this case involves a stay under 50 U.S.C. app. § 522, not 50 U.S.C. app. § 521. The provisions of 50 U.S.C. app. § 521 apply to situations when a servicemember does not have notice of the proceedings commenced against him (thereby providing protection against default judgments). Section 522 specifically applies when a servicemember does have notice of proceedings commenced against him.
Bank of America Corp. (BAC:US) and Mortgage Electronic Registration Systems Inc. persuaded a federal judge to dismiss most of a lawsuit claiming they shortchanged Texas counties out of uncollected mortgage filing fees.
U.S. District Judge Reed O’Connor in Dallas threw out claims of fraudulent misrepresentation, unjust enrichment and conspiracy in a lawsuit brought by Dallas County. O’Connor didn’t rule on a final claim, whether mortgage assignments must be recorded.
The judge had previously rejected other claims and the county’s request to pursue a class action, or group suit, against MERS and the bank. O’Connor said he would set a separate briefing schedule for the final claim.
Lender Processing Services, Inc. (NYSE: LPS), a leading provider of integrated technology, services, data and analytics to the mortgage and real estate industries, today announced it has set a date for a special meeting of its stockholders to consider and vote on its acquisition by Fidelity National Financial, Inc. (NYSE: FNF) and certain other matters. The special meeting will be held on December 19, 2013, at 10:00 a.m. local time, at the Peninsular Auditorium at 601 Riverside Avenue, Jacksonville, Florida.
LPS stockholders of record as of the close of business on October 29, 2013 are entitled to vote at the special meeting. Additional information concerning the special meeting and the transaction is included in the definitive proxy statement relating to the special meeting, which has been filed with the Securities and Exchange Commission and will be mailed to LPS stockholders who are entitled to vote at the special meeting.
Brian Foley, a compensation consultant in White Plains, concluded that Mr. Stern made $17.8 million in 2008, including $12.64 million in compensation and nonrecurring benefits of $4.36 million. In the deal with Chardan, Mr. Stern and his affiliates were paid $93.5 million: $58.5 million in cash and $35 million after the transaction closed, according to government filings. In addition, Mr. Stern got a promissory note for $52.49 million to be paid out over the next couple of years.
In recent years, Mr. Stern and his wife, Jeanine, have bought nearly $60 million in real estate, mostly in Florida, property records show. Their Mediterranean-style home on Harborage Isle Drive, in a gated community in Fort Lauderdale, faces water on two sides and cost almost $14 million. Not far away, in Hillsboro Beach, the Sterns bought two waterfront properties for $17 million.
Mr. Stern also spent $6.8 million last year on a 9,273-square-foot apartment at the Castillo Grand Residences in Fort Lauderdale, part of a Ritz-Carlton complex. He and his wife own two homes in Beaver Creek, Colo.; one was purchased in 2001 for $4.975 million, and another bought in 2007 for $14.2 million.
His automobile collection may be worth $3 million, auto experts said; it includes a 2008 Bugatti, multiple Ferraris, Porsches and Mercedes and a Cadillac.
This being Florida, Mr. Stern also collects boats. A 108-foot Mangusta yacht, Lady J, is for sale at $5.9 million, Web postings show. It was replaced by a 130-foot yacht that cost about $20 million, according to an acquaintance who requested anonymity over concerns about Mr. Stern’s influence in the community.
belonging to an American owner who has had a number of other smaller vessels in recent years. In fact, he has had three previous Mangustas, stepping up in size gradually to this, the largest all-fiberglass open in the world.
Not done yet…From foreclosure king to burger king: Stern buys into Five Guys according toPBP–
David J. Stern, whose Plantation-based law firm once handled the largest share of foreclosure cases in Florida, has invested in a company that owns franchises of Five Guys Burger and Fries.
Stern’s attorney, Jeff Tew, confirmed the investment this afternoon, saying it was made in the last couple of months.
20 Q. What kind of car did he buy her?
21 A. It was a BMW SUV.
<SNIP>
Q. Anything that –
4 A. Is it like personal or business or –
5 Q. Personal? Business? Anything at all?
6 A. Personal? The only thing that I was aware of that
7 took place there were the perks that certain employees received
8 from David Stern. If they were either dating him or they were
9 good friends with him, that they would basically do certain
10 things for him for certain files, in the sense of like David
11 Vargas. He would have certain perks from David Stern, like a
12 house, a car, cell phone paid all by David Stern.
13 And that’s all I know.
14 Q. Okay. So do you know of any other perks besides what
15 you said that Cheryl Salmons got? A car you said, for sure.
16 And her personal bills paid.
17 A. Yes. And cell phone.
18 Q. And probably her mortgage?
19 A. Yes. And vacations and gifts, jewelry.
20 Q. Who else would received gifts and jewelry or cars or
21 homes?
22 A. His girlfriend and David Vargas.
23 Q. Who’s his girlfriend?
24 A. At the time it was Christina Dell’Aguila
CERTIFIED FOR PUBLICATION IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATE DISTRICT DIVISION THREE
RICHARD LUERAS, Plaintiff and Appellant,
v.
BAC HOME LOANS SERVICING, LP, et al., Defendants and Respondents INTRODUCTION
Richard Lueras appeals from a judgment entered after the trial court sustained without leave to amend a demurrer to his verified first amended complaint (the First Amended Complaint). After the foreclosure sale of his home, Lueras sued Bank of America, N.A., successor by merger to BAC Home Loans Servicing, LP (Bank of America), ReconTrust Company, N.A. (ReconTrust), and Federal National Mortgage Association, commonly called and referred to as “Fannie Mae.” The First Amended Complaint asserted causes of action for negligence, breach of contract, violation of the Perata Mortgage Relief Act (Civ. Code, § 2923.5), fraud/misrepresentation, unfair and unlawful practices (Bus. & Prof. Code, § 17200), and to quiet title.
The First Amended Complaint included no allegations directed specifically to Fannie Mae, and we therefore affirm the judgment in its favor. As to Bank of America and ReconTrust, we affirm the judgment as to the causes of action for violation of Civil Code section 2923.5 and to quiet title, but, in all other respects, reverse and remand to permit Lueras to amend the First Amended Complaint.
The key fact alleged in the First Amended Complaint is that a mere 13 days before Bank of America foreclosed on Lueras’s home, Bank of America falsely represented in writing to Lueras that no foreclosure sale would occur while Lueras was being considered for “other foreclosure avoidance programs.” In so doing, Bank of America expressly and in writing informed Lueras he “will not lose [his] home during this review period.” A Bank of America representative also informed Lueras the pending foreclosure sale would be postponed. Nevertheless, days later, Bank of America foreclosed on Lueras’s home.
Another key point is the trial court sustained a demurrer without leave to amend to the First Amended Complaint—i.e., Lueras had filed only two complaints in a complicated and evolving area of law before facing dismissal. Given the standard of review and California’s policy of liberality in granting of amendments, Lueras should be given an opportunity to amend the First Amended Complaint.
[…]
C. Whether Lueras Alleged Unlawful, Unfair, or Fraudulent Practices
1. Allegations of UCL Violations
Since, we conclude, Lueras should be given leave to amend to allege standing, we address whether he has alleged in the First Amended Complaint unlawful, unfair, or fraudulent practice on the part of Bank of America. Lueras alleged Bank of America violated the UCL in these nine ways:
1. “Refusing to offer a ‘resolution’ of the default after leading [Lueras] to believe that the ‘HomeSaver’ agreement would lead to another agreement that would [c]ure the Arrearages (which they never disclosed in amount) . . . .”
2. “Selling the home at foreclosure within 30 days of receiving the written denial of modification in violation of the Making Home Affordable Guidelines.”
3. “Failing to stop the foreclosure process when Fannie Mae and Bank of America agreed to permanently modify Mr. Lueras[’s] loan in May 2011 in violation of federal regulations that prohibit dual tracking.”
4. “Failing to explore foreclosure alternatives with Mr. Lueras prior to filing the Notice of Default in violation of Civ[il] Code §2923.5 and the HomeSaver plan guidelines . . . .”
5. “Inserting deceitful language in the forbearance plan using phrases such as ‘HomeSaver’ ‘long term solution[’] and ‘resolution of my default’ leading the public and . . . Lueras to believe that they were going to be offered some type of permanent solution so that they could save their home if they signed the agreement, supplied the information requested and made all of the payments on time.”
6. “Failing to make a determination or identify a permanent solution so that the public like . . . Lueras could save their home[s] by the third month of the plan in violation of the HomeSaver Guidelines quoted above in breach of industry standards set by 15 [United States Code section] 1639a.”
7. “Falsely representing that . . . Lueras did not qualify for HAMP modification when, in fact . . . Lueras did qualify for a HAMP modification in breach of industry standards set by 15 [United States Code section] 1639a.”
8. “Auctioning off the home for less than the amount owed, yet refusing to reduce the principal which would have resulted in a positive NPV [(net present value)] in breach of industry standards set by 15 [United States Code section] 1639a.”
9. “Representing in the May 16, 2011[13] letter by Bank of America to Mr. Lueras that ‘once we have finished reviewing your information, we will contact you within 10 days to let you know what other options are available to you and the next steps you need to take’ then selling the home within 10 days at foreclosure auction without contacting Mr. Lueras and providing other options in breach of industry standards set by 15 [United States Code section] 1639a.”
BARCLAYS BANK PLC; UBS AG; THE ROYAL BANK OF SCOTLAND GROUP PLC; THE ROYAL BANK OF SCOTLAND PLC; DEUTSCHE BANK AG; CREDIT SUISSE GROUP AG; CREDIT SUISSE INTERNATIONAL; BANK OF AMERICA CORPORATION; BANK OF AMERICA, N.A.; CITIGROUP INC.; CITIBANK, N.A.; J.P. MORGAN CHASE & CO.; J.P. MORGAN CHASE BANK, N.A.; COOPERATIVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., BRITISH BANKERS ASSOCIATION; and BBA LIBOR, LTD.,
Plaintiff Federal National Mortgage Association (“Fannie Mae”), by its counsel, alleges as follows:
I. INTRODUCTION
1. This case arises from the pervasive—and, as to four Defendants, admitted—manipulation of the London Interbank Offered Rate for the U.S. dollar (“USD Libor” or “Libor”). Defendants’ wrongful conduct caused Fannie Mae, a government-sponsored enterprise charged by Congress with a mission to provide liquidity, stability, and affordability to the United States housing and mortgage markets, to suffer hundreds of millions of dollars in direct, foreseeable damages.
2. Libor has served as the benchmark interest rate for hundreds of trillions of dollars of financial instruments. For years, the British Bankers Association (BBA) calculated Libor each day based on the rates that sixteen major banks, including Barclays, UBS, RBS, Deutsche Bank, Credit Suisse, Bank of America, Citibank, JPMorgan, and Rabobank (collectively the “Libor Panel Defendants”) reported as their costs of borrowing. Under BBA rules, each contributing bank was required to submit quotes at which the bank believed it could borrow unsecured interbank funds in the London market.
3. During the relevant period, Fannie Mae entered into and performed on a huge volume of transactions—including interest-rate swaps and purchases of mortgages, mortgage-backed securities, and variable-rate loans—pursuant to which it was to receive or pay an interest rate that was indexed to Libor. In Fannie Mae’s interest-rate swaps, which were governed by written contracts promulgated by the International Swaps and Derivatives Association (ISDA), Fannie Mae’s counterparties (which included every Libor Panel Defendant except Rabobank) promised, among other things, that they would calculate, value, and settle transactions at a legitimate, honest Libor rate—that is, a rate determined in good faith and in compliance with the legitimate benchmark-setting process established by the BBA. In connection with all of Fannie Mae’s Libor-indexed transactions, the Libor Panel Defendants and BBA represented, among other things, that Libor was based on honest submissions that were consistent with the published definition of Libor.
4. Unbeknownst to Fannie Mae, Defendants’ promises and representations regarding the legitimacy of Libor were false. Convincing evidence now demonstrates that the Libor Panel Defendants, with active assistance from each other and the BBA, wrongfully suppressed Libor during the relevant period.
5. Four banks—Barclays, UBS, RBS, and Rabobank—recently settled regulatory actions alleging Libor manipulation and entered into non-prosecution or deferred prosecution agreements. In the settlement documents, these Defendants admitted making false and misleading Libor submissions. First, Barclays acknowledged that it “often submitted inaccurate Dollar LIBORs that under-reported its perception of its borrowing costs and its assessment of where its Dollar LIBOR submissions should have been.”1 Second, UBS conceded that it “used false benchmark interest rate submissions, including U.S. Dollar LIBOR, to protect itself against media speculation concerning its financial stability during the financial crisis.”2 Third, RBS “inappropriately considered the impact of LIBOR and RBS’s LIBOR submissions on the profitability of transactions in its money market trading books as a factor when making (or directing others to make) . . . USD Libor submissions.”3 Fourth, “Rabobank swaps traders requested that certain Rabobank LIBOR and Euribor submitters submit LIBOR and Euribor contributions that would benefit the traders’ trading positions, rather than rates that complied with the definitions of LIBOR and Euribor.”4
6. The remaining Libor Panel Defendants—Deutsche Bank, Credit Suisse, Bank of America, Citibank, and JPMorgan—are all the subject of regulatory investigations regarding alleged Libor manipulation. The United Kingdom’s Serious Fraud Office recently charged a former UBS and Citigroup trader with conspiring with employees of eight banks, including Deutsche Bank and JPMorgan, to “dishonestly seek[] to manipulate [Libor] . . . with the intention that the economic interests of others would be prejudiced and/or to make personal gain for themselves or another.”5 In response to the charges, the former trader has stated that other senior-level executives at Citigroup were aware of and condoned his actions. 7. Like those banks that have admitted wrongdoing, the other Defendants’ Libor quotes were consistently lower than comparable benchmarks. From 2002 to 2006, for example, the spreads between the Defendants’ Libor quotes and the Eurodollar Deposit Rate varied between 0.01% and 0.03%. From 2007 until the middle of 2010, the spreads not only turned negative, but were significantly inverted with values ranging from -0.24% to -0.33% on average. The spreads between admitted-manipulator Barclays’ Libor quotes and the Eurodollar Deposit Rate were generally the smallest among the Libor Panel Defendants. 8. A comparison of the Libor Panel Defendants’ quotes with their credit default swap spreads tells the same story. From August 2007 to June 2010, approximately 80% of Citibank’s quotes fell below the median Libor quote for the day while on the same day its credit default swap spread was above the median. The same was true for approximately 40% of Bank of America’s submissions, about 30% of UBS’s submissions, a little less than 30% of RBS’s and JPMorgan’s submissions, and 20% of Deutsche Bank’s and Barclays’ submissions.
9. The Chairman of the United States Commodity Futures Trading Commission (CFTC) recently described the Libor scandal in the following blunt terms:
[A]s law enforcement actions brought by the CFTC, the FCA and the U.S. Justice Department, among others, have shown, LIBOR and other benchmarks have been readily and pervasively rigged. Barclays, UBS and RBS paid fines of approximately $2.5 billion for manipulative conduct relating to these rates. At each bank, the misconduct spanned many years. At each bank it took place in offices in several cities around the globe. At each bank it included numerous people – sometimes dozens, among them senior management. . . . And in each case, there was evidence of collusion with other banks. In the UBS and RBS cases, one or more inter-dealer brokers painted false pictures to influence submissions of other banks, i.e., to spread the falsehood more widely. Barclays and UBS also were reporting falsely low borrowing rates in an effort to protect their reputations. 6
10. Fannie Mae estimates that it suffered approximately $800 million in damages as a direct and foreseeable result of Defendants’ concerted suppression of Libor. Fannie Mae sustained these damages on swaps, mortgages, mortgage-backed securities, and other variable-rate transactions with Defendants and other counterparties. Of its total damages, Fannie Mae estimates that it lost $332 million on interest-rate swaps with Barclays, UBS, RBS, Deutsche Bank, Credit Suisse, Bank of America, Citibank, and JPMorgan.
11. Fannie Mae now seeks relief for all of the damages that it suffered as a result of Defendants’ unlawful actions and asserts claims for breach of contract, breach of the implied duty of good faith and fair dealing, fraud, aiding and abetting fraud, and conspiracy to commit fraud.
The “mad as hell” newsman has reemerged with some profoundly wise advice for those of us who want to change the world.
This video features excerpts from a speech Dylan Ratigan gave to the San Diego Zeitgeist community. Watch the full speech here: http://youtu.be/NUuNvFhUjCg
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